-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ENZGjjZ6vcxW6d8zYlRZQsYnuC3T3iah4PlWg4cyFHR6q1Ty+PHK0GQdg+HXrU9U vkGFHwaaVonpGCkJC+IfBA== 0000950144-97-012422.txt : 19971117 0000950144-97-012422.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950144-97-012422 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE BANCSHARES MORTGAGE GROUP INC CENTRAL INDEX KEY: 0000893817 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 570962375 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21786 FILM NUMBER: 97721676 BUSINESS ADDRESS: STREET 1: 7909 PARKLANE ROAD SUITE 150 CITY: COLUMBIA STATE: SC ZIP: 29223 BUSINESS PHONE: 8037413000 MAIL ADDRESS: STREET 1: 7909 PARKLANE RD SUITE 150 STREET 2: 7909 PARKLANE RD SUITE 150 CITY: COLUMBI STATE: SC ZIP: 29223 10-Q 1 RESOURCE BANCSHARES MORTGAGE CORP 10-Q 9-30-1997 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 September 30, 1997 ------------------ or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ----------------- Commission File Number 000-21786 --------- RESOURCE BANCSHARES MORTGAGE GROUP, INC. ------------------------------------------------------------------- (Exact name of registrant as specified in its charter) STATE OF DELAWARE 57-0962375 - ------------------------------------------ ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7909 Parklane Road, Columbia, SC 29223 - ------------------------------------------ ------------------------------------ (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code (803)741-3000 ------------------------------ Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the registrant was required to file reports) and has been subject to such filing requirements for the past 90 days. YES X NO ------- ------ The number of shares of common stock of the Registrant outstanding as of October 31, 1997, was 20,320,046 (21,336,048 after giving effect to the 5% stock dividend declared on October 31, 1997). Page 1 Exhibit Index on Pages A to D 2 RESOURCE BANCSHARES MORTGAGE GROUP, INC. Form 10-Q for the quarter ended September 30, 1997 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 --------------------------------------------- PART II. OTHER INFORMATION 24 - ------- ------------------ ITEM 6. Exhibits and Reports on Form 8-K 24 - ------- -------------------------------- SIGNATURES 25 - ---------- EXHIBIT INDEX A-D - -------------
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED BALANCE SHEET ($ in thousands)
September 30, December 31, 1997 1996 ------------- ------------ ASSETS (Unaudited) Cash $ 8,939 $ 2,492 Residual certificate 7,550 Receivables 96,882 60,668 Mortgage-backed securities 196,675 123,447 Mortgage loans held for sale 893,656 678,888 Mortgage servicing rights, net 128,713 109,815 Premises and equipment, net 24,287 21,135 Goodwill and other intangibles 8,221 Accrued interest on loans held for sale 4,004 4,491 Other assets 35,217 27,458 ----------- ----------- Total assets $ 1,404,144 $ 1,028,394 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Short-term borrowings $ 1,129,065 $ 805,730 Long-term borrowings 6,485 Accrued expenses 13,438 11,386 Other liabilities 76,573 53,977 ----------- ----------- Total liabilities 1,225,561 871,093 ----------- ----------- Stockholders' equity Common stock 210 193 Additional paid-in capital 171,151 149,653 Retained earnings 11,190 12,007 Unearned shares of employee stock ownership plan (3,968) (4,552) ----------- ----------- Total stockholders' equity 178,583 157,301 ----------- ----------- Total liabilities and stockholders' equity $ 1,404,144 $ 1,028,394 =========== ===========
See accompanying notes to consolidated financial statements. 3 4 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED STATEMENT OF INCOME ($ in thousands, except share information) (Unaudited)
For the Nine Months Ended For the Three Months Ended September 30, September 30, ------------------------------- -------------------------------- 1997 1996 1997 1996 ------------ ------------ ------------- ------------ REVENUES Interest income $ 53,301 $ 49,809 $ 21,613 $ 14,508 Interest expense (39,115) (37,029) (17,078) (10,008) ------------ ------------ ------------ ------------ Net interest income 14,186 12,780 4,535 4,500 Net gain on sale of mortgage loans 71,578 59,348 29,328 19,312 Gain on sale of mortgage servicing rights 5,948 964 3,237 775 Loan servicing fees 23,049 21,379 7,711 7,520 Other income 572 404 146 106 ------------ ------------ ------------ ------------ Total revenues 115,333 94,875 44,957 32,213 ------------ ------------ ------------ ------------ EXPENSES Salary and employee benefits 43,631 37,830 16,487 12,315 Occupancy expense 5,328 4,125 1,886 1,485 Amortization of mortgage servicing rights 13,673 11,064 4,840 3,748 General and administrative expenses 29,580 14,608 17,837 4,858 ------------ ------------ ------------ ------------ Total expenses 92,212 67,627 41,050 22,406 ------------ ------------ ------------ ------------ Income before income taxes 23,121 27,248 3,907 9,807 Income tax expense (8,713) (10,340) (1,340) (3,626) ------------ ------------ ------------ ------------ Net income $ 14,408 $ 16,908 $ 2,567 $ 6,181 ============ ============ ============ ============ Weighted average shares (retroactively 20,902,473 18,916,081 21,260,707 19,914,160 adjusted for the 5% stock dividend declared ============ ============ ============ ============ on October 31, 1997)* Net income per common share $ 0.69 $ 0.89 $ 0.12 $ 0.31 ============ ============ ============ ============
* The provisions of Accounting Principles Board Opinion No. 15, "Earnings per Share" required that the Company, effective for the first quarter of 1997, prospectively commence to report net income per common share on a primary earnings per share basis. Accordingly, the weighted average shares outstanding for the third quarter of 1997 and the nine months ended September 30, 1997 includes common stock equivalents while such equivalents are excluded for the comparable periods of the prior year. See accompanying notes to consolidated financial statements. 4 5 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ($ in thousands, except share information) (Unaudited)
Unearned Common Stock Additional Shares of Employee Nine Months Ended ----------------------- Paid-in Retained Stock Ownership September 30, 1996 Shares Amount Capital Earnings Plan Total - --------------------------- ---------- --------- --------- ---------- --------- -------- Balance, December 31, 1995 14,550,462 $ 146 $ 84,533 $ 10,725 $ (2,000) $ 93,404 Issuance of restricted stock 16,410 * 256 256 Net proceeds of public offering 3,426,552 34 47,417 47,451 Stock dividend adjustment 1,261,332 13 17,115 (17,128) Cash dividend (542) (542) Shares committed to be released under ESOP 111 300 411 Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 25,107 * 157 157 Loans to ESOP (2,365) (2,365) Net income 16,908 16,908 ---------- ----- -------- -------- -------- -------- Balance, September 30, 1996 19,279,863 $ 193 $149,589 $ 9,963 $ (4,065) $155,680 ========== ===== ======== ======== ======== ========
Unearned Common Stock Additional Shares of Employee Nine Months Ended ---------------------- Paid-in Retained Stock Ownership September 30, 1997 Shares Amount Capital Earnings Plan Total - --------------------------- ---------- -------- --------- -------- -------- ------- Balance, December 31, 1996 19,285,020 $ 193 $149,653 $12,007 $(4,552) $157,301 Issuance of restricted stock 23,528 * 328 328 Cash dividends (1,739) (1,739) Acquisition of Meritage Mortgage Corporation 673,197 6 7,162 7,168 Exercise of stock options 62,000 1 379 380 Shares committed to be released under ESOP 213 584 797 Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 5,599 * 18 (78) (60) Retroactive adjustment for the 5% stock dividend declared on October 31, 1997 1,002,467 10 13,398 (13,408) Net income 14,408 14,408 ---------- ----- -------- ------- ------- -------- Balance, September 30, 1997 21,051,811 $ 210 $171,151 $11,190 $(3,968) $178,583 ========== ===== ======== ======= ======= ========
* Amount less than $1 See accompanying notes to consolidated financial statements. 5 6 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS ($ in thousands) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 14,408 $ 16,908 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation and amortization 16,191 12,980 Employee Stock Ownership Plan compensation 797 291 Provision for estimated foreclosure losses 2,605 Increase in receivables (36,214) (1,451) Acquisition of mortgage loans (7,799,804) (7,928,301) Proceeds from sales of mortgage loans and mortgage-backed securities 7,583,386 8,279,643 Acquisition of mortgage servicing rights (175,232) (174,941) Sales of mortgage servicing rights 146,004 157,532 Net gain on sales of mortgage loans and servicing rights (77,526) (60,312) Decrease in accrued interest on loans 487 4,757 Increase in other assets (6,679) (8,948) Increase in residual certificates (7,550) Increase in accrued expenses and other liabilities 24,648 3,162 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (314,479) 301,320 - ----------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Purchases of premises and equipment, net (5,500) (6,587) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (5,500) (6,587) - ----------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from borrowings 20,666,472 25,933,824 Repayment of borrowings (20,336,652) (26,272,671) Issuance of restricted stock 328 256 Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan (60) 157 Acquisition of Meritage Mortgage Corporation (1,750) Debt issuance costs (553) Cash dividends (1,739) (542) Net proceeds of public offering 47,451 Exercise of stock options 380 Loans to Employee Stock Ownership Plan (1,954) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 326,426 (293,479) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in cash 6,447 1,254 Cash, beginning of period 2,492 2,161 - ----------------------------------------------------------------------------------------------------------------------------------- Cash, end of period $ 8,939 $ 3,415 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 6 7 RESOURCE BANCSHARES MORTGAGE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 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, 1996, 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 and financial position for the periods shown have been made. Certain prior period amounts have been reclassified to conform to current period presentation. In June 1996 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. SFAS No. 125 is based upon consistent application of a financial-components approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. The Company adopted SFAS No. 125 effective January 1, 1997, as required. The requirements of SFAS No. 125 are substantially the same as those which were previously applicable to the Company pursuant to the provisions of SFAS No. 122, "Accounting for Mortgage Servicing Rights-An Amendment of FASB Statement No. 65." Accordingly, adoption of SFAS No. 125 had no material impact on the Company. As required by Accounting Principles Board Opinion No. 15, "Earnings per Share," the Company has prospectively implemented a policy of reporting primary earnings per share effective beginning in the first quarter of 1997. In February 1997 the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share", which is effective for financial statements issued for periods ending after December 15, 1997. Early adoption of SFAS No. 128 is not permitted. Basic and diluted earnings per share for the third quarter of 1997 reported pursuant to the provisions of SFAS No. 128 after retroactive adjustment for a 5% stock dividend declared on October 31, 1997, would both be $0.12. Basic and diluted earnings per share for the first nine months of 1997 reported pursuant to the provisions of SFAS No. 128 after retroactive adjustment for a 5% stock dividend declared on October 31, 1997, would be $0.71 and $0.69, respectively. Adoption of SFAS No. 128 should not result in any change in earnings per share for 1996 and prior periods. Effective April 1, 1997, the Company completed a merger with Meritage Mortgage Corporation (Meritage), in which it exchanged approximately $1.75 million of cash and 537,846 (564,738 after retroactive adjustment for the 5% stock dividend declared on October 31, 1997) noncontingent shares of RBMG common stock for all the outstanding stock of Meritage. This transaction was accounted for under the purchase method of accounting. In addition, 406,053 (426,355 after retroactive adjustment for the 5% stock dividend declared on October 31, 1997) shares of RBMG common stock were issued contingent upon Meritage achieving specified increasingly higher levels of subprime mortgage production during the 31 months following closing. During the third quarter, 135,351 (142,118 after retroactive adjustment for the 5% stock dividend declared on October 31, 1997) contingent shares of RBMG common stock were released. The fair market value of 7 8 the remaining contingent shares has been excluded from the purchase price for purposes of recording goodwill and from outstanding shares for purposes of earnings per share computations. As each specified increasingly higher subprime mortgage production level is achieved, the corresponding fair market value of the associated contingent shares will be recorded as additional goodwill and such shares will prospectively be treated as outstanding for purposes of earnings per share computations. The purchase price for the Meritage merger has been allocated to tangible and identifiable assets and liabilities based upon management's estimate of their respective fair values with the excess of estimated cost over the fair value of the net assets acquired allocated to goodwill. Goodwill and other intangible assets are being amortized over a 20 year period using the straight line method. Amortization expense for the third quarter and nine month periods ended September 30, 1997 was approximately $103 and $181, respectively. In connection with the acquisition, the following is a schedule of the allocation of the purchase price:
Release of Through At Acquisition Contingent September on April 1, 1997 Shares 30, 1997 ---------------- ---------- --------- Cash paid $ 1,750 $ - $ 1,750 Estimated fair market value of shares of RBMG common stock issued or released 4,748 2,441 7,189 Deferred merger cost 463 - 463 ---------------- ---------- --------- Total purchase price 6,961 2,441 9,402 Fair value of net assets acquired 1,000 - 1,000 ---------------- ---------- --------- Goodwill and intangibles $ 5,961 $ 2,441 $ 8,402 ================ ========== =========
On April 18, 1997 the Company entered into separate definitive merger agreements with Resource Bancshares Corporation (RBC) and Walsh Holding Co., Inc. (Walsh) pursuant to which the Company, subject to approval by shareholders of the Company and satisfaction of other terms and conditions, would acquire all of the outstanding shares of RBC and Walsh. On November 3, 1997, the Company and Walsh announced mutual termination of their merger agreement. Accordingly, during the third quarter of 1997, the Company recorded a $2.3 million ($1.4 million after-tax) charge related to joint termination of the Company's merger agreement with Walsh. During the second quarter of 1997, the Company sold approximately $107 million of subprime mortgage loans to Walsh and recognized a gain of approximately $3.7 million on those sales. Approximately $76 million of such loans were included in a Walsh securitization which was completed in June of 1997. The remaining loans were expected to be included in Walsh's next securitization. However, during the third quarter the Company repurchased the remaining $31 million of loans from Walsh and included those loans in its first subprime securitization transaction which was completed on September 29, 1997. Also during the third quarter, the Company advanced approximately $3.8 million to Walsh in connection with certain other transactions. In conjunction therewith at September 30, 1997, receivables of approximately $9.9 million are outstanding and due from Walsh to the Company. Such receivables are cross-collateralized and secured by an interest in a residual certificate and certain other assets. The Company remains committed to completion of its pending merger with RBC. RBC, a financial services company, originates and purchases, sells and services small-ticket equipment leases through its Republic Leasing Company division and originates and services commercial mortgage loans through its Laureate subsidiaries. RBC, as of September 30, 1997, owned approximately 36% of the Company's common stock. Pursuant to the terms of the definitive merger agreement between RBC and the Company and subject to shareholder and regulatory approvals, RBC will merge with the Company in a transaction that will be accounted for under the purchase method of accounting. The agreement provides for the Company to issue approximately 2 million additional shares of common stock, 2.1 million after giving effect to the 5% stock dividend declared on October 31, 1997, (in addition to the 7.4 million shares of Company stock currently owned by RBC, 7.8 million shares after giving effect to the 5% stock dividend declared on October 31, 1997) to the shareholders of RBC. As of September 30, 1997 the Company has deferred approximately $1.0 million of merger costs related to this transaction. During 1995 and 1996 the Company's scale of operations grew dramatically as did the balances in its operating receivable accounts. The rapid growth outpaced the Company's back-office capacities to timely process activities and research, review, resolve and collect on the resultant items. During a third quarter review it became apparent that $7.9 million of operating receivables may be unrecoverable due to passage of time, an associated practical inability to conduct further research and other reasons. Accordingly, the Company recorded a special charge of $7.9 million ($4.8 million after-tax) to fully-reserve the items. 8 9 RESOURCE BANCSHARES MORTGAGE GROUP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Financial Information, the Consolidated Financial Statements of the Company (and the notes thereto) and the other information included or incorporated by reference into the Company's 1996 Annual Report on Form 10-K and the interim Consolidated Financial Statements contained herein. Any statements made below (or elsewhere in this document) that are not statements of historical fact and could be considered forward-looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995 are subject to risks and uncertainties that could cause actual results to differ materially. Such risks and uncertainties include, but are not limited to, those related to overall business conditions in the mortgage markets in which RBMG operates, fiscal and monetary policy, competitive products and pricing, credit risk management, changes in regulations affecting financial institutions and other risks and uncertainties discussed from time to time in the Company's SEC filings, including its 1996 Form 10-K. The Company disclaims any obligation to publicly announce future events or developments that affect the forward-looking statements herein. THE COMPANY The Company was organized under Delaware law in 1992 to acquire and operate the mortgage banking business of Resource Bancshares Corporation (RBC), which commenced operations in May 1989. The assets and liabilities of the mortgage banking business of RBC were transferred to the Company on September 3, 1993, when the Company sold 58% of its common stock in an initial public offering. As a result, RBC retained a significant ownership interest in the Company. As of September 30, 1997, RBC owns approximately 36% of the outstanding common stock of the Company. The Company is principally engaged in the purchase and origination of mortgage loans, which it aggregates into mortgage-backed securities issued or guaranteed by Freddie Mac, Fannie Mae and Ginnie Mae. The Company sells the mortgage-backed securities it creates to institutional purchasers with the rights to service the underlying loans being retained by the Company. The servicing rights retained are generally sold separately but may be held for extended periods by the Company. LOAN PRODUCTION A summary of loan production by source for the periods indicated is set forth below:
($in thousands) Nine Months Ended September 30, Quarter Ended September 30, (Unaudited) ------------------------------- ------------------------------- 1997 1996 1997 1996 ----------- ---------- ----------- ----------- Loan Production: Correspondent Division $5,690,799 $6,310,198 $2,136,619 $1,725,329 Wholesale Division 1,349,408 1,077,812 501,239 341,116 Retail Division 509,528 503,654 195,655 193,235 Subprime 230,199 96,441 ---------- ---------- ---------- ---------- Total Loan Production $7,779,934 $7,891,664 $2,929,954 $2,259,680 ========== ========== ========== ==========
10 10 A summary of key information relevant to industry loan production activity is set forth below:
($ in thousands) At or For the Quarter Ended September 30, (Unaudited) ----------------------------------------- 1997 1996 ---------------- ------------------- U. S. 1-4 Family Mortgage Originations Statistics (1) U. S. 1-4 Family Mortgage Originations $239,000,000 $184,000,000 Adjustable Rate Mortgage Market Share 20.00% 32.00% Estimated Fixed Rate Mortgage Originations $191,000,000 $125,000,000 Company Information Loan Production $ 2,929,954 $ 2,259,680 Estimated Company Market Share 1.23% 1.23%
(1) Source: Mortgage Bankers Association of America, Economics Department. Mortgage loan production increased 30% to $2.9 billion for the third quarter of 1997 from $2.3 billion for the third quarter of 1996. The net increase in loan production is primarily due to an estimated 53% increase in fixed rate mortgage origination volume between the comparable periods. Historically, the Company has been focused on purchasing loans through its correspondents. In order to diversify its sources of loan volume, the Company started a wholesale operation that purchased its first loan in May 1994, a retail operation which originated its first loan in May 1995 and a subprime division which was started in mid-1996, but did not commence significant business operations until the first quarter of 1997. Correspondent Loan Production The Company purchases mortgage loans through a network of approved correspondents, which handle the majority of the loan origination functions. The Company's correspondents are primarily mortgage lenders, large mortgage brokers and smaller savings and loan associations and commercial banks. The Company continues to emphasize correspondent loan production as its primary business focus because of the lower fixed expenses and capital investment required of the Company. That is, the Company can develop a cost structure that is more directly variable with loan production because the correspondent incurs most of the fixed costs of operating and maintaining branch office networks and of identifying and interacting directly with loan applicants. A summary of key information relevant to the Company's correspondent loan production activities is set forth below:
