1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Quarterly Period Ended March 31, 1999
or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______________ to ______________
Commission File Number 000-21786
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
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(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 57-0962375
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7909 Parklane Road, Columbia, SC 29223
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (803)741-3000
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for each shorter period that the registrant was
required to file reports) and has been subject to such filing requirements for
the past 90 days.
YES X NO
----- -----
The number of shares of common stock of the Registrant outstanding as of April
30, 1999, was 21,358,357.
Page 1
Exhibit Index on Pages A to F
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-Q for the quarter ended March 31, 1999
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited)
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Changes in Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 37
PART II. OTHER INFORMATION 38
ITEM 2. Changes in Securities and Use of Proceeds 38
ITEM 6. Exhibits and Reports on Form 8-K 38
SIGNATURES 39
EXHIBIT INDEX A-F
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Part I. Financial Information
Item 1. Financial Statements
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands)
March 31, December 31,
1999 1998
------------ ------------
ASSETS (Unaudited)
Cash $ 73,592 $ 18,124
Receivables 70,411 80,248
Trading Securities:
Mortgage-backed securities 333,916 385,055
Residual interests in subprime securitizations 44,624 45,782
Mortgage loans held for sale 794,217 1,056,403
Lease receivables 113,289 102,029
Servicing rights, net 207,993 191,022
Premises and equipment, net 36,064 35,338
Accrued interest receivable 3,736 3,642
Goodwill and other intangibles 16,141 16,363
Other assets 42,368 35,629
----------- -----------
Total assets $ 1,736,351 $ 1,969,635
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 1,324,528 $ 1,566,287
Long-term borrowings 6,339 6,364
Accrued expenses 15,334 30,098
Other liabilities 145,152 114,728
----------- -----------
Total liabilities 1,491,353 1,717,477
----------- -----------
Stockholders' equity
Preferred stock - par value $.01 - 5,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock - par value $.01 - 50,000,000 shares
authorized; 31,637,331 and 31,637,331 shares issued and
outstanding at March 31, 1999 and December 31, 1998,
respectively 316 316
Additional paid-in capital 307,354 307,114
Retained earnings 68,486 59,599
Common stock held by subsidiary at cost - 7,767,099
shares at March 31, 1999 and December 31, 1998 (98,953) (98,953)
Treasury stock - 2,081,997 and 869,378 shares at
March 31, 1999 and December 31 1998, respectively (27,356) (11,499)
Unearned shares of employee stock ownership plan -
370,709 and 353,641 unallocated shares at March 31,
1999 and December 31, 1998, respectively (4,849) (4,419)
----------- -----------
Total stockholders' equity 244,998 252,158
----------- -----------
Commitments and contingencies -- --
Total liabilities and stockholders' equity $ 1,736,351 $ 1,969,635
=========== ===========
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except share information)
(Unaudited)
For the Three Months Ended
March 31,
-------------------------------
1999 1998
------------ ------------
REVENUES
Interest income $ 26,355 $ 22,981
Interest expense (18,881) (18,689)
------------ ------------
Net interest income 7,474 4,292
Net gain on sale of mortgage loans 37,289 39,174
Gain on sale of mortgage servicing rights 2,998 628
Servicing fees 12,998 9,303
Other income 129 974
------------ ------------
Total revenues 60,888 54,371
------------ ------------
EXPENSES
Salary and employee benefits 20,497 20,714
Occupancy expense 3,173 2,780
Amortization and provision for impairment of
mortgage servicing rights 8,897 5,629
General and administrative expenses 10,963 9,792
------------ ------------
Total expenses 43,530 38,915
------------ ------------
Income before income taxes 17,358 15,456
Income tax expense (6,197) (5,875)
------------ ------------
Net income $ 11,161 $ 9,581
============ ============
Weighted average common shares outstanding -- Basic 22,224,610 23,060,458
============ ============
Net income per common share -- Basic $ 0.50 $ 0.42
============ ============
Weighted average common shares outstanding -- Diluted 22,477,224 23,505,793
============ ============
Net income per common share -- Diluted $ 0.50 $ 0.41
============ ============
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
(Unaudited)
Unearned Shares
Common Stock Additional of Employee Common Total
Three Months Ended -------------------- Paid-in Retained Stock Ownership Stock Held by Treasury Stockholders'
March 31, 1998 Shares Amount Capital Earnings Plan Subsidiary Stock Equity
- ----------------------- ----------- ------- ------- ------- ------------- ------------- -------- ---------
Balance, December 31, 1997 31,120,383 $ 311 $ 299,516 $ 17,763 $ (3,498) $ (98,953) $ 215,139
Issuance of restricted stock 20,056 * 328 328
Cash dividends (1,161) (1,161)
Exercise of stock options 60,932 1 403 404
Purchase of 200,000 shares
of treasury stock $ (3,034) (3,034)
Shares committed to be
released under Employee
Stock Ownership Plan 162 288 450
Purchase of shares by Employee
Stock Ownership Plan (500) (500)
Shares issued under Dividend
Reinvestment and Stock
Purchase Plan and Stock
Investment Plan 22,167 * 337 (30) 307
Net income 9,581
Total comprehensive income 9,581
----------- ------- --------- -------- ------------- --------- -------- ---------
Balance, March 31, 1998 31,223,538 $ 312 $ 300,746 $ 26,153 $ (3,710) $ (98,953) $ (3,034) $ 221,514
=========== ======= ========= ======== ============= ========= ======== =========
Unearned Shares
Common Stock Additional of Employee Common Total
Three Months Ended -------------------- Paid-in Retained Stock Ownership Stock Held by Treasury Stockholders'
March 31, 1999 Shares Amount Capital Earnings Plan Subsidiary Stock Equity
- ----------------------- ----------- ------- ------- ------- ------------- ------------- -------- ---------
Balance, December 31, 1998 31,637,331 $ 316 $ 307,114 $ 59,599 $ (4,419) $ (98,953) $ (11,499) $ 252,158
Issuance of restricted stock 116 1,285 1,401
Cash dividends (2,244) (2,244)
Treasury stock purchases (18,501) (18,501)
Exercise of stock options
Shares committed to be released
under Employee Stock Ownership
Plan 180 320 500
Purchase of shares by Employee
Stock Ownership Plan (750) (750)
Shares issued or purchased under
Dividend Reinvestment and
Stock Purchase Plan and Stock
Investment Plan (56) (30) 1,359 1,273
Net income 11,161
Total comprehensive income 11,161
----------- ------- --------- -------- ------------- --------- -------- ---------
Balance, March 31, 1999 31,637,331 $ 316 $ 307,354 $ 68,486 $ (4,849) $ (98,953) $ (27,356) $ 244,998
=========== ======= ========= ======== ============= ========= ======== =========
* Amount less than $1
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1999 1998
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OPERATING ACTIVITIES:
Net income $ 11,161 $ 9,581
Adjustments to reconcile net income
to cash provided by (used in) operating activities:
Depreciation and amortization 10,538 6,984
Employee Stock Ownership Plan compensation 500 450
Provision for estimated foreclosure losses and repurchased loans 3,055 1,962
Decrease (increase) in receivables 9,837 (773)
Acquisition of mortgage loans (3,474,106) (4,116,642)
Proceeds from sales of mortgage loans and mortgage-backed securities 3,822,113 3,693,418
Acquisition of mortgage servicing rights (100,984) (79,299)
Sales of mortgage servicing rights 78,888 56,367
Net gain on sales of mortgage loans and servicing rights (40,287) (39,802)
Increase in accrued interest on loans (94) (757)
Increase in lease receivables (11,643) (6,697)
Increase in other assets (7,660) (6,329)
Decrease (increase) in residual certificates 1,158 (3,252)
Increase in accrued expenses and other liabilities 15,660 37,976
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 318,136 (446,813)
- -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of premises and equipment, net (2,063) (2,961)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,063) (2,961)
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FINANCING ACTIVITIES:
Proceeds from borrowings 11,266,371 8,523,846
Repayment of borrowings (11,508,155) (8,068,584)
Issuance of restricted stock 1,401 328
Shares issued under Dividend Reinvestment and Stock Purchase Plan
and Stock Investment Plan 1,273 307
Cash dividends (2,244) (1,161)
Acquisition of treasury stock (18,501) (3,034)
Exercise of stock options - 404
Loans to Employee Stock Ownership Plan (750) (500)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (260,605) 451,606
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 55,468 1,832
Cash, beginning of period 18,124 13,546
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Cash, end of period $ 73,592 $ 15,378
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Amounts in Thousands Except Per Share Data)
March 31, 1999
Note 1 - Basis of Presentation:
The financial information included herein should be read in conjunction
with the consolidated financial statements and related notes of Resource
Bancshares Mortgage Group, Inc. (the Company), included in the Company's
December 31, 1998, Annual Report on Form 10-K. Certain financial
information, which is normally included in financial statements prepared
in accordance with generally accepted accounting principles, is not
required for interim financial statements and has been omitted. The
accompanying interim consolidated financial statements are unaudited.
However, in the opinion of management of the Company, all adjustments,
consisting of normal recurring items, necessary for a fair presentation of
operating results for the periods shown have been made. Certain prior
period amounts have been reclassified to conform to current period
presentation.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction or (c) a hedge
of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security
or a foreign-currency denominated forecasted transaction. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999 (January 1, 2000 for the Company). However, early adoption is
permitted. The Company has not yet determined either the impact that the
adoption of SFAS 133 will have on its earnings or statement of financial
position or the period in which the statement will be implemented.
