-----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, ULzfjjXKvCxo3V4neKw7WTyldRTpAMI9eDIyn4lS/XfwsR9hg/K5Mz86liuDIwZ1 oCx7KDt8GrZ+i1jFXnnqUw== /in/edgar/work/20000814/0000950144-00-010165/0000950144-00-010165.txt : 20000921 0000950144-00-010165.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950144-00-010165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE BANCSHARES MORTGAGE GROUP INC CENTRAL INDEX KEY: 0000893817 STANDARD INDUSTRIAL CLASSIFICATION: [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: 696975 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 e10-q.txt RESOURCE BANCSHARES MORTGAGE GROUP, INC. 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 June 30, 2000 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 Offices) (Zip Code) Registrant's telephone number, including area code (803)741-3000 Indicate by check mark whether the registrant (i) 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 (ii) 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 July 31, 2000 was 18,090,177. Page 1 Exhibit Index on Pages A to G 2 RESOURCE BANCSHARES MORTGAGE GROUP, INC. Form 10-Q for the quarter ended June 30, 2000 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements - (Unaudited) Condensed Consolidated Balance Sheet 3 Condensed Consolidated Statement of Income 4 Condensed Consolidated Statement of Changes in Stockholders' Equity 5 Condensed Consolidated Statement of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 50 PART II. OTHER INFORMATION 52 ITEM 4. Submission of Matters to a Vote of Security Holders 52 ITEM 6. Exhibits and Reports on Form 8-K 52 SIGNATURES 53 EXHIBIT INDEX A-G
2 3 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEET ($ IN THOUSANDS)
June 30, December 31, 2000 1999 ----------- ------------ (Unaudited) ASSETS Cash $ 22,073 $ 30,478 Receivable from sale of mortgage-backed securities 69,943 -- Receivables 29,212 40,219 Trading securities: Residual interests in subprime securitizations 48,878 54,382 Mortgage loans held for sale 573,338 480,504 Lease receivables 177,410 155,559 Servicing rights, net 164,979 177,563 Premises and equipment, net 33,826 36,294 Accrued interest receivable 2,305 1,691 Goodwill and other intangibles 12,743 15,478 Other assets 32,332 35,014 ----------- ----------- Total assets $ 1,167,039 $ 1,027,182 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 869,133 $ 709,803 Long-term borrowings 6,203 6,259 Accrued expenses 10,006 13,826 Other liabilities 91,633 84,822 ----------- ----------- Total liabilities 976,975 814,710 =========== =========== Preferred stock - par value $0.01 - 5,000,000 shares authorized; no shares issued or outstanding -- -- Common stock - par value $0.01 - 50,000,000 shares authorized; 31,637,331 shares issued at June 30, 2000 and December 31, 1999 316 316 Additional paid-in capital 298,601 300,909 Retained earnings 38,225 56,506 Common stock held by subsidiary at cost - 7,767,099 shares at June 30, 2000 and December 31, 1999 (98,953) (98,953) Treasury stock - 5,641,804 and 4,686,391 shares at June 30, 2000 and December 31, 1999, respectively (42,878) (41,148) Unearned shares of employee stock ownership plan - 469,404 and 537,084 shares at June 30, 2000 and December 31, 1999, respectively (5,247) (5,158) ----------- ----------- Total stockholders' equity 190,064 212,472 =========== =========== Total liabilities and stockholders' equity $ 1,167,039 $ 1,027,182 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONDENSED CONSOLIDATED INCOME STATEMENT ($ IN THOUSANDS EXCEPT SHARE AMOUNTS) (UNAUDITED)
For the Six Months Ended For the Quarter Ended June 30, June 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ REVENUES Interest income $ 34,289 $ 47,533 $ 18,995 $ 21,959 Interest expense (25,012) (32,850) (13,834) (14,656) ------------ ------------ ------------ ------------ Net interest income 9,277 14,683 5,161 7,303 Net gain on sale of mortgage loans 17,996 60,452 9,349 24,402 Gain on sale of mortgage servicing rights 1,539 4,823 731 1,825 Servicing fees 17,880 22,862 8,565 10,839 Mark-to-market on residual interests in subprime securitizations (9,446) (3,967) (1,771) (2,618) Other income 4,374 3,753 2,318 2,286 ------------ ------------ ------------ ------------ Total revenues 41,620 102,606 24,353 44,037 ------------ ------------ ------------ ------------ EXPENSES Salary and employee benefits 24,870 33,963 10,117 15,204 Occupancy expense 6,836 6,097 3,516 3,187 Amortization and provision for impairment of mortgage servicing rights 12,209 17,320 5,932 8,887 Provision expense 3,683 5,396 1,682 2,341 General and administrative expenses 12,094 16,854 6,645 9,376 ------------ ------------ ------------ ------------ Total expenses 59,692 79,630 27,892 38,995 ------------ ------------ ------------ ------------ Income (loss) from continuing operations before income taxes (18,072) 22,976 (3,539) 5,042 Income tax benefit (expense) 6,530 (8,269) 1,199 (1,853) ------------ ------------ ------------ ------------ Income (loss) from continuing operations (11,542) 14,707 (2,340) 3,189 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $200) (2,000) (2,000) Operating profits (losses) of Laureate Capital Corp. for the six months ended June 30, 2000 and 1999 and for the quarter ended June 30, 2000 and 1999, respectively (less applicable income tax expense (benefit) of $(354), $(91), $111 and $128, respectively) (660) (210) 105 147 ------------ ------------ ------------ ------------ Net income (loss) $ (14,202) $ 14,497 $ (4,235) $ 3,336 ------------ ------------ ------------ ------------ Weighted average common shares outstanding -- Basic 18,337,723 21,587,836 18,017,764 20,958,060 ------------ ------------ ------------ ------------ Net income (loss) per common share from continuing operations -- Basic $ (0.63) $ 0.68 $ (0.13) $ 0.15 ------------ ------------ ------------ ------------ Net income (loss) per common share from discontinued operations -- Basic $ (0.15) $ (0.01) $ (0.11) $ 0.01 ------------ ------------ ------------ ------------ Weighted average common shares outstanding -- Diluted 18,337,723 21,800,285 18,017,764 21,138,487 ------------ ------------ ------------ ------------ Net income (loss) per common share from continuing operations -- Diluted $ (0.63) $ 0.67 $ (0.13) $ 0.15 ------------ ------------ ------------ ------------ Net income (loss) per common share from discontinued operations -- Diluted $ (0.15) $ (0.01) $ (0.11) $ 0.01 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. 4 5 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ($ in thousands, except share information) (Unaudited)
Common Stock Additional Common Six Months Ended ------------------------ Paid-in Retained Stock Held by June 30, 1999 Shares Amount Capital Earnings Subsidiary ---------------- ---------- ------ ----------- -------- ------------- Balance, December 31, 1998 31,637,331 $ 316 $ 307,114 $ 59,599 $ (98,953) Issuance of restricted stock 116 Cash dividends (4,538) Treasury stock purchases Exercise of stock options (3) Shares committed to be released under Employee Stock Ownership Plan 56 Purchase of shares by Employee Stock Ownership Plan Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan (158) (60) Net income 14,497 Total comprehensive income ---------- ------ --------- -------- ---------- Balance, June 30, 1999 31,637,331 $ 316 $ 307,125 $ 69,498 $ (98,953) ========== ====== ========= ======== ========== Unearned Shares of Employee Total Treasury Stock Ownership Stockholders' Stock Plan Equity ------------------ ---------------- -------------- Balance, December 31, 1998 $(11,499) $ (4,419) 252,158 Issuance of restricted stock 1,285 1,401 Cash dividends (4,538) Treasury stock purchases (25,700) (25,700) Exercise of stock options 7 4 Shares committed to be released under Employee Stock Ownership Plan 670 726 Purchase of shares by Employee Stock Ownership Plan (1,500) (1,500) Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 1,882 1,664 Net income Total comprehensive income 14,497 -------- -------- --------- Balance, June 30, 1999 $(34,025) $ (5,249) $ 238,712 ======== ======== =========
Common Stock Additional Common Six Months Ended ------------------------ Paid-in Retained Stock Held by June 30, 2000 Shares Amount Capital Earnings Subsidiary ---------------- ---------- ------ ----------- -------- ------------- Balance, December 31, 1999 31,637,331 $ 316 $ 300,909 $ 56,506 $ (98,953) Issuance of restricted stock (960) Cash dividends (4,046) Treasury stock purchases Shares committed to be released under Employee Stock Ownership Plan 162 Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan (1,510) (33) Net income (loss) (14,202) Total comprehensive income ---------- ------ --------- -------- ---------- Balance, June 30, 2000 31,637,331 $ 316 $ 298,601 $ 38,225 $ (98,953) ========== ====== ========= ======== ========== Shares of Total Treasury Employee Stock Stockholders' Stock Ownership Plan Equity ------------------ ---------------- -------------- Balance, December 31, 1999 $(41,148) $ (5,158) $ 212,472 Issuance of restricted stock 1,750 790 Cash dividends (4,046) Treasury stock purchases (6,212) (6,212) Shares committed to be released under Employee Stock Ownership Plan (89) 73 Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 2,732 1,189 Net income (loss) Total comprehensive income (14,202) -------- -------- --------- Balance, June 30, 2000 $(42,878) $ (5,247) $ 190,064 ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ($ in thousands)
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ------------ ------------ OPERATING ACTIVITIES Net income $ (11,542) $ 14,707 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation and amortization 17,197 19,609 Employee Stock Ownership Plan compensation 73 726 Provision for estimated foreclosure losses and repurchased loans 3,683 5,396 Increase in receivables from sale of mortgage backed securities (69,942) 0 Decrease in receivables 10,022 14,818 Acquisition of mortgage loans (2,431,376) (5,646,110) Proceeds from sales of mortgage loans and mortgage-backed securities 2,396,952 6,338,641 Acquisition of mortgage servicing rights (71,133) (166,706) Sales of mortgage servicing rights 72,237 163,045 Net (loss) gain on sales of mortgage loans and servicing rights 16,457 (65,275) (Increase) decrease in accrued interest on loans (597) 703 Increase in lease receivables (23,372) (25,918) Decrease (increase) in other assets 4,077 (4,605) Decrease (increase) in residual certificates 5,504 (5,114) Increase in accrued expenses and other liabilities 1,481 11,754 ----------- ----------- Net cash (used in) provided by operating activities (80,279) 655,671 ----------- ----------- INVESTING ACTIVITIES Purchases of premises and equipment (1,857) (5,598) Disposition of premises and equipment 652 0 Discontinued operations (1,706) (1,502) ----------- ----------- Net cash used in investing activities (2,911) (7,100) ----------- ----------- FINANCING ACTIVITIES Proceeds from borrowings 3,802,900 18,649,983 Repayment of borrowings (3,719,836) (19,275,859) Issuance of restricted stock 790 1,401 Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 1,189 1,664 Acquisition of treasury stock (6,212) (25,700) Cash dividends (4,046) (4,538) Exercise of stock options 0 4 Loans to Employee Stock Ownership Plan 0 (1,500) ----------- ----------- Net cash provided by (used in) financing activities 74,785 (654,545) ----------- ----------- Net increase (decrease) in cash (8,405) (5,974) Cash, beginning of year 30,478 18,124 ----------- ----------- Cash, end of year $ 22,073 $ 12,150 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 6 7 RESOURCE BANCSHARES MORTGAGE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 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, 1999, Annual Report on Form 10-K. Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, is not required for interim financial statements and has been omitted. The accompanying interim consolidated financial statements are unaudited. However, in the opinion of management of the Company, all adjustments, consisting of normal recurring items, necessary for a fair presentation of operating results for the periods shown have been made. During the first six months of 2000, management and the Board of Directors reconsidered the Company's current positioning in the market and its corporate, management and leadership structures. As a result, the Company is reorganizing around the primary business processes that are critical to achieving its new vision: production/sales, customer fulfillment, servicing and portfolio management. These business units will continue to be centrally supported by traditional corporate functions. Segment reporting, which is done based upon the current holding company organization structure, will change in future periods when the new organization structure is fully implemented. Certain prior period amounts have been reclassified to conform to current period presentation and for comparability purposes. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreign-currency denominated forecasted transaction. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). However, early adoption is permitted. The FASB has a Derivatives Implementation Group ("DIG") that is assisting various industry groups in interpreting SFAS No. 133. The DIG has numerous open issues relating to the mortgage banking industry. As a result, the Company has not yet determined 7 8 the impact that the adoption of SFAS 133 will have on its earnings or statement of financial position. Note 2 - Earnings (Loss) Per Share: The following is a reconciliation of basic earnings (loss) per share from continuing operations to diluted earnings (loss) per share from continuing operations for the six months and quarter ended June 30, 2000 and 1999, respectively:
($ IN THOUSANDS) FOR THE SIX MONTHS ENDED FOR THE QUARTER ENDED JUNE 30, JUNE 30, -------------------------------- -------------------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ----------- Net income from continuing operations $ (11,542) $ 14,707 $ (2,340) $ 3,189 ------------ ----------- ------------ ----------- Average common shares outstanding 18,337,723 21,587,836 18,017,764 20,958,060 ------------ ----------- ------------ ----------- Earnings per share - basic $ (0.63) $ 0.68 $ (0.13) $ 0.15 ------------ ----------- ------------ ----------- Dilutive stock options -- 212,449 -- 180,427 Average common and common equivalent shares outstanding 18,337,723 21,800,285 18,017,764 21,138,487 ------------ ----------- ------------ ----------- Earnings per share - diluted $ (0.63) $ 0.67 $ (0.13) $ 0.15 ============ =========== ============ ===========
During the second quarter, the Company decided to dispose of its commercial mortgage operation, Laureate Capital, Corp. (Laureate). Based on market indications to date, the Company expects to realize net proceeds equal to the tangible book value of Laureate. Accordingly, the Company recorded a $2 million after-tax charge during the quarter, primarily related to the write-off of intangible assets of Laureate. The following is a reconciliation of basic earnings (loss) per share from discontinued operations to diluted earnings (loss) per share from discontinued operations for the six months and quarter ended June 30, 2000 and 1999, respectively:
($ IN THOUSANDS) FOR THE SIX MONTHS ENDED FOR THE QUARTER ENDED JUNE 30, JUNE 30, -------------------------------- -------------------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ----------- Net income from discontinued operations $ (2,660) $ (210) $ (1,895) $ 147 ------------ ----------- ------------ ----------- Average common shares outstanding 18,337,723 21,587,836 18,017,764 20,958,060 ------------ ----------- ------------ ----------- Earnings per share - basic $ (0.15) $ (0.01) $ (0.11) $ 0.01 ------------ ----------- ------------ ----------- Dilutive stock options -- 212,449 -- 180,427 Average common and common equivalent shares outstanding 18,337,723 21,800,285 18,017,764 21,138,487 ------------ ----------- ------------ ----------- Earnings per share - diluted $ (0.15) $ (0.01) $ (0.11) $ 0.01 ============ =========== ============ ===========
8 9 The following is a reconciliation of combined basic earnings (loss) per share from operations to diluted earnings (loss) per share from operations for the six months and quarter ended June 30, 2000 and 1999, respectively:
($ IN THOUSANDS) FOR THE SIX MONTHS ENDED FOR THE QUARTER ENDED JUNE 30, JUNE 30, -------------------------------- -------------------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ----------- Net income from operations $ (14,202) $ 14,497 $ (4,235) $ 3,336 ------------ ----------- ------------ ----------- Average common shares outstanding 18,337,723 21,587,836 18,017,764 20,958,060 ------------ ----------- ------------ ----------- Earnings per share - basic $ (0.78) $ 0.67 $ (0.24) $ 0.16 ------------ ----------- ------------ ----------- Dilutive stock options -- 212,449 -- 180,427 Average common and common equivalent shares outstanding 18,337,723 21,800,285 18,017,764 21,138,487 ------------ ----------- ------------ ----------- Earnings per share - diluted $ (0.78) $ 0.66 $ (0.24) $ 0.16 ============ =========== ============ ===========
Note 3 - Allocated Revenues and Expenses: Following is a summary of the allocated revenues and expenses for each of the Company's operating divisions for the six months and the quarter ended June 30, 2000 and 1999, respectively: 9 10
AGENCY-ELIGIBLE FOR THE SIX MONTHS ENDED JUNE 30, 2000 (1) (2) -------------------------------------------------- ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 913 $ (2,316) $ (39) $ 6,657 Net gain on sale of mortgage loans 11,817 -- -- 6,179 Gain on sale of mortgage servicing rights -- 1,539 -- -- Servicing fees -- 17,906 -- -- Mark to market on residual interests in subprime securitizations -- -- -- (9,446) Other income 432 248 1,595 1,320 -------- -------- ------- -------- Total revenues 13,162 17,377 1,556 4,710 -------- -------- ------- -------- Salary and employee benefits 13,123 1,373 90 7,126 Occupancy expense 5,523 111 -- 1,305 Amortization and provision for impairment of mortgage servicing rights -- 12,209 -- -- Provision expense 1,252 -- -- 910 General and administrative expenses 5,137 2,020 172 3,145 -------- -------- ------- -------- Total expenses 25,035 15,713 262 12,486 -------- -------- ------- -------- Income (loss) before income taxes (11,873) 1,664 1,294 (7,776) Income tax benefit (expense) 4,369 (612) (454) 2,763 -------- -------- ------- -------- Income (loss) from continuing operations $ (7,504) $ 1,052 $ 840 $ (5,013) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $200) Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $354) -------- -------- ------- -------- Net income (loss) $ (7,504) $ 1,052 $ 840 $ (5,013) ======== ======== ======= ======== FOR THE SIX MONTHS ENDED JUNE 30, 2000 (1) (2) COMMERCIAL ($ IN THOUSANDS) MORTGAGE LEASING TOTAL SEGMENTS OTHER/ELIMINATION CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ -- $ 4,420 $ 9,635 $ (358) $ 9,277 Net gain on sale of mortgage loans -- -- 17,996 -- 17,996 Gain on sale of mortgage servicing rights -- -- 1,539 -- 1,539 Servicing fees -- 232 18,138 (258) 17,880 Mark to market on residual interests in subprime securitizations -- -- (9,446) -- (9,446) Other income -- 566 4,161 213 4,374 ------- ------- -------- ------- -------- Total revenues -- 5,218 42,023 (403) 41,620 ------- ------- -------- ------- -------- Salary and employee benefits -- 1,438 23,150 1,720 24,870 Occupancy expense -- 246 7,185 (349) 6,836 Amortization and provision for impairment of mortgage servicing rights -- -- 12,209 -- 12,209 Provision expense -- 1,521 3,683 -- 3,683 General and administrative expenses -- 622 11,096 998 12,094 ------- ------- -------- ------- -------- Total expenses -- 3,827 57,323 2,369 59,692 ------- ------- -------- ------- -------- Income (loss) before income taxes -- 1,391 (15,300) (2,772) (18,072) Income tax benefit (expense) -- (556) 5,510 1,020 6,530 ------- ------- -------- ------- -------- Income (loss) from continuing operations $ -- $ 835 $ (9,790) $(1,752) $(11,542) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $200) (2,000) (2,000) (2,000) Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $354) (660) (660) (660) ------- ------- -------- ------- -------- Net income (loss) $(2,660) $ 835 $(12,450) $(1,752) $(14,202) ======= ======= ======== ======= ========
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) See discussion of unusual items in Management's Discussion and Analysis.