($ in thousands) At or For the Nine Months Ended At or For the Quarter Ended (Unaudited) September 30, September 30, ---------------------------------- --------------------------------- 1997 1996 1997 1996 ---------------- ---------------- ----------------- -------------- Correspondent Loan Production $ 5,690,799 $ 6,310,198 $ 2,136,619 $ 1,725,329 Estimated Correspondent Market Share 0.88% 1.06% 0.89% 0.94% Approved Correspondents 934 849 934 849
The 24% increase in correspondent loan production to $2.1 billion for the third quarter of 1997 from $1.7 billion for the third quarter of 1996 was primarily due to the nationwide increase in mortgage production which resulted primarily from the improved mortgage interest rate environment during the third quarter of 11 11 1997 as compared to the same period of the previous year. The Company's correspondent loan production increase is also attributable to the decline in the adjustable rate mortgage (ARM) share of the U.S. market to an estimated 20% for the third quarter of 1997 from an estimated 32% for the third quarter of 1996. The Company is primarily focused on the purchase and origination of fixed rate 1-4 family residential mortgage loans and therefore is more competitively advantaged in economic environments that favor fixed rate mortgages over ARMs. The number of approved correspondents increased by 85 or 10% to 934 at September 30, 1997, from 849 at September 30, 1996. Wholesale Loan Production The Company receives loan applications at its wholesale branches from its network of approved brokers, underwrites the loans, funds the loans at closing and prepares all closing documentation. The wholesale branches also handle shipping and follow-up procedures on these loans. Although the establishment of wholesale branch offices involves the incurrence of the fixed expenses associated with maintaining those offices, wholesale operations also provide for higher profit margins than correspondent loan production. Additionally, each branch office can serve a relatively sizable geographic area by establishing relationships with large numbers of independent mortgage loan brokers who bear much of the cost of identifying and interacting directly with loan applicants. A summary of key information relevant to the Company's wholesale production activities is set forth below:
($ in thousands) At or For the Nine Months At or For the Quarter (Unaudited) Ended September 30, Ended September 30, ------------------------------------ --------------------------------- 1997 1996 1997 1996 --------------- ----------------- -------------- --------------- Wholesale Loan Production $ 1,349,408 $ 1,077,812 $ 501,239 $ 341,116 Estimated Wholesale Market Share 0.21% 0.18% 0.21% 0.19% Wholesale Division Direct Operating Expenses $ 8,029 $ 6,363 $ 3,065 $ 2,107 Approved Brokers 2,956 2,147 2,956 2,147 Number of Branches 14 12 14 12 Number of Employees 126 118 126 118
The $160.1 million, or 47% increase in wholesale loan production to $501.2 million for the third quarter of 1997 from $341.1 million for the third quarter of 1996 relates to the Company's addition of two new branches and over 800 new brokers between September 30, 1996 and September 30, 1997. The increase is also attributable to the overall nationwide increase in mortgage loan production for the third quarter of 1997 compared to the third quarter of 1996. Retail Loan Production In order to further diversify its sources of revenue, the Company started a retail division in May 1995. Each retail branch handles all aspects of loan origination, from taking the application, to processing, underwriting and closing the mortgage loan. A summary of key information relevant to the Company's retail production activities is set forth below:
($ in thousands) At or For the Nine Months At or For the Quarter (Unaudited) Ended September 30, Ended September 30, --------------------------------- ---------------------------------- 1997 1996 1997 1996 ----------------- -------------- -------------- ----------------- Retail Loan Production $ 509,528 $ 503,654 $ 195,655 $ 193,235 Estimated Retail Market Share 0.08% 0.08% 0.08% 0.11% Retail Division Operating Expenses $ 12,700 $ 11,785 $ 4,407 $ 3,953 Number of Branches 6 6 6 6 Number of Employees 218 201 218 201
The Company's retail loan production remained generally consistent for the quarter and nine months ended September 30, 1996 and September 30, 1997. The division's operating expenses increased slightly for the 12 12 third quarter and first nine months of 1997 compared to the same periods of the prior year because of the increased number of employees at September 30, 1997 compared to September 30, 1996. The number of employees increased as a result of the opening of four new satellite offices. Strategically, the Company remains focused on accumulation of loan production through third-party correspondent and wholesale broker channels because of the relatively lower fixed expenses and capital investments required, among other reasons. As part of its ongoing business processes, the Company in conjunction with an investment banking firm, is currently reviewing the compatibility of the retail operation with its primary business focus. A number of strategic alternatives are being considered in by the Company. Subprime Loan Production A summary of key information relevant to the Company's subprime production activities that were started in mid-1996, but did not commence significant business operations until the first quarter of 1997 is set forth below:
($ in thousands) At or For the Nine Months At or For the Quarter (Unaudited) Ended September 30, Ended September 30, ---------------------------------- ---------------------------------- 1997 1996 1997 1996 ----------------- -------------- ----------------- --------------- Subprime Loan Production $ 230,199 N/A $ 96,441 N/A Subprime Division Operating Expenses $ 6,729 N/A $ 3,200 N/A Number of Brokers 661 N/A 661 N/A Number of Employees 116 N/A 116 N/A
During the third quarter of 1997, the Company originated/purchased $96.4 million in subprime mortgage loans through its retail telemarketing and wholesale broker channels. The subprime division served 661 brokers as of September 30, 1997. LOAN SERVICING A summary of key information relevant to the Company's loan servicing activities is set forth below:
($ in thousands) At or For the Nine Months At or For the Quarter (Unaudited) Ended September 30, Ended September 30, ------------------------------------ -------------------------------- 1997 1996 1997 1996 ----------------- ----------------- -------------- --------------- Underlying Unpaid Principal Balances: Beginning Balance $ 6,670,267 $ 5,562,930 $ 7,239,065 $ 5,926,199 Loan Production (net of servicing released production) 7,864,319 7,839,837 3,054,529 2,234,824 Net Change in Work-in-Process (379,131) 297,635 (142,736) 231,201 Bulk Acquisitions 774,097 1,354,592 1,293,705 Sales of Servicing (7,102,140) (7,744,335) (2,801,046) (2,778,861) Paid-In-Full Loans (486,965) (331,688) (201,385) (85,349) Amortization, Curtailments and Others, net (344,081) (438,897) (152,061) (281,645) ------------ ------------ ------------ ------------ Ending Balance $ 6,996,366 $ 6,540,074 $ 6,996,366 $ 6,540,074 ------------ ------------ ------------ ------------ Subservicing Ending Balance 3,066,256 2,888,014 3,066,256 2,888,014 ============ ============ ============ ============ Total Underlying Unpaid Principal Balances $ 10,062,622 $ 9,428,088 $ 10,062,622 $ 9,428,088 ============ ============ ============ ============ Loan Servicing Fees $ 23,049 $ 21,379 $ 7,711 $ 7,520 Cash Operating Expenses 78,539 56,563 36,210 18,658 Coverage Ratio 29% 38% 21% 40% Average Underlying Unpaid Principal Balances (including subservicing) $ 9,225,094 $ 8,796,418 $ 9,683,313 $ 8,974,362 Weighted Average Note Rate* 7.82% 7.91% 7.82% 7.91% Weighted Average Servicing Fee* 0.41% 0.39% 0.41% 0.39% Delinquency (30+ days)* 3.76% 3.73% 3.76% 3.73% Number of Servicing Division Employees 125 128 125 128
* These statistics apply to the Company's owned servicing portfolio. The $709.0 million or 8% increase in the average underlying unpaid principal balance of mortgage loans being serviced for the third quarter of 1997 as compared to the third quarter of 1996 is primarily related to bulk acquisitions of $774.1 million during the first nine months of 1997. 13 13 RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 SUMMARY Total revenues of the Company increased 22% to $115.3 million for the first nine months of 1997 as compared to $94.9 million for the first nine months of 1996. The $20.4 million increase in revenues was primarily due to a $17.2 million increase in gains on sales of loans and servicing rights. This increase was offset by a $22.0 million increase in operating expenses (exclusive of amortization of mortgage servicing rights and taxes). The increase in gains on sales of loans and servicing rights is primarily due to improved production margins and gains derived from the Company's growing subprime division. The increase in operating expenses is primarily attributable to a $2.3 million pre-tax charge related to joint termination of the Company's merger agreement with Walsh Holding Company, Inc. and a special charge of $7.9 million pre-tax for nonrecoverable operating receivables. Higher operating costs associated with increased loan servicing volumes and the Company's expansion of subprime operations also contributed to the increase. Direct operating costs related to the Company's expansion into subprime operations account for approximately $6.7 million, or 31%, of the total increase in operating expenses (exclusive of amortization and taxes) for the first nine months of 1997. The following sections discuss the components of the Company's results of operations in greater detail. NET INTEREST INCOME The following table analyzes net interest income in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest rates paid on interest-bearing sources of funds) for the nine months ended September 30, 1997 and September 30, 1996. All dollars are in thousands; the information presented is unaudited.
Variance Average Volume Average Rate Interest Attributable to - ---------------------------------------- ---------------- ----------------- 1997 1996 1997 1996 1997 1996 Variance Rate Volume - ---------------------------------------- ------------------------------------------------ INTEREST INCOME Mortgages Held for Sale $909,185 $864,901 7.82% 7.68% and Mortgage-Backed $53,301 $49,809 $3,492 $ 942 $2,550 - ---------------------------------------- Securities ------------------------------------------------ INTEREST EXPENSE $436,248 $321,643 4.88% 4.60% Warehouse Line $15,916 $11,071 $4,845 $ 900 $3,945 446,697 516,397 5.59% 5.64% Gestation Line 18,680 21,788 (3,108) (167) (2,941) 20,486 8.19% Servicing Secured Line 1,256 (1,256) (1,256) 58,493 20,363 6.44% 5.87% Servicing Receivable Line 2,819 894 1,925 247 1,678 4,213 10,475 8.13% 8.50% Other Borrowings 256 667 (411) (12) (399) Facility Fees & Other Charges 1,444 1,353 91 91 - ---------------------------------------- ------------------------------------------------ $945,651 $889,364 5.53% 5.56% Total Interest Expense $39,115 $37,029 $2,086 $ 968 $1,118 - ---------------------------------------- ------------------------------------------------ 2.29% 2.12% Net Interest Income $14,186 $12,780 $1,406 $ (26) $1,432 ================= ================================================
Net interest income increased 11% to $14.2 million for the first nine months of 1997 compared to $12.8 million for the first nine months of 1996. The $1.4 million increase in net interest income is primarily attributable to an increase of 17 basis points in the interest-rate spread to 229 basis points for 1997 as compared to 212 basis points for 1996. The increased spread is primarily attributed to inclusion of higher yielding subprime production in the current year's inventory of mortgages held for sale. 14 14 NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS Net gains on sales of mortgage loans and mortgage servicing rights increased $17.2 million to $77.5 million for the first nine months of 1997 as compared to $60.3 million for the first nine months of 1996. As further discussed below, this increase is primarily due to increased profit margins on sales of mortgage loans and mortgage servicing rights. Net Gain on Sale of Mortgage Loans A reconciliation of the gain on sale of agency-eligible mortgage loans for the periods indicated follows:
($ in thousands) For the Nine Months Ended September 30, ------------------------------ (Unaudited) 1997 1996 ----------- ----------- Gross proceeds on sales of mortgage loans $ 7,426,512 $ 8,279,643 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results 7,422,340 8,271,259 ----------- ----------- Unadjusted gain on sale of mortgage loans 4,172 8,384 Loan origination and correspondent program administrative fees 23,852 26,921 ----------- ----------- Unadjusted aggregate margin 28,024 35,305 Acquisition basis allocated to mortgage servicing rights (SFAS No. 122 and SFAS No. 125) 32,661 24,338 Net change in deferred administrative fees 1,394 (295) ----------- ----------- Net gain on sale of agency-eligible mortgage loans $ 62,079 $ 59,348 =========== ===========
The Company sold agency-eligible loans during the first nine months of 1997 with an aggregate unpaid principal balance of $7.4 billion compared to sales of $8.3 billion for the first nine months of 1996. The amount of proceeds received on sales of mortgage loans exceeded the initial unadjusted acquisition cost of the loans sold by $4.2 million (6 basis points) for the first nine months of 1997 as compared to $8.4 million (10 basis points) for the first nine months of 1996. The Company received administrative fees of $23.9 million (32 basis points) on these loans during the first nine months of 1997 and $26.9 million (33 basis points) during the first nine months of 1996. The Company allocated $32.7 million (44 basis points) in the first nine months of 1997 to basis in mortgage servicing rights versus $24.3 million (29 basis points) during the first nine months of 1996 in accordance with SFAS No. 125 and SFAS No. 122. Net gain on sale of mortgage loans increased to $62.1 million for the first nine months of 1997 versus $59.3 million for the same period of 1996. A reconciliation of the gain on sale of subprime mortgage loans for the periods indicated follows:
($ in thousands) For the Nine Months Ended September 30, ---------------------------- (Unaudited) 1997 1996 ---------- --------- Gross proceeds on sales of subprime mortgage $230,102 N/A loans Initial acquisition cost of subprime mortgage loans sold, net of fees 228,153 N/A -------- --- Unadjusted gain on sale of subprime mortgage loans 1,949 N/A Initial capitalization of residual certificate 7,550 N/A -------- --- Net gain on sale of subprime mortgage loans $ 9,499 N/A ======== ===
On September 29, 1997, the Company completed its first securitization of subprime mortgage loans through its newly-formed and wholly-owned subsidiary, RBMG Funding Co. The asset-backed transaction was collateralized by $91.7 million of subprime mortgage loans. The residual certificate was valued by an independent third party and will be marked to market on a quarterly basis. 15 15 Gain on Sale of Mortgage Servicing Rights A reconciliation of the components of gain on sale of mortgage servicing rights for the periods indicated follows:
($ in thousands) For the Nine Months Ended September 30, ---------------------------- (Unaudited) 1997 1996 ----------- ----------- Underlying unpaid principal balances of mortgage loans on which servicing rights were sold during the period $ 6,584,487 $ 7,751,124 =========== =========== Gross proceeds from sales of mortgage servicing rights $ 146,004 $ 157,532 Initial acquisition basis, net of amortization and hedge results 113,158 132,628 ----------- ----------- Unadjusted gain on sale of mortgage servicing rights 32,846 24,904 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 122 and SFAS No. 125) (26,898) (23,940) =========== =========== Gain on sale of mortgage servicing rights $ 5,948 $ 964 =========== ===========
During the first nine months of 1997, the Company completed 25 sales of mortgage servicing rights representing $6.6 billion of underlying unpaid principal mortgage loan balances. This compares to 26 sales of mortgage servicing rights representing $7.8 billion of underlying unpaid principal mortgage loan balances in the first nine months of 1996. Unadjusted gain on sale of mortgage servicing rights was $32.8 million for the first nine months of 1997, up from $24.9 million for the first nine months of 1996. The Company reduced this unadjusted gain by $26.9 million (41 basis points) in the first nine months of 1997 versus a $23.9 million (31 basis points) reduction in the first nine months of 1996, in accordance with SFAS No. 125 and SFAS No. 122. The $5.0 million increase in gain on sale of mortgage servicing rights is primarily related to several bulk sales of available-for-sale mortgage servicing rights during the first nine months of 1997. NET SERVICING MARGIN Loan servicing fees were $23.0 million for the first nine months of 1997, compared to $21.4 million for the first nine months of 1996, an increase of 8%. This increase is primarily related to an increase in the average aggregate underlying unpaid principal balance of mortgage loans serviced to $9.2 billion during the first nine months of 1997 from $8.8 billion during the first nine months of 1996, an increase of 5%. Similarly, amortization of mortgage servicing rights also increased to $13.7 million during the first nine months of 1997 from $11.1 million during the first nine months of 1996, an increase of 23%. As a result, net servicing margin decreased to $9.4 million during the first nine months of 1997, compared to $10.3 million for the first nine months of 1996, a decrease of 9%. Included in loan servicing fees for the first nine months of 1997 and the first nine months of 1996 are subservicing fees received by the Company of $367,000 and $858,000, respectively. The subservicing fees are associated with temporary subservicing agreements between the Company and purchasers of mortgage servicing rights. 16 16 The following table summarizes the net servicing margin for the first nine months of both 1997 and 1996:
($ in thousands) For the Nine Months Ended September 30, --------------------------- (Unaudited) 1997 1996 ---------- ---------- Loan servicing fees $ 23,049 $ 21,379 Amortization of mortgage servicing rights 13,673 11,064 ---------- ---------- Net servicing margin $ 9,376 $ 10,315 ========== ========== Average underlying unpaid principal balance of mortgage loans serviced $9,225,094 $8,796,418 ---------- ----------
EXPENSES The $22.0 million increase in operating expenses (excluding amortization of mortgage servicing rights) was centered in salary and employee benefits and general and administrative expenses which increased $5.8 million, or 15% and $15.0 million, or 102%, respectively. The Company increased its employee headcount by 107 from 1,028 at September 30, 1996, to 1,135 at September 30, 1997. The increased employee headcount and associated increase in salary and employee benefit costs are primarily attributable to expansion of subprime operations through the Company's acquisition of Meritage Mortgage Corporation. Overall, the subprime division accounted for 116 new positions and for $6.7 million of the total $22.0 million increase in operating expenses. The increase in general and administrative expenses is primarily attributable to a $2.3 million pre-tax charge related to termination of the Company's merger agreement with Walsh Holding Company, Inc. and the recording of a special charge of $7.9 million pre-tax relating to certain nonrecoverable operating receivables. INCOME TAX EXPENSE Income tax expense includes both federal and state income taxes. The effective tax rates for the nine months ended September 30, 1997 and 1996 were 37.7% and 37.9%, respectively. Income tax expense decreased by 16% to $8.7 million for the first nine months of 1997 from $10.3 million for the first nine months of 1996 due to the above-described factors that resulted in a 15% or $4.1 million decrease in income before taxes. RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1997, COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996 SUMMARY Total revenues of the Company increased 40% to $45.0 million for the third quarter of 1997 as compared to $32.2 million for the third quarter of 1996. The $12.7 million increase in revenues was primarily due to a $12.5 million increase in gains on sales of loans and servicing rights, which was offset by a $17.6 million increase in operating expenses (exclusive of amortization of mortgage servicing rights and taxes). The increase in gains on sales of loans and servicing rights is attributable to the Company's increased loan production volumes during the third quarter of 1997 and to improved production margins and gains derived from the Company's growing subprime division. The increase in operating expenses is primarily attributable to a $2.3 million pre-tax charge related to termination of the Company's merger agreement with Walsh Holding Company, Inc. and a special charge of $7.9 million pre-tax for nonrecoverable operating receivables. Higher operating costs associated with increased loan servicing volumes and the Company's expansion of subprime operations also contributed to the increase. Direct operating costs related to the Company's expansion into subprime operations account for approximately $3.2 million, or 18%, of the total increase in operating expenses (exclusive of amortization and taxes) for the third quarter of 1997. 17 17 The following sections discuss the components of the Company's results of operations in greater detail. NET INTEREST INCOME The following table analyzes net interest income in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest rates paid on interest-bearing sources of funds) for the third quarter of 1997 and the third quarter of 1996. All dollars are in thousands; the information presented is unaudited.