In October 1998, the FASB issued Statement of Financial Accounting
Standards No. 134, "Accounting for Mortgage-Backed Securities Retained
After the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise" (SFAS No. 134). SFAS No. 134 amends SFAS No. 65 to
require that after the securitization of mortgage loans held for sale, an
entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests as
available-for-sale or trading securities based on its ability and intent
to sell or hold those investments in accordance with SFAS No. 115. Prior
to this amendment, entities engaged in mortgage banking activities were
required to classify mortgage-backed securities as trading securities
under SFAS No. 115. This statement is effective for the first fiscal
quarter beginning after December 15, 1998. Management has elected to
continue to classify its mortgage-related securities as trading securities
as permitted pursuant to SFAS No. 134.
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The following is a reconciliation of basic earnings per share to
diluted earnings per share as calculated under SFAS No. 128 for the
quarter ended March 31, 1999 and 1998, respectively:
For the Quarter Ended March 31,
-------------------------------
1999 1998
----------- -----------
Net income $ 11,161 $ 9,581
----------- -----------
Average common shares outstanding 22,224,610 23,060,458
----------- -----------
Earnings per share - basic $ 0.50 $ 0.42
----------- -----------
Dilutive stock options 252,614 445,335
Average common and common equivalent shares outstanding 22,477,224 23,505,793
----------- -----------
Earnings per share - diluted $ 0.50 $ 0.41
----------- -----------
Options to purchase approximately 714,000 shares of common stock at
prices ranging between $14.16 - $17.75 per share were outstanding during
the first quarter of 1999 but were not included in the computation of
diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares.
Options to purchase 6,300 shares of common stock at $16.27 per share
were outstanding during the first quarter of 1998 but were not included in
the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common
shares.
Following is a summary of the allocated revenues and expenses for each
of the Company's operating divisions for the three months ended March 31,
1999 and 1998, respectively:
Residential
---------------------
($ in thousands) Mortgage Production
--------------------- Agency-
Agency- Eligible Commercial
For the Quarter Ended March 31, 1999* Eligible Subprime Servicing Mortgage Leasing Other Consolidated
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Net interest income $ 3,589 $3,473 $(1,389) $ 94 $1,645 $ 62 $ 7,474
Net gain on sale of mortgage loans 33,193 2,857 1,239 37,289
Gain on sale of mortgage servicing
rights 2,998 2,998
Servicing fees 11,703 975 161 159 12,998
Other income 734 (932) 161 11 151 4 129
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Total revenues 37,516 5,398 13,473 2,319 1,957 225 60,888
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Salary and employee benefits 13,701 3,301 898 1,738 640 219 20,497
Occupancy expense 2,064 583 107 263 104 52 3,173
Amortization and provision for
impairment of mortgage
servicing rights 8,433 464 8,897
General and administrative expenses 5,854 2,071 1,778 430 753 77 10,963
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Total expenses 21,619 5,955 11,216 2,895 1,497 348 43,530
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Income before income taxes 15,897 (557) 2,257 (576) 460 (123) 17,358
Income tax expense (5,649) 197 (802) 219 (192) 30 (6,197)
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Net income $10,248 $ (360) $ 1,455 $ (357) $ 268 $ (93) $ 11,161
======== =========== ========== ============ ========= ========= ============
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Residential
--------------------------------
($ in thousands) Mortgage Production
-------------------- Agency -
Agency - Eligible Commercial
For the Quarter Ended March 31, 1998* Eligible Subprime Servicing Mortgage Leasing Other Consolidated
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Net interest income $ 1,736 $ 1,347 $ 129 $ 946 $ 134 $ 4,292
Net gain on sale of mortgage loans 31,041 6,171 1,962 39,174
Gain on sale of mortgage servicing
rights $ 628 628
Servicing fees 8,120 915 268 9,303
Other income 87 395 93 2 219 178 974
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Total revenues 32,864 7,913 8,841 3,008 1,433 312 54,371
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Salary and employee benefits 14,341 3,299 828 1,521 553 172 20,714
Occupancy expense 1,972 372 120 186 80 50 2,780
Amortization of mortgage servicing
rights 5,302 327 5,629
General and administrative expenses 6,142 952 1,520 416 587 175 9,792
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Total expenses 22,455 4,623 7,770 2,450 1,220 397 38,915
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Income before income taxes 10,409 3,290 1,071 558 213 (85) 15,456
Income tax expense (3,957) (1,251) (407) (212) (81) 33 (5,875)
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Net income $ 6,452 $ 2,039 $ 664 $ 346 $ 132 $ (52) $ 9,581
========= ========== ========== ============ ========= ========= ============
*Revenues and expenses have been allocated on a direct basis to the extent
possible. Corporate overhead expenses have been allocated to agency-eligible
mortgage production. Management believes that these and all other revenues and
expenses have been allocated to the respective divisions on a reasonable basis.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Information, the Consolidated Financial Statements of Resource
Bancshares Mortgage Group, Inc. (the Company) (and the notes thereto) and the
other information included or incorporated by reference into the Company's 1998
Annual Report on Form 10-K and the interim Consolidated Financial Statements
contained herein. Statements included in this discussion and analysis (or
elsewhere in this document) which are not statements of historical fact are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve a number of risks and
uncertainties, and that actual results could differ materially from those
indicated by such forward-looking statements. Important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements include, but are not limited to, the following which are described in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
in this filing or from time to time in other reports filed by the Company with
the Securities and Exchange Commission: (i) interest rate risks; (ii) changes in
economic conditions; (iii) competition; (iv) possible changes in regulations and
related matters; (v) litigation affecting the mortgage banking business; (vi)
delinquency and default risks; (vii) changes in the market for servicing rights,
mortgage loans and leases, (viii) environmental matters; (ix) changes in the
demand for mortgage loans and leases, (x) changes in the value of residual
interests in subprime securitizations, (xi) prepayment risks, (xii) Year 2000
risks, (xiii) possible changes in accounting estimates, (xiv) availability of
funding sources and (xv) other risks and uncertainties. The Company disclaims
any obligation to update any forward-looking statements.
THE COMPANY
The Company is a diversified financial services company engaged primarily
in the business of mortgage banking, through the purchase (via a nationwide
network of correspondents 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.
LOAN AND LEASE PRODUCTION
The Company purchases agency-eligible residential mortgage loans from its
correspondents and through its wholesale division and, until the sale of its
retail production platform in May 1998, originated mortgage loans through its
retail division. The Company also purchases and originates subprime mortgage
loans and commercial mortgage loans and leases small-ticket equipment items.
A summary of production by source for the periods indicated is set forth
below:
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($ in thousands) For the Quarter Ended March 31,
-------------------------------------------
1999 1998
----------------- ------------------
Agency-Eligible Loan Production:
Correspondent $2,428,021 $2,895,400
Wholesale 711,822 734,860
Retail - 187,881
----------------- ------------------
Total Agency-Eligible Loan Production 3,139,843 3,818,141
Subprime Loan Production 184,111 105,986
Commercial Mortgage (for Investors and Conduits) Loan
Production 150,152 192,515
Lease Production 20,525 12,840
----------------- ------------------
Total Mortgage Loan and Lease Production $3,494,631 $4,129,482
================= ==================
Initially, the Company was focused exclusively on purchasing
agency-eligible mortgage loans through its correspondents. In order to diversify
its sources of residential loan volume, the Company started a wholesale
operation in 1994, a retail operation in 1995 and a subprime division in 1997.
Management anticipates that its higher margin wholesale and subprime production
will continue to account for an increasing percentage of total residential
mortgage loan production as those divisions are expanded more rapidly than
correspondent operations. In order to further diversify its sources of
production and revenue, the Company acquired Resource Bancshares Corporation
(RBC) in December 1997. Through RBC, the Company originates small-ticket
commercial equipment leases and commercial mortgage loans. These two new sources
of production accounted for approximately 5% of the Company's total first
quarter production for both 1999 and 1998.
A summary of key information relevant to industry residential mortgage loan
production activity is set forth below:
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
----------------- ----------------
U. S. 1-4 Family Mortgage Originations Statistics (1):
U. S. 1-4 Family Mortgage Originations $ 359,000,000 $ 310,000,000
Adjustable Rate Mortgage Market Share 12.00% 13.00%
Estimated Fixed Rate Mortgage Originations $ 316,000,000 $ 270,000,000
Company Information:
Agency-Eligible Loan Production $ 3,323,954 $ 3,924,127
Estimated Company Market Share 0.93% 1.27%
(1) Source: Mortgage Bankers Association of America, Economics Department.
The Company's total residential mortgage production decreased by 15% to
$3.3 billion for the first quarter of 1999 from $3.9 billion for the first
quarter of 1998. This decrease is primarily due to the overall level of
competition in the marketplace among residential mortgage originators.
Correspondent Loan Production
The Company purchases closed mortgage loans through its network of approved
correspondent lenders. Correspondents are primarily mortgage lenders, larger
mortgage brokers and smaller savings and loan associations and commercial banks
that have met the Company's approval requirements.
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The Company continues to emphasize correspondent loan production as its
basic business focus because of the lower fixed expenses and capital investment
required of the Company. That is, the Company has developed a cost structure
that is more directly variable with loan production because the correspondent
incurs most of the fixed costs of operating and maintaining branch offices and
of identifying and interacting directly with loan applicants.
A summary of key information relevant to the Company's correspondent
residential loan production activities is set forth below:
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------------------
1999 1998
---------------------- ----------------------
Correspondent Loan Production $2,428,021 $ 2,895,400
Estimated Correspondent Market Share (1) 0.68% 0.93%
Approved Correspondents 851 900
Correspondent Division Expenses $ 17,062 $ 14,739
(1) Source: Mortgage Bankers Association of America, Economics Department.