AGENCY-ELIGIBLE FOR THE SIX MONTHS ENDED JUNE 30, 1999 (1) -------------------------------------------------- ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 6,412 $ (2,383) $ -- $ 7,456 Net gain on sale of mortgage loans 50,078 -- 10,374 -- Gain on sale of mortgage servicing rights -- 4,823 -- -- Servicing fees -- 22,535 -- -- Mark to market on residual interests in subprime securitizations (3,967) (3,967) (3,967) Other income 17 344 441 2,408 -------- -------- -------- -------- Total revenues 56,507 25,319 441 16,271 -------- -------- -------- -------- Salary and employee benefits 22,540 1,805 -- 6,784 Occupancy expense 3,693 207 -- 1,252 Amortization and provision for impairment -- -- of mortgage servicing rights -- 17,320 -- -- Provision expense 3,672 122 932 670 General and administrative expenses 8,884 3,478 82 3,529 -------- -------- -------- -------- Total expenses 38,789 22,810 204 12,497 -------- -------- -------- -------- Income (loss) before income taxes 17,718 2,509 237 3,774 Income tax benefit (expense) (6,277) (792) (84) (1,411) -------- -------- -------- -------- Income (loss) from continuing operations $ 11,441 $ 1,717 $ 153 $ 2,363 Discontinued operations: Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $91) -------- -------- -------- -------- Net income (loss) $ 11,441 $ 1,717 $ 153 $ 2,363 ======== ======== ======== ======== FOR THE SIX MONTHS ENDED JUNE 30, 1999 (1) COMMERCIAL ($ IN THOUSANDS) MORTGAGE LEASING TOTAL SEGMENTS OTHER/ELIMINATION CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ -- $ 3,389 $ 14,874 $ (191) $ 14,683 Net gain on sale of mortgage loans -- 60,452 -- -- 60,452 Gain on sale of mortgage servicing rights -- -- 4,823 -- 4,823 Servicing fees -- 327 22,862 -- 22,862 Mark to market on residual interests in subprime securitizations Other income -- 534 3,744 9 3,753 ------- -------- --------- -------- --------- Total revenues -- 4,250 102,788 (182) 102,606 ------- -------- --------- -------- --------- Salary and employee benefits -- 1,353 32,482 1,481 33,963 Occupancy expense -- 214 5,366 731 6,097 Amortization and provision for impairment of mortgage servicing rights -- -- 17,320 -- 17,320 Provision expense 5,396 5,396 General and administrative expenses -- 686 16,659 195 16,854 ------- -------- --------- -------- --------- Total expenses -- 2,923 77,223 2,407 79,630 ------- -------- --------- -------- --------- Income (loss) before income taxes -- 1,327 25,565 (2,589) 22,976 Income tax benefit (expense) -- (543) (9,107) 838 (8,269) ------- -------- --------- -------- --------- Income (loss) from continuing operations $ -- $ 784 $ 16,458 $ (1,751) $ 14,707 Discontinued operations: Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $91) (210) (210) (210) ------- -------- --------- -------- --------- Net income (loss) $ (210) $ 784 $ 16,248 $ (1,751) $ 14,497 ======= ======== ========= ======== =========
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 10 11
AGENCY-ELIGIBLE FOR THE QUARTER ENDED JUNE 30, 2000 (1) (2) ------------------------------------------------ ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 675 $(1,019) $ (23) $ 3,571 Net gain on sale of mortgage loans 5,611 -- -- 3,738 Gain on sale of mortgage servicing rights -- 731 -- -- Servicing fees -- 8,541 -- -- Mark to market on residual interests in subprime securitizations -- -- -- (1,771) Other income 312 120 849 427 -------- ------- ------- ------- Total revenues 6,598 8,373 826 5,965 -------- ------- ------- ------- Salary and employee benefits 6,235 680 48 1,581 Occupancy expense 2,833 56 -- 676 Amortization and provision for impairment of mortgage servicing rights -- 5,932 -- -- Provision expense 352 -- -- 168 General and administrative expenses 2,623 1,082 83 1,691 -------- ------- ------- ------- Total expenses 12,043 7,750 131 4,116 -------- ------- ------- ------- Income (loss) before income taxes (5,445) 623 695 1,849 Income tax benefit (expense) 1,986 (226) (244) (758) -------- ------- ------- ------- Income (loss) from continuing operations $ (3,459) $ 397 $ 451 $ 1,091 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $200) Operating profits of Laureate Capital Corp. (less applicable income taxes of $111) -------- ------- ------- ------- Net income (loss) $ (3,459) $ 397 $ 451 $ 1,091 ======== ======= ======= ======= FOR THE QUARTER ENDED JUNE 30, 2000 (1) (2) COMMERCIAL ($ IN THOUSANDS) MORTGAGE LEASING TOTAL SEGMENTS OTHER/ELIMINATION CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ -- $ 2,293 $ 5,497 $ (336) $ 5,161 Net gain on sale of mortgage loans -- -- 9,349 -- 9,349 Gain on sale of mortgage servicing rights -- -- 731 -- 731 Servicing fees -- 133 8,674 (109) 8,565 Mark to market on residual interests in subprime securitizations -- -- (1,771) -- (1,771) Other income -- 304 2,012 306 2,318 ------- ------- -------- ------- -------- Total revenues -- 2,730 24,492 (139) 24,353 ------- ------- -------- ------- -------- Salary and employee benefits -- 678 9,222 895 10,117 Occupancy expense -- 126 3,691 (175) 3,516 Amortization and provision for impairment of mortgage servicing rights -- -- 5,932 -- 5,932 Provision expense -- 1,162 1,682 -- 1,682 General and administrative expenses -- 328 5,807 838 6,645 ------- ------- -------- ------- -------- Total expenses -- 2,294 26,334 1,558 27,892 ------- ------- -------- ------- -------- Income (loss) before income taxes -- 436 (1,842) (1,697) (3,539) Income tax benefit (expense) -- (180) 578 621 1,199 ------- ------- -------- ------- -------- Income (loss) from continuing operations $ -- $ 256 $ (1,264) $(1,076) $ (2,340) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $200) (2,000) (2,000) (2,000) Operating profits of Laureate Capital Corp. (less applicable income taxes of $111) 105 105 105 ------- ------- -------- ------- -------- Net income (loss) $(1,895) $ 256 $ (3,159) $(1,076) $ (4,235) ======= ======= ======== ======= ========
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) See discussion of unusual items in Management's Discussion and Analysis.
AGENCY-ELIGIBLE FOR THE QUARTER ENDED JUNE 30, 1999 (1) (2) ------------------------------------------------ ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 2,651 $ (994) $ -- $ 3,983 Net gain on sale of mortgage loans 16,885 -- -- 7,517 Gain on sale of mortgage servicing rights -- 1,825 -- -- Servicing fees -- 10,832 -- -- Mark to market on residual interests in subprime securitizations -- -- -- (2,618) Other income (65) 183 (211) 1,991 -------- -------- ----- -------- Total revenues 19,471 11,846 (211) 10,873 -------- -------- ----- -------- Salary and employee benefits 10,902 907 -- 3,483 Occupancy expense 1,759 100 -- 669 Amortization and provision for impairment of mortgage servicing rights -- 8,887 -- -- Provision expense 1,564 -- 57 433 General and administrative expenses 5,330 1,617 55 2,040 -------- -------- ----- -------- Total expenses 19,555 11,511 112 6,625 -------- -------- ----- -------- Income (loss) before income taxes (84) 335 (323) 4,248 Income tax benefit (expense) 90 (19) 113 (1,579) -------- -------- ----- -------- Income (loss) from continuing operations $ 6 $ 316 $(210) $ 2,669 Discontinued operations: Operating profits of Laureate Capital Corp. (less applicable income taxes of $128) -------- -------- ----- -------- Net income (loss) $ 6 $ 316 $(210) $ 2,669 ======== ======== ===== ======== FOR THE QUARTER ENDED JUNE 30, 1999 (1) (2) COMMERCIAL ($ IN THOUSANDS MORTGAGE LEASING TOTAL SEGMENTS OTHER/ELIMINATION CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ -- $ 1,744 $ 7,384 $ (81) $ 7,303 Net gain on sale of mortgage loans -- -- 24,402 -- 24,402 Gain on sale of mortgage servicing rights -- -- 1,825 -- 1,825 Servicing fees -- 166 10,998 (159) 10,839 Mark to market on residual interests in subprime securitizations -- -- (2,618) -- (2,618) Other income -- 383 2,281 5 2,286 ---- ------- -------- ----- -------- Total revenues -- 2,293 44,272 (235) 44,037 ---- ------- -------- ----- -------- Salary and employee benefits -- 713 16,005 (801) 15,204 Occupancy expense -- 110 2,638 549 3,187 Amortization and provision for impairment of mortgage servicing rights -- -- 8,887 -- 8,887 Provision expense -- 287 2,341 -- 2,341 General and administrative expenses -- 316 9,358 18 9,376 ---- ------- -------- ----- -------- Total expenses -- 1,426 39,229 (234) 38,995 ---- ------- -------- ----- -------- Income (loss) before income taxes -- 867 5,043 (1) 5,042 Income tax benefit (expense) -- (351) (1,746) (107) (1,853) ---- ------- -------- ----- -------- Income (loss) from continuing operations $ -- $ 516 $ 3,297 $(108) $ 3,189 Discontinued operations: Operating profits of Laureate Capital Corp. (less applicable income taxes of $128) 147 147 147 ---- ------- -------- ----- -------- Net income (loss) $147 $ 516 $ 3,444 $(108) $ 3,336 ==== ======= ======== ===== ========
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 11 12 Note 4 - Proposed Disposal of Commercial Mortgage Segment: During the second quarter, the Company decided to dispose of its commercial mortgage operation, Laureate Capital Corp. (Laureate). Based on market indications to date, the Company expects to realize net proceeds equal to the tangible book value of Laureate. Accordingly, the Company recorded a $2 million after-tax charge during the quarter, primarily related to the write-off of intangible assets of Laureate. Note 4 - Changes to Benefit Plans: The Company amended its defined benefit pension plan to freeze benefits under the plan. Simultaneously, the Company changed the benefits available to employees under its 401(k) plan. The combined impact of the curtailment of pension plan benefits and the change of 401(k) benefits was to increase pre-tax income by $0.7 million. 12 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements of Resource Bancshares Mortgage Group, Inc. (the Company) (and the notes thereto) and the other information included or incorporated by reference into the Company's 1999 Annual Report on Form 10-K. Statements included in this discussion and analysis (or elsewhere in this quarterly report) which are not statements of historical fact are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following which are described herein or in the Company's Annual Report on Form 10-K for the year ended December 31, 1999: (i) interest rate risks, (ii) changes in economic conditions, (iii) competition, (iv) possible changes in regulations and related matters, (v) litigation affecting the mortgage banking business, (vi) delinquency and default risks, (vii) changes in the market for servicing rights, mortgage loans and lease receivables, (viii) environmental matters, (ix) changes in the demand for mortgage loans and leases, (x) changes in the value of residual interests in subprime securitizations, (xi) prepayment risks, (xii) changes in accounting estimates and (xiii) availability of funding sources and other risks and uncertainties. The Company disclaims any obligation to update any forward-looking statements. THE COMPANY The Company is a diversified financial services company engaged through wholly-owned subsidiaries primarily in the business of mortgage banking, through the purchase (via a nationwide network of correspondents and brokers), sale and servicing of agency-eligible and subprime residential, single-family (i.e. one-four family), first-mortgage loans and the purchase and sale of servicing rights associated with agency-eligible loans. In addition, two of the Company's wholly-owned subsidiaries originate, sell and service small-ticket commercial equipment leases and originate, sell, underwrite for investors and service commercial mortgage loans. 13 14 LOAN AND LEASE PRODUCTION A summary of production by source for the periods indicated is set forth below:
($ IN THOUSANDS) AT OR FOR THE SIX MONTHS AT OR FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Agency-Eligible Loan Production: Correspondent $ 2,027,643 $ 4,120,525 $ 1,113,609 $ 1,692,504 Wholesale 543,221 1,155,730 295,133 443,908 ----------- ----------- ----------- ----------- Total Agency-Eligible Loan Production 2,570,864 5,276,255 1,408,742 2,136,412 Subprime Loan Production 321,314 369,855 168,830 185,744 Commercial Mortgage (for Investors and Conduits) Loan Production 375,003 308,102 279,528 157,950 Lease Production 53,300 44,865 29,054 24,340 ----------- ----------- ----------- ----------- Total Mortgage Loan and Lease Production $ 3,320,481 $ 5,999,077 $ 1,886,154 $ 2,504,446 =========== =========== =========== ===========
The Company purchases agency-eligible mortgage loans through its correspondents and originates loans through its wholesale and subprime divisions. The Company also has a small-ticket commercial equipment lease operation and a commercial mortgage loan business. Correspondent operations accounted for 61% and 69% of the Company's total production for the six months ended June 30, 2000 and 1999. Wholesale and subprime production accounted for 16% and 10%, respectively, of the Company's production for the six months ended June 30, 2000 and 19% and 6%, respectively, of the Company's production for the six months ended June 30, 1999. Lease and commercial mortgage production accounted for 13% and 6% of the Company's total production for the first six months of 2000 and 1999, respectively. A summary of key information relevant to industry loan production activity is set forth below:
AT OR FOR THE QUARTER ENDED JUNE 30, ------------------------------------ 2000 1999 ------------- ------------- U.S. 1-4 Family Mortgage Originations Statistics (1): U.S. 1-4 Family Mortgage Originations $ 276,000,000 $ 368,000,000 Adjustable Rate Mortgage Market Share 31.00% 16.00% Estimated Fixed Rate Mortgage Originations $ 191,000,000 $ 309,000,000 Company Information: Residential Loan Production $ 1,577,572 $ 2,322,156 Estimated Company Market Share 0.57% 0.63%
(1) Source: Mortgage Bankers Association of America, Economics Department. The Company's total residential mortgage production decreased by 32% to $1.6 billion for the second quarter of 2000 from $2.3 billion for the second quarter of 1999. During the second quarter of 2000, interest rates were higher than during the second quarter of 1999, resulting in a decrease in industry wide residential loan originations of 25%. Likewise, the higher rate environment resulted in an increase in ARM market share in the second quarter of 2000. The Company has historically focused on fixed rate products, and only recently has 14 15 commenced offering a broader spectrum of mortgage products, including adjustable rate products. Further, as often happens in the mortgage banking industry, a rise in interest rates and resulting decrease in volumes prompted increasing price competition in the marketplace during the quarter. Correspondent Loan Production The Company purchases closed mortgage loans through its network of approved correspondent lenders. Correspondents are primarily mortgage lenders, larger mortgage brokers and smaller savings and loan associations and commercial banks that have met the Company's approval requirements. The Company continues to emphasize correspondent loan production as its basic business focus because of the lower fixed expenses and capital investment required of the Company. A summary of key information relevant to the Company's correspondent loan production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE SIX MONTHS AT OR FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Correspondent Loan Production $ 2,027,643 $ 4,120,525 $ 1,113,609 $ 1,692,504 Estimated Correspondent Market Share (1) 0.43% 0.57% 0.40% 0.46% Approved Correspondents 923 867 923 867 Correspondent Division Expenses $ 20,082 $ 32,365 $ 9,515 $ 15,303