Variance Average Volume Average Rate Interest Attributable to - ---------------------------------------- ------------------------------------------------- 1997 1996 1997 1996 1997 1996 Variance Rate Volume - ---------------------------------------- ------------------------------------------------- Interest Income Mortgages Held for Sale and Mortgage-Backed $1,102,862 $729,538 7.84% 7.95% Securities $21,613 $14,508 $7,105 $(318) $7,423 - ---------------------------------------- ------------------------------------------------ Interest Expense $ 504,375 $291,280 5.03% 4.36% Warehouse Line $ 6,391 $ 3,192 $3,199 864 2,335 576,109 417,834 5.88% 5.64% Gestation Line 8,539 5,923 2,616 372 2,244 Servicing Secured Line 87,553 16,560 6.56% 5.98% Servicing Receivable Line 1,447 249 1,198 131 1,067 6,580 978 7.93% 8.95% Other Borrowings 132 22 110 (16) 126 Facility Fees & Other 569 622 (53) (53) Charges - ---------------------------------------- ------------------------------------------------ $1,174,617 $726,652 5.77% 5.47% Total Interest Expense $17,078 $10,008 $7,070 $1,351 $5,719 - ---------------------------------------- ------------------------------------------------ 2.07% 2.48% Net Interest Income $ 4,535 $ 4,500 $ 35 $(1,669) $1,704 ================= ================================================
Net interest income increased 1% to $4.5 million for the third quarter of 1997 compared to $4.5 million for the third quarter of 1996. The slight increase in net interest income is attributable to the 51% increase in the average volume of mortgages held for sale and mortgage-backed securities for the third quarter of 1997 from that of the third quarter of 1996 offset by the 41 basis point decrease in the interest rate spread from 248 basis points for the third quarter of 1996 to 207 basis points for the third quarter of 1997. The Company's long-term mortgages and mortgage-backed securities are generally sold and replaced within 30 to 35 days. Accordingly, the Company generally borrows at rates based upon short-term indices, while earning asset yields are based upon long-term rate indices. Thus, the decrease in interest-rate spread was primarily the result of narrower spreads between long-term and short-term rates in the third quarter of 1997 compared to the third quarter of 1996. NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS Net gains on sales of mortgage loans and mortgage servicing rights increased $12.5 million to $32.6 million for the third quarter of 1997 as compared to $20.1 million for the third quarter of 1996. As further discussed below, this increase is primarily due to improved profit margins on sales. 18 18 Net Gain on Sale of Mortgage Loans A reconciliation of the gain on sale of agency-eligible mortgage loans for the periods indicated follows:
($ in thousands) For the Quarter Ended September 30, ----------------------------------- (Unaudited) 1997 1996 ------------ ----------- Gross proceeds on sales of mortgage loans $2,837,133 $2,223,612 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results $2,837,111 $2,221,287 ---------- ---------- Unadjusted gain on sale of mortgage loans 22 2,325 Loan origination and correspondent administrative fees 9,716 8,211 ---------- ---------- Unadjusted aggregate margin 9,738 10,536 Acquisition basis allocated to mortgage servicing rights (SFAS No. 122 and SFAS No. 125) 14,541 8,757 Net change in deferred administrative fees 332 19 ---------- ---------- Net gain on sale of agency-eligible mortgage loans $ 24,611 $ 19,312 ========== ==========
The Company sold loans during the third quarter of 1997 with an aggregate unpaid principal balance of $2.8 billion compared to sales of $2.2 billion for the third quarter of 1996. The amount of proceeds received on sales of mortgage loans exceeded the initial unadjusted acquisition cost of the loans sold by $20 thousand for the third quarter of 1997 as compared to $2.3 million (10 basis points) for the third quarter of 1996. The Company received loan origination and correspondent administrative fees of $9.7 million (34 basis points) on these loans during the third quarter of 1997 and $8.2 million (37 basis points) during the third quarter of 1996. The Company allocated $14.5 million (51 basis points) in the third quarter of 1997 to basis in mortgage servicing rights versus $8.8 million (39 basis points) during the third quarter of 1996 in accordance with SFAS No. 125 and SFAS No. 122. As a result, net gain on sale of mortgage loans increased to $24.6 million for the third quarter of 1997 versus $19.3 million for the third quarter of 1996. A reconciliation of the gain on sale of subprime mortgage loans for the periods indicated follows:
($ in thousands) For the Quarter Ended September 30, ----------------------------------- (Unaudited) 1997 1996 --------------- ---------------- Gross proceeds on sales of subprime mortgage loans $ 110,893 N/A Initial acquisition cost of subprime mortgage loans sold, net of fees 113,726 N/A --------------- ---------------- Unadjusted loss on sale of subprime mortgage loans (2,833) N/A Initial capitalization of residual certificate 7,550 N/A --------------- ---------------- Net gain on sale of subprime mortgage loans $ 4,717 N/A =============== ================
19 19 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 September 30, --------------------------------------- (Unaudited) 1997 1996 -------------- --------------- Underlying unpaid principal balances of mortgage loans on which servicing rights were sold during the period $ 2,800,277 $ 2,778,998 =========== =========== Gross proceeds from sales of mortgage servicing rights $ 61,927 $ 54,977 Initial acquisition cost, net of amortization and hedge results 47,213 42,592 ----------- ----------- Unadjusted gain on sale of mortgage servicing rights 14,714 12,385 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 122 and SFAS No. 125) (11,477) (11,610) =========== =========== Gain on sale of mortgage servicing rights $ 3,237 $ 775 =========== ===========
During the third quarter of 1997, the Company completed seven sales of mortgage servicing rights representing $2.8 billion of underlying unpaid principal mortgage loan balances. This compares to ten sales of mortgage servicing rights representing $2.8 billion of underlying unpaid principal mortgage loan balances in the third quarter of 1996. Unadjusted gain on sale of mortgage servicing rights was $14.7 million for the third quarter of 1997, up from $12.4 million for the third quarter of 1996. The Company reduced this unadjusted gain by $11.5 million (41 basis points) in the third quarter of 1997 versus an $11.6 million (42 basis points) reduction in the third quarter of 1996 in accordance with SFAS No. 125 and SFAS No. 122. The $2.5 million increase in gain on sale of mortgage servicing rights is primarily related to a bulk sale of $585 million of underlying unpaid principal balances of available-for-sale mortgage servicing rights which accounts for $2.9 million of the total third quarter of 1997 gain. NET SERVICING MARGIN Loan servicing fees were $7.7 million for the third quarter of 1997, compared to $7.5 million for the third quarter of 1996, an increase of 3%. This increase is primarily related to an increase in the average aggregate underlying unpaid principal balance of mortgage loans serviced to $9.7 billion during the third quarter of 1997 from $9.0 billion during the third quarter of 1996, an increase of 8%. Similarly, amortization of mortgage servicing rights also increased to $4.8 million during the third quarter of 1997 from $3.7 million during the third quarter of 1996, an increase of 30%. As a result, net servicing margin decreased 24% to $2.9 million for the third quarter of 1997 from $3.8 million during the third quarter of 1996. Included in loan servicing fees for the third quarter of 1997 and the third quarter of 1996 are subservicing fees received by the Company of $140,000 and $180,000, respectively. The subservicing fees are associated with temporary subservicing agreements between the Company and purchasers of mortgage servicing rights. 20 20 The following table summarizes the net servicing margin for the third quarters of both 1997 and 1996:
($ in thousands) For the Quarter Ended September 30, ----------------------------------- (Unaudited) 1997 1996 ----------- ---------- Loan servicing fees $ 7,711 $ 7,520 Amortization of mortgage servicing rights 4,840 3,748 ========== ========== Net servicing margin $ 2,871 $ 3,772 ========== ========== Average underlying unpaid principal balance of mortgage loans serviced $9,683,313 $8,974,362 ---------- ----------
EXPENSES The $17.6 million increase in operating expenses (excluding amortization of mortgage servicing rights) was centered in salary and employee benefits and general and administrative expenses which increased $4.2 million, or 34%, and $13.0 million, or 267%, respectively. Through the end of the third quarter of 1997, the Company increased its employee headcount by 107 from 1,028 at September 30, 1996, to 1,135 at September 30, 1997. The increased employee headcount and associated increase in salary and employee benefit costs are primarily attributable to expansion of subprime operations through the Company's acquisition of Meritage Mortgage Corporation. Overall, the subprime division accounted for 116 new positions and for $3.2 million, or 18%, of the total $17.6 million increase in operating expenses. The increase in general and administrative expenses is primarily attributable to a $2.3 million pre-tax charge related to termination of the Company's merger agreement with Walsh Holding Company, Inc. and the recording of a special charge of $7.9 million pre-tax relating to certain nonrecoverable operating receivables. INCOME TAX EXPENSE Income tax expense includes both federal and state income taxes. The effective tax rates for the third quarter of 1997 and 1996 were 36.7% and 37.0%, respectively. Income tax expense decreased by 63% to $1.3 million for the third quarter of 1997 from $3.6 million for the third quarter of 1996 due to the above-described factors that resulted in a 60% or $5.9 million decrease in income before taxes. 21 21 FINANCIAL CONDITION During the third quarter of 1997, the Company experienced a 9% increase in the volume of mortgage loans originated and acquired compared to the second quarter of 1997. Mortgage loan production increased to $2.9 billion during the third quarter of 1997 from $2.7 billion during the second quarter of 1997. The September 30, 1997, mortgage application pipeline (mortgage loans not yet closed but for which the interest rate has been locked) was approximately $1.0 billion. The Company continued to establish new correspondent relationships during the third quarter of 1997. The number of correspondents approved to do business in the Company's correspondent lending program increased to 934 at September 30, 1997, from 871 at December 31, 1996. The Company continued expansion of the wholesale network between December 31, 1996, and September 30, 1997, with the addition of 1,524 brokers to the Company's approved list, increasing the number of approved wholesale brokers from 2,322 at December 31, 1996, to 2,956 at September 30, 1997. The Company continues to face the same challenges as other companies within the mortgage banking industry and as such is not immune from significant volume declines precipitated by a rise in interest rates or other factors beyond the Company's control. Management of the Company recognizes these challenges and continues to manage the Company accordingly. Mortgage loans held for sale and mortgage-backed securities totaled $1.1 billion at September 30, 1997, versus $802.3 million at December 31, 1996, an increase of 36%. The Company's servicing portfolio (exclusive of loans under subservicing agreements) increased to $7.0 billion at September 30, 1997, from $6.7 billion at December 31, 1996, an increase of 5%. Short-term borrowings, which are the Company's primary source of funds, totaled $1.1 billion at September 30, 1997, compared with $805.7 million at December 31, 1996, an increase of 40%. The increase in the balance outstanding at September 30, 1997, resulted from the increased funding requirements related to the increase in the balance of mortgage loans held for sale and mortgage-backed securities at September 30, 1997, as compared to the balance at December 31, 1996. Long-term borrowings totaled $6.5 million at September 30, 1997. There were no long-term borrowings at December 31, 1996. 22 22 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, $570 million warehouse line of credit provided by a syndicate of unaffiliated banks, which expires in July 1998. The credit agreement includes covenants requiring the Company to maintain (i) a minimum net worth of $130 million, plus net income subsequent to July 31, 1996, and capital contributions and minus permitted dividends, (ii) a ratio of total liabilities to net worth of not more than 8.0 to 1.0, excluding debt incurred pursuant to gestation and repurchase financing agreements, (iii) its eligibility as a servicer of GNMA, FHA, VA, FNMA and FHLMC 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 to (i) pay dividends in any fiscal quarter which exceed 50% of the Company's net income for the quarter or (ii) engage significantly in any type of business unrelated to the mortgage banking business and the servicing of mortgage loans. Additionally, the Company entered into a $200 million, 364-day term revolving credit facility with a syndicate of unaffiliated banks. An $80 million portion of the revolver facility converts on July 31,1998, into a four-year term loan. The facility is secured by the Company's servicing portfolio designated as "available-for-sale". A $70 million portion of the revolver facility matures on July 31, 1998, and is secured by the Company's servicing portfolio designated as "held-for-sale". A $50 million portion of the revolver facility matures on July 31, 1998, and is secured by a first-priority security interest in receivables on servicing rights sold. The facility includes covenants identical to those described above with respect to the warehouse line of credit. The Company has also entered into a $200 million, 364-day term subprime revolving credit facility, which expires in July 1998. The facility includes covenants substantially the same as those described above with respect to the warehouse line of credit. The Company was in compliance with the above-mentioned debt covenants at September 30, 1997. Although management anticipates continued compliance, there can be no assurance that the Company will be able to comply with the debt covenants specified for each of these financing agreements. Failure to comply could result in the loss of the related financing. The Company has also entered into an uncommitted gestation financing arrangement. The interest rate on funds borrowed pursuant to the gestation line is based on a spread over the Federal Funds rate. The gestation line has a funding limit of $1.2 billion. The Company entered into a $6.6 million note agreement in May 1997. This debt is secured by the Company's corporate headquarters. The terms of the agreement require the Company to make 120 equal monthly principal and interest payments based upon a fixed interest rate of 8.07%. 23 23 Part II. OTHER INFORMATION Item 6. - Exhibits and Reports on Form 8-K - (a) A list of the exhibits required by this Form 10-Q, along with the exhibit index can be found on pages A to D following the signature page. - (b) None. 24 24 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) 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: November 14, 1997 25 25 INDEX TO EXHIBITS
Exhibit No. Description Page - ----------- ----------- ---- 3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.3 of the Registrant's Registration No. 33-53980 * 3.2 Amended and Restated Bylaws of the Registrant incorporated by reference to Exhibit 3.4 of the Registrant's Registration No. 33-53980 * 4.1 Specimen Certificate of Registrant's Common Stock * incorporated by reference to Exhibit 4.1 of the Registrant's Registration No. 33-53980 4.2 Second Amended and Restated Secured Revolving/Term Credit * Agreement dated as of July 31, 1996, between the Registrant and the Banks Listed on the Signature Pages Thereof, Bank One, Texas, National Association, First Bank National Association, NationsBank of Texas, N.A. and Texas Commerce Bank, National Association, as Co-agents and the Bank of New York as Agent and Collateral Agent incorporated by reference to Exhibit 4.2 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1996 4.3 Second Amended and Restated Revolving/Term Security * Collateral Agency Agreement dated as of July 31, 1996, between the Registrant and The Bank of New York as Collateral Agent and Secured Party incorporated by reference to Exhibit 4.3 of the Registrant's Form 10-Q for the period ended September 30, 1996 4.4 Amendment No. 1 dated as of July 30, 1997 to and under the -- Second Amended and Restated Secured Revolving/Term Credit Agreement dated as of July 31, 1996, among the Registrant, the Banks and Co-Agents named therein and The Bank of New York as Collateral Agent 10.1 Employment Agreement dated June 3, 1993, between the * Registrant and David W. Johnson, Jr. as amended by amendment dated October 22, 1993 incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.2 Tax Agreement dated May 26, 1993, between Resource * Bancshares Corporation (RBC) and the Registrant incorporated by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.3 Formation Agreement dated May 26, 1993, among Republic * National Bank, the Registrant, RBC and 1st Performance National Bank incorporated by reference to Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.4 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 10.5 Assignment and Assumption of Office Lease incorporated by * reference to Exhibit 10.6 of the Registrant's Registration No. 33-53980
A 26