The Company's correspondent loan production decreased by 16% to $2.4
billion for the first quarter of 1999 from $2.9 billion for the first quarter of
1998. This decrease in production is primarily due to the current level of
competition in the market place. The number of approved correspondent lenders
decreased 5% from quarter to quarter as the Company focused on maintenance of
those correspondent relationships most compatible with the Company's overall
business strategies.
Wholesale Loan Production
The wholesale division receives loan applications through brokers,
underwrites the loans, funds the loans at closing and prepares all closing
documentation. The wholesale branches handle all shipping and follow-up
procedures on loans. Typically mortgage brokers are responsible for taking
applications and accumulating the information precedent to the Company's
processing of the loans. Although the establishment of wholesale branch offices
involves the incurrence of fixed expenses associated with maintaining those
offices, wholesale operations also provide for higher profit margins than
correspondent loan production. Additionally, each branch office can serve a
relatively sizable geographic area by establishing relationships with large
numbers of independent mortgage loan brokers who bear much of the cost of
identifying and interacting directly with loan applicants. A summary of key
information relevant to the Company's wholesale production activities is set
forth below:
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($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
-------------- ------------
Wholesale Loan Production $711,822 $734,860
Estimated Wholesale Market Share (1) 0.20% 0.24%
Wholesale Division Direct Operating Expenses $ 4,557 $ 3,797
Approved Brokers 3,401 3,090
Number of Branches 15 15
Number of Employees 174 146
(1) Source: Mortgage Bankers Association of America, Economics Department.
The wholesale loan production decreased 3% ($23 million) from $734.9
million for the first quarter of 1998 to $711.8 million for the first quarter of
1999 primarily as a result of increased competition in the marketplace.
Wholesale division operating expenses as a percentage of production increased
from 52 basis points in the first quarter of 1998 to 64 basis points in the
first quarter of 1999 primarily as a result of the increase in costs associated
with production. While wholesale production decreased slightly, the increase in
operating expenses for the wholesale division was primarily a result of an
increase in fixed costs associated with wholesale production.
Strategically, management anticipates focusing over the longer term on
continued expansion of its wholesale presence nationwide due to the relatively
higher margins attributable to this channel. Management anticipates that the
wholesale division will continue to account for an increasing percentage of the
Company's total loan production.
Retail Loan Production
Effective May 1, 1998, the Company sold its retail production franchise to
CFS Bank. Retail loan production and retail divisional direct operating expenses
for the quarter ended March 31, 1998 were $87.9 million and $3.9 million,
respectively.
Subprime Loan Production
In 1997, the Company began its initial expansion into subprime lending
activities. The Company does subprime business under the name of its
wholly-owned subsidiary, Meritage Mortgage Corporation. Management anticipates
continuing near term increases in subprime production volumes as the Company
begins to offer select subprime loan products through its existing nationwide
correspondent production channel.
A summary of key information relevant to the Company's subprime production
activities is set forth below:
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($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
------------ -------------
Subprime Loan Production $ 184,111 $105,986
Estimated Subprime Market Share (1) 0.51% 0.34%
Subprime Division Direct Operating Expenses $ 5,955 $ 4,623
Number of Brokers 1,831 794
Number of Employees 316 173
Number of Branches 19 17
(1) Source: Mortgage Bankers Association of America, Economics Department.
Subprime loan production increased by 74% to $184.1 million for the first
quarter of 1999 as compared to $106.0 million during the first quarter of 1998
as the Company has expanded its operations. Between March 31, 1998 and March 31,
1999 the Company opened two new subprime branches and increased the number of
its wholesale brokers by 1,037.
Commercial Mortgage Production
The Company's subsidiary, Laureate Capital Corp.(Laureate), originates
commercial mortgage loans for various insurance companies and other investors.
Commercial mortgage loans are generally originated in the name of the investor
and, in most instances, Laureate retains the right to service the loans under a
servicing agreement. A summary of key information relevant to the Company's
commercial mortgage production activities is set forth below:
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
------------- --------------
Commercial Mortgage Production $150,152 $192,515
Commercial Mortgage Division Direct Operating Expenses $ 2,895 $ 2,450
Number of Branches 13 10
Number of Employees 83 70
Lease Production
The Company's leasing division, Republic Leasing, originates and services
small-ticket commercial equipment leases. Substantially all of Republic
Leasing's lease receivables are acquired from independent brokers who operate
throughout the continental United States. A summary of key information relevant
to the Company's lease production activities is set forth below:
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
------------- -----------
Lease Production $ 20,525 $12,840
Lease Division Direct Operating Expenses $ 1,497 $1,220
Number of Brokers 232 207
Number of Employees 65 61
14
15
SERVICING
Agency-Eligible Mortgage Servicing
Agency-eligible mortgage servicing includes collecting and remitting
mortgage loan payments, accounting for principal and interest, holding escrow
funds for payment of mortgage-related expenses such as taxes and insurance,
making advances to cover delinquent payments, making inspections as required of
the mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults and
generally administering mortgage loans.
The Company is somewhat unique in that its strategy is to sell
substantially all of its produced agency-eligible mortgage servicing rights to
other approved servicers. In that regard, the Company believes it is the largest
national supplier of agency-eligible servicing rights to the still-consolidating
mega-servicers. Typically, the Company sells its agency-eligible mortgage
servicing rights within 90 to 180 days of purchase or origination. However, for
strategic reasons, the Company also strives to maintain a servicing portfolio
whose size is determined by reference to the Company's cash operating costs
which, in turn, are largely determined by the size of its loan production
platform. By continuing to focus on the low-cost correspondent and wholesale
production channels, the Company is able to minimize the cash operating costs of
its loan production platform and thus the strategically required size of its
agency-eligible loan servicing operation.
A summary of key information relevant to the Company's agency-eligible loan
servicing activities is set forth below:
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
------------ ------------
Underlying Unpaid Principal Balances:
Beginning Balance * $ 9,865,100 $ 7,125,222
Agency-Eligible Loan Production (net of
servicing-released production) * 3,133,563 4,242,687
Net Change in Work-in-Progress* 190,242 (404,655)
Sales of Servicing* (3,003,253) (2,535,016)
Paid-In-Full Loans* (365,729) (366,636)
Amortization, Curtailments and Other, net* (84,169) (81,421)
------------ ------------
Ending Balance* 9,735,754 7,980,181
Subservicing Ending Balance 3,272,754 2,989,622
------------ ------------
Total Underlying Unpaid Principal Balances $ 13,008,508 $ 10,969,803
============ ============
* These numbers and statistics apply to the Company's owned agency-eligible
servicing portfolio and therefore exclude the subservicing portfolio.
Of the $9.7 billion and $8.0 billion unpaid principal balance at March 31,
1999 and 1998, approximately $5.8 billion and $4.2 billion, respectively, are
classified as available for sale, while $3.9 billion and $3.8 billion,
respectively, are classified as held for sale.
15
16
A summary of agency-eligible servicing statistics follows:
($ in thousands) At or For the Quarter Ended March 31,
------------------------------------------
1999 1998
----------- ------------
Average Underlying Unpaid Principal Balances (including
subservicing) $13,456,746 $10,346,482
Weighted Average Note Rate* 7.21% 7.51%
Weighted Average Servicing Fee* 0.44% 0.40%
Delinquency (30+ days) Including Bankruptcies and
Foreclosures* 1.82% 2.49%
Number of Servicing Division Employees 157 152
* These numbers and statistics apply to the Company's owned agency-eligible
servicing portfolio and therefore exclude the subservicing portfolio.
The $3.1 billion, or 30%, increase in the average underlying unpaid
principal balance of agency-eligible mortgage loans being serviced and
subserviced for the first quarter of 1999 as compared to the first quarter of
1998 is primarily related to the Company's increased loan production volumes
during the latter part of 1998. Since the Company generally sells servicing
rights related to the agency-eligible loans it produces within 90 to 180 days of
purchase or origination, increased production volumes generally result in a
higher volume of mortgage servicing rights held in inventory pending sale. In
addition during 1998 and the first quarter of 1999, the Company decided to
retain a portion of the servicing rights associated with its production.