(1) Source: Mortgage Bankers Association of America, Economics Department. The Company's correspondent loan production decreased by 34% to $1.1 billion for the second quarter of 2000 from $1.7 billion for the second quarter of 1999. During the second quarter of 2000, interest rates were higher than during the second quarter of 1999, resulting in a decrease in industry wide residential loan originations of 25%. Likewise, the higher rate environment resulted in an increase in ARM market share in the second quarter of 2000. The Company has historically focused on fixed rate products, and only recently has commenced offering a broader spectrum of mortgage products, including adjustable rate products. Further, as often happens in the mortgage banking industry, a rise in interest rates and resulting decrease in volumes prompted increasing price competition in the market place during the quarter. The correspondent division expenses decreased by 38% to $9.5 million for the second quarter of 2000 from $15.3 million for the second quarter of 1999 primarily due to the decrease in correspondent production during the same period. Wholesale Loan Production The wholesale division receives loan applications through brokers, underwrites the loans, funds the loans at closing and prepares all closing documentation. The Company's wholesale branches and regional operating centers handle all shipping and follow-up procedures on loans. Typically, mortgage brokers are responsible for taking applications and accumulating the information precedent to the Company's processing and underwriting of the loans. Although the establishment of wholesale branch offices and regional operating centers involves the incurrence of fixed expenses associated with maintaining those offices, wholesale operations also generally provide for higher profit margins than correspondent loan production. Additionally, each branch office and regional operating center can serve a relatively sizable geographic area by establishing 15 16 relationships with large numbers of independent mortgage loan brokers who bear much of the cost of identifying and interacting directly with loan applicants. In 1999, the Company closed certain branches and established regional operations centers to better facilitate service to larger geographic areas. The Company's nationwide salesforce is supported by these regional operating centers. A summary of key information relevant to the Company's wholesale production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE SIX MONTHS AT OR FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------- 2000 1999 2000 1999 ------------------------ ------------------------- Wholesale Loan Production $ 543,221 $1,155,730 $ 295,133 $ 443,908 Estimated Wholesale Market Share (1) 0.11% 0.16% 0.11% 0.12% Wholesale Division Direct Operating Expenses $ 4,953 $ 8,474 $ 2,528 $ 3,917 Approved Brokers 4,123 3,669 4,123 3,669 Regional Operation Centers 5 -- 5 -- Number of Branches 2 17 2 17 Number of Employees 96 186 96 186
(1) Source: Mortgage Bankers Association of America, Economics Department. Wholesale loan production decreased 34% ($148.8 million) from $443.9 million for the second quarter of 1999 to $295.1 million for the second quarter of 2000. During the second quarter of 2000, interest rates were higher than during the second quarter of 1999, resulting in a decrease in industry wide residential loan origination of 25%. Likewise, the higher rate environment resulted in an increase in ARM market share in the second quarter of 2000. The Company has historically focused on fixed rate products, and only recently has commenced offering a broader spectrum of mortgage products, including adjustable rate products. Further, as often happens in the mortgage banking industry, a rise in interest rates and resulting decrease in volumes prompted increasing price competition in the market place during the quarter. Subprime Loan Production The Company conducts subprime business through its wholly-owned subsidiary, Meritage Mortgage Corporation (Meritage). A summary of key information relevant to the Company's subprime production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE SIX MONTHS AT OR FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 ------------------------ ------------------------ Subprime Loan Production $321,314 $369,855 $168,830 $185,744 Estimated Subprime Market Share (1) 0.07% 0.05% 0.06% 0.05% Subprime Division Direct Operating Expenses $ 12,486 $ 12,497 $ 4,116 $ 6,542 Number of Brokers 3,711 2,182 3,711 2,182 Number of Employees 261 332 261 332 Number of Branches 10 19 10 19
Subprime loan production decreased by 9% to $168.8 million for the second quarter of 2000 as compared to $185.7 million during the second quarter of 1999 primarily due to a decrease in industry wide residential loan originations of 25%. Subprime division direct operating expenses decreased by 37% to $4.1 million for the second quarter of 2000 as compared 16 17 to $6.5 million during the second quarter of 1999. This reduction in expenses is primarily due to a decrease in production between quarters. Also, the Company made certain changes in the organization at its subprime units resulting in a net reduction in previously established reorganization reserves. The Company amended its defined benefit pension plan to freeze benefits under the plan and simultaneously changed the benefits available to employees under its 401(k) plan. The combined effect of such changes resulted in a decrease of subprime division direct operating expenses of $0.8 million during the quarter. Between June 30, 1999 and 2000, respectively, the Company increased the number of its subprime brokers by 1,529. The number of branches declined from 19 at June 30, 1999 to 10 as of June 30, 2000 as the Company reassessed the geographic regions that each branch covers. Commercial Mortgage Production During the second quarter, the Company decided to dispose of its commercial mortgage operation, Laureate Capital Corp. (Laureate). Based on market indications to date, the Company expects to realize net proceeds equal to the tangible book value of Laureate. Accordingly, the Company recorded a $2 million after-tax charge during the quarter, primarily related to the write-off of intangible assets of Laureate. Lease Production The Company's wholly-owned subsidiary, Republic Leasing Company, Inc. (Republic Leasing), originates and services small-ticket commercial equipment leases. Substantially all of Republic Leasing's lease receivables are acquired from independent brokers who operate throughout the continental United States. A summary of key information relevant to the Company's lease production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE SIX MONTHS AT OR FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 ------------------------ ------------------------ Lease Production $ 53,300 $ 44,865 $ 29,054 $ 24,340 Lease Division Direct Operating Expenses $ 3,827 $ 2,923 $ 2,294 $ 1,426 Number of Brokers 173 198 173 198 Number of Employees 70 66 70 66
SERVICING Residential Mortgage Servicing Residential mortgage servicing includes collecting and remitting mortgage loan payments, accounting for principal and interest, holding escrow funds for payment of mortgage-related expenses such as taxes and insurance, making advances to cover delinquent payments, making inspections as required of the mortgaged premises, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults and generally administering mortgage loans. 17 18 The Company is somewhat unique in that its strategy is to sell substantially all of its produced agency-eligible mortgage servicing rights to other approved servicers. Typically, the Company sells its agency-eligible mortgage servicing rights within 90 to 180 days of purchase or origination. However, for strategic reasons, the Company also strives to maintain a servicing portfolio whose size is determined by reference to the Company's cash operating costs which, in turn, are largely determined by the size of its loan production platform. A summary of key information relevant to the Company's agency-eligible loan servicing activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE SIX MONTHS AT OR FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Underlying Unpaid Principal Balances: Beginning Balance * $ 7,822,394 $ 9,865,100 $ 7,713,046 $ 9,735,754 Agency-Eligible Loan Production (net of servicing- released production) * 2,482,696 5,265,702 1,382,399 2,132,353 Bulk Acquisitions* -- -- - - Net Change in Work-in-Progress* 70,642 196,507 (6,497) 6,052 Sales of Servicing* (2,579,819) (6,104,726) (1,451,283) (3,101,473) Paid-In-Full Loans* (254,756) (649,056) (147,947) (283,327) Amortization, Curtailments and Other, net* (101,071) (162,837) (49,632) (78,669) ------------ ------------ ------------ ------------- Ending Balance* 7,440,086 8,410,690 7,440,086 8,410,690 Subservicing Ending Balance 1,089,014 3,111,358 1,089,014 3,111,358 ------------ ------------ ------------ ------------ Total Underlying Unpaid Principal Balances $ 8,529,100 $ 11,522,048 $ 8,529,100 $ 11,522,048
* These numbers and statistics apply to the Company's owned agency-eligible servicing portfolio and, therefore, exclude the subservicing portfolio. The ending balance for the second quarter of 2000 and 1999, respectively, includes $194,553 and -0-, respectively, of subprime loans being temporarily serviced until these loans are sold. Of the $7.4 billion and $8.4 billion unpaid principal balance at June 30, 2000 and 1999, $5.7 billion and $5.9 billion, respectively, of the related mortgage servicing right asset is classified as available-for-sale, while $1.7 billion and $2.5 billion, respectively, of the related mortgage servicing right asset is classified as held-for-sale. A summary of agency-eligible servicing statistics follows:
($ IN THOUSANDS) AT OR FOR THE SIX MONTHS AT OR FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ------------ ------------ ----------- ------------ Average Underlying Unpaid Principal Balances (including subservicing) $ 9,163,193 $ 13,110,771 $ 9,024,206 $ 12,739,230 Weighted Average Note Rate* 7.64% 7.30% 7.64% 7.30% Weighted Average Servicing Fee* 0.43% 0.43% 0.43% 0.43% Delinquency (30+ days) Including Bankruptcies and Foreclosures* 2.22% 2.27% 2.22% 2.27% Number of Servicing Division Employees 80 149 80 149
* These numbers and statistics apply to the Company's owned agency-eligible servicing portfolio and, therefore, exclude the subservicing portfolio. 18 19 The $3.7 billion, or 29%, decrease in the average underlying unpaid principal balance of agency-eligible mortgage loans being serviced and subserviced for the second quarter of 2000 as compared to the second quarter of 1999 is primarily related to the Company's decreased loan production volumes during the second quarter of 2000. Since the Company generally sells servicing rights related to the agency-eligible loans it produces within 90 to 180 days of purchase or origination, decreased production volumes generally result in a lower volume of mortgage servicing rights held in inventory pending sale. Lease Servicing Republic Leasing services leases that are owned by it and also services leases for investors. A summary of key information relevant to the Company's lease servicing activity is set forth below:
AT OR FOR THE QUARTER ENDED JUNE 30, ---------------------------------------- ($ IN THOUSANDS) 2000 1999 ------------ ------------ Owned Lease Servicing Portfolio $ 174,344 $ 124,139 Serviced For Investors Servicing Portfolio 7,588 24,068 ------------ ------------ Total Managed Lease Servicing Portfolio $ 181,932 $ 148,207 ============ ============ Weighted Average Net Yield For Managed Lease Servicing Portfolio 10.67% 10.76% Delinquencies (30+ Days) Managed Lease Servicing Portfolio 2.24% 1.49%
Consolidated Coverage Ratios A summary of the Company's consolidated ratios of servicing fees and interest income from owned leases to cash operating expenses net of amortization and depreciation follows:
($ IN THOUSANDS) AT OR FOR THE SIX MONTHS AT OR FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Total Company Servicing Fees $ 17,880 $ 24,995 $ 8,565 $ 11,997 Net Interest Income from Owned Leases 4,420 3,389 2,293 1,744 ----------- ----------- ----------- ----------- Total Servicing Fees and Interest from Owned Leases $ 22,300 $ 28,384 $ 10,858 $ 13,741 ----------- ----------- ----------- ----------- Total Company Operating Expenses $ 59,692 $ 79,630 $ 27,892 $ 38,995 Total Company Amortization and Depreciation (17,197) (20,778) (7,697) (10,240) ----------- ----------- ----------- ----------- Total Company Operating Expenses, Net of Amortization and Depreciation $ 42,495 $ 58,852 $ 20,195 $ 28,755 ----------- ----------- ----------- ----------- Coverage Ratio 52% 48% 54% 48% =========== =========== =========== ===========
The Company's coverage ratios for the second quarter of 2000 and 1999 were 54% and 48%, respectively, and for the first six months of 2000 and 1999 were 52% and 48% respectively. The coverage ratio for the second quarter and the first six months of 2000 met the Company's target level of between 50% and 80%. 19 20 RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 SUMMARY BY OPERATING DIVISION Net income (loss) from continuing operations per common share on a diluted basis for the first six months of 2000 was ($0.63) as compared to $0.67 for the first six months of 1999. Following is a summary of the revenues and expenses for each of the Company's operating divisions for the six months ended June 30, 2000 and 1999, respectively: 20 21
Agency-Eligible For the six months ended June 30, 2000 (1)(2) ------------------------------------------ Commercial ($ in thousands) Production Servicing Reinsurance Subprime Mortgage - ------------------------------------------------------------------------------------------------------------------------------ (UNAUDITED) Net interest income $ 913 $ (2,316) $ (39) $ 6,657 $ -- Net gain on sale of mortgage loans 11,817 -- -- 6,179 -- Gain on sale of mortgage servicing rights -- 1,539 -- -- -- Servicing fees -- 17,906 -- -- -- Mark to market on residual interests in subprime securitizations -- -- -- (9,446) -- Other income 432 248 1,595 1,320 -- --------------------------------------------------------------------- Total revenues 13,162 17,377 1,556 4,710 -- --------------------------------------------------------------------- Salary and employee benefits 13,123 1,373 90 7,126 -- Occupancy expense 5,523 111 -- 1,305 -- Amortization and provision for impairment of mortgage servicing rights -- 12,209 -- -- -- Provision expense 1,252 -- -- 910 -- General and administrative expenses 5,137 2,020 172 3,145 -- --------------------------------------------------------------------- Total expenses 25,035 15,713 262 12,486 -- --------------------------------------------------------------------- Income (loss) before income taxes (11,873) 1,664 1,294 (7,776) -- Income tax benefit (expense) 4,369 (612) (454) 2,763 -- --------------------------------------------------------------------- Income (loss) from continuing operations $ (7,504) $ 1,052 $ 840 $ (5,013) $ -- Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $200) (2,000) Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $354) (660) --------------------------------------------------------------------- Net income (loss) $ (7,504) $ 1,052 $ 840 $ (5,013) $ (2,660) ===================================================================== For the six months ended June 30, 2000 (1)(2) ($ in thousands) Leasing Total Segment Other/Elimination Consolidated - -------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 4,420 $ 9,635 $ (358) $ 9,277 Net gain on sale of mortgage loans -- 17,996 -- 17,996 Gain on sale of mortgage servicing rights -- 1,539 -- 1,539 Servicing fees 232 18,138 (258) 17,880 Mark to market on residual interests in subprime securitizations -- (9,446) -- (9,446) Other income 566 4,161 213 4,374 ------------------------------------------------------------- Total revenues 5,218 42,023 (403) 41,620 ------------------------------------------------------------- Salary and employee benefits 1,438 23,150 1,720 24,870 Occupancy expense 246 7,185 (349) 6,836 Amortization and provision for impairment of mortgage servicing rights -- 12,209 -- 12,209 Provision expense 1,521 3,683 -- 3,683 General and administrative expenses 622 11,096 998 12,094 ------------------------------------------------------------- Total expenses 3,827 57,323 2,369 59,692 ------------------------------------------------------------- Income (loss) before income taxes 1,391 (15,300) (2,772) (18,072) Income tax benefit (expense) (556) 5,510 1,020 6,530 ------------------------------------------------------------- Income (loss) from continuing operations $ 835 $ (9,790) $ (1,752) $ (11,542) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $200) (2,000) (2,000) Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $354) (660) (660) ------------------------------------------------------------- Net income (loss) $ 835 $ (12,450) $ (1,752) $ (14,202) =============================================================
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) See discussion of unusual items in Management's Discussion and Analysis.