Exhibit No. Description Page - ----------- ----------- ---- 10.6 (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 10.7 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 10.8 (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, Jr., dated January 19, 1994, between RBC and First Union National Bank of North Carolina incorporated by reference to Exhibit 10.10 (C) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.9 Registration Rights Agreement dated May 26, 1993, between * RBC and the Registrant incorporated by reference to Exhibit 10.11 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.10 Flexible Benefits Plan incorporated by reference to Exhibit * 10.16 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.11 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 10.12 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 10.13 Governmental Real Estate Sub-Lease-Office, between Resource * Bancshares Mortgage Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.19 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1994 10.14 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 10.15 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 10.16 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 10.17 Phantom 401(k) Plan incorporated by reference to Exhibit * 10.24 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 10.18 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
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Exhibit No. Description Page - ----------- ----------- ---- 10.19 Stock Investment Plan incorporated by reference to Exhibit * 4.1 of the Registrant's Registration No. 33-87536 10.20 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 10.21 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 10.22 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 10.23 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 10.24 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 10.25 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 10.26 Omnibus Stock Award Plan incorporated by reference to * Exhibit 10.37 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995 10.27 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 10.28 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 10.29 First Amendment to Registration Rights Agreement dated * March 11, 1996, between the Registrant and RBC incorporated by reference to Exhibit 10.40 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 10.30 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 10.31 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 10.32 Amendment to Omnibus Stock Award Plan dated March 22, 1996 * incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1996
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Exhibit No. Description Page - ----------- ----------- ---- 10.33 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 10.34 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 10.35 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 10.36 First Amendment to Amended and Restated Retirement Savings * Plan dated as of November 8, 1996 incorporated by reference to Exhibit 10.35 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.37 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 10.38 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 * 10.39 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 * 10.40 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 Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus Stock Award Plan, Formula Stock Option Plan and Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 * 10.42(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 10.43 Agreement of Merger dated April 18, 1997 between Resource Bancshares Mortgage Group, Inc., Carolina Merger Sub, Inc. and Walsh Holding Co., Inc. incorporated by reference to Annex B of the Registrant's Registration No.333-29245 * 10.44(A)Mutual Release and Settlement Agreement between the Registrant, Lee E. Shelton and Constance P. Shelton dated January 31, 1997 incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997 * (B)Amendment to Mutual Release and Settlement Agreement -- between the Registrant, Lee E. Shelton and Constance P. Shelton dated January 31, 1997 10.45 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 *
D 29
Exhibit No. Description Page - ----------- ----------- ---- 11.1 Statement re Computation of Net Income per Share ----- 27.1 Financial Data Schedule -----
- --------------------------------- * Incorporated by reference E EX-4.4 2 AMEND 1 TO 2ND SECURED REVOLVE/TERM CREDIT AGREE 1 AMENDMENT NO. 1 Dated as of July 30, 1997 to and under SECOND AMENDED AND RESTATED SECURED REVOLVING/TERM CREDIT AGREEMENT Dated as of July 31, 1996 Resource Bancshares Mortgage Group, Inc. ("RBMG"), the banks listed on the signature pages hereof (the "Banks"), Bank One, Texas, National Association, First Bank National Association and NationsBank of Texas, N.A., as Co-Agents, and The Bank of New York, as Agent and Collateral Agent, agree as follows: 1. Credit Agreement. Reference is made to the Second Amended and Restated Secured Revolving/Term Credit Agreement, dated as of July 31, 1996, among Resource Bancshares Mortgage Group, Inc., 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 (the "Credit Agreement"). Terms used in this Amendment No. 1 (this "Amendment") that are defined in the Credit Agreement and are not otherwise defined herein are used herein with the meanings therein ascribed to them. The Credit Agreement as amended by this Amendment is and shall continue to be in full force and effect and is hereby in all respects confirmed, approved and ratified. 2. Amendments to the Credit Agreement. Upon and after the Amendment Effective Date (as defined below), (a) Section 1.03 shall be amended by: (i) deleting from clause (a)(i)(A)(1) thereof the figure "2.00%", and inserting in lieu thereof the figure "1.750%"; (ii) deleting from clause (a)(i)(A)(2) thereof the figures "2.00%" and "0.875%", and inserting in lieu thereof the figures "1.75%" and "0.625%", respectively; (iii) deleting from clause (a)(i)(B) thereof the figures "1.50%" and "1.625%" (in each place appearing), and inserting in lieu thereof the figures "1.250%" and "1.375%", respectively; (iv) deleting from clause (a)(i)(C) thereof the figures "1.25%", and "1.375%" (in each place appearing), and inserting in lieu thereof the figures "1.000%" and 2 "1.125%", respectively; and (v) deleting from clause (a)(ii) thereof the figures "0.875%", "1.625%" and "1.375%", and inserting in lieu thereof the figures "0.625%", "1.375%" and "1.125%", respectively; (b) Section 1.04 shall be amended by deleting therefrom the date "October 20, 1997", and inserting in lieu thereof the date "October 20, 1998"; (c) Section 1.08 shall be amended by (i) deleting the figure "0.25%" from clause (a) thereof, and inserting in lieu thereof the figure "0.225%", (ii) deleting clause (b) thereof in its entirety, and re-lettering clause (c) thereof as clause (b), and (iii) inserting a proviso at the end of clause (a) thereof as follows: "; provided that so long as the Borrower's long term unsecured senior debt shall be rated either (a) BBB- or better by Standard & Poor's Ratings Group or (b) Baa3 or better by Moody's Investors Service, Inc., such commitment fee shall be 0.20% with respect to HFI and Receivables Commitments and 0.15% with respect to HFS Commitments."; (d) Section 6.01(c)(i)(A) shall be amended by (i) replacing the figure "$100,000" appearing therein with the figure "$250,000" and (ii) restating the definition of "measuring period" appearing therein in its entirety as follows: "`measuring period' means, as of any date, the period of 12 consecutive months ending on such date"; (e) Section 8.08 shall be amended and restated in its entirety as follows: "Section 8.08. Resignation and Removal of the Agent.08. Resignation and Removal of the Agent.08. Resignation and Removal of the Agent. (a) The Agent may at any time give notice of its resignation to the Banks and the Borrower which shall be effective upon the earlier of (i) the date a successor Agent shall have accepted its appointment as Agent, and (ii) the 30th day after the giving of such notice. Upon receipt of any such notice of resignation, the Required Banks may, with the approval of the Borrower, which approval shall not be unreasonably withheld, appoint a successor Agent. If no successor Agent shall have been so appointed and have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the Borrower may appoint a successor Agent which shall be one of the Banks other than the Bank that is the retiring Agent. (b) The Required Banks may agree to remove the Agent with or without cause by giving notice to the Agent, provided, however, that such removal shall not become effective until the Required Banks, after consultation with the Borrower, shall have appointed a successor Agent that agrees to assume all of the duties and obligations of the Agent under this Agreement and each of the other Loan Documents and the appointment of such successor Agent does not cause the Borrower to incur any additional expenses under the Loan Documents. If no successor Agent shall have been so appointed by the Required Banks and 2 3 shall have accepted such appointment within 30 days after after the Banks given notice to the Agent, then the Agent being removed may, on behalf of the Required Banks and after consultation with the Borrower, appoint a successor Agent. (c) Upon the acceptance by any Person of its appointment as a successor Agent, (i) such Person shall thereupon succeed to and become vested with all the rights, powers, privileges and future duties and obligations of the retiring or removed Agent and the retiring or removed Agent shall be discharged from its future duties and obligations as Agent under the Loan Documents and (ii) the retiring or removed Agent shall promptly transfer all Collateral within its possession or control to the possession or control of the successor Agent and shall execute and deliver such notices, instructions and assignments as may be necessary or desirable to transfer the rights of the Agent with respect to the Collateral to the successor Agent. After the resignation or removal of any Agent, the provisions of this Article 8 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent."; (f) Section 10.01 shall be amended by inserting therein, in proper alphabetical order, the following new definitions: "`Amendment No. 1' means Amendment No. 1, dated as of July 30, 1997, to and under the Second Amended and Restated Secured Revolving/Term Credit Agreement, dated as of July 31, 1996." "`Effective Date' means the `Amendment Effective Date' as such term is defined in Amendment No. 1."; (g) Annex B shall be amended as follows: (i) by inserting the phrase "less, to the extent not already deducted, the amount of any non-cash revenues constituting Net-Income" at the end of the definition of "Cash Flow"; (ii) by inserting the word "such" immediately preceding the phrase "Regulatory Change" where last appearing in the definition of "Enacted"; (iii) by (A) inserting the phrase "or a Subsidiary" immediately following the word "RBMG" where first appearing, and (B) inserting the phrase "or such Subsidiary's, as the case may be," immediately following the word "RBMG's", where first appearing, in the definition of "Permitted Guaranty"; (iv) by inserting the phrase "the Intercreditor Agreement (if any)" immediately following the phrase "the Notes," in the definition of "Loan Documents"; (v) by (A) deleting clause (a)(ii) from the definition of "Permitted Lien" and inserting in lieu thereof: 3 4 "(ii) any Lien on the assets of any Person securing Indebtedness of such Person to which Section 4 of Annex D is not applicable", and (B) inserting the phrase "and its Subsidiaries" immediately following the word "RBMG" in clause (iv) thereof; (vi) by inserting the phrase ", the Secured B/C Mortgage Warehousing Revolving Credit Agreement" immediately following the phrase "the Second Amended and Restated Secured Revolving/Term Credit Agreement" in the definition of "Syndicated Credit Agreements"; (vii) by (A) deleting the word "and" immediately preceding clause (c) of the definition of "Syndicated Credit Agreement Effective Date", and inserting in lieu thereof a comma, and (B) inserting a new clause (d) at the end thereof as follows: "and (d) the "Effective Date' as that term is defined in the Secured B/C Mortgage Warehousing Revolving Credit Agreement"; and (viii) by inserting therein, in proper alphabetical order, the following new definition: "`Secured B/C Mortgage Warehousing Revolving Credit Agreement' means the Secured B/C Mortgage Warehousing Revolving Credit Agreement, dated as of July 30, 1997, among RBMG, the Banks party thereto, The First National Bank of Chicago, as Documentation Agent, First Union National Bank, as Syndication Agent, and The Bank of New York, as Agent."; (h) Section 1 of Annex C shall be amended and restated in its entirety as follows: "Section 1. Organization; Power; Qualification. RBMG and each Subsidiary are corporations or limited liability companies duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization, have the power and authority to own their respective properties and to carry on their respective businesses as now being and hereafter proposed to be conducted and are duly qualified and in good standing as foreign business entities, and are authorized to do business, in all jurisdictions in which the character of their respective properties or the nature of their respective businesses requires such qualification or authorization, except for qualifications and authorizations the lack of which, singly or in the aggregate, has not had and does not have a significant possibility of having a Materially Adverse Effect on (a) RBMG or (b) the Collateral."; (i) Section 2 of Annex C shall be amended and restated in its entirety as 4 5 follows: "Section 2. Subsidiaries. On the Syndicated Credit Agreement Date, RBMG has no Subsidiaries other than as set forth on Schedule Annex C-2."; (j) Annex C shall be amended by adding thereto a new Schedule Annex C-2 in the form attached hereto as Schedule Annex C-2; (k) Section 1 of Annex D shall be amended by (i) deleting the term "Syndicated Credit Agreement Loan Documents" therefrom and inserting in lieu thereof the phrase "Loan Documents (as defined in any Syndicated Credit Agreement)" and (ii) deleting therefrom the word "corporate" appearing in clause (a) thereof; (l) Section 4 of Annex D shall be amended by deleting the phrase "In the case of IMI: the IMI Loans." and inserting in lieu thereof the phrase "In the case of any Subsidiary: (i) Indebtedness under any Syndicated Credit Agreement, (ii) other Indebtedness incurred by such Subsidiary in connection with a secured mortgage warehousing loan facility entered into by such Subsidiary, (iii) daylight overdrafts and (iv) other Indebtedness incurred by such Subsidiary in an aggregate principal amount outstanding at any time not in excess of $5,000,000."; (m) Section 5 of Annex D shall be amended by (A) deleting the phrase ", in the case of RBMG," therefrom and (B) deleting the phrase "the Guaranty of the IMI Loans" appearing in clause (c) and inserting in lieu thereof the phrase "Guaranties by RBMG of the obligations of Subsidiaries (other than in respect of Indebtedness of such Subsidiaries) incurred in the ordinary course of business of such Subsidiaries, provided that the maximum aggregate liabilities so guaranteed by RBMG for all such Subsidiaries may not exceed $10,000,000"; (n) Section 8 of Annex D shall be amended by (i) deleting from subsection (b) thereof the word "Subsidiaries" and inserting in lieu thereof the word "Persons", and (ii) by deleting from subsection (b) thereof the phrase "an Indebtedness-Free Subsidiary" and inserting in lieu thereof the phrase "a Wholly-Owned Subsidiary"; (o) Section 9 of Annex D shall be amended by (i) inserting the parenthetical phrase "(as defined in both of the Second Amended and Restated Secured Mortgage Warehousing Revolving Credit Agreement and the Secured B/C Mortgage Warehousing Revolving Credit Agreement)" immediately following the phrase "Mortgage-Backed Securities" appearing in clauses (b) and (d) thereof and (ii) replacing the figure "$2,500,000" appearing in clause (f) thereof with the figure "$5,000,000"; and 5 6 (p) Section 10 of Annex D shall be amended by (i) inserting the parenthetical phrase "(as defined in both of the Second Amended and Restated Secured Mortgage Warehousing Revolving Credit Agreement and the Secured B/C Mortgage Warehousing Revolving Credit Agreement)" immediately following the phrase "Mortgage-Backed Securities" appearing in such clause (a)(i) and (ii) replacing the word "IMI" appearing therein with the phrase "its Subsidiaries"; (q) Section 11 of Annex D shall be amended by replacing the word "IMI" appearing therein with the phrase "a Subsidiary"; (r) Section 1 of Annex E shall be amended by (i) inserting the word "and" immediately following clause (i)(v) thereof, (ii) replacing the comma and the word "and" appearing at the end of clause (i)(vi) thereof and (iii) deleting clause (i)(vii) thereof in its entirety; and (s) Section 2 of Annex E shall be amended by replacing the date "March 31, 1996" appearing in clause (a) thereof with the date "March 31, 1997". 3. Representations and Warranties. In order to induce the Banks, the Collateral Agent, the Co-Agents and the Agent to agree to amend the Credit Agreement, RBMG hereby represents and warrants, as follows: RBMG has the corporate power and authority to execute, deliver and perform this Amendment and the Credit Agreement as amended by this Amendment (the Credit Agreement, as so amended, the "Revised Credit Agreement") and has taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment and the Revised Credit Agreement. This Amendment and the Revised Credit Agreement have been duly executed and delivered on behalf of RBMG, and this Amendment and the Revised Credit Agreement constitute legal, valid and binding obligations of RBMG, enforceable against it in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity. The execution, delivery and performance of this Amendment and the Revised Credit Agreement do not and will not (a) violate any Applicable Law or any Contract to which RBMG or any Subsidiary is a party or by which RBMG or any Subsidiary or any of their respective properties may be bound, (b) require any license, consent, authorization, approval or any other action by, or any notice to or filing or registration with, any Governmental Authority or other Person or (c) result in the creation or imposition of any Lien on any asset of RBMG except as contemplated by the Loan Documents. Each of the foregoing representations and warranties shall be made at and as of the Amendment Effective Date. 4. Conditions to Effectiveness; Amendment Effective Date. This Amendment shall be effective as of the date first written above, but shall not become effective as of such date until the date (the "Amendment Effective Date") that: (a) the Agent shall have received this Amendment duly executed by RBMG, the Agent, the Collateral Agent, the Co-Agents and each Bank, and (b) RBMG shall have paid to the Agent all expenses payable under 6 7 the Credit Agreement for which invoices have been delivered to RBMG, including, without limitation, the fees and expenses of Winthrop, Stimson, Putnam & Roberts. 