Commercial Mortgage Servicing
Laureate originates commercial mortgage loans for investors and in most
cases, Laureate retains the right to service the loans. A summary of key
information relevant to the Company's commercial mortgage servicing activities
is set forth below:
At or for the Quarter Ended March 31,
----------------------------------------------
($ in thousands) 1999 1998
-------------------- --------------------
Commercial Mortgage Loan Servicing Portfolio $ 3,437,851 $ 2,832,205
Weighted Average Note Rate 8.02% 8.33%
Delinquencies (30+ Days) 0.43% 0.43%
Lease Servicing
The Company's leasing division services leases that are owned by the
Company and also services leases for investors. A summary of key information
relevant to the Company's lease servicing activity is set forth below:
16
17
At or for the Quarter Ended March 31,
---------------------------------------------
($ in thousands) 1999 1998
------------------- --------------------
Owned Lease Servicing Portfolio $ 110,161 $ 56,261
Serviced For Investors Servicing Portfolio 30,366 63,963
------------------- --------------------
Total Managed Lease Servicing Portfolio $ 140,527 $120,224
=================== ====================
Weighted Average Net Yield For Managed
Lease Servicing Portfolio 10.79% 10.70%
Delinquencies (30+ Days) Managed Lease
Servicing Portfolio 1.87% 3.00%
Consolidated Coverage Ratios
A summary of the Company's consolidated ratios of servicing fees and
interest income for owned leases to cash operating expenses net of amortization
and depreciation follows:
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
---------- --------
Total Company Servicing Fees $ 12,998 $ 9,303
Net Interest Income from Owned Leases 1,645 946
-------- --------
Total Servicing Fees and Interest from Owned Leases $ 14,643 $ 10,249
-------- --------
Total Company Operating Expenses $ 43,530 $ 38,915
Total Company Amortization and Depreciation (10,538) (6,984)
-------- --------
Total Company Operating Expenses, Net of
Amortization and Depreciation $ 32,992 $ 31,931
-------- --------
Coverage Ratio 44% 32%
======== ========
The Company's coverage ratios for the first quarter of 1999 and 1998,
at 44% and 32%, respectively, were lower than the Company's target level of
between 50% and 80%. Effective May 1, 1998, the Company sold its retail
production franchise, which accounted for $3.9 million of the Company's cash
operating expenses for the first quarter of 1998. Without retail division
operating expenses for the first quarter of 1998, the Company's coverage ratio
would have been 37%. As market conditions permit, management would expect to
bring this ratio back in line with the stated objective.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1998
Summary by Operating Division
Net income per common share on a diluted basis for the first quarter of
1999 was $0.50 as compared to $0.41 for the first quarter of 1998. This 22%
increase in net income per common share exceeded the 17% increase in net income
due primarily to the impact of the Company's stock repurchase program which
reduced the number of weighted average shares outstanding across comparative
periods. Following is a summary of the allocated revenues and expenses for each
of the Company's operating divisions for the three months ended March 31, 1999
and 1998, respectively:
17
18
Residential
---------------------
($ in thousands) Mortgage Production
--------------------- Agency-
Agency- Eligible Commercial
For the Quarter Ended March 31, 1999* Eligible Subprime Servicing Mortgage Leasing Other Consolidated
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Net interest income $ 3,589 $3,473 $(1,389) $ 94 $1,645 $ 62 $ 7,474
Net gain on sale of mortgage loans 33,193 2,857 1,239 37,289
Gain on sale of mortgage servicing
rights 2,998 2,998
Servicing fees 11,703 975 161 159 12,998
Other income 734 (932) 161 11 151 4 129
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Total revenues 37,516 5,398 13,473 2,319 1,957 225 60,888
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Salary and employee benefits 13,701 3,301 898 1,738 640 219 20,497
Occupancy expense 2,064 583 107 263 104 52 3,173
Amortization and provision for
impairment of mortgage
servicing rights 8,433 464 8,897
General and administrative expenses 5,854 2,071 1,778 430 753 77 10,963
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Total expenses 21,619 5,955 11,216 2,895 1,497 348 43,530
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Income before income taxes 15,897 (557) 2,257 (576) 460 (123) 17,358
Income tax expense (5,649) 197 (802) 219 (192) 30 (6,197)
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Net income $10,248 $ (360) $ 1,455 $ (357) $ 268 $ (93) $ 11,161
======== =========== ========== ============ ========= ========= ============
Residential
--------------------------------
($ in thousands) Mortgage Production
-------------------- Agency -
Agency - Eligible Commercial
For the Quarter Ended March 31, 1998* Eligible Subprime Servicing Mortgage Leasing Other Consolidated
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Net interest income $ 1,736 $ 1,347 $ 129 $ 946 $ 134 $ 4,292
Net gain on sale of mortgage loans 31,041 6,171 1,962 39,174
Gain on sale of mortgage servicing
rights $ 628 628
Servicing fees 8,120 915 268 9,303
Other income 87 395 93 2 219 178 974
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Total revenues 32,864 7,913 8,841 3,008 1,433 312 54,371
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Salary and employee benefits 14,341 3,299 828 1,521 553 172 20,714
Occupancy expense 1,972 372 120 186 80 50 2,780
Amortization of mortgage servicing
rights 5,302 327 5,629
General and administrative expenses 6,142 952 1,520 416 587 175 9,792
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Total expenses 22,455 4,623 7,770 2,450 1,220 397 38,915
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Income before income taxes 10,409 3,290 1,071 558 213 (85) 15,456
Income tax expense (3,957) (1,251) (407) (212) (81) 33 (5,875)
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Net income $ 6,452 $ 2,039 $ 664 $ 346 $ 132 (52) $ 9,581
========= ========== ========== ============ ========= ========= ============
*Revenues and expenses have been allocated on a direct basis to the extent
possible. Corporate overhead expenses have been allocated to agency-eligible
mortgage production. Management believes that these and all other revenues and
expenses have been allocated to the respective divisions on a reasonable basis.
18
19
Agency-Eligible Mortgage Operations
Following is a comparison of the revenues and expenses allocated to the
Company's agency-eligible mortgage production operations.
For the Quarter Ended March 31,
-------------------------------
($ in thousands) 1999 1998
---------- ----------
Net interest income $ 3,589 $ 1,736
Net gain on sale of mortgage loans 33,193 31,041
Other income 734 87
---------- ----------
Total production revenue 37,516 32,864
---------- ----------
Salary and employee benefits 13,701 14,341
Occupancy expense 2,064 1,972
General and administrative expenses 5,854 6,142
---------- ----------
Total production expenses 21,619 22,455
---------- ----------
Net pre-tax production margin $ 15,897 $ 10,409
---------- ----------
Production $3,139,843 $3,818,141
Pool delivery 3,418,299 3,319,382
Total production revenue to pool delivery 110 bps 99 bps
Total production expenses to production 69 bps 59 bps
========== ==========
Net pre-tax production margin 41 bps 40 bps
========== ==========
Summary
The production revenue to pool delivery ratio increased eleven basis
points, or 10%, for the first quarter of 1999 as compared to the first quarter
of 1998. Generally, net gain on sale of mortgage loans (97 basis points for 1999
versus 94 basis points for 1998) improved due to better overall execution into
the secondary markets. Also, net interest income increased from 5 basis points
in 1998 to 10 basis points in 1999 primarily as a result of the generally
steeper yield curve environment. The production expenses to production ratio
increased 10 basis points, or 17%, for the first quarter of 1999 as compared to
the first quarter of 1998. This corresponds with the 18% decrease in production
from quarter to quarter. As a consequence of the foregoing, the Company's net
agency-eligible pre-tax production margin improved 1 basis point, or 2%, to 41
basis points while in absolute dollars it increased $5.5 million, or 53%.
Net Interest Income
The following table analyzes net interest income allocated to the Company's
agency-eligible mortgage production activities in terms of rate and volume
variances of the interest spread (the difference between interest rates earned
on loans and mortgage-backed securities and interest rates paid on
interest-bearing sources of funds) for the quarter ended March 31, 1999 and
1998, respectively.
19
20
($ in thousands)
Variance
Average Volume Average Rate Interest Attributable to
- ---------------------------------------- ---------------------- -------------------
1999 1998 1999 1998 1999 1998 Variance Rate Volume
- ---------------------------------------- ----------------------------------------------------
Interest Income
---------------
Mortgages Held for Sale
and Mortgage-Backed
$1,052,324 $1,161,423 6.64% 6.59% Securities $17,456 $19,131 $(1,675) $ 122 $(1,797)
- ---------------------------------------- ----------------------------------------------------
Interest Expense
----------------
$ 435,572 $ 475,934 4.16% 4.64% Warehouse Line $ 4,463 $ 5,443 $ (980) $ (518) $ (462)
603,776 624,057 5.16% 5.84% Gestation Line 7,677 8,984 (1,307) (1,014) (293)
127,750 90,422 5.91% 6.69% Servicing Secured Line 1,861 1,491 370 (247) 617
28,233 36,203 5.21% 5.90% Servicing Receivables Line 363 527 (164) (48) (116)
8,436 6,538 8.27% 8.18% Other Borrowings 172 132 40 2 38
Facility Fees & Other
Charges 720 818 (98) (98)
- ---------------------------------------- ----------------------------------------------------
$1,203,767 $1,233,154 5.14% 5.72% Total Interest Expense $15,256 $17,395 $(2,139) $(1,825) $ (314)
- ---------------------------------------- ----------------------------------------------------
Net Interest Income
Before Interdivisional
1.50% 0.87% Allocations $ 2,200 $ 1,736 $ 464 $ 1,947 $(1,483)
================== ----------------------==============================
Allocation to
Agency-Eligible
Servicing Division 1,389 N/A
----------------------
Net Interest Income $ 3,589 $ 1,736
======================
Net interest income from agency-eligible production increased 27% to $2.2
million for the first quarter of 1999 compared to $1.7 million for the first
quarter of 1998. The 63 basis point increase in the interest-rate spread was
primarily the result of the steeper yield curve environment in the first quarter
of 1999 compared to the first quarter of 1998. The Company's mortgages and
mortgage-backed securities are generally sold and replaced within 30 to 35 days.
Accordingly, the Company generally borrows at rates based upon short-term
indices, while its asset yields are primarily based upon long-term mortgage
rates.
Net Gain on Sale of Agency-eligible Mortgage Loans
A reconciliation of gain on sale of agency-eligible mortgage loans for the
periods indicated follows:
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
----------- -----------
Gross proceeds on sales of mortgage loans $ 3,429,942 $ 3,363,265
Initial unadjusted acquisition cost of mortgage loans sold, net
of hedge results 3,426,577 3,361,895
----------- -----------
Unadjusted gain on sale of mortgage loans 3,365 1,370
Loan origination and correspondent program administrative fees 8,338 7,822
----------- -----------
Unadjusted aggregate margin 11,703 9,192
Acquisition basis allocated to mortgage servicing rights
(SFAS No. 125) 22,349 20,640
Net change in deferred administrative fees (859) 1,209
----------- -----------
Net gain on sale of agency-eligible mortgage loans $ 33,193 $ 31,041
=========== ===========
Net gain on sale of agency-eligible mortgage loans increased $2.2 million
(7%) from $31.0 million for the first quarter of 1998 to $33.2 million for the
first quarter of 1999. The increase is primarily due to a 2% or $64.7 million
increase in the volume of loans sold and better overall execution into the
secondary markets.