Agency-Eligible Production For the six months ended June 30, 1999 (1) ---------------------------------------- Commercial ($ in thousands) Production Servicing Reinsurance Subprime Mortgage - ------------------------------------------------------------------------------------------------------------------------------ (UNAUDITED) Net interest income $ 6,412 $ (2,383) $ -- $ 7,456 $ -- Net gain on sale of mortgage loans 50,078 -- -- 10,374 -- Gain on sale of mortgage servicing rights -- 4,823 -- -- -- Servicing fees -- 22,535 -- -- -- Mark to market on residual interests in subprime securitizations -- -- -- (3,967) -- Other income 17 344 441 2,408 -- -------------------------------------------------------------------- Total revenues 56,507 25,319 441 16,271 -- -------------------------------------------------------------------- Salary and employee benefits 22,540 1,805 -- 6,784 -- Occupancy expense 3,693 207 -- 1,252 -- Amortization and provision for impairment of mortgage servicing rights -- 17,320 -- -- -- Provision expense 3,672 -- 122 932 -- General and administrative expenses 8,884 3,478 82 3,529 -- -------------------------------------------------------------------- Total expenses 38,789 22,810 204 12,497 -- -------------------------------------------------------------------- Income (loss) before income taxes 17,718 2,509 237 3,774 -- Income tax benefit (expense) (6,277) (792) (84) (1,411) -- -------------------------------------------------------------------- Income (loss) from continuing operations $ 11,441 $ 1,717 $ 153 $ 2,363 $ -- Discontinued operations: Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $91) (210) -------------------------------------------------------------------- Net income (loss) $ 11,441 $ 1,717 $ 153 $ 2,363 $ (210) ==================================================================== For the six months ended June 30, 1999 (1) ($ in thousands) Leasing Total Segment Other/Elimination Consolidated - -------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 3,389 $ 14,874 $ (191) $ 14,683 Net gain on sale of mortgage loans -- 60,452 -- 60,452 Gain on sale of mortgage servicing rights -- 4,823 -- 4,823 Servicing fees 327 22,862 -- 22,862 Mark to market on residual interests in subprime securitizations -- (3,967) -- (3,967) Other income 534 3,744 9 3,753 -------------------------------------------------------------- Total revenues 4,250 102,788 (182) 102,606 -------------------------------------------------------------- Salary and employee benefits 1,353 32,482 1,481 33,963 Occupancy expense 214 5,366 731 6,097 Amortization and provision for impairment of mortgage servicing rights -- 17,320 -- 17,320 Provision expense 670 5,396 -- 5,396 General and administrative expenses 686 16,659 195 16,854 -------------------------------------------------------------- Total expenses 2,923 77,223 2,407 79,630 -------------------------------------------------------------- Income (loss) before income taxes 1,327 25,565 (2,589) 22,976 Income tax benefit (expense) (543) (9,107) 838 (8,269) -------------------------------------------------------------- Income (loss) from continuing operations $ 784 $ 16,458 $ (1,751) $ 14,707 Discontinued operations: Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $91) (210) (210) -------------------------------------------------------------- Net income (loss) $ 784 $ 16,248 $ (1,751) $ 14,497 ==============================================================
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 21 22 AGENCY-ELIGIBLE MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage production operations.
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- ($ IN THOUSANDS) 2000 1999 ----------- ---------- Net interest income $ 913 $ 6,412 Net gain on sale of mortgage loans 11,817 50,078 Other income 432 17 ----------- ---------- Total production revenue 13,162 56,507 ----------- ---------- Salary and employee benefits 13,123 22,540 Occupancy expense 5,523 3,693 Provision expense 1,252 3,672 General and administrative expenses 5,137 8,884 ----------- ---------- Total production expenses 25,035 38,789 ----------- ---------- Net pre-tax production margin $ (11,873) $ 17,718 ----------- ---------- Production $ 2,570,864 $5,276,255 Pool delivery 2,489,089 5,710,345 Total production revenue to pool delivery 53 bps 99 bps Total production expenses to production 97 bps 74 bps ----------- ---------- Net pre-tax production margin (44)bps 25 bps =========== ==========
Summary The production revenue to pool delivery ratio decreased 46 basis points for the first six months of 2000 as compared to the first six months of 1999. Net gain on sale of mortgage loans (46 basis points for the first six months of 2000 versus 88 basis points for the first six months of 1999) declined primarily due to compressed margins attributable to an aggressive competitive pricing environment and lower overall agency-eligible production volume. Net interest income decreased from 11 basis points in the first six months of 1999 to 4 basis points in the first six months of 2000 primarily as a result of a flattened yield curve. The production expenses to production ratio increased 23 basis points from the first six months of 1999 to the first six months of 2000. This is primarily due to the 51% decline in production for the first six months of 2000 as compared to the first six months of 1999 which was only partially offset by a 36% decline in production expenses. The decline in production expenses included a $0.4 million reduction in salary and employee benefits as a result of (1) the curtailment of the Company's pension plan benefits, (2) changes in 401(k) benefits and (3) a reduction of the previously established reorganization reserves due to certain changes in the organization of the agency-eligible unit. As a consequence of the foregoing, the Company's net agency-eligible pre-tax production margin declined 69 basis points. Net Interest Income The following table analyzes net interest income allocated to the Company's agency-eligible mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest 22 23 rates paid on interest-bearing sources of funds) for the six months ended June 30, 2000 and 1999, respectively:
($ IN THOUSANDS) Variance Average Volume Average Rate Interest Attributable to - -------------------------------------- ------------------- ------------------- 2000 1999 2000 1999 2000 1999 Variance Rate Volume - -------------------------------------- --------------------------------------------------------- INTEREST INCOME Mortgages Held-for-Sale and Mortgage-Backed $ 330,381 $ 889,631 8.13% 6.62% Securities $ 13,428 $ 29,454 $ (16,026) $ 2,490 $(18,516) - -------------------------------------- ------------------------------------------------------- INTEREST EXPENSE $ 298,229 $ 386,100 5.12% 3.62% Warehouse Line * $ 7,616 $ 6,923 $ 693 $ 2,269 $ (1,576) 21,378 492,144 6.90% 5.15% Gestation Line 735 12,559 (11,824) 189 (12,013) 121,503 120,119 7.24% 5.85% Servicing Secured Line 4,385 3,486 899 859 40 3,950 29,790 5.94% 5.22% Servicing Receivables Line 117 771 (654) 15 (669) 7,673 7,728 8.68% 8.22% Other Borrowings 332 315 17 19 (2) Facility Fees & Other Charges 1,844 1,418 426 -- 426 - -------------------------------------- -------------------------------------------------------- $ 452,733 $1,035,881 6.66% 4.96% Total Interest Expense $ 15,029 $ 25,472 $ (10,443) $ 3,351 $(13,794) - -------------------------------------- -------------------------------------------------------- Net Interest Income Before 1.47% 1.66% Interdivisional Allocations $ (1,601) $ 3,982 $ (5,583) $ (861) $ (4,722) ============= ============================== Allocation to Agency-Eligible Servicing Division 2,316 2,239 Allocation to Other 289 191 Intercompany Net Interest Expense Included In Segment (91) -- --------------------- Net Interest Income $ 913 $ 6,412 =====================
* The interest-rate yield on the warehouse line is net of the benefit of escrow deposits. The 19 basis point decrease in the interest-rate spread was primarily a result of a flattened yield curve. The Company's mortgages and mortgage-backed securities are generally sold and replaced within 30 to 35 days. Accordingly, the Company generally borrows at rates based upon short-term indices, while its asset yields are primarily based upon long-term mortgage rates. Net Gain on Sale of Agency-Eligible Mortgage Loans A reconciliation of gain on sale of agency-eligible mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ----------- ----------- Gross proceeds on sales of mortgage loans $ 2,558,467 $ 5,726,984 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results 2,563,602 5,724,786 ----------- ----------- Unadjusted gain (loss) on sale of mortgage loans (5,135) 2,198 Loan origination and correspondent program administrative fees 4,996 13,148 ----------- ----------- Unadjusted aggregate margin (139) 15,346 Acquisition basis allocated to mortgage servicing rights (SFAS No. 125) 13,478 35,782 Net deferred costs and administrative fees recognized (1,522) (1,050) ----------- ----------- Net gain on sale of agency-eligible mortgage loans $ 11,817 $ 50,078 =========== ===========
Net gain on sale of agency-eligible mortgage loans decreased $38.3 million from $50.1 million for the first six months of 1999 to $11.8 million for the first six months of 2000. The 23 24 decrease is primarily due to compressed margins attributable to an aggressive competitive pricing environment in the correspondent channel and lower overall agency-eligible production volume. Receivable from sale of mortgage-backed securities The company sold certain mortgage-backed securities during the first six months of 2000, for which it did not receive the cash settlement until early in the second quarter of 2000. This resulted in a $69.9 million receivable on the June 30, 2000 condensed consolidated balance sheet. AGENCY-ELIGIBLE REINSURANCE OPERATIONS The Company has a captive insurance company, MG Reinsurance Company (MG Reinsurance). MG Reinsurance is licensed as a property and casualty insurer and operates as a monoline captive insurance company assuming reinsurance for PMI policies on agency-eligible mortgage loans initially purchased or produced by the Company. During the first six months of 2000 and 1999, the Company recognized premium and investment income of approximately $1.6 million and $0.4 million, respectively, that has been included as other income in the agency-eligible reinsurance segment. SUBPRIME MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's subprime mortgage production operations:
FOR THE SIX MONTHS ENDED JUNE 30, -------------------------------- ($ IN THOUSANDS) 2000 1999 ---------- --------- Net interest income $ 6,657 $ 7,456 Net gain on sale of mortgage loans 6,179 10,374 Mark to market on residual interests in subprime securitizations (9,446) (3,967) Other income 1,320 2,408 --------- --------- Total production revenue 4,710 16,271 --------- --------- Salary and employee benefits 7,126 6,784 Occupancy expense 1,305 1,252 Provision expense 910 932 General and administrative expenses 3,145 3,529 --------- --------- Total production expenses 12,486 12,497 --------- --------- Net pre-tax production margin $ (7,776) $ 3,774 --------- --------- Production $ 321,314 $ 369,855 Whole loan sales and securitizations 306,578 322,910 Total production revenue to whole loan sales and securitizations 154 bps 504 bps Total production expenses to production 389 bps 338 bps --------- --------- Net pre-tax production margin (235) bps 166 bps ========= =========
24 25 Summary During the first six months of 2000, subprime production volume of $321.3 million exceeded whole loan sales and securitizations of $306.6 million by $14.7 million. At June 30, 2000, the Company had unsold subprime mortgage loans of $134.9 million as compared to $145.1 million at June 30, 1999. Overall, the Company operated during the first six months of 2000 at a (2.35)% pre-tax subprime production margin. The $11.6 million (401 basis point) decline in the pre-tax subprime production margin is primarily due to the ($9.4) million adjustment during the first six months of 2000 in the mark to market on residual interests in subprime securitizations. The Company is currently exploring options to extract cash in the short-term from these investments. Options being considered include the outright sale of certain securities and/or a re-REMIC of residual cash flows. Based upon initial market feedback, the Company reassessed the assumptions utilized in valuing these relatively illiquid securities, primarily the discount rate used in the valuation. Absent the ($9.4) million adjustment to residual interests, the margin on sale of subprime loans was 5%. Also contributing to the decline in the pre-tax subprime production margin during the first six months of 2000 is the $4.2 million decline in net gain on sale of subprime mortgage loans. This decline is primarily attributable to compressed margins as a result of an intensely competitive pricing environment. Salary and employee benefit costs increased by 5%, or $0.4 million, from the first six months of 1999 to the first six months of 2000. This was primarily due to recognition of severance benefits of $0.2 million associated with a planned reorganization of the Company around its primary business processes (production/sales, order fulfillment, servicing and portfolio management). The Company also amended its defined benefit pension plan to freeze benefits under the plan and simultaneously changed the benefits available to employees under its 401(k) plan. The impact of this was a decrease in salary and employee benefit expense of $0.4 million. The remaining production expenses remained relatively flat between periods. Net Interest Income The following table analyzes net interest income allocated to the Company's subprime mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and residual certificates and interest rates paid on interest-bearing sources of funds) for the six months ended June 30, 2000 and 1999, respectively. 25 26 $ IN THOUSANDS)
Variance Average Volume Average Rate Interest Attributable to - ------------------------------------------ ----------------- -------------------- 2000 1999 2000 1999 2000 1999 Variance Rate Volume - ------------------------------------------ ------------------------------------------------------ Mortgages Held-for-Sale $ 203,577 $ 232,845 11.54% 10.24% and Residual Certificates $ 11,743 $ 11,916 $ (173) $ 1,325 $ (1,498) - ------------------------------------------ ------------------------------------------------------ $ 145,068 $ 170,984 7.17% 5.43% Total Interest Expense $ 5,185 $ 4,604 581 $ 1,279 $ (698) - ------------------------------------------ ------------------------------------------------------ 4.37% 4.81% Net Interest Income $ 6,558 $ 7,312 $ (754) $ 46 $ (800) ================ ================================ Allocation to Agency-Eligible Servicing Division -- 144 Intercompany Net Interest Expense Included In Segment 99 -- ------------------- Net Interest Income $ 6,657 $ 7,456 ===================
Net interest income from subprime products decreased to $6.7 million for the first six months of 2000 as compared to $7.5 million for the first six months of 1999. This was primarily a result of a flattened yield curve and the decline in production volume, which was partially offset by $0.8 million increase in accretion income from $3.0 million for the first six months of 1999 to $3.8 million for the first six months of 2000. Net Gain on Sale and Securitization of Subprime Mortgage Loans The Company sold subprime mortgage loans on a whole loan basis during the first six months of 2000 and 1999. Whole loans are generally sold without recourse to third parties with the gain or loss being calculated based on the difference between the carrying value of the loans sold and the gross proceeds received from the purchaser less expenses. Generally, no interest in these loans is retained by the Company. A reconciliation of the gain on subprime mortgage whole loan sales for the periods indicated follows:
($ IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ---------- ------------ Gross proceeds on whole loan sales of subprime mortgage loans $ 316,912 $ 204,317 Initial acquisition cost of subprime mortgage loans sold, net of fees 306,578 196,867 ---------- ----------- Unadjusted gain on whole loan sales of subprime mortgage loans 10,334 7,450 Net deferred costs and administrative fees recognized (4,155) (2,134) ---------- ----------- Net gain on whole loan sales of subprime mortgage loans $ 6,179 $ 5,316 ========== ===========
The net gain on whole loan sales of subprime mortgage loans increased 16% from $5.3 for the first six months of 1999 to $6.2 million reported for the first six months of 2000. Also, in accordance with Statement of Financial Accounting Standard No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases" the Company reduced its net gain on whole loan sales of subprime mortgage 26 27 loans by $4.2 million in the first six months of 2000 as compared to $2.1 million in the first six months of 1999. There were no securitization transactions during the first six months of 2000. A reconciliation of the gain on securitization of subprime mortgage loans for the six months ended June 30, 1999 follows:
($ IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ---------- -------- Gross proceeds on securitization of subprime mortgage loans N/A $124,242 Initial acquisition cost of subprime mortgage loans securitized, net of fees N/A 126,043 ---------- -------- Unadjusted loss on securitization of subprime mortgage loans N/A (1,801) Initial capitalization of residual certificates N/A 8,867 Net deferred costs and administrative fees recognized N/A (2,008) ---------- -------- Net gain on securitization of subprime mortgage loans N/A $ 5,058 ========== ========
Mark to Market on Residual Interests in Subprime Securitizations The Company historically has retained residual certificates in connection with the securitization of subprime loans. These residual certificates are adjusted to approximate market value each quarter. For the six months ended June 30, 2000 and 1999, respectively, mark-to-market gain (loss) on residuals was approximately ($9.4) million and ($4.0) million, respectively. Management has initiated a strategic change in the Company's intent to hold these instruments for the long-term. As a result, there has been a reassessment of the assumptions utilized for purposes of valuing these relatively illiquid securities, primarily the discount rate used in the valuation, as described below. See additional discussion regarding this reassessment elsewhere in this Management's Discussion and Analysis. The Company assesses the fair value of residual certificates quarterly, with assistance from an independent third party. This valuation is based on the discounted cash flows expected to be available to the holder of the residual certificates. Significant assumptions used at June 30, 2000 for residual certificates then held by the Company generally include a discount rate of 15%, a constant default rate of 3% (5% for 1997-1 and 1998-1) and a loss severity rate of 25%. Ramping periods are based on prepayment penalty periods and adjustable rate mortgage first reset dates. Terminal prepayment rate assumptions specific to the individual certificates for purposes of the June 30, 2000 valuations are set forth below:
1997-1 1997-2 1998-1 1998-2 1999-1 1999-2 -------- -------- -------- -------- -------- -------- Prepayment Speeds Fixed rate mortgages 34% cpr 32% cpr 32% cpr 28% cpr 28% cpr 30% cpr Adjustable rate mortgages 34% cpr 32% cpr 32% cpr 28% cpr 28% cpr 30% cpr
Terminal prepayment rate assumptions specific to the individual certificates for purposes of the June 30, 1999 valuations are set forth below: 27 28
1997-1 1997-2 1998-1 1998-2 1999-1 OTHER ------------ ------------- ------------ ------------ --------- ----------- Prepayment speeds Fixed rate mortgages 32% cpr 30% cpr 28% cpr 28% cpr 28% cpr 32% cpr Adjustable rate mortgages 32% cpr 30% cpr 28% cpr 28% cpr 28% cpr 24% cpr
The assumptions used in the independent third party valuation referred to above are estimated based on current conditions for similar instruments that are subject to prepayment and credit risks. Other factors considered in the determination of fair value include credit and collateral quality of the underlying loans, current economic conditions and various fees and costs associated with ownership of the residual certificate including actual credit history of the individual residual certificates. Although the Company believes that the fair values of its residual certificates are reasonable given current market conditions, the assumptions used are estimates and actual experience may vary from these estimates. Differences in the actual prepayment speed and loss experience from the assumptions used, could have a significant effect on the fair value of the residual certificates. As summarized in the following analysis, the recorded residual values imply that the Company's securitizations are valued at 1.69 times the implied excess yield at June 30, 2000, as compared to the 1.63 multiple implied at June 30, 1999. The table below represents balances as of June 30, 2000, unless otherwise noted. 28 29 SECURITIZATION SCHEDULES
SECURITIZATIONS ------------------------------------------------------------------------ 1997-1 1997-2 1998-1 1998-2 1999-1 1999-2 TOTAL -------- -------- -------- --------- --------- -------- -------- ($ IN THOUSANDS) Residual Certificates $ 4,750 $ 5,545 $ 7,913 $ 12,423 $ 9,000 $ 9,247 $ 48,878 Bonds $ 13,422 $ 15,702 * $ 49,981 * $ 115,442 * $ 107,178 * $118,671 * $420,396 -------- -------- -------- --------- --------- -------- -------- Subtotal $ 18,172 $ 21,247 $ 57,894 $ 127,865 $ 116,178 $127,918 $469,274 Unpaid Principal Balance $ 18,142 $ 20,556 * $ 55,606 * $ 121,713 * $ 110,614 * $121,011 * $447,642 -------- -------- -------- --------- --------- -------- -------- Implied Price 100.17 103.36 104.11 105.05 105.03 105.71 104.83 -------- -------- -------- --------- --------- -------- -------- Collateral Yield 12.46 12.48 11.07 9.76 9.81 9.82 10.13 Collateral Equivalent Securitization Costs (0.69) (0.62) (0.59) (0.60) (0.62) (0.68) (0.63) Collateral Equivalent Bond Rate (5.37) (5.29) (6.14) (6.92) (6.71) (6.86) (6.65) -------- -------- -------- --------- --------- -------- -------- Implied Collateral Equivalent Excess Yield 6.40 6.57 4.34 2.24 2.48 2.28 2.86 -------- -------- -------- --------- --------- -------- -------- Implied Premium Above Par 0.17 3.36 4.11 5.05 5.03 5.71 4.83 Implied Collateral Equivalent Excess Yield 6.40 6.57 4.34 2.24 2.48 2.28 2.86 -------- -------- -------- --------- --------- -------- -------- Multiple 0.03 0.51 x 0.95 x 2.26 x 2.03 x 2.50 x 1.69 x -------- -------- -------- --------- --------- -------- --------
* Amounts were based upon trustee statements dated June 25, 2000 that covered the period ended May 31, 2000. A SUMMARY OF KEY INFORMATION RELEVANT TO THE SUBPRIME RESIDUAL ASSETS AT JUNE 30, 2000 IS SET FORTH BELOW:
SECURITIZATIONS -------------------------------------------------------------- ($ IN THOUSANDS) 1997-1 1997-2 1998-1 1998-2 1999-1 1999-2 OTHER TOTAL -------- -------- --------- ---------- -------- ------- ----- -------- Balance at December 31,1999 $ 5,971 $ 7,153 $ 10,334 $ 12,460 $ 9,566 $ 8,898 $ -- $ 54,382 Initial Capitalization of Residual Certificates -- -- -- -- -- -- -- -- Accretion 511 579 728 836 631 501 -- 3,786 Mark-to-Market (1,526) (1,739) (2,332) (873) (2,053) (1,123) -- (9,646)* Cash Flow (206) (448) (817) -- -- -- -- (1,471) Prepayment Penalty Reclassed from MSR 856 971 -- 1,827 ------- ------- -------- -------- ------- ------- ----- -------- Balance at June 30, 2000 $ 4,750 $ 5,545 $ 7,913 $ 12,423 $ 9,000 $ 9,247 $ -- $ 48,878 ======= ======= ======== ======== ======= ======= ===== ========
* In 1999 the Company decided to conservatively write off the remaining portion of a residual certificate it received in 1997 in settlement of an account receivable. In the first quarter of 2000 the Company disposed of this residual certificate and recovered approximately $0.2 million, which had been previously reported as a mark-to-market loss. Thus the Company reported a total market-to-market loss for the first six months of 2000 of $9.4 million and a $9.6 million market -to-market loss on the residual interests remaining on the balance sheet at June 30, 2000. A SUMMARY OF KEY INFORMATION RELEVANT TO THE SUBPRIME RESIDUAL ASSETS AT JUNE 30, 1999 IS SET FORTH BELOW:
SECURITIZATIONS ------------------------------------------------------------ ($ IN THOUSANDS) 1997-1 1997-2 1998-1 1998-2 1999-1 1999-2 OTHER * TOTAL ---------- -------- -------- --------- ---------- ------ --------- -------- Balance at December 31,1998 $ 7,997 $ 9,702 $10,815 $12,569 $ -- $-- $ 4,700 $ 45,783 Initial Capitalization of Residual Certificates -- -- -- -- 8,867 -- 8,867 Accretion 582 633 641 736 -- -- 363 2,955 Mark-to-Market (602) (92) 212 226 (648) -- (3,063) (3,967) Cash Flow (1,161) (1,581) -- -- -- -- -- (2,742) ------- ------- ------- ------- ------- --- ------- -------- Balance at June 30, 1999 $ 6,816 $ 8,662 $11,668 $13,531 $ 8,219 $-- $ 2,000 $ 50,896 ======= ======= ======= ======= ======= === ======= ========
* Represents a portion of a residual certificate the Company received in 1997 in settlement of an account receivable. In 1999 the Company decided to conservatively write off this receivable. 29 30 AGENCY-ELIGIBLE MORTGAGE SERVICING Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage servicing operations:
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- ($ IN THOUSANDS) 2000 1999 ----------- ------------ Net interest expense $ (2,316) $ (2,383) Loan servicing fees 17,906 22,535 Other income 248 344 ----------- ------------ Servicing revenues 15,838 20,496 Salary and employee benefits 1,373 1,805 Occupancy expense 111 207 Amortization and provision for impairment of mortgage Servicing rights 12,209 17,320 General and administrative expenses 2,020 3,478 ----------- ------------ Total loan servicing expenses 15,713 22,810 ----------- ------------ Net pre-tax servicing margin 125 (2,314) Gain on sale of mortgage servicing rights 1,539 4,823 =========== ============ Net pre-tax servicing contribution $ 1,664 $ 2,509 =========== ============ Average servicing portfolio $ 8,028,158 $ 10,004,227 Servicing sold 2,579,819 6,104,726 Net pre-tax servicing margin to average servicing portfolio 0bps (5) bps Gain on sale of servicing to servicing sold 6bps 8 bps
Summary The ratio of net pre-tax servicing margin to the average servicing portfolio increased 5 basis points primarily due to the $5.1 million reduction in amortization and provision for impairment of mortgage servicing rights from the first six months of 1999 to the first six months of 2000. This reduction in amortization and provision for impairment of mortgage servicing rights is primarily due to the generally smaller size of the portfolio and slowing prepayments due to higher interest rates. The $3.3 million decline in gain on sale of mortgage servicing rights is primarily due to the lower volume of sales. Loan servicing fees were $17.9 million for the first six months of 2000, compared to $22.5 million for the first six months of 1999, a decrease of 21%, primarily due to lower production volumes which resulted in a lower average balance of agency-eligible servicing rights held in inventory pending sale. Management regularly assesses market prepay trends and adjusts amortization accordingly. Management believes that the value of the Company's mortgage servicing rights are reasonable in light of current market conditions. However, there can be no guarantee that market conditions will not change such that mortgage servicing rights valuations will require additional amortization or impairment charges. 30 31 Net Interest Expense The net interest expense for the first six months of 2000 and the first six months of 1999 is composed of benefits from escrow accounts of $4.1 million and $4.1 million, respectively, that is offset by $6.4 million and $6.5 million, respectively, in interest expense. Gain on Sale of Mortgage Servicing Rights A reconciliation of the components of gain on sale of mortgage servicing rights for the periods indicated follows:
($ IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 2000, --------------------------------------- 2000 1999 ------------- --------------- Underlying unpaid principal balances of agency-eligible mortgage loans on which servicing rights were sold during the period $ 2,579,819 $ 6,104,726 ============= ============== Gross proceeds from sales of mortgage servicing rights $ 72,237 $ 163,046 Initial acquisition basis, net of amortization and hedge results 60,504 118,942 ------------- ============== Unadjusted gain on sale of mortgage servicing rights 11,733 44,104 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 125) (10,194) (39,281) ------------- ============== Gain on sale of mortgage servicing rights $ 1,539 $ 4,823 ============= ==============
Gain on sale of mortgage servicing rights decreased $3.3 million from $4.8 million for the first six months of 1999 to $1.5 million for the first six months of 2000. The decrease in the gain on sale of mortgage servicing rights is primarily attributable to lower production volumes which resulted in a lower balance of agency-eligible servicing rights sold. COMMERCIAL MORTGAGE OPERATIONS During the second quarter, the Company decided to dispose of its commercial mortgage operation, Laureate Capital Corp. (Laureate). Based on market indications to date, the Company expects to realize net proceeds equal to the tangible book value of Laureate. Accordingly, the Company recorded a $2 million after-tax charge during the quarter, primarily related to the write-off of intangible assets of Laureate. LEASING OPERATIONS Following is a summary of the revenues and expenses of the Company's small-ticket equipment leasing operations for the periods indicated: 31 32
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- ($ IN THOUSANDS) 2000 1999 -------- --------- Net interest income $ 4,420 $ 3,389 Other income 566 534 -------- -------- Leasing production revenue 4,986 3,923 -------- -------- Salary and employee benefits 1,438 1,353 Occupancy expense 246 214 Provision expense 1,521 670 General and administrative expenses 622 686 -------- -------- Total lease operating expenses 3,827 2,923 -------- -------- Net pre-tax leasing production margin 1,159 1,000 Servicing fees 232 327 -------- -------- Net pre-tax leasing margin $ 1,391 $ 1,327 -------- -------- Average owned leasing portfolio $162,047 $110,948 Average serviced leasing portfolio 10,756 30,623 -------- -------- Average managed leasing portfolio $172,803 $141,571 ======== ======== Leasing production revenue to average owned portfolio 615 bps 707 bps Leasing operating expenses to average owned portfolio 472 bps 527 bps ======== ======== Net pre-tax leasing production margin 143 bps 180 bps ======== ======== Servicing fees to average serviced leasing portfolio 431 bps 214 bps ======== ========
The 27% increase in leasing production revenue for the first six months of 2000 as compared to the first six months of 1999 is primarily due to the 46% increase in the average owned leasing portfolio which is due to the policy of retaining originated leases on the balance sheet. The net pre-tax leasing margin decreased 37 bps in the first six months of 2000 as compared to the first six months of 1999 primarily as a result of the increased provision expenses associated with higher delinquencies as the small business sectors are beginning to exhibit signs of stress. Substantially all of the Company's lease receivables are acquired from independent brokers who operate throughout the continental United States and referrals from independent banks. The Company has made an effort to increase the owned portfolio. Net Interest Income Net interest income for the first six months of 2000 was $4.4 million as compared to $3.4 million for the first six months of 1999. This is equivalent to an annualized net interest margin of 3.92% and 4.29% for the first six months of 2000 and 1999, respectively, based upon average lease receivables owned of $162.0 million and $110.9 million, respectively, and average debt outstanding of $137.4 and $91.5 million, respectively. OTHER During the third quarter of 1999, the Company reorganized its reporting cost centers and is now reporting holding company costs as a reconciling item between the segmented income statement and the consolidated income statement. The primary components of holding company costs are 1) interest expense on the debt on the Company's corporate headquarters; 2) salary and employee benefits of corporate personnel; 3) depreciation on the corporate headquarters; and 4) 32 33 income taxes. The segmented income statement for the first six months of 1999 has been restated to conform with the segmented income statement presentation for the first six months of 2000. UNUSUAL ITEMS During the fourth quarter of 1999, the Company initiated a workforce reduction. The workforce reduction became necessary as the Company continued to adapt to a smaller overall residential mortgage market and intensely competitive pricing conditions. During the six month period ended June 30, 2000, the Company began reconsidering it's current positioning in the market and its corporate, management and leadership structures. As a result, the Company is continuing its efforts during the current period to reorganize around primary business processes, production/sales, customer fulfillment, servicing and portfolio management and has thus made certain changes in organization at its agency-eligible and subprime units. These changes resulted in a net increase in the previously established reorganization reserves of $0.7 during the period. In connection with the planned reorganization, a number of senior management positions have been scheduled for elimination during the remainder of the year. During the first six months of 2000, the Company decided to dispose of its commercial mortgage operation, Laureate Capital Corp. (Laureate). Based on market indications to date, the Company expects to realize net proceeds equal to the tangible book value of Laureate. The Company amended its defined benefit pension plan to freeze benefits under the plan, changed the benefits available to employees under its 401(k) plan and realized a gain on sale of a branch facility. The Company contributed to a fund that will benefit qualified charitable organizations. The Company incurred expenses for consultants who are assisting management in re-engineering work processes. The net impact of these unusual items in the first six months of 2000 is summarized below by financial statement component and operating division:
AGENCY-ELIGIBLE -------------------------- COMMERCIAL PRODUCTION SERVICING SUBPRIME MORTGAGE LEASING OTHER TOTAL ---------- --------- ----------- -------- ------- ----- -------- Salary and employee benefits $ (244) $ (45) $ 1,251 $ (22) $ 21 $ 961 General and administrative expenses 171 452 623 Other income (392) (392) ------- ------- ------- ------- ------- ------ ------- Net pre-tax effect on continuing operations (73) (45) 1,251 (22) 81 1,192 Estimated allocable income tax 29 17 (458) 8 (31) (435) ------- ------- ------- ------- ------- ------ ------- Net after-tax impact on continuing operations (44) (28) 793 (14) 50 757 Loss on sale of operating assets of Laureate Capital Corp. $ 2,000 $ 2,000 Operating profits of Laureate Capital Corp. (105) (105) ======= ======= ======= ======= ======= ====== ======= Net after-tax impact $ (44) $ (28) $ 793 $ 1,895 $ (14) $ 50 $ 2,652 ======= ======= ======= ======= ======= ====== =======
33 34 RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 2000, COMPARED TO QUARTER ENDED JUNE 30, 1999 SUMMARY BY OPERATING DIVISION Net income (loss) from continuing operations per common share on a diluted basis for the second quarter of 2000 was ($0.13) as compared to $0.15 for the second quarter of 2000. Following is a summary of the revenues and expenses for each of the Company's operating divisions for the six months ended June 30, 2000 and 1999, respectively: 34 35
AGENCY-ELIGIBLE -------------------------------- FOR THE QUARTER ENDED JUNE 30, 2000 SUB- COMMERCIAL TOTAL OTHER/ CONSO- (1) (2)($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE PRIME MORTGAGE LEASING SEGMENTS ELIMINATIONS LIDATED - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 675 $(1,019) $ (23) $ 3,571 $ -- $2,293 $ 5,497 $ (336) $ 5,161 Net gain on sale of mortgage loans 5,611 -- -- 3,738 -- -- 9,349 -- 9,349 Gain on sale of mortgage servicing rights -- 731 -- -- -- -- 731 -- 731 Servicing fees -- 8,541 -- -- -- 133 8,674 (109) 8,565 Mark to market on residual interests in subprime securitizations -- -- -- (1,771) -- -- (1,771) -- (1,771) Other income 312 120 849 427 -- 304 2,012 306 2,318 ----------------------------------------------------------------------------------------- Total revenues 6,598 8,373 826 5,965 -- 2,730 24,492 (139) 24,353 ----------------------------------------------------------------------------------------- Salary and employee benefits 6,235 680 48 1,581 -- 678 9,222 895 10,117 Occupancy expense 2,833 56 -- 676 -- 126 3,691 (175) 3,516 Amortization and provision for impairment of mortgage servicing rights -- 5,932 -- -- -- -- 5,932 -- 5,932 Provision expense 352 -- -- 168 -- 1,162 1,682 -- 1,682 General and administrative expenses 2,623 1,082 83 1,691 -- 328 5,807 838 6,645 ----------------------------------------------------------------------------------------- Total expenses 12,043 7,750 131 4,116 -- 2,294 26,334 1,558 27,892 ----------------------------------------------------------------------------------------- Income (loss) before income taxes (5,445) 623 695 1,849 -- 436 (1,842) (1,697) (3,539) Income tax benefit (expense) 1,986 (226) (244) (758) -- (180) 578 621 1,199 ----------------------------------------------------------------------------------------- Income (loss) from continuing operations $(3,459) $ 397 $ 451 $ 1,091 $ -- $ 256 $(1,264) $(1,076) $(2,340) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $200) (2,000) (2,000) (2,000) Operating profits of Laureate Capital Corp. (less applicable income taxes of $111) 105 105 105 ----------------------------------------------------------------------------------------- Net income (loss) $ (3,459) $ 397(1) $ 451 $ 1,091 $(1,895) $ 256 $(3,159) $(1,076) $(4,235) =========================================================================================
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) See discussion of unusual items in Management's Discussion and Analysis.