5. Loan Outstandings. Each Bank listed on the signature pages hereto hereby agrees to make, on the Amendment Effective Date, such payments to the Agent, in the amounts and for the account of such other Banks as the Agent shall direct, so that after giving effect to such payments, all of the Loans outstanding under the Credit Agreement shall be pro rata based on the Commitments set forth on Annex A hereto. 6. Governing Law. The rights and duties of the parties under this Amendment shall, pursuant to New York General Obligations Law Section 5-1401, be governed by the law of the State of New York. 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument. 8. Headings. Section headings in this Amendment are included herein for convenience and reference only and shall not constitute a part of this Amendment for any other purpose. 7 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers all as of the Amendment Effective Date. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By --------------------------------- Name: Title: THE BANK OF NEW YORK, as Agent, Collateral Agent and a Bank By --------------------------------- Name: Patricia M. Dominus Title: Vice President BANK ONE, TEXAS, N.A. as Co-Agent and a Bank By --------------------------------- Name: Title: FIRST BANK NATIONAL ASSOCIATION, as Co-Agent and a Bank By --------------------------------- Name: Title: 9 NATIONSBANK OF TEXAS, N.A., as Co-Agent and a Bank By --------------------------------- Name: Title: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By --------------------------------- Name: Title: NATIONAL CITY BANK OF KENTUCKY By --------------------------------- Name: Title: FIRST UNION NATIONAL BANK By --------------------------------- Name: Title: GUARANTY FEDERAL BANK, FSB By --------------------------------- Name: Title: 10 FLEET BANK N.A. By --------------------------------- Name: Title: COMERICA BANK By --------------------------------- Name: Title: CREDIT LYONNAIS, NEW YORK BRANCH By --------------------------------- Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By --------------------------------- Name: Title: MARINE MIDLAND BANK By --------------------------------- Name: Title: 11 UNION BANK OF CALIFORNIA, N.A. By --------------------------------- Name: Title: BANKERS TRUST COMPANY By --------------------------------- Name: Title: HIBERNIA NATIONAL BANK By --------------------------------- Name: Title: LASALLE NATIONAL BANK By --------------------------------- Name: Title: PNC BANK, KENTUCKY, INC. By --------------------------------- Name: Title: 11 12 UNION BANK OF SWITZERLAND, NEW YORK BRANCH By --------------------------------- Name: Title: By --------------------------------- Name: Title: 13 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment ---------- ---------- - ---------------------- THE BANK OF NEW YORK $6,000,000 $5,250,000 $3,750,000 Domestic Lending Office: The Bank of New York One Wall Street New York, NY 10286 LIBOR Lending Office: The Bank of New York One Wall Street New York, NY 10286 Notice Address: The Bank of New York One Wall Street New York, NY 10286 Telex No.: Telecopy No.: (212) 635-8268 (212) 635-6468 Telephone No.: (212) 635-7887 (212) 635-6467 (212) 635-8267 Attention: Patricia M. Dominus 13 14 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - ---------------------- ---------- ---------- ----------- BANK ONE, TEXAS, $6,000,000 $5,250,000 $3,750,000 NATIONAL ASSOCIATION Domestic Lending Office: Bank One, Texas, National Association 1717 Main Street Dallas, TX 75201 LIBOR Lending Office: Bank One, Texas, National Association 1717 Main Street Dallas, TX 75201 Notice Address: Bank One, Texas, National Association 1717 Main Street Dallas, TX 75201 Telex No.: Telecopy No.: (214) 290-2054 Telephone No.: (214) 290-2376 Attention: Douglas Dixon 2 15 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- FIRST BANK NATIONAL $6,000,000 $5,250,000 $3,750,000 ASSOCIATION Domestic Lending Office: First Bank National Association Mortgage Banking Services 601 Second Avenue South Minneapolis, MN 55402-4302 LIBOR Lending Office: First Bank National Association Mortgage Banking Services 601 Second Avenue South Minneapolis, MN 55402-4302 Notice Address: First Bank National Association Mortgage Banking Services 601 Second Avenue South Minneapolis, MN 55402-4302 Telex No.: Telecopy No.: (612) 973-0826 Telephone No.: (612) 973-0572 (612) 973-0609 Attention: John P. Crenshaw David R. Peterson 3 16 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- BANK OF AMERICA NT&SA $4,800,000 $4,200,000 $3,000,000 Domestic Lending Office: Bank of America NT&SA 1130 South Figueroa Street Los Angeles, CA 90015 Attention: Tina Dao LIBOR Lending Office: Bank of America NT&SA 1130 South Figueroa Street Los Angeles, CA 90015 Attention: Tina Dao Notice Address: Bank of America NT&SA Mortgage Warehousing Unit #6739 24022 Calle de la Plata, Suite 405 Laguna Hills, CA 92653 Telex No.: Telecopy No.: (714) 951-4046/4055 Telephone No.: (714) 951-4171 Attention: Donald L. Eppley 4 17 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- FIRST UNION NATIONAL $6,000,000 $5,250,000 $3,750,000 BANK Domestic Lending Office: First Union National Bank 301 South College Street DC-6 Charlotte, NC 28288-0166 LIBOR Lending Office: First Union National Bank 301 South College Street DC-6 Charlotte, NC 28288-0166 Notice Address: First Union National Bank 301 South College Street DC-6 Charlotte, NC 28288-0166 Telex No.: Telecopy No.: (704) 374-7102 Telephone No.: (704) 383-5374 Attention: Carolyn Eskridge 5 18 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- GUARANTY FEDERAL BANK, $6,000,000 $5,250,000 $3,750,000 FSB Domestic Lending Office: Guaranty Federal Bank, FSB Mortgage Finance Division - 10th Floor 8333 Douglas Avenue Dallas, Texas 75225 LIBOR Lending Office: Guaranty Federal Bank, FSB Mortgage Finance Division - 10th Floor 8333 Douglas Avenue Dallas, Texas 75225 Notice Address: Guaranty Federal Bank, FSB Mortgage Finance Division - 10th Floor 8333 Douglas Avenue Dallas, Texas 75225 Telex No.: (214) 360-2865 Telecopy No.: (214) 360-1660 Telephone No.: (214) 360-1968 Attention: James B. Clapp 6 19 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- COMERICA BANK $3,600,000 $3,150,000 $2,250,000 Domestic Lending Office: Comerica Bank One Detroit Center 500 Woodward Avenue Detroit, MI 48226 LIBOR Lending Office: Comerica Bank One Detroit Center 500 Woodward Avenue Detroit, MI 48226 Notice Address: Comerica Bank One Detroit Center 500 Woodward Avenue Detroit, MI 48226 Telex No.: Telecopy No.: (313) 222-9295 Telephone No.: (313) 222-9285 Attention: Von L. Ringger 7 20 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- FLEET BANK, NATIONAL $6,000,000 $5,250,000 $3,750,000 ASSOCIATION Domestic Lending Office: Fleet Bank N.A. Mortgage Banking Dept. 175 Water Street, 28/F New York, NY 10038 LIBOR Lending Office: Fleet Bank N.A. Mortgage Banking Dept. 175 Water Street, 28/F New York, NY 10038 Notice Address: Fleet Bank N.A. Mortgage Banking Dept. 175 Water Street, 28/F New York, NY 10038 Telex No.: Telecopy No.: (212) 602-3704 Telephone No.: (212) 602-3631 Attention: Robert W. Pierson 8 21 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- NATIONSBANK OF TEXAS, $6,000,000 $5,250,000 $3,750,000 N.A. Domestic Lending Office: NationsBank of Texas, N.A. 901 Main Street Dallas, TX 75202 LIBOR Lending Office: NationsBank of Texas, N.A. 901 Main Street Dallas, TX 75202 Notice Address: NationsBank of Texas, N.A. 901 Main Street Dallas, TX 75202 Telex No.: Telecopy No.: (214) 508-0338 Telephone No.: (214) 508-0975 Attention: Elizabeth Kurilecz 9 22 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- THE FIRST NATIONAL $4,000,000 $3,500,000 $2,500,000 BANK OF CHICAGO Domestic Lending Office: The First National Bank of Chicago One First National Plaza 16th Floor, Mail Suite 0098 Chicago, IL 60670-0098 LIBOR Lending Office: The First National Bank of Chicago One First National Plaza 16th Floor, Mail Suite 0098 Chicago, IL 60670-0098 Contact: Peter Scarpelli (312) 732-1068 Telecopy No.: (312) 732-3852 Notice Address: The First National Bank of Chicago One First National Plaza 16th Floor, Mail Suite 0098 Chicago, IL 60670-0098 Telex No.: (312) 732-6222 Telecopy No.: (312) 732-4423 Telephone No.: (312) 732-1100 (312) 732-1188 Attention: Patrick Power Ann Chudacoff 10 23 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- [S] [C] [C] [C] NATIONAL CITY BANK OF $4,000,000 $3,500,000 $2,500,000 KENTUCKY Domestic Lending Office: National City Bank, Kentucky 421 West Market Street Louisville, KY 40202 LIBOR Lending Office: National City Bank, Kentucky 421 West Market Street Louisville, KY 40202 Notice Address: National City Bank, Kentucky 421 West Market Street Louisville, KY 40202 Telex No.: Telecopy No.: (502) 581-4154 Telephone No.: (502) 581-6455 Attention: Robert J. Ogburn 11 24 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- MARINE MIDLAND BANK $1,000,000 $875,000 $625,000 Domestic Lending Office: Marine Midland Bank One Marine Midland Center, 27th Floor Buffalo, NY 14203 LIBOR Lending Office: Marine Midland Bank One Marine Midland Center, 27th Floor Buffalo, NY 14203 Notice Address: Marine Midland Bank One Marine Midland Center, 27th Floor Buffalo, NY 14203 Telex No.: Telecopy No.: (716) 841-4199 Telephone No.: (716) 841-2931 Attention: David S. DePasquale 12 25 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- CREDIT LYONNAIS $3,200,0 $2,800,000 $2,000,000 Domestic Lending Office: Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 LIBOR Lending Office: Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 Notice Address: Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 Telex No.: 423494/235655/02723 Telecopy No.: (212) 261-3401 Telephone No.: (212) 261-7408 (212) 261-7367 Attention: Gregory Raue Kathleen Deacy 13 26 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- BANKERS TRUST $2,000,000 $1,750,000 $1,250,000 Domestic Lending Office: Bankers Trust 280 Park Avenue - 23 West New York, NY 10017 LIBOR Lending Office: Bankers Trust 280 Park Avenue - 23 West New York, NY 10017 Notice Address: Bankers Trust 280 Park Avenue - 23 West New York, NY 10017 Telex No.: Telecopy No.: (212) 454-3821 Telephone No.: (212) 454-3198 Attention: Kevin M. McCann 14 27 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ----------- UNION BANK OF CALIFORNIA $2,200,000 $1,925,000 $1,375,000 Domestic Lending Office: Union Bank of California 350 California St., 11th Floor San Francisco, CA 94104 LIBOR Lending Office: Union Bank of California 350 California St., 11th Floor San Francisco, CA 94104 Notice Address: Union Bank of California 350 California St., 11th Floor San Francisco, CA 94104 Telex No.: 188316/UnionSFO UT Telecopy No.: (415) 705-7037 Telephone No.: (415) 705-7062 (415) 705-7090 Attention: Donald Rubin 15 28 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- PNC BANK $3,600,000 $3,150,000 $2,250,000 Domestic Lending Office: PNC Bank Two Tower Center - 18th East Brunswick, NJ 08816 LIBOR Lending Office: PNC Bank Two Tower Center - 18th East Brunswick, NJ 08816 Notice Address: PNC Bank Two Tower Center - 18th East Brunswick, NJ 08816 Telex No.: Telecopy No.: (908) 220-3737 Telephone No.: (908) 220-3515 Attention: Glenn Hedde 16 29 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- LASALLE NATIONAL BANK $3,600,000 $3,150,000 $2,250,000 Domestic Lending Office: LaSalle National Bank 120 South LaSalle - 4th Floor Chicago, IL 60603 LIBOR Lending Office: LaSalle National Bank 120 South LaSalle - 4th Floor Chicago, IL 60603 Notice Address: LaSalle National Bank 120 South LaSalle - 4th Floor Chicago, IL 60603 Telex No.: Telecopy No.: (312) 904-6382 Telephone No.: (312) 904-7460 Attention: John Swift 17 30 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- UNION BANK OF $2,000,000 $1,750,000 $1,250,000 SWITZERLAND Domestic Lending Office: Union Bank of Switzerland, New York Branch 299 Park Avenue New York, NY 10171 LIBOR Lending Office: Union Bank of Switzerland, New York Branch 299 Park Avenue New York, NY 10171 Notice Address: Union Bank of Switzerland, New York, Branch 299 Park Avenue New York, NY 10171 Telex No.: Telecopy No.: (212) 821-4541 Telephone No.: (212) 821-3020 Attention: Bob Mendeles 18 31 Annex A Revolving/Term Banks, Lending Offices HFI HFS Receivables and Notice Addresses Commitment Commitment Commitment - -------------------- ---------- ---------- ---------- HIBERNIA NATIONAL BANK $4,000,000 $3,500,000 $2,500,000 Domestic Lending Office: Hibernia National Bank 313 Carondelet Street New Orleans, LA 70130 LIBOR Lending Office: Hibernia National Bank 313 Carondelet Street New Orleans, LA 70130 Notice Address: Hibernia National Bank 313 Carondelet Street New Orleans, LA 70130 Telex No.: Telecopy No.: (504) 533-5344 Telephone No.: (504) 533-3041 Attention: Skip Santos 19 32 SCHEDULE ANNEX C-2 SCHEDULE OF SUBSIDIARIES Meritage Mortgage Corporation Intercounty Mortgage, Inc. Carolina Merger Sub, Inc. RBC Merger Sub, Inc. Corridor Mortgage Company, LLC RBMG Subsidiary Inc. 20 33 EXECUTION COPY AMENDMENT NO. 3 Dated as of July 30, 1997 to and under SECOND AMENDED AND RESTATED SECURED MORTGAGE WAREHOUSING REVOLVING CREDIT AGREEMENT Dated as of July 31, 1996 and AMENDMENT NO. 1 Dated as of July 30, 1997 to and under SECOND AMENDED AND RESTATED MORTGAGE WAREHOUSING SECURITY AND COLLATERAL AGENCY AGREEMENT Dated as of July 31, 1996 Resource Bancshares Mortgage Group, Inc. ("RBMG"), the banks listed on the signature pages hereof (the "Banks"), Bank One, Texas, National Association, First Bank National Association and NationsBank of Texas, N.A., as Co-Agents, LaSalle National Bank (formerly LaSalle National Trust, N.A.), as Collateral Agent, and The Bank of New York, as Agent, agree as follows: 1. Credit Agreement; Security and Collateral Agency Agreement. Reference is made to (a) the Second Amended and Restated Secured Mortgage Warehousing Revolving Credit Agreement, dated as of July 31, 1996, among Resource Bancshares Mortgage Group, Inc., Intercounty Mortgage, Inc., 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 (the "Credit Agreement") and (b) the Second Amended and Restated Mortgage Warehousing Security and Collateral Agency Agreement, dated as of July 31, 1996, among Resource Bancshares Mortgage Group, Inc., Intercounty Mortgage, Inc., The Bank of New York, as Agent, and LaSalle National Bank (formerly LaSalle National Trust, N.A.), as Collateral Agent (the "Security and Collateral Agency Agreement"). Terms used in this Amendment No. 3 and Amendment No. 1 (this "Amendment") that are defined in the Credit Agreement and are not otherwise defined herein are used herein with the meanings therein ascribed to them. Each of the Credit Agreement and the Security and Collateral Agency Agreement, as amended by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects confirmed, approved and ratified. 34 2. Amendments to the Credit Agreement. Upon and after the Amendment Effective Date (as defined below), (a) Section 1.03 shall be amended by (i) restating clauses (a)(i)(A), (B) and (C) in their entirety as follows: "(a) Rates(a) Rates(a) Rates(a) Rates. (i) (A) Mortgage Warehousing Loans(i) (A) Mortgage Warehousing Loans(i) (A) Mortgage Warehousing Loans(i) (A) Mortgage Warehousing Loans. Each Mortgage Warehousing Loan shall bear interest on the outstanding principal amount thereof until due at a rate per annum equal to, (1) so long as it is a Dry Funding Mortgage Warehousing Loan (aa) that is a LIBOR Rate Loan, the applicable Adjusted LIBOR Rate plus the Applicable Margin, and (bb) that is a Federal Funds Rate Loan (x) with respect to so much of the principal amount of such Federal Funds Rate Loan as on any day exceeds the applicable Balance Funded Amount on such day, the Federal Funds Rate plus the Applicable Margin and (y) with respect to so much of the principal amount of such Federal Funds Rate Loan as on such day does not exceed such Balance Funded Amount on such day, the Applicable Margin (the 'Dry Warehousing Balance Funded Rate'), and (2) so long as it is a Wet Funding Mortgage Warehousing Loan (aa) that is a LIBOR Rate Loan, the applicable Adjusted LIBOR Rate plus the Applicable Margin, plus 0.10%, (bb) that is a Federal Funds Rate Loan (x) with respect to so much of the principal amount of such Federal Funds Rate Loan as on any day exceeds the applicable Balance Funded Amount on such day, the Federal Funds Rate plus the Applicable Margin, plus 0.10%, and (y) with respect to so much of the principal amount of such Federal Funds Rate Loan as on such day does not exceed such Balance Funded Amount on such day plus the Applicable Margin, plus 0.10% (the 'Wet Warehousing Balance Funded Rate'). (3) so long as it is an Aged Wet Funding Mortgage Warehousing Loan (aa) that is a LIBOR Rate Loan, the applicable Adjusted LIBOR Rate plus the Applicable Margin, plus 0.50%, (bb) that is a Federal Funds Rate Loan (x) with respect to so much of the principal amount of such Federal Funds Rate Loan as on any day exceeds the applicable Balance Funded Amount on such day, the Federal 2 35 Funds Rate plus the Applicable Margin, plus 0.50%, and (y) with respect to so much of the principal amount of such Federal Funds Rate Loan as on such day does not exceed such Balance Funded Amount on such day, the Applicable Margin plus 0.50% (the 'Aged Wet Warehousing Balance Funded Rate'). (B) Working Capital Loans(B) Working Capital Loans(B) Working Capital Loans(B) Working Capital Loans. Each Working Capital Loan shall bear interest on the outstanding principal amount thereof until due at a rate per annum equal to, (1) so long as it is a LIBOR Rate Loan, the applicable Adjusted LIBOR Rate plus 1.25%, and (2) so long as