20
21
Other Income
In November 1998, the Company formed a captive insurance company, MG
Reinsurance Company (MG Reinsurance). MG Reinsurance is licensed as a property
and casualty insurer and operates as a monoline captive insurance company
assuming reinsurance for agency-eligible mortgage loans initially purchased or
produced by the Company. During the first quarter of 1999, the Company
recognized premium and investment income of approximately $0.7 million that has
been included as other income in the agency-eligible production segment.
Subprime Mortgage Operations
Following is an analysis of the revenues and expenses allocated to the
Company's subprime mortgage production operations.
For the Quarter Ended March 31,
---------------------------
($ in thousands) 1999 1998
--------- ---------
Net interest income $ 3,473 $ 1,347
Net gain on sale of mortgage loans 2,857 6,171
Other income (932) 395
--------- ---------
Total production revenue 5,398 7,913
--------- ---------
Salary and employee benefits 3,301 3,299
Occupancy expense 583 372
General and administrative expenses 2,071 952
--------- ---------
Total production expenses 5,955 4,623
--------- ---------
Net pre-tax production margin $ (557) $ 3,290
========= =========
Production $ 184,111 $ 105,986
Whole loan sales and securitizations 98,624 86,840
Total production revenue to whole loan sales and securitizations 547 bps 911 bps
Total production expenses to production 323 bps 436 bps
--------- ---------
Net pre-tax production margin 224 bps 475 bps
========= =========
Summary
During the first quarter of 1999, subprime production volume of $184.1
exceeded whole loan sales of $98.6 million by approximately $85.5 million.
There were no securitization transactions during the quarter. At March 31, 1999,
the Company had unsold subprime mortgage loans of $182.3 million as compared to
$63.5 million at March 31, 1998. Overall, the Company operated during the first
quarter of 1999 at a 2.24% pre-tax subprime production margin.
Net Interest Income
The following table analyzes net interest income allocated to the Company's
subprime mortgage production activities in terms of rate and volume variances of
the interest spread (the difference between interest rates earned on loans and
residual certificates and interest rates paid on interest-bearing sources of
funds) for the quarter ended March 31, 1999 and 1998, respectively.
21
22
($ in thousands)
Variance
Average Volume Average Rate Interest Attributable to
- ----------------------------------------- --------------------- ---------------------
1999 1998 1999 1998 1999 1998 Variance Rate Volume
- ----------------------------------------- ----------------------------------------------------
Interest Income
---------------
Mortgages Held for Sale
and Residual
$210,424 $ 83,971 10.12% 9.50% Certificates $ 5,326 $ 1,994 $3,332 $ 789 $2,543
- ----------------------------------------- ----------------------------------------------------
Interest Expense
----------------
$147,765 $ 43,967 5.09% 5.97% Total Interest Expense $ 1,853 $ 647 $1,206 $ (35) 1,241
- ----------------------------------------- ----------------------------------------------------
5.03% 3.53% Net Interest Income $ 3,473 $ 1,347 $2,126 $ 824 $1,302
================== ====================================================
Net interest income from subprime products increased 158% to $3.5 million
for the first quarter of 1999 as compared to $1.3 million for the first quarter
of 1998. This was primarily the result of the increase in subprime loan
production volume and the generally steeper yield curve environment and an
increase in accretion income from $0.7 million for the quarter ended March 31,
1998 to $1.5 million for the quarter ended March 31, 1999.
Net Gain on Securitization and Sale of Subprime Mortgage Loans
A reconciliation of the gain on securitization of subprime mortgage loans
for the periods indicated follows:
($ in thousands) For the Quarter Ended March 31,
-------------------------------------------
1999 1998
--------------- ---------------
Gross proceeds on securitization of subprime mortgage loans N/A $ 24,867
Initial acquisition cost of subprime mortgage loans securitized, net
of fees N/A 25,376
--------------- ---------------
Unadjusted loss on securitization of subprime mortgage loans N/A (509)
Initial capitalization of residual certificates N/A 2,187
Net change in deferred administrative fees N/A
--------------- ---------------
Net gain on securitization of subprime mortgage loans N/A $ 1,678
=============== ===============
During the first quarter of 1999, no loans were delivered into securities.
The Company assesses the fair value of residual certificates quarterly,
based on an independent third party valuation and other factors. This valuation
is based on the discounted cash flows expected to be available to the holder of
the residual certificates. Significant assumptions used at March 31, 1999 for
all residual certificates then held by the Company include a discount rate of
13%, a constant default rate of 3% and a loss severity rate of 25%, and ramping
periods are based on prepayment penalty periods and adjustable rate mortgage
first reset dates. Constant prepayment rate assumptions specific to the
individual certificates for purposes of the March 31, 1999 valuations are set
forth below:
1997-1 1997-2 1998-1 1998-2 OTHER
------------ ------------ ------------ ------------ -------------
Prepayment Speeds
Fixed rate mortgages 32% CPR 30% CPR 28% CPR 28% CPR 32% CPR
Adjustable rate mortgages 32% CPR 30% CPR 28% CPR 28% CPR 24% CPR
The assumptions used in the independent third party valuation above are
estimated based on current conditions for similar instruments that are subject
to prepayment and credit risks. Other factors evaluated in the determination of
fair value include credit and collateral quality of the underlying loans,
current economic conditions and various fees and costs (such as prepayment
penalties) associated with
22
23
ownership of the residual certificate including actual credit history of the
individual residual certificates. 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 from the assumptions used, could have a significant effect on the
fair value of the residual certificates.
As summarized in the following analysis, the recorded residual values imply
that the Company's securitizations are valued at 1.41 times the implied excess
yield at March 31, 1999, as compared to the 1.63 multiple implied at December
31, 1998. The table below represents balances as of February 28, 1999, unless
otherwise noted.
($ in thousands) Securitizations
------------------------------------------------
1997-1 1997-2 1998-1 1998-2 Subtotal Other Total
--------- ----------- ----------- ---------- ---------- ----------- -------------
Residual Certificates $ 7,895 $ 9,056 $ 10,663 $ 13,592 $ 41,206 $ 3,418 $ 44,624
Bonds $47,620 * $66,942 * $114,478 * $166,945 * $395,985 $39,437 * $ 435,422
--------- ----------- ----------- ---------- ---------- ----------- -------------
Subtotal $55,515 $75,998 $125,141 $180,537 $437,191 $42,855 $ 480,046
Unpaid Principal Balance $52,478 * $71,796 * $117,689 * $168,000 * $409,963 $42,706 * $ 452,669
--------- ----------- ----------- ---------- ---------- ----------- -------------
Implied Price 105.79 105.85 106.33 107.46 106.64 100.35 106.05
--------- ----------- ----------- ---------- ---------- ----------- -------------
Collateral Yield 10.41 10.63 9.77 9.71 9.98 11.53 10.10
Collateral Equivalent
Securitization Costs (0.72) (0.65) (0.60) (0.47) (0.57) (0.50) (0.57)
Collateral Equivalent
Bond Rate (4.70) (4.87) (4.98) (5.55) (5.16) (6.20) (5.24)
--------- ----------- ----------- ---------- ---------- ----------- -------------
Implied Collateral
Equivalent Excess Yield 4.99 5.11 4.19 3.69 4.25 4.83 4.29
--------- ----------- ----------- ---------- ---------- ----------- -------------
Implied Premium Above Par 5.79 5.85 6.33 7.46 6.64 0.35 6.05
Implied Collateral
Equivalent Excess Yield 4.99 5.11 4.19 3.69 4.25 4.83 4.29
--------- ----------- ----------- ---------- ---------- ----------- -------------
Multiple 1.16 x 1.14 x 1.51 x 2.02 x 1.56 x 0.07 x 1.41 x
--------- ----------- ----------- ---------- ---------- ----------- -------------
* Amounts were based upon trustee statements dated March 25, 1999 that
covered the period ended February 28, 1999.
The Company sold subprime mortgage loans on a whole loan basis during
the first quarters of 1999 and 1998. Whole loans are generally sold without
recourse to third parties with the gain or loss being calculated based on the
difference between the carrying value of the loans sold and the gross proceeds
received from the purchaser less expenses. Generally, no interest in these loans
is retained by the Company.
A reconciliation of the gain on subprime mortgage whole loan sales for the
periods indicated follows:
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
--------- ---------
Gross proceeds on whole loan sales of subprime mortgage loans $ 102,050 $ 65,957
Initial acquisition cost of subprime mortgage loans sold, net of fees 98,624 61,464
--------- ---------
Unadjusted gain on whole loan sales of subprime mortgage loans 3,426 4,493
Net change in deferred administrative fees (569) N/A
--------- ---------
Net gain on whole loan sales of subprime mortgage loans $ 2,857 $ 4,493
========= =========
23
24
The $1.6 million decrease in the net gain on whole loan sales of subprime
mortgage loans from the first quarter 1998 gain of $4.5 million to $2.9 million
reported for the first quarter of 1999 is primarily due to compressed margins in
the subprime market during the first quarter of 1999. Also, in response to the
growth in the subprime division, management reassessed its application of
estimates related to Statement of Financial Accounting Standard No. 91,
"Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases" in the third quarter of
1998. This resulted in a $0.6 million reduction in the net gain on whole loan
sales of subprime mortgage loans in the first quarter of 1999. Had this
application occurred at March 31, 1998 approximately $0.6 million in
administrative fees also would have been deferred during that quarter.