AGENCY-ELIGIBLE -------------------------------- FOR THE QUARTER ENDED JUNE 30, 1999 SUB- COMMERCIAL TOTAL OTHER/ CONSO- (1) ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE PRIME MORTGAGE LEASING SEGMENTS ELIMINATIONS LIDATED - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 2,651 $ (994) $ -- $ 3,983 $ -- $ 1,744 $ 7,384 $ (81) $ 7,303 Net gain on sale of mortgage loans 16,885 -- -- 7,517 -- -- 24,402 -- 24,402 Gain on sale of mortgage servicing rights -- 1,825 -- -- -- -- 1,825 -- 1,825 Servicing fees -- 10,832 -- -- -- 166 10,998 (159) 10,839 Mark to market on residual interests in subprime securitizations -- -- -- (2,618) -- -- (2,618) -- (2,618) Other income (65) 183 (211) 1,991 -- 383 2,281 5 2,286 ----------------------------------------------------------------------------------------- Total revenues 19,471 11,846 (211) 10,873 -- 2,293 44,272 (235) 44,037 ----------------------------------------------------------------------------------------- Salary and employee benefits 10,902 907 -- 3,483 -- 713 16,005 (801) 15,204 Occupancy expense 1,759 100 -- 669 -- 110 2,638 549 3,187 Amortization and provision for impairment of mortgage servicing rights -- 8,887 -- -- -- -- 8,887 -- 8,887 Provision expense 1,564 -- 57 433 -- 287 2,341 -- 2,341 General and administrative expenses 5,330 1,617 55 2,040 -- 316 9,358 18 9,376 ----------------------------------------------------------------------------------------- Total expenses 19,555 11,511 112 6,625 -- 1,426 39,229 (234) 38,995 ----------------------------------------------------------------------------------------- Income (loss) before income taxes (84) 335 (323) 4,248 -- 867 5,043 (1) 5,042 Income tax benefit (expense) 90 (19) 113 (1,579) -- (351) (1,746) (107) (1,853) ----------------------------------------------------------------------------------------- Income (loss) from continuing operations $ 6 $ 316 $(210) $ 2,669 $ -- $ 516 $ 3,297 $ (108) $ 3,189 Discontinued operations: Operating profits of Laureate Capital Corp. (less applicable income taxes of $128) 147 147 147 ----------------------------------------------------------------------------------------- Net income (loss) $ 6 $ 316 $(210) $ 2,669 $ 147 $ 516 $ 3,444 $ (108) $ 3,336 =========================================================================================
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 35 36 AGENCY-ELIGIBLE MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage production operations.
FOR THE QUARTER ENDED JUNE 30, --------------------------------- ($ IN THOUSANDS) 2000 1999 ----------- ----------- Net interest income $ 675 $ 2,651 Net gain on sale of mortgage loans 5,611 16,885 Other income 312 (65) ----------- ----------- Total production revenue 6,598 19,471 ----------- ----------- Salary and employee benefits 6,235 10,902 Occupancy expense 2,833 1,759 Provision expense 352 1,564 General and administrative expenses 2,623 5,330 ----------- ----------- Total production expenses 12,043 19,555 ----------- ----------- Net pre-tax production margin $ (5,445) $ (84) ----------- ----------- Production $ 1,408,742 $ 2,136,412 Pool delivery 1,324,183 2,292,046 Total production revenue to pool delivery 50 bps 85 bps Total production expenses to production 85 bps 92 bps =========== =========== Net pre-tax production margin (35) bps (7) bps =========== ===========
Summary The production revenue to pool delivery ratio decreased 35 basis points for the second quarter of 2000 as compared to the second quarter of 1999. Net gain on sale of mortgage loans (42 basis points for the first six months of 2000 versus 74 basis points for the second quarter of 1999) declined primarily due to compressed margins attributable to an aggressive competitive pricing environment and lower overall agency-eligible production volume. Net interest income decreased from 12 basis points in the second quarter of 1999 to 5 basis points in the second quarter of 2000 primarily as a result of a flattened yield curve. The production expenses to production ratio remained relatively flat from the second quarter of 1999 to the second quarter of 2000, in spite of a 34% decrease in production between periods. Total production expenses declined $7.5 million from $19.5 million for the second quarter of 1999 to $12.0 million for the second quarter of 2000. Such decline in production expenses included a $0.4 million reduction in salary and employee benefits as a result of the curtailment of the Company's pension plan benefits and changes in 401(k) benefits. As a consequence of the foregoing, the Company's net agency-eligible pre-tax production margin declined 28 basis points. Net Interest Income The following table analyzes net interest income allocated to the Company's agency-eligible mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest rates paid on interest-bearing sources of funds) for the quarters ended June 30, 2000 and 1999, respectively: 36 37
($ IN THOUSANDS) Variance Average Volume Average Rate Interest Attributable to - ------------------------------------------ ------------------ ------------------ 2000 1999 2000 1999 2000 1999 Variance Rate Volume - ------------------------------------------ ---------------------------------------------------- INTEREST INCOME --------------- Mortgages Held-for-Sale and $393,064 $727,722 8.21% 6.50% Mortgage-Backed Securities $8,064 $11,826 $(3,762) $ 1,676 $(5,438) - ------------------------------------------ ---------------------------------------------------- INTEREST EXPENSE $337,325 $337,058 5.29% 2.93% Warehouse Line * $4,448 $ 2,460 $ 1,988 $ 1,986 $ 2 42,756 380,946 6.90% 5.14% Gestation Line 735 4,882 (4,147) 187 (4,334) 119,698 112,631 7.47% 5.79% Servicing Secured Line 2,229 1,625 604 502 102 3,538 31,283 6.01% 5.23% Servicing Receivables Line 53 408 (355) 7 (362) 7,661 7,025 8.74% 8.16% Other Borrowings 167 143 24 11 13 Facility Fees & Other Charges 940 588 352 -- 352 - ------------------------------------------ ---------------------------------------------------- $510,978 $868,943 6.73% 4.66% Total Interest Expense $8,572 $10,106 $(1,534) $ 2,693 $(4,227) ========================================== ==================================================== Net Interest Income Before 1.48% 1.84% Interdivisional Allocations $ (508) $ 1,720 $ (2,228) $(1,017) $(1,211) =================== ============================== Allocation to Agency-Eligible Servicing Division 1,019 850 Allocation to Other 162 81 Intercompany Net Interest Expense Included In Segment 2 -- -------------------- Net Interest Income $ 675 $ 2,651 ====================
* The interest-rate yield on the warehouse line is net of the benefit of escrow deposits. The 36 basis point decrease in the interest-rate spread was primarily as a result of a flattened yield curve. The Company's mortgages and mortgage-backed securities are generally sold and replaced within 30 to 35 days. Accordingly, the Company generally borrows at rates based upon short-term indices, while its asset yields are primarily based upon long-term mortgage rates. Net Gain on Sale of Agency-Eligible Mortgage Loans A reconciliation of gain on sale of agency-eligible mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED JUNE 30, ------------------------------------- 2000 1999 ----------- ----------- Gross proceeds on sales of mortgage loans $ 1,350,082 $ 2,297,236 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results 1,353,873 2,298,209 ----------- ----------- Unadjusted gain (loss) on sale of mortgage loans (3,791) (973) Loan origination and correspondent program administrative fees 2,716 4,810 ----------- ----------- Unadjusted aggregate margin (1,075) 3,837 Acquisition basis allocated to mortgage servicing rights (SFAS No. 125) 7,683 13,433 Net deferred costs and administrative fees recognized (997) (385) ----------- ----------- Net gain on sale of agency-eligible mortgage loans $ 5,611 $ 16,885 =========== ===========
Net gain on sale of agency-eligible mortgage loans decreased $11.3 million from $16.9 million for the second quarter of 1999 to $5.6 million for the second quarter of 2000. The decrease is primarily due to compressed margins attributable to an aggressive competitive pricing environment in the correspondent channel and lower overall agency-eligible production volume. 37 38 Receivable from sale of mortgage-backed securities The company sold certain mortgage-backed securities during the second quarter of 2000, for which it did not receive the cash settlement until early in the third quarter of 2000. This resulted in a $69.9 million receivable on the June 30, 2000 Balance Sheet. AGENCY-ELIGIBLE REINSURANCE OPERATIONS The Company has a captive insurance company, MG Reinsurance Company (MG Reinsurance). MG Reinsurance is licensed as a property and casualty insurer and operates as a monoline captive insurance company assuming reinsurance for PMI policies on agency-eligible mortgage loans initially purchased or produced by the Company. During the second quarter of 2000 and 1999, the Company recognized premium and investment income of approximately $0.8 million and ($0.2) million, respectively, that has been included as other income in the agency-eligible reinsurance segment. SUBPRIME MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's subprime mortgage production operations:
FOR THE QUARTER ENDED JUNE 30, --------------------------------- ($ IN THOUSANDS) 2000 1999 --------- --------- Net interest income $ 3,571 $ 3,983 Net gain on sale of mortgage loans 3,738 7,517 Mark to market on residual interests in subprime securitizations (1,771) (2,618) Other income 427 1,991 --------- --------- Total production revenue 5,965 10,873 --------- --------- Salary and employee benefits 1,581 3,483 Occupancy expense 676 669 Provision expense 168 433 General and administrative expenses 1,691 2,040 --------- --------- Total production expenses 4,116 6,625 --------- --------- Net pre-tax production margin $ 1,849 $ 4,248 --------- --------- Production $ 168,830 $ 185,744 Whole loan sales and securitizations 171,123 224,286 Total production revenue to whole loan sales and securitizations 349 bps 485 bps Total production expenses to production 244 bps 357 bps --------- --------- Net pre-tax production margin 105 bps 128 bps ========= =========
Summary During the second quarter of 2000, the Company produced $168.8 million of subprime loans and sold $171.1 million in whole loan transactions. At June 30, 2000, the Company had unsold 38 39 subprime mortgage loans of $134.9 million as compared to $145.1 million at June 30, 1999. Overall, the Company operated during the second quarter of 2000 at a 1.05% pre-tax subprime production margin. The $2.4 million (23 basis point) decline in the pre-tax subprime production margin is primarily due to lower volumes. The $3.8 million decline in net gain on sale of subprime mortgage loans is primarily attributable to lower volumes and lower margins attributable to exclusive execution of 2000 whole loan sales versus a combination of higher-margined securitizations and whole loan sales in the prior period. Salary and employee benefit costs decreased by 55%, or $1.9 million, from the second quarter of 1999 to the second quarter of 2000. The Company made certain changes in the organization at its subprime units resulting in a net reduction in previously established reorganization reserves of $0.9 million. The Company also amended its defined benefit pension plan to freeze benefits under the plan and simultaneously changed the benefits available to employees under its 401(k) plan. See discussion of these and other unusual items elsewhere in Management's Discussion and Analysis. Provision expense decreased by 61%, or $0.3 million, primarily due to the decreased level of nonsaleable loans between periods. The remaining production expenses remained relatively flat between periods. Net Interest Income The following table analyzes net interest income allocated to the Company's subprime mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and residual certificates and interest rates paid on interest-bearing sources of funds) for the quarters ended June 30, 2000 and 1999, respectively.