it is a Federal Funds Rate Loan (x) with respect to so much of the principal amount of such Federal Funds Rate Loan as on any day exceeds the applicable Balance Funded Amount on such day, the Federal Funds Rate plus 1.25% and (y) with respect to so much of the principal amount of such Federal Funds Rate Loan as on such day does not exceed the Balance Funded Amount on such day, 1.25% (the 'Working Capital Balance Funded Rate'). (C) Swing Loans(C) Swing Loans(C) Swing Loans(C) Swing Loans. Each Swing Loan shall bear interest on the outstanding principal amount thereof until due at a rate per annum equal to: (1) with respect to so much of the principal amount of such Loan as on any day exceeds the applicable Balance Funded Amount on such day, the Federal Funds Rate plus, if such Swing Loan is a Dry Funding Swing Loan, the Applicable Margin, if such Swing Loan is a Wet Funding Swing Loan, the Applicable Margin plus 0.10% and if such Swing Loan is an Aged Wet Funding Swing Loan, the Applicable Margin plus 0.50%; and (2) with respect to so much of the principal amount of such Loan as on such day does not exceed the Balance Funded Amount on such day, if such Swing Loan is a Dry Funding Swing Loan, the Applicable Margin (the 'Dry Swing Loan Balance Funded Rate'), if such Swing Loan is a Wet Funding Swing Loan, the Applicable Margin plus 0.10% (the 'Wet Swing Loan Balance Funded Rate') and if such Swing Loan is an Aged Wet Funding Swing Loan, the Applicable Margin plus 0.50% (the 'Aged Wet Swing Loan Balance Funded Rate')."; and (ii) deleting the figures "0.60%", "0.90%" and "1.50%" from clause (ii) thereof, and inserting in lieu thereof the phrases "the Applicable Margin", "the Applicable Margin plus 0.10%" and "the Applicable Margin plus 0.50%", respectively; (b) Section 1.05(c) shall be amended by restating the last sentence thereof in its entirety as follows: 3 36 "The Borrower shall give the Agent prompt notice of the failure of a contemplated sale of a Mortgage Loan or a Mortgage-Backed Security to settle and of the amount of the repayment referred to above in this Section 1.05(c) that, as a result of such failure, will not be made."; (c) Section 1.08 shall be restated in its entirety as follows: "Section 1.08. Fees.08. Fees.08. Fees.08. Fees. (a) Facility Fees(a) Facility Fees(a) Facility Fees(a) Facility Fees. The Borrowers shall pay to the Agent for the account of each Bank a facility fee on the daily average amount of such Bank's aggregate Commitments for each day from the Effective Date to the Termination Date at a rate per annum equal to the Applicable Facility Fee Percentage, payable quarterly in arrears on the last day of March, June, September and December during each year from the Effective Date through the Termination Date, on the Termination Date and on the date of each reduction of Commitments pursuant to Section 1.07(a) (to the extent then accrued and unpaid on the amount of such reduction). (b) Amendment Fee(b) Amendment Fee(b) Amendment Fee(b) Amendment Fee. The Borrowers shall pay to the Agent for the account of each Bank an amendment fee for each amendment of this Agreement in an amount equal to $1,000, except that this Section 1.08(b) shall not apply to the first two amendments made during any consecutive 12 month period and, for purposes of this Section 1.08(b), an increase in the Commitments pursuant to Section 1.07(b) (other than an increase in the Commitments to an amount in excess of $750,000,000) shall not constitute an 'amendment.'"; (d) A new Section 4.03 shall be added, reading in its entirety as follows: "Section 4.03 Walsh Acquisition. RBMG shall not, and shall not permit any Subsidiary to, merge or consolidate with Walsh Holding Co., Inc., ('Walsh') or any Subsidiary of Walsh, or acquire all or substantially all of the assets or business from or Capital Securities of Walsh or any Subsidiary of Walsh, without the prior written consent of Banks having more than 75% of the aggregate amount of the Commitments at the time of such merger, consolidation or acquisition."; (e) Section 6.01(c)(i)(A) shall be amended by (i) replacing the figure "$100,000" appearing therein with the figure "$250,000" and (ii) restating the definition of "measuring period" appearing therein in its entirety as follows: "'measuring period' means, as of any date, the period of 12 consecutive months ending on such date"; (f) Section 6.01(j) shall be amended by inserting the phrase ", either prior to the Security Release Date or subsequent to the Security Date" immediately following the phrase "the Security Interest" appearing in clause (ii) thereof; 4 37 (g) Section 8.08 shall be amended and restated in its entirety as follows: "Section 8.08. Resignation and Removal of the Agent.08. Resignation and Removal of the Agent.08. Resignation and Removal of the Agent.08. Resignation and Removal of the Agent. (a) The Agent may at any time give notice of its resignation to the Banks and RBMG which shall be effective upon the earlier of (i) the date a successor Agent shall have accepted its appointment as Agent, and (ii) the 30th day after the giving of such notice. Upon receipt of any such notice of resignation, the Required Banks may, with the approval of RBMG, which approval shall not be unreasonably withheld, appoint a successor Agent. If no successor Agent shall have been so appointed and have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then RBMG may appoint a successor Agent which shall be one of the Banks other than the Bank that is the retiring Agent. (b) The Required Banks may agree to remove the Agent with or without cause by giving notice to the Agent, provided, however, that such removal shall not become effective until the Required Banks, after consultation with RBMG, shall have appointed a successor Agent that agrees to assume all of the duties and obligations of the Agent under this Agreement and each of the other Loan Documents and the appointment of such successor Agent does not cause RBMG to incur any additional expenses under the Loan Documents. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the Banks given notice to the Agent, then the Agent being removed may, on behalf of the Required Banks and after consultation with RBMG, appoint a successor Agent. (c) Upon the acceptance by any Person of its appointment as a successor Agent, (i) such Person shall thereupon succeed to and become vested with all the rights, powers, privileges and future duties and obligations of the retiring or removed Agent and the retiring or removed Agent shall be discharged from its future duties and obligations as Agent under the Loan Documents and (ii) the retiring or removed Agent shall promptly transfer all Collateral within its possession or control to the possession or control of the successor Agent and shall execute and deliver such notices, instructions and assignments as may be necessary or desirable to transfer the rights of the Agent with respect to the Collateral to the successor Agent. After the resignation or removal of any Agent, the provisions of this Article 8 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent."; (h) Section 9.10(a)(ii) shall be amended by inserting the phrase "and the Borrowers (which consent shall not be unreasonably withheld)" immediately following the phrase "consented to by the Agent" in clause (A)(1)(aa) thereof; (i) A new Section 9.25 shall be added, reading in its entirety as follows: 5 38 "Section 9.25. Release of Security. Unless a Default shall have occurred and be continuing, promptly after the first date (the 'Security Release Date') upon which (a) RBMG's S&P senior unsecured debt rating is BBB+ or better or RBMG's Moody's senior unsecured debt rating is Baa1 or better, and (b) RBMG shall have delivered to the Agent such UCC-1 financing statements, together with such other instruments and other documents as the Agents may request, the possession of which is necessary or appropriate in the determination of the Agents to create or perfect a security interest in favor of the Agents, the Collateral Agent and the Banks, in the Collateral under Applicable Law, in each case undated and executed in blank, the Collateral Agent, on behalf of itself, the Agents and the Banks, shall, at RBMG's expense, execute and deliver to RBMG such instruments of release, UCC termination statements and other documents as RBMG may reasonably request in order to release the Security Interest; provided that, after any such release, on the first date (the 'Security Date') upon which RBMG's S&P senior unsecured debt rating is less than BBB+ and the RBMG's Moody's senior unsecured debt rating is less than Baa1, (x) the Agent or the Collateral Agent may file any or all of the items referred to in clause (b) above as it shall determine is necessary or appropriate to create or perfect a security interest in favor of the Agents, the Collateral Agent and the Banks, effective on or after the Security Date, in the Collateral under Applicable Law, and (y) on the tenth day after the Security Date, RBMG shall, and shall cause the other Borrower to, execute and deliver a security agreement, in form and substance satisfactory to the Agents, together with such other instruments and other documents as the Agents may request, the possession of which is necessary or appropriate in the determination of the Agents to create or perfect a security interest in favor of the Agents, the Collateral Agent and the Banks, effective on the Security Date, in the Collateral under Applicable Law."; and (j) Section 10.01 shall be amended as follows: (i) by restating the definition of "Approved Investor" therein in its entirety as follows: "'Approved Investor' means FNMA, FHLMC, GNMA, SONYMA or any other financial institution listed on Schedule 10.01-A. The Agent and the Co-Agents may from time to time agree in writing to add financial institutions to the list set forth on Schedule 10.01-A. The Agent shall give prompt notice to the Co-Agents of any request of RBMG to add a financial institution or institutions and attempt to obtain a response from the Co-Agents to such request within seven Business Days of its receipt. The Agent shall give notice to the Banks of any determination to add a financial institution or institutions to Schedule 10.01-A. Should a response not be forthcoming within such period, the request shall be deemed to have been denied. The Agent and Co-Agents may in their sole discretion remove any financial institution from the list set forth in Schedule 10.01-A; provided that prior to any such removal of an Approved Investor, the Agent shall give RBMG and each Bank notice of, and an opportunity to discuss, any such proposed removal."; 6 39 (ii) by inserting the word "completed" immediately before the phrase "one-to-four family" in each place appearing in clause (o) of the definition of "Eligible Mortgage Collateral"; (iii) by inserting the phrase "(a) in the case that such Mortgage Loan is a refinancing of an existing mortgage loan, the appraised value of the Property encumbered thereby, and (b) in any other case," immediately before the phrase "the lesser of", and changing the symbols "(a)" and "(b)" to "(i)" and "(ii)", respectively, in the definition of "Loan-to-Value Ratio"; (iv) by inserting therein, in proper alphabetical order, the following new definitions: "'Amendment No. 3' means Amendment No. 3, dated as of July 30, 1997, to and under the Second Amended and Restated Secured Mortgage Warehousing Revolving Credit Agreement, dated as of July 31, 1996." "'Applicable Facility Fee Percentage' means, for any day, the percentage set forth below based on the Tier with the highest debt rating applicable on such day, as follows: Tier Applicable Fee Percentage ---- ------------------------- Tier I 0.100% Tier II 0.125% Tier III 0.150%; provided that if two Tiers would be applicable on any day and (i) such Tiers are more than one Tier apart or (ii) Tier III is one of the applicable Tiers as a result of RBMG's Indebtedness not being rated by one of Moody's and S&P, the Applicable Fee Percentage for such day shall be the percentage set forth above for the Tier that is one Tier above the lower of such two Tiers (it being understood that Tier III is the lowest Tier). For purposes hereof, 'Tier I' shall apply for so long as RBMG's S&P senior unsecured debt rating is BBB or better or RBMG's Moody's senior unsecured debt rating is Baa2 or better, 'Tier II' shall apply for so long as RBMG's S&P senior unsecured debt rating is BBB- or RBMG's Moody's senior unsecured debt rating is Baa3, and 'Tier III' shall apply for so long as RBMG's S&P senior unsecured debt rating is less than BBB- and Moody's senior unsecured debt rating is less than Baa3 and for long as RBMG's Indebtedness is not rated by either or both of S&P and Moody's." 7 40 "'Applicable Margin' means, for any day, the percentage set forth below based on the Tier with the highest debt rating applicable on such day, as follows: Tier Applicable Margin ---- ----------------- Tier I 0.350% Tier II 0.375% Tier III 0.450%; provided that if two Tiers would be applicable on any day and (i) such Tiers are more than one Tier apart or (ii) Tier III is one of the applicable Tiers as a result of RBMG's Indebtedness not being rated by one of Moody's and S&P, the Applicable Margin for such day shall be the percentage set forth above for the Tier that is one Tier above the lower of such two Tiers (it being understood that Tier III is the lowest Tier). For purposes hereof, 'Tier I' shall apply for so long as RBMG's S&P senior unsecured debt rating is BBB or better or RBMG's Moody's senior unsecured debt rating is Baa2 or better, 'Tier II' shall apply for so long as RBMG's S&P senior unsecured debt rating is BBB- or RBMG's Moody's senior unsecured debt rating is Baa3, and 'Tier III' shall apply for so long as RBMG's S&P senior unsecured debt rating is less than BBB- and RBMG's Moody's senior unsecured debt rating is less than Baa3 and for so long as RBMG's Indebtedness is not rated by either or both of S&P and Moody's." "'Effective Date' means the 'Amendment Effective Date' as such term is defined in Amendment No. 3." "'Intercreditor Agreement' means the Intercreditor Agreement, dated as of July 30, 1997, among The Bank of New York, as Agent, and as agent under the Secured B/C Mortgage Warehousing Revolving Credit Agreement, LaSalle National Bank (formerly LaSalle National Trust, N.A.), as Collateral Agent, and as collateral agent under the B/C Mortgage Warehousing Security and Collateral Agency Agreement, and the other agents, co-agents and lending institutions party thereto." "'Security Date' has the meaning ascribed to that term in Section 9.25." "'Security Release Date' has the meaning ascribed to that term in Section 9.25."; (k) Section 10.02 shall be amended by adding a new clause (g) thereto, reading in its entirety as follows: "(g) Any term defined in both Section 10.01 and Annex B shall have the meaning ascribed thereto in Section 10.01."; (l) Annex B shall be amended as follows: 8 41 (i) by inserting the phrase "less, to the extent not already deducted, the amount of any non-cash revenues constituting Net-Income" at the end of the definition of "Cash Flow"; (ii) by inserting the word "such" immediately preceding the phrase "Regulatory Change" where last appearing in the definition of "Enacted"; (iii) by (A) inserting the phrase "or a Subsidiary" immediately following the word "RBMG" where first appearing, and (B) inserting the phrase "or such Subsidiary's, as the case may be," immediately following the word "RBMG's", where first appearing, in the definition of "Permitted Guaranty"; (iv) by inserting the phrase "the Intercreditor Agreement (if any)" immediately following the phrase "the Notes," in the definition of "Loan Documents"; (v) by (A) deleting clause (a) (ii) from the definition of "Permitted Lien" and inserting in lieu thereof: "(ii) any Lien on the assets of any Person securing Indebtedness of such Person to which Section 4 of Annex D is not applicable.", and (B) inserting the phrase "and its Subsidiaries" immediately following the word "RBMG" in clause (iv) thereof; (vi) by inserting the phrase ", the Secured B/C Mortgage Warehousing Revolving Credit Agreement" immediately following the phrase "the Second Amended and Restated Secured Revolving/Term Credit Agreement" in the definition of "Syndicated Credit Agreements"; (vii) by (A) deleting the word "and" immediately preceding clause (c) of the definition of "Syndicated Credit Agreement Effective Date", and inserting in lieu thereof a comma, and (B) inserting a new clause (d) at the end thereof as follows: "and (d) the 'Effective Date' as that term is defined in the Secured B/C Mortgage Warehousing Revolving Credit Agreement"; and (viii) by inserting therein, in proper alphabetical order, the following new definition: "'Secured B/C Mortgage Warehousing Revolving Credit Agreement' means the Secured B/C Mortgage Warehousing Revolving Credit Agreement, dated as of July 30, 1997, among RBMG, the Banks party thereto, The First National Bank of Chicago, as Documentation Agent, First Union National Bank, as Syndication Agent, and The Bank of New York, as Agent."; 9 42 (m) Section 1 of Annex C shall be amended and restated in its entirety as follows: "Section 1. Organization; Power; Qualification. RBMG and each Subsidiary are corporations or limited liability companies duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization, have the power and authority to own their respective properties and to carry on their respective businesses as now being and hereafter proposed to be conducted and are duly qualified and in good standing as foreign business entities, and are authorized to do business, in all jurisdictions in which the character of their respective properties or the nature of their respective businesses requires such qualification or authorization, except for qualifications and authorizations the lack of which, singly or in the aggregate, has not had and does not have a significant possibility of having a Materially Adverse Effect on (a) RBMG or (b) the Collateral."; (n) Section 2 of Annex C shall be amended and restated in its entirety as follows: "Section 2. Subsidiaries. On the Syndicated Credit Agreement Date, RBMG has no Subsidiaries other than as set forth on Schedule Annex C-2."; (o) Annex C shall be amended by adding thereto a new Schedule Annex