A summary of key information relevant to the subprime residual assets is
set forth below:
($ in thousands) Securitizations
-------------------------------------------------------
1997-1 1997-2 1998-1 1998-2 Other Total
----------- ----------- ----------- ------------ ----------- -------------
Residual Certificates:
Balance at December 31, 1998 $ 7,997 $ 9,702 $ 10,815 $ 12,569 $ 4,700 $ 45,783
Accretion income 292 318 315 362 179 1,466
Mark to market 27 (109) (467) 661 (1,461) (1,349)
Cash Flow (421) (855) -- -- -- (1,276)
-------- -------- -------- -------- -------- --------
Balance at March 31, 1999 $ 7,895 $ 9,056 $ 10,663 $ 13,592 $ 3,418 $ 44,624
======== ======== ======== ======== ======== ========
Other Income
The Company generally retains residual certificates in connection with the
securitization of subprime loans. These residual certificates are adjusted to
approximate market value each quarter. For the quarters ended March 31, 1999 and
March 31, 1998, respectively, mark-to-market loss on residuals was approximately
$1.3 million and $0.4 million, respectively. This amount is reflected as other
income (loss) within the subprime division.
Agency-Eligible Mortgage Servicing
Following is a summary of the revenues and expenses allocated to the
Company's agency-eligible mortgage servicing operations for the quarters ended
March 31, 1999 and 1998:
24
25
For the Quarter Ended March 31,
---------------------------------
($ in thousands) 1999 1998
------------ ------------
Net interest expense $ (1,389) $ --
Loan servicing fees 11,703 8,120
Other income 161 93
------------ ------------
Servicing revenues 10,475 8,213
------------ ------------
Salary and employee benefits 898 828
Occupancy expense 107 120
Amortization and provision for impairment of mortgage
servicing rights 8,433 5,302
General and administrative expenses 1,778 1,520
------------ ------------
Total loan servicing expenses 11,216 7,770
------------ ------------
Net pre-tax servicing margin (741) 443
Gain on sale of mortgage servicing rights 2,998 628
------------ ------------
Net pre-tax servicing contribution $ 2,257 $ 1,071
============ ============
Average servicing portfolio $ 10,318,105 $ 7,796,911
Servicing sold 3,003,253 2,535,016
Net pre-tax servicing margin to average servicing portfolio (3)bps 2 bps
Gain on sale of servicing to servicing sold 10 bps 2 bps
Summary
The ratio of net pre-tax servicing margin to the average servicing
portfolio declined five basis points primarily due to the Company beginning
during the first quarter of 1999 to allocate net interest expense to the
agency-eligible servicing division. Had the $1.4 million in interest expense not
been allocated to the agency-eligible servicing division in the first quarter of
1999, the net pre-tax servicing margin to average servicing portfolio would have
been 3 basis points, a slight improvement over the 1998 margin. The 8 basis
point increase in the gain on sale of servicing sold is primarily attributed to
better execution of servicing sales in the marketplace. Loan servicing fees were
$11.7 million for the first quarter of 1999, compared to $8.1 million for the
first quarter of 1998, an increase of 44%. This increase is primarily related to
an increase in the average aggregate underlying unpaid principal balance of
mortgage loans serviced to $10.3 billion during the first quarter of 1999 from
$7.8 billion during the first quarter of 1998, an increase of 32%. Similarly,
amortization and provision for impairment of mortgage servicing rights also
increased to $8.4 million during the first quarter of 1999 from $5.3 million
during the first quarter of 1998, an increase of 59%. The increase in
amortization is primarily attributable to the growth in the average balance of
the mortgage loans serviced.
Given current market conditions, management continually assesses market
prepay trends and adjusts amortization accordingly. Management believes that the
value of mortgage servicing rights are reasonable in light of current market
conditions. However, there can be no guarantee that market conditions will not
change such that mortgage servicing right valuations will require additional
amortization or impairment charges.
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Net Interest Expense
During the first quarter of 1999, the Company began to allocate interest
expense to the agency-eligible servicing division. The net interest expense is
comprised of benefits from escrow accounts of $2.0 million that is offset by
$3.4 million in interest expense.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage servicing
rights for the periods indicated follows:
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
----------- -----------
Underlying unpaid principal balances of agency-eligible
mortgage loans on which servicing rights were sold
during the period $ 3,003,253 $ 2,535,016
=========== ===========
Gross proceeds from sales of mortgage servicing rights $ 78,888 $ 56,367
Initial acquisition basis, net of amortization and hedge results 56,942 43,031
----------- -----------
Unadjusted gain on sale of mortgage servicing rights 21,946 13,336
Acquisition basis allocated from mortgage loans, net of
amortization (SFAS No. 125) (18,948) (12,708)
----------- -----------
Gain on sale of mortgage servicing rights $ 2,998 $ 628
=========== ===========
Gain on sale of mortgage servicing rights increased $2.4 million (377%)
from $0.6 million for the first quarter of 1998 to $3.0 million for the first
quarter of 1999. The increase in the gain on sale of mortgage servicing rights
is primarily attributable to the increase in the volume sold and to rising
rates which benefited the current quarter's execution of servicing sales into
the secondary markets.
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27
Commercial Mortgage Operations
Following is a summary of the revenues and expenses allocated to the
Company's commercial mortgage production operations.
For the Quarter Ended March 31,
-------------------------------
($ in thousands) 1999 1998
----------- -----------
Net interest income $ 94 $ 129
Net gain on sale of mortgage loans 1,239 1,962
Other income 11 2
----------- -----------
Total production revenue 1,344 2,093
----------- -----------
Salary and employee benefits 1,738 1,521
Occupancy expense 263 186
General and administrative expenses 430 416
----------- -----------
Total production expenses 2,431 2,123
----------- -----------
Net pre-tax production margin (1,087) (30)
----------- -----------
Servicing fees 975 915
Amortization of mortgage servicing rights 464 327
----------- -----------
Net pre-tax servicing margin 511 588
----------- -----------
Pre-tax income $ (576) $ 558
----------- -----------
Production $ 150,152 $ 192,515
Whole loan sales 165,262 192,515
Average commercial mortgage servicing portfolio 3,337,253 $ 2,793,242
Total production revenue to whole loan sales 81 bps 109 bps
Total production expenses to production 162 bps 110 bps
----------- -----------
Net pre-tax production margin (81) bps (1)bps
----------- -----------
Servicing fees to average commercial mortgage servicing portfolio 12 bps 13 bps
Amortization of mortgage servicing rights to average
commercial mortgage servicing portfolio 6 bps 5 bps
----------- -----------
Net pre-tax servicing margin 6 bps 8 bps
----------- -----------
Laureate originates commercial mortgage loans for various insurance
companies and other investors, primarily in Alabama, Florida, Indiana, North
Carolina, Pennsylvania, South Carolina, Tennessee and Virginia. Substantially
all loans originated by Laureate have been originated in the name of the
investor, and in most cases, Laureate has retained the right to service the
loans under a servicing agreement with the investor. Most commercial mortgage
loan servicing agreements are short-term, and retention of the servicing
contract is dependent on maintaining the investor relationship.
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28
Net Gain on Sale of Commercial Mortgage Loans
A reconciliation of gain on sale of commercial mortgage loans for the
periods indicated follows:
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
-------- --------
Gross proceeds on sales of commercial mortgage loans $165,262 $192,515
Initial unadjusted acquisition cost of commercial mortgage
loans sold 165,262 192,515
-------- --------
Unadjusted gain on sale of commercial mortgage loans N/A N/A
Commercial mortgage and origination fees 849 1,665
-------- --------
Unadjusted aggregate margin 849 1,665
Initial acquisition cost allocated to basis in commercial
mortgage servicing rights (SFAS No. 125) 390 297
-------- --------
Net gain on sale of commercial mortgage loans $ 1,239 $ 1,962
======== ========
The net gain on sale of commercial mortgage loans decreased $0.7 million
(37%) from $2.0 million for the first quarter of 1998 to $1.2 million for the
first quarter of 1999. The decrease is primarily attributable to compressed
margins on sales of commercial mortgage loans. The volume of commercial mortgage
loans sold also decreased 14% due to seasonal trends within market demands.
Leasing Operations
Following is a summary of the revenues and expenses allocated to the
Company's small-ticket equipment leasing operations for the periods indicated:
For the Quarter Ended March 31,
-------------------------------
($ in thousands) 1999 1998
--------- ---------
Net interest income $ 1,645 $ 946
Other income 151 219
--------- ---------
Leasing production revenue 1,796 1,165
--------- ---------
Salary and employee benefits 640 553
Occupancy expense 104 80
General and administrative expenses 753 587
--------- ---------
Total lease operating expenses 1,497 1,220
--------- ---------
Net pre-tax leasing production margin 299 (55)
--------- ---------
Servicing fees 161 268
--------- ---------
Net pre-tax leasing margin $ 460 $ 213
--------- ---------
Average owned leasing portfolio $ 104,355 $ 52,836
Average serviced leasing portfolio 33,967 68,086
--------- ---------
Average managed leasing portfolio $ 138,322 $ 120,922
========= =========
Leasing production revenue to average owned portfolio 688 bps 882 bps
Leasing operating expenses to average owned portfolio 574 bps 924 bps
--------- ---------
Net pre-tax leasing production margin 114 bps (42)bps
========= =========
Servicing fees to average serviced leasing portfolio 190 bps 157 bps
28
29
Substantially all of the Company's lease receivables are acquired from
independent brokers who operate throughout the continental United States and
referrals from independent banks. The Company has made an effort to increase the
owned portfolio. As it has increased its owned portfolio more cost efficiencies
have been achieved thereby increasing the net pre-tax leasing production margin.