($ IN THOUSANDS) Variance Average Volume Average Rate Interest Attributable to - ------------------------------------------ ------------------ ------------------ 2000 1999 2000 1999 2000 1999 Variance Rate Volume - ------------------------------------------ ---------------------------------------------------- Mortgages Held-for-Sale and $213,650 $259,927 11.51% 10.14% Residual Certificates $6,149 $6,590 $(441) $732 $(1,173) - ------------------------------------------ ---------------------------------------------------- $154,173 $197,577 7.10% 5.58% Total Interest Expense $2,729 $2,751 $ (22) $582 $ (604) - ------------------------------------------ ---------------------------------------------------- 4.41% 4.56% Net Interest Income $3,420 $3,839 $(419) $150 $ (569) =================== ============================= Allocation to Agency-Eligible Servicing Division -- 144 Intercompany Net Interest Expense Included In Segment 151 -- ------------------- Net Interest Income $3,571 $3,983 ===================
Net interest income from subprime products decreased to $3.6 million for the second quarter of 2000 as compared to $4.0 million for the second quarter of 1999. This was primarily a result of a flattened yield curve and the decline in production volume, which was partially offset by $0.4 million increase in accretion income from $1.5 million for the second quarter of 1999 to $1.9 million for the second quarter of 2000. 39 40 Net Gain on Sale and Securitization of Subprime Mortgage Loans The Company sold subprime mortgage loans on a whole loan basis during the second quarter of 2000 and 1999. Whole loans are generally sold without recourse to third parties with the gain or loss being calculated based on the difference between the carrying value of the loans sold and the gross proceeds received from the purchaser less expenses. Generally, no interest in these loans is retained by the Company. A reconciliation of the gain on subprime mortgage whole loan sales for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED JUNE 30, --------------------------------- 2000 1999 --------- --------- Gross proceeds on whole loan sales of subprime mortgage loans $ 177,477 $ 102,267 Initial acquisition cost of subprime mortgage loans sold, net of fees 171,123 98,243 --------- --------- Unadjusted gain on whole loan sales of subprime mortgage loans 6,354 4,024 Net deferred costs and administrative fees recognized (2,616) (1,565) --------- --------- Net gain on whole loan sales of subprime mortgage loans $ 3,738 $ 2,459 ========= =========
The net gain on whole loan sales of subprime mortgage loans increased 52% from $2.5 million for the second quarter of 1999 to $3.7 million reported for the second quarter of 2000. Also, in accordance with Statement of Financial Accounting Standard No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases" the Company reduced its net gain on whole loan sales of subprime mortgage loans by $2.6 million in the second quarter of 2000 as compared to $1.6 million in the second quarter of 1999. There were no securitization transactions during the second quarter of 2000. A reconciliation of the gain on securitization of subprime mortgage loans for the quarter ended June 30, 1999 follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED JUNE 30, ------------------------------ 2000 1999 --------- --------- Gross proceeds on securitization of subprime mortgage loans N/A $124,242 Initial acquisition cost of subprime mortgage loans securitized, net of fees N/A 126,043 -------- --------- Unadjusted loss on securitization of subprime mortgage loans N/A (1,801) Initial capitalization of residual certificates N/A 8,867 Net deferred costs and administrative fees recognized N/A (2,008) --------- --------- Net gain on securitization of subprime mortgage loans N/A $ 5,058 ======== =========
Mark to Market on Residual Interests in Subprime Securitizations The Company historically has retained residual certificates in connection with the securitization of subprime loans. These residual certificates are adjusted to approximate market 40 41 value each quarter. For the quarters ended June 30, 2000 and 1999, respectively, mark-to-market gain (loss) on residuals was approximately ($1.7) million and ($2.6) million, respectively. AGENCY-ELIGIBLE MORTGAGE SERVICING Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage servicing operations for the quarters ended June 30, 2000 and 1999:
FOR THE QUARTER ENDED JUNE 30, ----------------------------------- ($ IN THOUSANDS) 2000 1999 ----------- ----------- Net interest expense $ (1,019) $ (994) Loan servicing fees 8,541 10,832 Other income 120 183 ----------- ----------- Servicing revenues 7,642 10,021 Salary and employee benefits 680 907 Occupancy expense 56 100 Amortization and provision for impairment of mortgage Servicing rights 5,932 8,887 General and administrative expenses 1,082 1,617 ----------- ----------- Total loan servicing expenses 7,750 11,511 ----------- ----------- Net pre-tax servicing margin (108) (1,490) Gain on sale of mortgage servicing rights 731 1,825 =========== =========== Net pre-tax servicing contribution $ 623 $ 335 =========== =========== Average servicing portfolio $ 7,935,544 $ 9,623,230 Servicing sold 1,451,283 3,101,473 Net pre-tax servicing margin to average servicing portfolio (1) bp (6) bps Gain on sale of servicing to servicing sold 5 bps 6 bps
Summary The ratio of net pre-tax servicing margin to the average servicing portfolio increased 5 basis points primarily due to the $3.0 million reduction in amortization and provision for impairment of mortgage servicing rights from the second quarter of 1999 to the second quarter of 2000. This reduction in amortization and provision for impairment of mortgage servicing rights is primarily due to the generally smaller size of the portfolio and slowing prepayments due to higher rates. The 1 basis point decrease in the gain on sale of servicing sold is primarily attributable to compressed margins in an intensely competitive market during the second quarter of 2000. Loan servicing fees were $8.5 million for the second quarter of 2000, compared to $10.8 million for the second quarter of 1999, a decrease of 21%, primarily due to lower production volumes which resulted in a lower average balance of agency-eligible servicing rights held in inventory pending sale. Management regularly assesses market prepay trends and adjusts amortization accordingly. Management believes that the value of the Company's mortgage servicing rights are reasonable in light of current market conditions. However, there can be no guarantee that market conditions will not change such that mortgage servicing rights valuations will require additional amortization or impairment charges. 41 42 Net Interest Expense The net interest expense for the second quarter of 2000 and the second quarter of 1999 is composed of benefits from escrow accounts of $2.3 million and $2.1 million, respectively, that is offset by $3.3 million and $3.1 million, respectively, in interest expense. Gain on Sale of Mortgage Servicing Rights A reconciliation of the components of gain on sale of mortgage servicing rights for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED JUNE 30, ----------------------------- 2000 1999 ----------- ----------- Underlying unpaid principal balances of agency-eligible mortgage loans on which servicing rights were sold during the period $ 1,451,283 $ 3,101,473 =========== =========== Gross proceeds from sales of mortgage servicing rights $ 40,308 $ 84,158 Initial acquisition basis, net of amortization and hedge results 34,976 62,000 ----------- ----------- Unadjusted gain on sale of mortgage servicing rights 5,332 22,158 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 125) (4,601) (20,333) ----------- ----------- Gain on sale of mortgage servicing rights $ 731 $ 1,825 =========== ===========
Gain on sale of mortgage servicing rights decreased $1.1 million from $1.8 million for the second quarter of 1999 to $0.7 million for the second quarter of 2000. The decrease in the gain on sale of mortgage servicing rights is primarily attributable to lower production volumes which resulted in a lower balance of agency-eligible servicing rights sold. COMMERCIAL MORTGAGE OPERATIONS During the second quarter, the Company decided to dispose of its commercial mortgage operation, Laureate Capital Corp. (Laureate). Based on market indications to date, the Company expects to realize net proceeds equal to the tangible book value of Laureate. Accordingly, the Company recorded a $2 million after-tax charge during the quarter, primarily related to the write-off of intangible assets of Laureate. LEASING OPERATIONS Following is a summary of the revenues and expenses of the Company's small-ticket equipment leasing operations for the periods indicated: 42 43
FOR THE QUARTER ENDED JUNE 30, ------------------------------ ($ IN THOUSANDS) 2000 1999 -------- -------- Net interest income $ 2,293 $ 1,744 Other income 304 383 -------- -------- Leasing production revenue 2,597 2,127 -------- -------- Salary and employee benefits 678 713 Occupancy expense 126 110 Provision expense 1,162 287 General and administrative expenses 328 316 -------- -------- Total lease operating expenses 2,294 1,426 -------- -------- Net pre-tax leasing production margin 303 701 Servicing fees 133 166 -------- -------- Net pre-tax leasing margin $ 436 $ 867 -------- -------- Average owned leasing portfolio $167,767 $117,344 Average serviced leasing portfolio 9,085 27,215 -------- -------- Average managed leasing portfolio $176,852 $144,559 ======== ======== Leasing production revenue to average owned portfolio 619 bps 725 bps Leasing operating expenses to average owned portfolio 547 bps 486 bps -------- -------- Net pre-tax leasing production margin 72 bps 239 bps ======== ======== Servicing fees to average serviced leasing portfolio 586 bps 243 bps ======== ========
The 22% increase in leasing production revenue for the second quarter of 2000 as compared to the second quarter of 1999 is primarily due to the 43% increase in the average owned leasing portfolio which is due to the policy of retaining originated leases on the balance sheet. The net pre-tax leasing margin decreased 167 bps in the second quarter of 2000 as compared to the second quarter of 1999 primarily as a result of the increased provision expenses associated with higher delinquencies as the small business sectors are beginning to exhibit signs of stress. Substantially all of the Company's lease receivables are acquired from independent brokers who operate throughout the continental United States and referrals from independent banks. The Company has made an effort to increase the owned portfolio. Net Interest Income Net interest income for the second quarter of 2000 was $2.3 million as compared to $1.7 million for the second quarter of 1999. This is equivalent to an annualized net interest margin of 3.93% and 2.72% for the second quarter of 2000 and 1999, respectively, based upon average lease receivables owned of $167.8 million and $117.3 million, respectively, and average debt outstanding of $142.3 and $80.3 million, respectively. OTHER During the third quarter of 1999, the Company reorganized its reporting cost centers and is now reporting holding company costs as a reconciling item between the segmented income statement and the consolidated income statement. The primary components of holding company costs are 1) interest expense on the debt on the Company's corporate headquarters; 2) salary and employee benefits of corporate personnel; 3) depreciation on the corporate headquarters; and 4) 43 44 income taxes. The segmented income statement for the second quarter of 1999 has been restated to conform with the segmented income statement presentation for the second quarter of 2000. UNUSUAL ITEMS During the fourth quarter of 1999, the Company initiated a workforce reduction. The workforce reduction became necessary as the Company continued to adapt to a smaller overall residential mortgage market and intensely competitive pricing conditions. During the first quarter of 2000, the Company began reconsidering it's current positioning in the market and its corporate, management and leadership structures. As a result, the Company is continuing its efforts during the current period to reorganize around primary business processes, production/sales, customer fulfillment, servicing and portfolio management and has thus made certain changes in organization at its agency-eligible and subprime units. These changes resulted in a net reduction in the previously established reorganization reserves of $1.1 million during the period. In connection with the planned reorganization, a number of senior management positions have been scheduled for elimination during the remainder of the year. During the second quarter of 2000, the Company decided to dispose of its commercial mortgage operation, Laureate Capital Corp. (Laureate). Based on market indications to date, the Company expects to realize net proceeds equal to the tangible book value of Laureate. The Company amended its defined benefit pension plan to freeze benefits under the plan. Simultaneously, the Company changed the benefits available to employees under its 401(k) plan. The Company realized a gain on sale of a branch facility. The Company contributed to a fund that will benefit qualified charitable organizations. The Company incurred expenses for consultants who are assisting management in re-engineering work processes. The net impact of these unusual items in the second quarter of 2000 is summarized below by financial statement component and operating division:
AGENCY-ELIGIBLE ------------------------- COMMERCIAL PRODUCTION SERVICING SUBPRIME MORTGAGE LEASING OTHER TOTAL ------------------------------------------------------------------------------------ Salary and employee benefits $ (380) $ (45) $ (824) $ (22) $ 21 $(1,250) General and administrative expenses 452 452 Other income (392) (392) ------------------------------------------------------------------------------------ Net pre-tax effect on continuing operations (380) (45) (824) (22) 81 (1,190) Estimated allocable income tax 142 17 305 8 (31) 441 ------------------------------------------------------------------------------------ Net after-tax impact on continuing operations (238) (28) (519) (14) 50 (749) Loss on sale of operating assets of Laureate Capital Corp. $ 2,000 $ 2,000 Operating profits of Laureate Capital Corp. (105) (105) ------------------------------------------------------------------------------------ Net after-tax impact $ (238) $ (28) $ (519) $ 1,895 $ (14) $ 50 $ 1,146 ====================================================================================
44 45 FINANCIAL CONDITION During the second quarter of 2000, the Company experienced a 32% increase in the volume of production originated and acquired compared to the first quarter of 2000. Production increased from $1.4 billion during the first quarter of 2000 to $1.9 billion during the second quarter of 2000. The June 30, 2000, locked residential mortgage application pipeline (mortgage loans not yet closed but for which the interest rate has been locked) was approximately $0.6 billion and the application pipeline (mortgage loans for which the interest rate has not yet been locked) was approximately $0.5 billion. This compares to a locked mortgage application pipeline of $0.5 billion and a $0.4 billion application pipeline at March 31, 2000. Mortgage loans held-for-sale and mortgage-backed securities totaled $0.6 billion at June 30, 2000, versus $0.5 billion at December 31, 1999, an increase of 19%. The Company's servicing portfolio (exclusive of loans under subservicing agreements) decreased to $7.4 billion at June 30, 2000, from $7.8 billion at December 31, 1999, a decrease of 5%. The company sold certain mortgage-backed securities during the first six months of 2000, for which it did not receive the cash settlement until early in the second quarter of 2000. This resulted in a $69.9 million receivable on the June 30, 2000 condensed consolidated balance sheet. Short-term borrowings, which are the Company's primary source of funds, totaled $0.9 billion at June 30, 2000, compared to $0.7 billion at December 31, 1999, an increase of 22%. At June 30, 2000, there were $6.2 million in long-term borrowings, compared to $6.3 million at December 31, 1999. Other liabilities totaled $91.6 million as of June 30, 2000, compared to the December 31, 1999 balance of $84.8 million, an increase of $6.8 million, or 8%. The Company continues to face the same challenges as other production-oriented companies within the mortgage banking industry and as such is not immune from significant volume declines precipitated by competitive pricing, a rise in interest rates and other factors beyond the Company's control. These and other important factors that could cause actual results to differ materially from those reported are listed under the Risk Factors section in the Company's 1999 Form 10K. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash-flow requirement involves the funding of loan production, which is met primarily through external borrowings. In July 2000, the Company and its wholly owned subsidiaries RBMG, Inc., Meritage Mortgage Corporation and RBMG Asset Management Company, Inc. (not including the Company, the Restricted Group), entered into a $325 million warehouse line of credit provided by a syndicate of unaffiliated banks that expires in July 2001. The credit agreement includes covenants requiring the Restricted Group to maintain (i) a minimum net worth of $165 million, plus the Restricted Group's net income subsequent to June 30, 2000, plus 90% of capital contributions to the Restricted Group and minus restricted payments, (ii) a ratio of total Restricted Group liabilities to tangible net worth of not more than 8.0 to 1.0, excluding debt incurred pursuant to gestation and repurchase financing agreements, 45 46 (iii) RBMG, Inc.'s eligibility as a servicer of Ginnie Mae, FHA, VA, Fannie Mae and Freddie Mac mortgage loans, (iv) a mortgage servicing rights portfolio with an underlying unpaid principal balance of at least $5 billion and (v) a ratio of consolidated cash flow to consolidated interest expense (these terms are defined in the loan agreements) of at least 1.25 to 1.00 for any period of two consecutive fiscal quarters. (the interest rate coverage ratio). The Company is required to maintain $10 million of liquidity pursuant to the agreement. The provisions of the agreement also restrict the Restricted Group's ability to engage significantly in any type of business unrelated to the mortgage banking and lending business and the servicing of mortgage loans. In July 2000, the Company and the Restricted Group also entered into a $65 million subprime revolving credit facility and a $200 million servicing revolving credit facility, which expire in July 2001. These facilities include covenants identical to those described above with respect to the warehouse line of credit. The Restricted Group was in compliance with the debt covenants in place at June 30, 2000. Although management anticipates continued compliance with current debt covenants, there can be no assurance that the Restricted Group will be able to comply with the debt covenants specified for each of these financing agreements. Failure to comply could result in the loss of the related financing. RBMG Asset Management Company, Inc., a wholly-owned subsidiary of Meritage and a bank are parties to a master repurchase agreement, pursuant to which RBMG Asset Management Company, Inc. is entitled from time to time to deliver eligible subprime mortgage loans in an aggregate principal amount of up to $150 million to the bank. The master repurchase agreement has been extended through September 25, 2000. The Company has 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 executed a $6.6 million note in May 1997. This debt is secured by the Company's corporate headquarters. The terms of the related agreement require the Company to make 120 equal monthly principal and interest payments based upon a fixed interest rate of 8.07%. The note contains covenants similar to those previously described. The Company has entered into a $10.0 million unsecured line of credit agreement that expires in August 2000. The interest rate on funds borrowed is based upon the prime rate announced by a major money center bank. Republic Leasing, a wholly-owned subsidiary of the Company, has a $200 million credit facility to provide financing for its leasing portfolio. The warehouse credit agreement matures in February 2001 and contains various covenants regarding characteristics of the collateral and the performance of the leases originated and serviced by Republic Leasing. The warehouse credit agreement also requires the Company to maintain a minimum net worth of $60 million and 46 47 Republic Leasing to maintain a ratio of total liabilities to net worth of no more than 10.0 to 1.0. The Company has been repurchasing its stock pursuant to Board authority since March 1998, and, as of June 30, 2000, the Company had remaining authority to repurchase up to $1.3 million of the Company's common stock in either open market transactions or in private or block trades. Decisions regarding the amount and timing of repurchases will be made by management based upon market conditions and other factors. Shares repurchased are maintained in the Company's treasury account and are not retired. At June 30, 2000, there were 5,641,804 shares held in the Company's treasury account at an average cost of $7.60 per share. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreign-currency denominated forecasted transaction. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). However, early adoption is permitted. The FASB has a Derivatives Implementation Group ("DIG") that is assisting various industry groups in interpreting SFAS No. 133. The DIG has numerous open issues relating to the mortgage banking industry. As a result, the Company has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or statement of financial position. DIVISIONAL ANALYSIS OF PRE-TAX FUNDS GENERATED FROM OPERATIONS The analyses which follow are included solely to assist investors in obtaining a better understanding of the material elements of the Company's funds generated by operations at a divisional level. It is intended as a supplement, and not an alternative to, and should be read in conjunction with, the Consolidated Statement of Cash Flows, which provides information concerning elements of the Company's cash flows. 47 48 SUMMARY On a combined divisional basis, during the six months ended June 30, 2000 and 1999, the Company generated approximately $13.6 million and $54.3 million, respectively, of positive funds from continuing operations.