C-2 in the form attached hereto as Schedule Annex C-2. (p) Section 1 of Annex D shall be amended by (i) deleting the term "Syndicated Credit Agreement Loan Documents" therefrom and inserting in lieu thereof the phrase "Loan Documents (as defined in any Syndicated Credit Agreement)" and (ii) deleting therefrom the word "corporate" appearing in clause (a) thereof; (q) Section 4 of Annex D shall be amended by deleting the phrase "In the case of IMI: the IMI Loans." and inserting in lieu thereof the phrase "In the case of any Subsidiary: (i) Indebtedness under any Syndicated Credit Agreement, (ii) other Indebtedness incurred by such Subsidiary in connection with a secured mortgage warehousing loan facility entered into by such Subsidiary, (iii) daylight overdrafts and (iv) other Indebtedness incurred by such Subsidiary in an aggregate principal amount outstanding at any time not in excess of $5,000,000."; (r) Section 5 of Annex D shall be amended by (A) deleting the phrase ", in the case of RBMG," therefrom and (B) deleting the phrase "the Guaranty of the IMI Loans" appearing in clause (c) and inserting in lieu thereof the phrase "Guaranties by RBMG of the obligations of Subsidiaries (other than in respect of Indebtedness of such Subsidiaries) incurred in the ordinary course of business of such Subsidiaries, provided that the maximum aggregate liabilities so guaranteed by RBMG for all such Subsidiaries may not exceed $10,000,000"; 10 43 (s) Section 8 of Annex D shall be amended by (i) deleting from subsection (b) thereof the word "Subsidiaries" and inserting in lieu thereof the word "Persons", and (ii) by deleting from subsection (b) thereof the phrase "an Indebtedness-Free Subsidiary" and inserting in lieu thereof the phrase "a Wholly-Owned Subsidiary"; (t) Section 9 of Annex D shall be amended by (i) inserting the parenthetical phrase "(as defined in both of the Second Amended and Restated Secured Mortgage Warehousing Revolving Credit Agreement and the Secured B/C Mortgage Warehousing Revolving Credit Agreement)" immediately following the phrase "Mortgage-Backed Securities" appearing in clauses (b) and (d) thereof and (ii) replacing the figure "$2,500,000" appearing in clause (f) thereof with the figure "$5,000,000"; (u) Section 10 of Annex D shall be amended by (i) inserting the parenthetical phrase "(as defined in both of the Second Amended and Restated Secured Mortgage Warehousing Revolving Credit Agreement and the Secured B/C Mortgage Warehousing Revolving Credit Agreement)" immediately following the phrase "Mortgage-Backed Securities" appearing in such clause (a)(i) and (ii) replacing the word "IMI" appearing therein with the phrase "its Subsidiaries"; (v) Section 11 of Annex D shall be amended by replacing the word "IMI" appearing therein with the phrase "a Subsidiary"; (w) Section 1 of Annex E shall be amended by (i) inserting the word "and" immediately following clause (i)(v) thereof, (ii) replacing the comma and the word "and" appearing at the end of clause (i)(vi) thereof and (iii) deleting clause (i)(vii) thereof in its entirety; and (x) Section 2 of Annex E shall be amended by replacing the date "March 31, 1996" appearing in clause (a) thereof with the date "March 31, 1997". 3. Amendments to Security and Collateral Agency Agreement. Upon and after the Amendment Effective Date (as defined below), (a) Section 4 shall be amended by deleting the phrase "20 Business Days" appearing therein and inserting in lieu thereof the phrase "20 days"; (b) Section 8 shall be amended by adding thereto new clauses (e) and (f), reading in their entirety as follows: "(e) From time to time until the Agent notifies the Collateral Agent (by telephone, telefacsimile or otherwise) that an Event of Default has occurred and is continuing and that it should cease to release Collateral pursuant to this Section 8(e), the Collateral Agent is hereby authorized upon written request of RBMG to release documentation relating to Mortgage Loans constituting 'Collateral' (as such term is defined in the Secured B/C Mortgage Warehousing Revolving Credit Agreement) ('B/C Collateral') to the 'Collateral Agent' (as such term is defined in the Secured B/C Mortgage Warehousing Revolving Credit Agreement) (the 'B/C Collateral Agent') for 11 44 the purpose of perfecting the Lien granted to the B/C Collateral Agent pursuant to the 'Security Agreement' (as such term is defined in the Secured B/C Mortgage Warehousing Revolving Credit Agreement) (the 'B/C Mortgage Warehousing Security and Collateral Agency Agreement'). (f) Upon the occurrence of the Security Release Date, subject to the conditions set forth in Section 9.25 of the Credit Agreement, upon the request of the Pledgor, the Collateral Agent shall, at the Pledgor's expense, execute and deliver to the Pledgor such instruments of release, UCC termination statements and other documents (including all Collateral theretofore delivered to the Collateral Agent by the Pledgor) as the Pledgor may reasonably request in order to release the Security Interest."; (c) Section 16 shall be amended by (i) inserting the phrase "or the B/C Collateral Agent" immediately following the phrase "to the Collateral Agent" in clause (b) thereof and (ii) inserting the phrase "the grant of the security interest to the B/C Collateral Agent in Collateral constituting B/C Collateral pursuant to the B/C Mortgage Warehousing Security and Collateral Agency Agreement" immediately following the phrase "Mortgage-Backed Securities under Take-Out Commitments" in clause (b) thereof; and (d) Attachment 5 thereto shall be restated in its entirety as set forth on Attachment 5 hereto. 4. Representations and Warranties. In order to induce the Banks, the Collateral Agent, the Co-Agents and the Agent to agree to amend the Credit Agreement and the Security and Collateral Agency Agreement, RBMG hereby represents and warrants, as follows: RBMG has the corporate power and authority to execute, deliver and perform this Amendment and each of the Credit Agreement and the Security and Collateral Agency Agreement, as amended by this Amendment (the Credit Agreement, as so amended, together with the Security and Collateral Agency Agreement, as so amended, the "Revised Agreements"), and has taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment and each of the Revised Agreements. This Amendment and each of the Revised Agreements have been duly executed and delivered on behalf of RBMG, and this Amendment and each of the Revised Agreements constitute legal, valid and binding obligations of RBMG, enforceable against it in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity. The execution, delivery and performance of this Amendment and each of the Revised Agreements do not and will not (a) violate any Applicable Law or any Contract to which RBMG or any Subsidiary is a party or by which RBMG or any Subsidiary or any of their respective properties may be bound, (b) require any license, consent, authorization, approval or any other action by, or any notice to or filing or registration with, any Governmental Authority or other Person or (c) result in the creation or imposition of any Lien on any asset of RBMG except as contemplated by the Loan Documents. 12 45 Each of the foregoing representations and warranties shall be made at and as of the Amendment Effective Date. 5. Conditions to Effectiveness; Amendment Effective Date. This Amendment shall be effective as of the date first written above, but shall not become effective as of such date until the date (the "Amendment Effective Date") that: (a) the Agent shall have received this Amendment duly executed by RBMG, the Agent, the Collateral Agent, the Co-Agents and each Bank, and (b) RBMG shall have paid to the Agent all expenses payable under the Credit Agreement for which invoices have been delivered to RBMG, including, without limitation, the fees and expenses of Winthrop, Stimson, Putnam & Roberts. 6. Loan Agreement Outstandings. Each Bank listed on the signature pages hereto hereby agrees to make, on the Amendment Effective Date, such payments to the Agent, in the amounts and for the account of such other Banks as the Agent shall direct, so that, after giving effect to such payments, all of the Loans outstanding under the Credit Agreement shall be pro rata based on the Commitments set forth on Annex A hereto. 7. Governing Law. The rights and duties of the parties under this Amendment shall, pursuant to New York General Obligations Law Section 5-1401, be governed by the law of the State of New York. 8. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument. 9. Headings. Section headings in this Amendment are included herein for convenience and reference only and shall not constitute a part of this Amendment for any other purpose. 13 46 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers all as of the Amendment Effective Date. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By -------------------------- Name: Title: THE BANK OF NEW YORK, as Agent and a Bank By -------------------------- Name: Patricia M. Dominus Title: Vice President BANK ONE, TEXAS, N.A., as Co-Agent and a Bank By -------------------------- Name: Title: FIRST BANK NATIONAL ASSOCIATION, as Co-Agent and a Bank By -------------------------- Name: Title: 14 47 NATIONSBANK OF TEXAS, N.A., as Co-Agent and a Bank By -------------------------- Name: Title: LASALLE NATIONAL BANK, as Collateral Agent By -------------------------- Name: Title: LASALLE NATIONAL BANK, as a Bank By -------------------------- Name: Title: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By -------------------------- Name: Title: NATIONAL CITY BANK OF KENTUCKY By -------------------------- Name: Title: 15 48 FIRST UNION NATIONAL BANK By -------------------------- Name: Title: GUARANTY FEDERAL BANK, FSB By -------------------------- Name: Title: FLEET BANK N.A. By -------------------------- Name: Title: COMERICA BANK By -------------------------- Name: Title: CREDIT LYONNAIS, NEW YORK BRANCH By -------------------------- Name: Title: 16 49 THE FIRST NATIONAL BANK OF CHICAGO By -------------------------- Name: Title: MARINE MIDLAND BANK By -------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A. By -------------------------- Name: Title: BANKERS TRUST COMPANY By -------------------------- Name: Title: HIBERNIA NATIONAL BANK By -------------------------- Name: Title: 17 50 PNC BANK, KENTUCKY, INC. By -------------------------- Name: Title: UNION BANK OF SWITZERLAND, NEW YORK BRANCH By -------------------------- Name: Title: By -------------------------- Name: Title: 18 51 ANNEX A MORTGAGE WAREHOUSING Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- THE BANK OF NEW YORK $48,245,614.04 $1,754,385.96 Domestic Lending Office: The Bank of New York One Wall Street New York, NY 10286 LIBOR Lending Office: The Bank of New York One Wall Street New York, NY 10286 Notice Address: The Bank of New York One Wall Street New York, NY 10286 Telex No.: Telecopy No.: (212) 635-8268 (212) 635-6468 Telephone No.: (212) 635-7887 (212) 635-6467 (212) 635-8267 Attention: Patricia M. Dominus 52 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- BANK ONE, TEXAS, NATIONAL ASSOCIATION $43,421,052.63 $1,578,947.37 Domestic Lending Office: Bank One, Texas, National Association 1717 Main Street Dallas, TX 75201 LIBOR Lending Office: Bank One, Texas, National Association 1717 Main Street Dallas, TX 75201 Notice Address: Bank One, Texas, National Association 1717 Main Street Dallas, TX 75201 Telex No.: Telecopy No.: (214) 290-2275 (214) 290-2054 Telephone No.: (214) 290-2376 Attention: Douglas Dixon 2 53 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- GUARANTY FEDERAL BANK, FSB $26,535,087.72 $964,912.28 Domestic Lending Office: Guaranty Federal Bank, FSB Mortgage Finance Division - 10th Floor 8333 Douglas Avenue Dallas, Texas 75225 LIBOR Lending Office: Guaranty Federal Bank, FSB Mortgage Finance Division - 10th Floor 8333 Douglas Avenue Dallas, Texas 75225 Notice Address: Guaranty Federal Bank, FSB Mortgage Finance Division - 10th Floor 8333 Douglas Avenue Dallas, Texas 75225 Telex No.: (214) 360-2865 Telecopy No.: (214) 360-1660 Telephone No.: (214) 360-1968 Attention: James B. Clapp 3 54 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- FLEET BANK, N.A. $31,842,105.26 $1,157,894.74 Domestic Lending Office: Fleet Bank, N.A. Mortgage Banking Department 175 Water Street, 28th Floor New York, NY 10038 LIBOR Lending Office: Fleet Bank, N.A. Mortgage Banking Department 175 Water Street, 28th Floor New York, NY 10038 Notice Address: Fleet Bank, N.A. Mortgage Banking Department 175 Water Street, 28th Floor New York, NY 10038 Telex No.: Telecopy No.: (212) 602-3704 Telephone No.: (212) 602-3631 Attention: Robert W. Pierson 4 55 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- NATIONSBANK OF TEXAS, N.A. $43,421,052.63 $1,578,947.37 Domestic Lending Office: NationsBank of Texas 901 Main Street, 14th Floor Dallas, Texas 75202 LIBOR Lending Office: NationsBank of Texas 901 Main Street, 14th Floor Dallas, Texas 75202 Notice Address: NationsBank of Texas 901 Main Street, 67th Floor Dallas, Texas 75202 Telex No.: Telecopy No.: (214) 508-0338 Telephone No.: (214) 508-0975 (214) 508-9349 Attention: Elizabeth Kurilecz 5 56 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- NATIONAL CITY BANK OF KENTUCKY $26,535,087.72 $964,912.28 Domestic Lending Office: National City Bank, Kentucky Mortgage Companies Division 421 West Market Street, LO-4 Louisville, KY 40202 LIBOR Lending Office: National City Bank, Kentucky Mortgage Companies Division 421 West Market Street, LO-4 Louisville, KY 40202 Notice Address: National City Bank, Kentucky Mortgage Companies Division 421 West Market Street, LO-4 Louisville, KY 40202 Telex No.: Telecopy No.: (502) 581-4154 (502) 581-7874 Telephone No.: (502) 581-6455 Attention: Robert J. Ogburn 6 57 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION $38,596,491.23 $1,403,508.77 Domestic Lending Office: Bank of America 1130 South Figueroa Street Los Angeles, CA 90015 Attention: Tina Dao LIBOR Lending Office: Bank of America 1130 South Figueroa Street Los Angeles, CA 90015 Attention: Tina Dao Notice Address: Bank of America Mortgage Warehousing Unit #6739 24022 Calle de la Plata, Suite 405 Laguna Hills, CA 92653 Telex No.: Telecopy No.: (714) 951-4046/4055 Telephone No.: (714) 951-4171 Attention: Donald L. Eppley 7 58 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- CREDIT LYONNAIS $24,122,807.02 $ 877,192.98 Domestic Lending Office: Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 LIBOR Lending Office: Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 Notice Address: Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 Telex No.: 423494/235655/02723 Telecopy No.: (212) 261-3401 Telephone No.: (212) 261-7408 (212) 261-7367 Attention: Gregory Raue Kathleen Deacy 8 59 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- COMERICA BANK $26,535,087.72 $ 964,912.28 Domestic Lending Office: Comerica Bank One Detroit Center 500 Woodward Avenue, 7th Floor Detroit, MI 48226 LIBOR Lending Office: Comerica Bank One Detroit Center 500 Woodward Avenue, 7th Floor Detroit, MI 48226 Notice Address: Comerica Bank One Detroit Center 500 Woodward Avenue, 7th Floor Detroit, MI 48226 Telex No.: Telecopy No.: (313) 222-9295 Telephone No.: (313) 222-9285 Attention: Von L. Ringger Michael F. Kastner 9 60 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- FIRST UNION NATIONAL BANK $31,842,105.26 $1,157,894.74 Domestic Lending Office: First Union National Bank 301 S. College Street DC-6 Charlotte, NC 28288-0166 LIBOR Lending Office: First Union National Bank 301 S. College Street DC-6 Charlotte, NC 28288-0166 Notice Address: First Union National Bank 301 S. College Street DC-6 Charlotte, NC 28288-0166 Telex No.: n/a Telecopy No.: (704) 383-5056 Telephone No.: (704) 383-5374 Attention: Carolyn Eskridge 10 61 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- FIRST BANK NATIONAL ASSOCIATION $43,421,052.63 $1,578,947.37 Domestic Lending Office: First Bank National Association Mortgage Banking Services First Bank Place - MPFP0801 601 Second Avenue South Minneapolis, MN 55402-4302 LIBOR Lending Office: First Bank National Association Mortgage Banking Services First Bank Place - MPEP0801 601 Second Avenue South Minneapolis, MN 55402-4302 Notice Address: First Bank National Association Mortgage Banking Services First Bank Place - MPEP0801 601 Second Avenue South Minneapolis, MN 55402-4302 Telex No.: Telecopy No.: (612) 973-0826 Telephone No.: (612) 973-0572 (612) 973-0609 Attention: John P. Crenshaw David R. Peterson 11 62 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- THE FIRST NATIONAL BANK OF CHICAGO $26,535,087.72 $964,912.28 Domestic Lending Office: The First National Bank of Chicago One First National Plaza 16th Floor, Mail Suite 0098 Chicago, IL 60670-0098 LIBOR Lending Office: The First National Bank of Chicago One First National Plaza 16th Floor, Mail Suite 0098 Chicago, IL 60670-0098 Contact: Peter Scarpelli (312) 732-1068 Telecopy No.: (312) 732-3852 Notice Address: The First National Bank of Chicago One First National Plaza 16th Floor, Mail Suite 0098 Chicago, IL 60670-0098 Telex No.: (312) 732-6222 Telecopy No.: (312) 732-4423 Telephone No.: (312) 732-1100 (312) 732-1188 Attention: Patrick Power Ann Chudacoff 12 63 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- UNION BANK OF CALIFORNIA $14,473,684.21 $526,315.79 Domestic Lending Office: Union Bank of California 350 California St., 11th Floor San Francisco, CA 94104 LIBOR Lending Office: Union Bank of California 350 California St., 11th Floor San Francisco, CA 94104 Notice Address: Union Bank of California 350 California St., 11th Floor San Francisco, CA 94104 Telex No.: 188316/UnionSFO UT Telecopy No.: (415) 705-7037 Telephone No.: (415) 705-7062 (415) 705-7090 Attention: Donald Rubin 13 64 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- MARINE MIDLAND BANK $14,473,684.21 $526,315.79 Domestic Lending Office: Marine Midland Bank One Marine Midland Center Buffalo, N.Y. 14203 LIBOR Lending Office: Marine Midland Bank One Marine Midland Center Buffalo, N.Y. 14203 Notice Address: Marine Midland Bank One Marine Midland Center Buffalo, N.Y. 14203 Telex No.: Telecopy No.: (716) 841-2707 Telephone No.: (716) 841-2931 Attention: David S. DePasquale 14 65 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- BANKERS