Net Interest Income
Net interest income for the first quarter of 1999 was $1.6 million as
compared to $0.9 million for the first quarter of 1998. This is an annualized
net interest margin of 4.44% and 3.89% for the first quarter of 1999 and the
first quarter of 1998, respectively, based upon average lease receivables owned
of $104.4 million and $52.9 million, respectively, and average debt outstanding
of $85.6 and $29.9 million, respectively.
29
30
FINANCIAL CONDITION
During first quarter 1999, the Company experienced a 21% decrease in the
volume of production originated and acquired compared to fourth quarter 1998.
Production decreased to $3.5 billion during first quarter 1999 from $4.4 billion
during fourth quarter 1998. The March 31, 1999, locked residential mortgage
application pipeline (mortgage loans not yet closed but for which the interest
rate has been locked) was approximately $0.8 billion and the application
pipeline (mortgage loans for which the interest rate has not yet been locked)
was approximately $0.6 billion.
Mortgage loans held-for-sale and mortgage-backed securities totaled $1.1
billion at March 31, 1999, versus $1.4 billion at December 31, 1998, a decrease
of 22%. The Company's servicing portfolio (exclusive of loans under subservicing
agreements) decreased to $9.7 billion at March 31, 1999, from $9.9 billion at
December 31, 1998.
Short-term borrowings, which are the Company's primary source of funds,
totaled $1.3 billion at March 31, 1999, compared to $1.6 billion at December 31,
1998, a decrease of 15%. The decrease in the balance outstanding at March 31,
1999, resulted from decreased funding requirements related to the decrease in
the balance of mortgage loans held-for-sale and mortgage-backed securities.
Other liabilities totaled $145 million as of March 31, 1999, compared to the
December 31, 1998 balance of $115 million, an increase of $30 million, or 27%.
The Company continues to face the same challenges as other companies within
the mortgage banking industry and as such is not immune from significant volume
declines precipitated by a rise in interest rates or other factors beyond the
Company's control.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash-flow requirement involves the funding of loan
production, which is met primarily through external borrowings. The Company has
entered into a 364-day, $670 million warehouse line of credit provided by a
syndicate of unaffiliated banks that expires in July 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 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.
30
31
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.
The Company was in compliance with the above-mentioned debt covenants at
March 31, 1999. 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. The master repurchase agreement has been
extended through May 31, 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 previously described.
Resource Bancshares Corporation (RBC), a wholly-owned subsidiary of the
Company, 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 that require RBC to
maintain a minimum net worth of $40 million and a ratio of total liabilities to
net worth of no more than 10.0 to 1.0.
As of March 31, 1999 the Company's Board of Directors authorized the
repurchase of up to $40 million of the Company's common stock in either open
market transactions or in private or block trades. Decisions regarding the
amount and timing of repurchases will be made by management based upon market
conditions and other factors. The repurchase authority will enable the Company
to repurchase shares to meet the Company's obligations pursuant to existing
bonus, stock option, dividend reinvestment and employee stock purchase and ESOP
plans. The Company's primary objective is to offset the potentially dilutive
effect that option exercises and stock issuances under these plans might
otherwise have. Shares repurchased are maintained in the Company's treasury
account and are not retired. At March 31, 1999, there were 2,081,997 shares held
in the Company's treasury account at an average cost of $13.14 per share.
Divisional Analysis of Pre-Tax Funds Generated From Operations
The analyses which follow are included solely to assist investors in
obtaining a better understanding of the material elements of the Company's funds
generated by operations at a divisional level. It is intended as a supplement,
and not an alternative to, and should be read in conjunction with the
Consolidated Statement of Cash Flows which provides information concerning
elements of the Company's cash flows.
31
32
Summary
On a combined divisional basis, during the first quarter of 1999 and 1998,
the Company generated approximately $25.4 million and $10.7 million,
respectively, of positive funds from operations.
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
-------- --------
Agency-eligible production $ 17,358 $ 2,753
Agency-eligible servicing 7,781 5,851
Subprime production 118 1,133
Commercial mortgage (410) 707
Leasing 536 294
-------- --------
$ 25,383 $ 10,738
======== ========
Except for the commercial mortgage division, each of the Company's
divisions produced positive operating funds during both quarters. The combined
positive operating funds were invested to reduce indebtedness, pay dividends,
repurchase stock and purchase fixed assets.
Agency-eligible production
Generally, the Company purchases agency-eligible mortgage loans which are
resold with the rights to service the loans being retained by the Company. The
Company then separately sells a large percentage of the servicing rights so
produced. At the time loans are sold, current accounting principles require
capitalization of the estimated fair value of the retained mortgage servicing
rights. Accordingly, amounts reported as gains on sale of agency-eligible
mortgage loans may not represent positive funds flow to the extent that the
associated servicing rights are not sold for cash but are instead retained and
capitalized. In this context, the table below reconciles the major elements of
pre-tax operating funds flow allocable to agency-eligible production activities.
For the Quarter Ended March 31,
--------------------------------
1999 1998
-------- --------
Income before income taxes $ 15,897 $ 10,409
Deduct:
Net gain on sale of mortgage loans, as reported (33,193) (31,041)
Add back:
Cash gains on sale of mortgage loans 11,703 9,192
Cash gains on sale of mortgage servicing rights 21,946 13,336
Depreciation 1,005 857
-------- --------
$ 17,358 $ 2,753
======== ========
Agency-eligible servicing
The Company's current strategy is to position itself as a national supplier
of agency-eligible servicing rights to the still consolidating mortgage
servicing industry. Accordingly, the Company generally sells a significant
percentage of its produced mortgage servicing rights to other approved servicers
under forward committed bulk purchase agreements. However, the Company maintains
a relatively small mortgage servicing portfolio. As discussed above, mortgage
servicing rights produced or purchased are initially capitalized and
subsequently must be amortized to expense. Much like depreciation, such
32
33
amortization charges are "non-cash". In this context, the table below reconciles
the major elements of pre-tax operating funds flow allocable to agency-eligible
mortgage servicing activities.
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
------- -------
Income before income taxes $ 2,257 $ 1,071
Deduct:
Net gain on sale of mortgage servicing
rights, as reported (2,998) (628)
Add back:
Amortization and impairment of
mortgage servicing rights 8,433 5,302
Depreciation 89 106
------- -------
$ 7,781 $ 5,851
======= =======
Subprime production
Generally, the Company purchases subprime loans through a wholesale broker
network. The Company then separately sells or securitizes the loans so produced.
At the time loans are securitized, existing accounting principles require
capitalization of the estimated fair value of future cash flows to be received
in connection with retention by the Company of a residual interest in the
securitized loans. Accordingly, amounts reported as gains on sale of subprime
mortgage loans may not represent cash gains to the extent that associated
residual interests are retained and capitalized. In this context, the table
below reconciles the major elements of pre-tax operating funds flow allocable to
subprime mortgage production activities.
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
-------- -------
Income before income taxes $ (557) $ 3,290
Deduct:
Net gain on sale of subprime loans, as reported (2,857) (6,171)
Accretion income on residuals (1,466) (671)
Add back:
Cash gains on sale of whole subprime loans 3,426 4,493
Cash received from investments in residual certificates 1,276 --
Depreciation and amortization
of goodwill and intangibles 296 192
------- -------
$ 118 $ 1,133
======= =======
Commercial mortgage
Generally, the Company originates commercial mortgage loans for conduits,
insurance companies and other investors. The Company either table funds the
loans or originates the loans pursuant to pre-existing investor commitments to
purchase the loans so originated. Similar to the agency-eligible operation, the
Company generally retains the right to service the loans under various servicing
agreements. At the time loans are sold, current accounting principles require
capitalization of the estimated fair value of mortgage servicing rights
produced. Accordingly, amounts reported as gains on sale of commercial mortgage
loans may not represent cash gains to the extent that the associated
33
34
servicing rights are not sold for cash but are instead retained and capitalized.
Mortgage servicing rights initially capitalized must be amortized subsequently
to expense. Much like depreciation, such amortization charges are "non-cash". In
this context, the table below reconciles the major elements of pre-tax operating
funds flow allocable to commercial mortgage production and servicing activities.
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
-------- -------
Income before income taxes $ (576) $ 558
Deduct:
Net gain on sale of commercial loans,
as reported (1,239) (1,962)
Add back:
Cash gains on sale of whole
commercial loans 849 1,665
Amortization and impairment of
commercial mortgage servicing rights 464 327
Depreciation and amortization of
goodwill and intangibles 92 119
------- -------
$ (410) $ 707
======= =======
Leasing
Generally, the Company originates small-ticket equipment leases for
commercial customers that are retained as investments by the Company.
Investments in leases originated and retained are financed through a borrowing
facility at draw rates that approximate the net cash investment in the lease.
Accordingly, financing activities related to growth in the balance of leases
held for investment does not significantly impact operating cash flow. In this
context, the table below reconciles the major elements of operating funds flow
allocable to leasing activities.
($ in thousands) For the Quarter Ended March 31,
--------------------------------
1999 1998
------- -------
Income before income taxes $ 460 $ 213
Add back:
Depreciation and amortization of
goodwill and intangibles 76 81
------- -------
$ 536 $ 294
======= =======
YEAR 2000
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 its 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 the Company's efforts.
34
35
Overview of the Company's State of Readiness
The Company has reviewed its critical information technology and
non-information technology systems and summarizes its state of readiness as
follows:
- The Company uses 20 applications that were developed internally - all
of these have been remediated and are now Year 2000 compliant. The remediated
versions are scheduled to be placed into use during the second quarter of 1999.