TRUST $19,298,245.61 $701,754.39 Domestic Lending Office: Bankers Trust 280 Park Avenue - 23 West New York, NY 10017 LIBOR Lending Office: Bankers Trust 280 Park Avenue - 23 West New York, NY 10017 Notice Address: Bankers Trust 280 Park Avenue - 23 West New York, NY 10017 Telex No.: Telecopy No.: (212) 454-3821 Telephone No.: (212) 454-3198 Attention: Kevin M. McCann 15 66 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- PNC BANK KENTUCKY, INC. $26,535,087.72 $964,912.28 Domestic Lending Office: PNC Bank Kentucky, Inc. 500 W. Jefferson St., Suite 1200 Louisville, KY 40202 LIBOR Lending Office: PNC Bank Kentucky, Inc. 500 W. Jefferson St., Suite 1200 Louisville, KY 40202 Notice Address: PNC Bank Kentucky, Inc. 500 W. Jefferson St., Suite 1200 Louisville, KY 40202 Telex No.: Telecopy No.: (908) 220-3737 Telephone No.: (908) 220-3515 Attention: Glenn Hedde 16 67 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- LASALLE NATIONAL BANK $23,157,894.74 $842,105.26 Domestic Lending Office: LaSalle National Bank 120 South LaSalle - 4th Floor Chicago, IL 60603 LIBOR Lending Office: LaSalle National Bank 120 South LaSalle - 4th Floor Chicago, IL 60603 Notice Address: LaSalle National Bank 120 South LaSalle - 4th Floor Chicago, IL 60603 Telex No.: Telecopy No.: (312) 904-6382 Telephone No.: (312) 904-7460 Attention: Ben Schreiner/John Swift 17 68 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- UNION BANK OF SWITZERLAND, $12,061,403.51 $438,596.49 NEW YORK BRANCH Domestic Lending Office: Union Bank of Switzerland, New York Branch 299 Park Avenue New York, NY 10171 LIBOR Lending Office: Union Bank of Switzerland, New York Branch 299 Park Avenue New York, NY 10171 Notice Address: Union Bank of Switzerland, New York, Branch 299 Park Avenue New York, NY 10171 Telex No.: Telecopy No.: (212) 821-4541 Telephone No.: (212) 821-3020 Attention: Bob Mendeles 18 69 Annex A Mortgage Warehousing Banks, Lending Offices Warehousing Working Capital and Notice Addresses Loan Commitments Commitments ------------------------ ---------------- --------------- HIBERNIA NATIONAL BANK $28,947,368.42 $1,052,631.58 Domestic Lending Office: Hibernia National Bank 313 Carondelet Street New Orleans, LA 70130 LIBOR Lending Office: Hibernia National Bank 313 Carondelet Street New Orleans, LA 70130 Notice Address: Hibernia National Bank 313 Carondelet Street New Orleans, LA 70130 Telex No.: Telecopy No.: (504) 533-5344 Telephone No.: (504) 533-3041 Attention: Edward K. Santos 19 70 SCHEDULE ANNEX C-2 SCHEDULE OF SUBSIDIARIES Meritage Mortgage Corporation Intercounty Mortgage, Inc. Carolina Merger Sub, Inc. RBC Merger Sub, Inc. Corridor Mortgage Company, LLC RBMG Subsidiary Inc. 71 ATTACHMENT 5 TO SECURITY AGREEMENT LaSalle National Bank TRANSMITTAL LETTER (Direct Investor Shipping) [Date] [NAME AND ADDRESS OF INVESTOR] Re: Purchase of Mortgage Loans from Resource Bancshares Mortgage Group, Inc. ---------------------------------------- Ladies and Gentlemen: Pursuant to the terms and conditions set forth below, we hereby deliver to ___________________________ (the "Investor"), with this letter, the original executed promissory note(s) and other documentation, all as set forth on Schedule 1 attached hereto (the "Mortgage Loan Documentation") evidencing the mortgage loan(s) described on Schedule 1 attached hereto (the "Mortgage Loan(s)"). LaSalle National Bank, as collateral agent (the "Secured Party") for the agents and lenders under the Second Amended and Restated Mortgage Warehousing Revolving Credit Agreement, dated as of July 31, 1996, among Resource Bancshares Mortgage Group, Inc. ("RBMG"), Intercounty Mortgage, Inc., 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 (the "Credit Agreement"), has a perfected first lien security interest in the Mortgage Loan(s) for the benefit of the agents and lenders under the Credit Agreement, pursuant to a Second Amended and Restated Mortgage Warehousing Security and Collateral Agency Agreement among the Secured Party, RBMG, IMI and The Bank of New York, as Agent. The Secured Party expressly retains and reserves all of its rights in the Mortgage Loan(s), the Mortgage Loan Documentation and all related security instruments, files and documents (the "Loan Documents") until the Investor has paid the Secured Party the Warehouse Purchase Amount (as hereinafter defined) for the Mortgage Loan(s) in accordance with this letter. By taking physical possession of this letter, the Mortgage Loan Documentation and the other Loan Documents, the Investor hereby agrees: (i) to hold in trust, as bailee for the Secured Party, the Mortgage Loan Documentation and all Loan Documents that it receives related to the Mortgage Loan(s), until its status as bailee is terminated as set forth herein; (ii) not to release or deliver, or authorize the release or delivery of, any of the Mortgage Loan Documentation or any 72 other Loan Document to RBMG or any other person or take any other action with respect to the Mortgage Loan Documentation or any Loan Document which release, delivery or other action could cause the security interest of the Secured Party to become unperfected or which could otherwise jeopardize the perfected security interest of the Secured Party in the Mortgage Loan(s); (iii) to deliver, or to cause to be delivered, the Warehouse Purchase Amount only to the Secured Party's Receiving Bank (as defined below) pursuant to the terms set forth below and to honor a change in such terms only upon receipt of written instruction by the Secured Party; (iv) to return the Mortgage Loan Documentation immediately to the Secured Party (A) upon receipt of a written request by the Secured Party, (B) in the event that the Investor elects not to purchase the Mortgage Loan(s), or (C) in the event that the Mortgage Loan Documentation requires completion and/or correction and (v) to remit the Warehouse Purchase Amount to the Secured Party's Receiving Bank (as defined below) only in accordance with the wire instructions set forth below or in accordance with the written instructions of the Secured Party. Please note that should the Investor remit the Warehouse Purchase Amount to any other entity or Person, the Secured Party will not consider the Warehouse Purchase Amount to have been paid and will not release its security interest or terminate the responsibilities of the Investor as bailee for the Secured Party until the Warehouse Purchase Amount has been properly remitted to the Secured Party's Receiving Bank (as defined below) as set forth herein. The Secured Party agrees that its security interest in the Mortgage Loan(s) shall be fully released and the responsibilities of the Investor as bailee shall terminate upon the Investor's irrevocable payment to the Secured Party of an amount (the "Warehouse Purchase Amount") equal to the greater of (1) the purchase price for the Mortgage Loan(s) agreed to by the Investor and RBMG and (2) $___________, which is the full amount of all outstanding Loans (as defined in the Credit Agreement) made by Banks (as defined in the Credit Agreement) in respect of the Mortgage Loan(s). If the Secured Party consents to the payment of a Warehouse Purchase Amount for the Mortgage Loan(s) that is less than the amount of the outstanding Loans (as defined in the Credit Agreement) with respect to the Mortgage Loan(s), as set forth in clause (2) of the preceding sentence, the Secured Party shall release its security interest in the Mortgage Loan(s) only upon full payment of the remaining outstanding Loans (as defined in the Credit Agreement) with respect to such Mortgage Loan(s). All payments by the Investor shall be remitted via federal funds pursuant to the following wire transfer instructions. Wire transfer instructions: Receiving Bank: Address: ABA Number: Account Name: Account Number: 2 73 In the event of any inconsistency between the provisions of this letter and the provisions of any other instrument or document delivered by the Secured Party to the Investor with this letter or in connection with the Mortgage Loan(s), including, without limitation, any "release" or similar document, the provisions of this letter shall control. ------------------------------------ By: --------------------------------- Its: -------------------------------- 3 EX-10.42B 3 FIRST AMENDMENT TO AGREEMENT OF MERGER 1 EXHIBIT 10.42(B) FIRST AMENDMENT TO AGREEMENT OF MERGER FIRST AMENDMENT TO AGREEMENT OF MERGER, dated as of September 18, 1997 (the "First Amendment"), among RESOURCE BANCSHARES MORTGAGE GROUP, INC., a Delaware corporation ("RBMG"), RBC MERGER SUB, INC., a South Carolina corporation and a wholly owned subsidiary of RBMG ("Merger Sub"), and RESOURCE BANCSHARES CORPORATION, a South Carolina corporation ("RBC"). WHEREAS, pursuant to the terms of that certain Agreement of Merger dated April 18, 1997 among RBMG, Merger Sub and RBC (the "Agreement"), RBMG will acquire all of the common stock of RBC through the merger of Merger Sub with and into RBC, and the stockholders of RBC will receive shares of common stock of RBMG in proportion to their interests in RBC; and WHEREAS, the parties wish to amend the Agreement to provide for a later termination date; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Section 8.01(b) of the Agreement is amended by deleting the date "November 1, 1997" in both places where it appears and substituting in lieu thereof in both places the date "January 31, 1998" and by deleting the date "December 1, 1997" and substituting in lieu thereof the date "February 28, 1998". 2. Except as amended hereby, the terms, conditions, covenants, agreements, representations and warranties contained in the Agreement shall remain unaffected hereby and shall continue in full force and effect. 3. This First Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 2 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed as of the date first written above by their respective officers thereunto duly authorized. RESOURCE BANCSHARES CORPORATION By: ---------------------------------------- Edward J. Sebastian Its: Chairman of the Board and Chief Executive Officer RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ---------------------------------------- David W. Johnson, Jr Its: Vice Chairman of the Board and Managing Director RBC MERGER SUB, INC. By: ---------------------------------------- Edward J. Sebastian Its: President 2 EX-10.44B 4 AMENDMENT TO MUTUAL RELEASE & SETTLEMENT 1 EXHIBIT 10.48 RESOURCE BANCSHARES MORTGAGE GROUP, INC. 7909 Parklane Road Columbia, SC 29223 July 29, 1997 Mr. Lee E. Shelton 109 Shallowbrook Drive Columbia, SC 29223 Dear Lee: Reference is made (i) to the Mutual Release and Settlement Agreement dated as of January 31, 1997 among Resource Bancshares Mortgage Group, Inc. ("RBMG"), Lee E. Shelton ("Shelton") and Constance P. Shelton (the "Agreement") and (ii) to Montgomery Securities' ("Montgomery's") standard form of Notice of Option Exercise and Payment Authorization referred to in Section 2.1(a)(3) of the Agreement (the "Authorization"). The purpose of this letter is to streamline the cashless exercise procedures contemplated by Section 2.1(a)(3) of the Agreement by positioning Montgomery to execute Shelton's option exercise instructions from time to time without obtaining an Authorization signed by RBMG. In consideration of the mutual promises set forth below, and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, RBMG and Shelton agree as follows: 1. The parties stipulate that Shelton currently holds options (collectively, the "Options") to purchase 429,195 shares of RBMG common stock ("REMI"). Except for Options to purchase 85,839 REMI shares, which Options are scheduled to vest on June 3, 1998, all of the options are currently vested. All of the Options are "nonqualified" stock options. In each case the exercise price per share is currently $6.12, and the expiration date is May 26, 2003. Shelton represents and warrants to, and agrees with, RBMG, for the benefit of RBMG and Montgomery, that until he gives written notice to RBMG and Montgomery he will exercise Options and resell the underlying REMI shares only through Montgomery. 2. RBMG agrees with Shelton, for the benefit of Shelton and Montgomery, that compliance with the procedures specified in this paragraph 2 will be entirely satisfactory to RBMG as regards any and all exercises of vested Options and REMI share resale transactions contemplated and executed by or for Shelton. Shelton may initiate an Option exercise by delivering to Montgomery, by telecopier or otherwise, a properly completed and executed (by Shelton but not necessarily by RBMG) Authorization or successor form. After satisfying itself that Shelton's instructions are not inconsistent with the Option details stipulated in paragraph 1 above (giving effect to other Option exercises and resales that may have been effected from time to time), Montgomery will arrange to pay RBMG by wire transfer as soon as possible, generally on the next trading day, an amount (collectively, the "Advanced Funds") equal to (1) the aggregate exercise price for such Options plus (2) 36.45%, subject to any change in applicable 2 law (currently consisting of 28.00% as the minimum federal personal income tax withholding percentage, 7.00% as the South Carolina personal income tax withholding percentage plus 1.45% as the Medicare tax withholding percentage), of (A) the price, net of any discounts, commissions and other selling expenses, at which the REMI shares underlying the Options so exercised by Shelton were resold by Montgomery for Shelton's account less (B) the aggregate exercise price for such Option plus (3) any unpaid Social Security tax (currently 6.2% of the first $65,400 of Shelton's income from RBMG in any year after 1997). Within two trading days of RBMG's receipt of the Advanced Funds and RBMG's receipt, via facsimile or otherwise in its office of the Chief Financial Officer or other person performing the duties thereof (with a copy delivered via facsimile or otherwise, to the General Counsel of RBMG or other person performing the duties thereof), of Montgomery's "Calculation of Advanced Funds" in substantially the form attached hereto as Exhibit A, RBMG will instruct the REMI share transfer agent(s) to issue a certificate or certificates (free of "stop transfer" orders and other restrictions) representing the REMI shares underlying the Options so exercised in the name or names, in the amount or amounts and otherwise in accordance with instructions furnished by Montgomery. 3. The Agreement remaining in full force and effect. This letter, which may be executed in counterparts, shall be construed in accordance with the laws of the State of South Carolina. If your understanding of our agreement is in accordance with this letter, then please sign a copy of it and return the signed copy to our legal counsel, John W. Currie, Esq., whereupon this letter will become a binding agreement between us effective the date first written above. Very truly yours, RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: /s/ Edward J. Sebastian ----------------------------------------------------------- Edward J. Sebastian, Chairman and Chief Executive Officer Agreed: /s/ Lee E. Shelton - -------------------------------------------------------------- Lee E. Shelton ACKNOWLEDGMENT Montgomery understands the cashless exercise arrangements specified above by RBMG and Shelton and, accordingly, is prepared to execute Shelton's Option exercise instructions from time to time in accordance therewith, in each case without obtaining an Authorization signed by RBMG, until informing RBMG and Shelton that it will no longer so execute such instructions or until receiving from RBMG or Shelton a written notice of revocation of such arrangements. MONTGOMERY SECURITIES By: /s/ Wilson T. Hileman ------------------------------------ Wilson T. Hileman, Managing Director 3 EXHIBIT A Calculation of Advanced Funds No. REMI shares underlying exercised options: ---------- Gross sales price less any expenses $ Aggregate exercise price ---------- Gross margin $ ---------- Withholding taxes on gross margin: Federal (28.00% of gross margin) $ SC (7.00% of gross margin) Medicare (1.45% of gross margin) Social Security ---------- Total withholding taxes $ ---------- Total withholding taxes $ Aggregate exercise price ---------- Total amount wired to RBMG $ ==========
EX-11.1 5 STATEMENT RE: COMPUTATION NET INCOME PER SHARE 1 EXHIBIT 11.1 RESOURCE BANCSHARES MORTGAGE GROUP, INC. STATEMENT RE: COMPUTATION OF PRIMARY and FULLY DILUTED EARNINGS PER SHARE ($ in thousands, except per share amounts)
Quarter Ended Nine Months Ended September 30, 1997 September 30, 1997 ------------------- --------------------- Net income $ 2,567 $ 14,408 Primary earnings per share (1) $ 0.12 $ 0.69 Fully diluted earnings per share (1) $ 0.12 $ 0.69
1)The number of common shares outstanding used to compute net income per share was 20,573,847 and 20,281,774 for the quarter and nine months ended September 30,1997, respectively. The provisions of Accounting Principles Board Opinion No. 15, "Earnings per Share" required that the Company, effective for the first quarter of 1997, prospectively commence to report net income per common share on a primary earnings per share basis. Accordingly, the weighted average shares outstanding for the third quarter of 1997 and the nine months ended September 30, 1997, includes common stock equivalents. Primary and fully diluted earnings per share for the quarter ended September 30, 1997, were both calculated based on weighted average shares outstanding of 21,227,999. Primary and fully diluted earnings per share for the nine months ended September 30, 1997, were both calculated based on weighted average shares outstanding of 20,872,932, which assumes the exercise of options covering 1,332,587 shares, excludes 270,702 contingent shares and computes incremental shares using the treasury stock method. The weighted average shares for both the nine months and the third quarter of 1997 have been retroactively adjusted for the 5% stock dividend declared on October 31, 1997. EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 8,939 0 96,882 0 1,219,044 1,371,636 32,999 8,712 1,404,144 1,219,076 6,485 0 0 210 178,373 1,404,144 53,301 115,333 62,632 92,212 29,580 2,605 (39,115) 23,121 (8,713) 23,121 0 10,147 0 14,408 .69 .69
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