- The Company uses various applications that were purchased or are used
in a service bureau relationship with third parties. Compliant versions are
available for all of these applications. Some of these compliant versions have
been installed with the remainder scheduled for installation during the second
quarter of 1999.
- The Company uses desktop software at each PC. Implementation of a
standardized package that delivers Year 2000 compliant desktop software is near
completion with completion scheduled for the second quarter of 1999. Remaining
work consists primarily of installing NT 4 on the desktops.
- The Company uses computer hardware, including servers, desktop PCs
and network infrastructure components. Remediation and upgrade of all data
center hardware and network infrastructure to Year 2000 compliant hardware is
complete. Desktop hardware is 95% complete with the rollout of 1,200 new
desktops with completion scheduled to take place during the second quarter of
1999.
The Company's growth motivated a generalized review of the adequacy of
the existing software environment and technological infrastructure to meet the
Company's long-term operating requirements. Accordingly, during the past 18
months the Company has been working to design and prepare for implementation of
Cybertek's LoanXchange Mortgage Processing System. Implementation of this Year
2000 compliant system is scheduled for the second quarter of 1999. If
implemented on time, this application will replace fourteen existing
applications and is expected to benefit the Company by providing enhanced
functionality, reliability, performance and efficiency. Accordingly, the
Company's Year 2000 compliance program continues to proceed on a dual track: (1)
reaching Year 2000 Compliant status with respect to the existing environment as
outlined above and (2) preparing for Year 2000 compliant status with respect to
the environment which will exist after implementation of the LoanXchange system.
Review of Mission Critical Business Specific Year 2000 Compliance Status
AGENCY-ELIGIBLE MORTGAGE PRODUCTION mission critical applications include the 20
internally developed applications that have been remediated and are Year 2000
compliant. Also, two of the applications provided by third parties are mission
critical. As discussed above, Year 2000 compliant versions of all mission
critical applications are scheduled to be installed by the end of the second
quarter of 1999. In addition, the LoanXchange system may be installed in which
case Year 2000 compliant versions of all mission critical applications also will
be in place.
MORTGAGE SERVICING The primary mission critical system is the Alltel servicing
system which is used by the Company through a third-party service bureau
relationship. Alltel has issued the Company a letter stating that it has
completed modification of all systems used by the Company bringing them to Year
35
36
2000 compliance. Alltel is the largest vendor of mortgage servicing systems in
the United States. Alltel and the Company participated in an industry sponsored
testing program. All required transactions were successfully transmitted and the
Company has received confirmation of the successful testing.
LAUREATE CAPITAL CORP. - The Company operates its commercial mortgage
origination and servicing business through its subsidiary, Laureate Capital
Corp. Upgrade of Laureate's mission critical McCracken commercial mortgage
servicing system to a Year 2000 compliant version has been completed.
REPUBLIC LEASING - The Company operates its leasing business through its
subsidiary, Resource Bancshares Corporation, doing business as Republic Leasing.
Republic Leasing's mission critical systems are Year 2000 compliant.
MERITAGE MORTGAGE CORP. - The Company operates substantially all of its
sub-prime loan origination business through its subsidiary, Meritage Mortgage
Corp. Upgrade of Meritage's mission critical Contour front-end loan processing
system to a Year 2000 compliant version has been completed.
OTHER The Company and all of its subsidiaries use the same general ledger,
accounts payable and human resources systems. All such systems are Year 2000
compliant.
Third Party Suppliers
Mission critical third party suppliers are Fannie Mae, Freddie Mac and
Alltel. Software supplied to the Company by Fannie Mae and Freddie Mac has been
certified as compliant and the Company has installed the compliant versions. In
addition, Fannie Mae, Freddie Mac and the Company participated in an industry
sponsored testing program. All required transactions were successfully
transmitted and the Company has received confirmation of the successful testing.
As discussed above, Alltel has stated that its software and systems are
compliant and the industry sponsored test program was successfully completed.
Trading Partners
The Company is communicating with suppliers, dealers, financial
institutions and others with whom it does business to coordinate Year 2000
compliance. However, the Company's residential mortgage business is conducted
through relationships with over 6,000 correspondents and brokers. The primary
points of interaction with these customers relate to loan registration, loan
locking and loan closing activities. Approximately 85% of these activities are
initiated via phone and fax. The remaining 15% are provided via a compliant and
proprietary interface that is made available to those customers over the
Internet. The Company is not undertaking a readiness review of these
relationships based on its assessment that the Year 2000 issue is not likely to
have a material impact on the Company's ability to interact with these trading
partners.
Financial Impact
Direct costs associated exclusively with achieving Year 2000 compliance are
expected to be between $0.5 and $1 million dollars and will be paid out of cash
flow. Additional system costs exceeding $8 million are not directly related to
Year 2000 but, as noted above, serve to solve Year 2000 issues. Direct costs
associated with the work performed to date were approximately $500 thousand
through March 31, 1999. The Year 2000 effort is expected to use approximately 5%
of Information Technology's 1999 budget.
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37
Risks and Contingency Planning
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. This may temporarily divert management's time and attention
from ordinary business activities. To the extent reasonably achievable, the
Company will seek to prevent or mitigate the effects of such possible failures
through its contingency planning efforts. The Company's contingency planning led
to development of the dual track compliance program described above. The
LoanXchange software has been delivered and testing continues; therefore, the
Company feels sufficient time exists to execute the contingency plan.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing the Company is interest rate risk. The
Company manages this risk by striving to balance its loan origination and loan
servicing business segments, which are countercyclical in nature. In addition,
the Company utilizes various financial instruments, including derivatives
contracts, to manage the interest rate risk related specifically to its
committed pipeline, mortgage loan inventory, mortgage backed securities held for
sale, servicing rights, leases and residual interests retained in
securitizations. The overall objective of the Company's interest rate risk
management policies is to mitigate potentially significant adverse effects that
changes in the values of these items resulting from changes in interest rates
might have on the Company's consolidated balance sheet. The Company does not
speculate on the direction of interest rates in its management of interest rate
risk.
For purposes of disclosure in the 1998 Annual Report on Form 10 K, the
Company performed various sensitivity analyses that quantify the net financial
impact of hypothetical changes in interest rates on its interest rate-sensitive
assets, liabilities and commitments. These analyses presume an instantaneous
parallel shift of the yield curve. Various techniques are employed to value the
underlying financial instruments which rely upon a number of critical
assumptions. Actual experience may differ materially from the estimated. To the
extent that yield curve shifts are non-parallel and to the extent that actual
variations in significant assumptions differ from those applied for purposes of
the valuations, the resultant valuations can also be expected to vary. Such
variances may prove material. The Company has procedures in place that monitor
whether material changes in market risk are likely to have occurred since
December 31, 1998. The Company does not believe that there have been any
material changes in market risk from those reported in the 1998 Annual Report on
Form 10 K.
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38
Part II. OTHER INFORMATION
Item 2. - Changes in Securities and Use of Proceeds
On February 1, 1999, the Company issued 93,520 shares of its common
stock, par value $0.01 per share, to David W. Johnson, Jr. These shares were
issued pursuant to the terms of Mr. Johnson's employment agreement dated as of
June 3, 1993 and represented a portion of his bonus for 1998. The fair market
value of the shares on the date of issuance to Mr. Johnson was $1,391,110 based
on the closing price of $14.875 per share on the NASDAQ Market System on such
date. The Company believes that the issuance of the shares to Mr. Johnson was
exempt from the registration requirements of the Securities Act of 1933, as
amended, under Section 4 (2) by virtue of his position as Vice Chairman and
Managing Director of the Company.
Item 6. - Exhibits and Reports on Form 8-K
- (a) A list of exhibits filed with this Form 10-Q, along with the
exhibit index can be found on pages A to F following the
signature page.
- (b) none
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39
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
(Registrant)
/s/ Steven F. Herbert
-----------------------------------------------
Steven F. Herbert
Senior Executive Vice President and
Chief Financial Officer
(signing in the capacity of (i) duly authorized
officer of the registrant and (ii) principal
financial officer of the registrant)
DATED: May 14, 1999
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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 incorporated by reference to Exhibit 3.5 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998
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 10-Q for the period
ended June 30, 1997
A
41
Exhibit No. Description Page
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10.1 Employment Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. as amended by amendment dated October 22, 1993
incorporated by reference to Exhibit 10.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
10.2 (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
B
42
Exhibit No. Description Page
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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
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 (A) Phantom 401(k) Plan incorporated by reference to exhibit 10.24 of the *
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994
(B) Amendment to Phantom 401(k) Plan _____
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
incorporated by reference to Exhibit 10.19 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 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
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43
Exhibit No. Description Page
- ----------- ----------- ----
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
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 and October 1, 1998 between the Registrant and The Resource
Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust
incorporated by reference to Exhibit 10.30 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998
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. 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 incorporated by reference to
Exhibit 10.34 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 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
D
44
Exhibit No. Description Page
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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 29, 1998 incorporated by reference to
Exhibit 10.37 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998
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 incorporated
by reference to Exhibit 10.41 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998
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
10.43 Third Amendment to Resource Bancshares Mortgage Group, Inc. *
Non-Qualified Stock Option Plan dated October 28, 1998 incorporated by
reference to Exhibit 10.43 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998
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
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45
Exhibit No. Description Page
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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 incorporated by reference to Exhibit
10.51 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998
10.52 Voluntary Employees' Beneficiary Association Plan for the Employees of _____
Resource Bancshares Mortgage Group, Inc.
11.1 Statement re: Computation of Net Income per Common Share _____
27.1 Financial Data Schedule _____
- ----------------------------------
* Incorporated by reference
F