($ in thousands) FOR THE SIX MONTHS ENDED JUNE 30, -------------------------------------- 2000 1999 --------- --------- Agency-eligible production $ (7,897) $ 32,776 Agency-eligible servicing 12,407 16,858 Subprime production 5,993 6,150 Leasing 3,077 2,150 --------- --------- $ 13,580 $ 57,934 ========= =========
Each of the Company's divisions produced positive operating funds during both periods except for agency-eligible production in the first six months of 2000. The combined positive operating funds were invested to reduce indebtedness, pay dividends, repurchase stock and purchase fixed assets. AGENCY-ELIGIBLE PRODUCTION Generally, the Company purchases agency-eligible mortgage loans which are resold with the rights to service the loans being retained by the Company. The Company then separately sells a large percentage of the servicing rights so produced. When the loans are sold, current accounting principles require that the Company capitalize the estimated fair value of the retained mortgage servicing rights sold and subsequently amortize the servicing rights retained to expense. Accordingly, amounts reported as gains on sale of agency-eligible mortgage loans may not represent positive funds flow to the extent that the associated servicing rights are not sold for cash but are instead retained and capitalized. In this context, the table below reconciles the major elements of pre-tax operating funds flow of the Company's agency-eligible production activities.
($ in thousands) FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 --------- --------- Income (loss) before income taxes $ (11,873) $ 17,718 Deduct: Net gain on sale of mortgage loans, as reported (11,817) (50,078) Add back: Cash gains on sale of mortgage loans (139) 15,346 Cash gains on sale of mortgage servicing rights 11,733 44,104 Depreciation 2,947 2,014 Provision expense 1,252 3,672 --------- --------- $ (7,897) $ 32,776 ========= =========
48 49 AGENCY-ELIGIBLE SERVICING The Company's current strategy is to position itself as a national supplier of agency-eligible servicing rights to the still consolidating mortgage servicing industry. Accordingly, the Company generally sells a significant percentage of its produced mortgage servicing rights to other approved servicers under forward committed bulk purchase agreements. However, the Company maintains a relatively small mortgage servicing portfolio. As discussed above, mortgage servicing rights produced or purchased are initially capitalized and subsequently must be amortized to expense. Much like depreciation, such amortization charges are "non-cash." In this context, the table below reconciles the major elements of pre-tax operating funds flow of the Company's agency-eligible mortgage servicing activities.
($ in thousands) FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ---------- ---------- Income before income taxes $ 1,664 $ 2,509 Deduct: Net gain on sale of mortgage servicing rights, as reported (1,539) (4,823) Add back: Amortization and provision for impairment of Mortgage servicing rights 12,209 17,320 Depreciation 73 1,852 ---------- ---------- $ 12,407 $ 16,858 ========== ==========
SUBPRIME PRODUCTION Generally, the Company purchases subprime loans through a wholesale broker network. The Company then separately sells or securitizes the loans so produced. Existing accounting principles require that at the time loans are securitized, the Company capitalize the estimated fair value of future cash flows to be received in connection with retention by the Company of a residual interest in the securitized loans. Accordingly, amounts reported as gains on sale of subprime mortgage loans may not represent cash gains to the extent that associated residual interests are retained and capitalized. In this context, the table below reconciles the major elements of pre-tax operating funds flow of the Company's subprime mortgage production activities. 49 50
($ in thousands) FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ---------- ---------- Income (loss) before income taxes $ (7,776) $ 3,774 Deduct: Net gain on sale of subprime loans, as reported (6,179) (10,374) Accretion income on residuals (3,786) (2,955) Add back: Cash gains on sale of whole subprime loans 10,334 7,450 Cash received from investments in residual certificates 1,471 2,742 Depreciation and amortization of goodwill and intangibles 1,573 614 Provision expense 910 932 Mark to market on residuals 9,446 3,967 ---------- ---------- $ 5,993 $ 6,150 ========== ==========
LEASING Generally, the Company originates small-ticket equipment leases for commercial customers that are retained as investments by the Company. Investments in leases originated and retained are financed through a borrowing facility at draw rates that approximate the net cash investment in the related lease. Accordingly, financing activities related to growth in the balance of leases held for investment do not significantly impact operating cash flow. In this context, the table below reconciles the major elements of operating funds flow allocable to leasing activities.
($ in thousands) FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 -------- -------- Income before income taxes $ 1,391 $ 1,327 Add back: Depreciation and amortization of goodwill and intangibles 165 153 Provision expense 1,521 670 -------- -------- $ 3,077 $ 2,150 ======== ========
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary market risk facing the Company is interest rate risk. The Company manages this risk by striving to balance its loan origination and loan servicing business segments, which are countercyclical in nature. In addition, the Company utilizes various financial instruments, including derivatives contracts, to manage the interest rate risk related specifically to its committed pipeline, mortgage loan inventory, mortgage backed securities held for sale, servicing rights, leases and residual interests retained in securitizations. The overall objective of the Company's interest rate risk management policies is to mitigate potentially significant 50 51 adverse effects that changes in the values of these items resulting from changes in interest rates might have on the Company's consolidated balance sheet. The Company does not speculate on the direction of interest rates in its management of interest rate risk. For purposes of disclosure in the 1999 Annual Report on Form 10-K, the Company performed various sensitivity analyses that quantify the net financial impact of hypothetical changes in interest rates on its interest rate-sensitive assets, liabilities and commitments. These analyses presume an instantaneous parallel shift of the yield curve. Various techniques are employed to value the underlying financial instruments which rely upon a number of critical assumptions. Actual experience may differ materially from the estimated. To the extent that yield curve shifts are non-parallel and to the extent that actual variations in significant assumptions differ from those applied for purposes of the valuations, the resultant valuations can also be expected to vary. Such variances may prove material. The Company has procedures in place that monitor whether material changes in market risk are likely to have occurred since December 31, 1999. The Company does not believe that there have been any material changes in market risk from those reported in the 1999 Annual Report on Form 10-K. 51 52 PART II. OTHER INFORMATION ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING THE PERIOD OF APRIL 1, 2000, THROUGH JUNE 30, 2000, THE FOLLOWING MATTERS WERE SUBMITTED TO A VOTE OF SECURITY HOLDERS: AT THE ANNUAL MEETING OF THE SHAREHOLDERS OF THE COMPANY ON MAY 3, 2000, THE SHAREHOLDERS ELECTED ROBIN C. KELTON, BOYD M. GUTTERY, DOUGLAS K. FREEMAN AND JOHN O. WOLCOTT TO SERVE AS DIRECTORS OF THE COMPANY. MR. KELTON AND MR. FREEMAN WILL SERVE FOR THREE YEAR TERMS EXPIRING AT THE 2003 ANNUAL MEETING OF SHAREHOLDERS. MR. GUTTERY'S TERM EXPIRES AT THE 2001 ANNUAL MEETING. MR. WOLCOTT'S TERM EXPIRES AT THE 2002 ANNUAL MEETING. MR. KELTON RECEIVED 15,751,445 VOTES, 73,362 VOTES WERE WITHHELD WITH NO VOTES AGAINST. MR. GUTTERY RECEIVED 15,748,999 VOTES, 75,808 VOTES WERE WITHHELD WITH NO VOTES AGAINST. MR. FREEMAN RECEIVED 15,752,627 VOTES, VOTES WERE 72,180 WITHHELD WITH NO VOTES AGAINST. MR. WOLCOTT RECEIVED 15,750,246 VOTES, 74,561 VOTES WERE WITHHELD WITH NO VOTES AGAINST. AT THE ANNUAL MEETING OF THE SHAREHOLDERS OF THE COMPANY ON MAY 3, 2000, THE SHAREHOLDERS VOTED TO APPROVE AN AMENDMENT TO THE STOCK INVESTMENT PLAN. THE APPROVAL RECEIVED 15,384,538 VOTES, 44,624 SHARES ABSTAINED AND 395,645 SHARES VOTED AGAINST. ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K - (A) A LIST OF EXHIBITS FILED WITH THIS FORM 10-Q, ALONG WITH THE EXHIBIT INDEX CAN BE FOUND ON PAGES A TO G FOLLOWING THE SIGNATURE PAGE. - (B) NO REPORTS ON FORM 8K WERE FILED DURING THE QUARTER ENDED JUNE 30, 2000. 52 53 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RESOURCE BANCSHARES MORTGAGE GROUP, INC. (Registrant) /s/ Steven F. Herbert --------------------------------------------- Steven F. Herbert Corporate Senior Executive Vice President and Corporate Chief Financial Officer (signing in the capacity of (i) duly authorized officer of the registrant and (ii) principal financial officer of the registrant) DATED: August 14, 2000 53 54 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 3.1 Restated Certificate of Incorporation of the Registrant incorporated by * reference to Exhibit 3.3 of the Registrant's Registration No. 33-53980 3.2 Certificate of Amendment of Certificate of Incorporation of the * Registrant incorporated by reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 3.3 Certificate of Designation of the Preferred Stock of the Registrant * incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-A filed on February 8, 1998 3.4 Amended and Restated Bylaws of the Registrant incorporated by reference * to Exhibit 3.4 of the Registrant's Registration No. 33-53980 3.5 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. dated * January 28, 1999 incorporated by reference to Exhibit 3.5 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 3.6 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. * incorporated by reference to Exhibit 3.1 of the Registrant's Registration No. 333-82105 3.7 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. dated _____ December 7, 1999 4.1 Specimen Certificate of Registrant's Common Stock incorporated by * reference to Exhibit 4.1 of the Registrant's Registration No. 33-53980 4.2 Rights Plan dated as of February 6, 1998 between the Registrant and * First Chicago Trust Company of New York incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-A filed on February 8, 1998 4.3 Note Agreement between the Registrant and UNUM Life Insurance Company * of America dated May 16, 1997 incorporated by reference to Exhibit 10.45 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997 10.1 Employment Agreement dated June 3, 1993, between the Registrant and * David W. Johnson, Jr. as amended by amendment dated October 22, 1993 incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.2 (A) Stock Option Agreement between the Registrant and David W. Johnson, * Jr. incorporated by reference to Exhibit 10.8 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (B) Stock Option Agreement between the Registrant and Lee E. Shelton * incorporated by reference to Exhibit 10.8 (B) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.3 Termination Agreement dated June 3, 1993, between the Registrant and * David W. Johnson, Jr. incorporated by reference to Exhibit 10.9 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.4 (A) Deferred Compensation Agreement dated June 3, 1993, between the * Registrant and David W. Johnson, Jr. incorporated by reference to Exhibit 10.10 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (B) Deferred Compensation Rabbi Trust, for David W. Johnson, dated * January 19, 1994, between Registrant and First Union National Bank of North Carolina incorporated by reference to Exhibit 10.10 (C) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.5 Employment Agreement dated June 30, 1995, between the Registrant and * Steven F. Herbert incorporated by reference to Exhibit 10.34 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995 10.6 (A) Employment Agreement dated April 3, 2000, between Resource _____ Bancshares Mortgage Group, Inc. and Harold Lewis, Jr. (B) Change of Control Agreement dated May 3 by and between Resource _____ Bancshares Mortgage Group, Inc. and Harold Lewis, Jr. 10.7 Office Building Lease dated March 8, 1991, as amended by Modification * of Office Lease dated October 1, 1991, incorporated by reference to Exhibit 10.5 of the Registrant's Registration No. 33-53980 10.8 Assignment and Assumption of Office Lease incorporated by reference to * Exhibit 10.6 of the Registrant's Registration No. 33-53980 10.9 Governmental Real Estate Sub-Lease-Office, between Resource Bancshares * Mortgage Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.19 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1994 10.10 First Sub-Lease Amendment to Governmental Real Estate Sub-Lease-Office, * between Resource Bancshares Mortgage Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994 10.11 Request for Extension of Governmental Real Estate Sub-Lease-Office, * between the Registrant and the South Carolina Department of Labor, Licensing and Regulation dated December 12, 1995 incorporated by reference to Exhibit 10.39 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 10.12 Section 125 Plan incorporated by reference to Exhibit 10.17 of the * Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.13 Pension Plan incorporated by reference to Exhibit 10.18 of the * Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.14 Amendment I to Pension Plan incorporated by reference to Exhibit 10.21 * of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.15 Amendment II to Pension Plan incorporated by reference to Exhibit 10.22 * of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 10.16 (A) 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 (B) Amendment Four to Pension Plan effective May 31, 2000 _____ 10.17 (A) Phantom 401(k) Plan incorporated by reference to Exhibit 10.24 of * the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (B) Amendment to Phantom 401(k) Plan incorporated by reference to Exhibit 10.17(B) of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1999 * (C) Merger and Transfer Agreement Between The Resource Bancshares Mortgage Group, Inc. and Fidelity Management Trust Company incorporated by reference to Exhibit 10.53 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1999. * 10.18 Resource Bancshares Mortgage Group, Inc. Supplemental Executive * Retirement Plan incorporated by reference to Exhibit 10.14 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1998. 10.19 (A) First Amendment to Resource Bancshares Mortgage Group, Inc. * Supplemental Executive Retirement Plan dated October 28, 1998 incorporated by reference to Exhibit 10.19 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 (B) Second Amendment to Resource Bancshares Mortgage Group, Inc. Supplemental Executive Retirement Plan dated May 31, 2000 _____ 10.20 (A) 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 (B) Resolution of Board of Directors freezing additional accounts under the Pension Restoration Plan effective May 31, 2000 _____ 10.21 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the * Registrant's Registration No. 33-87536 10.22 (A) 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 (B) Amendment II to Stock Investment Plan dated November 30, 1998 * incorporated by reference To Exhibit 4.1(c) of the Registrant's Registration Statement No. 333-68909 (C) Amendment III to Stock Investment Plan dated February 2, 2000 incorporated by reference to Exhibit 10.22 (C) of the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2000 *
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.23 (A) Change of Control Agreement by and between Resource Bancshares * Mortgage Group, Inc. and Douglas K. Freeman, dated as of January 10, 2000 incorporated by reference to Exhibit 10.23 (A) of the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2000. (B) Incentive Stock Option Agreement pursuant to Resource Bancshares * Mortgage Group, Inc. Omnibus Stock Award Plan between Resource Bancshares Mortgage Group, Inc. and Douglas K. Freeman dated as of January 10, 2000 incorporated by reference to Exhibit 10.23 (B) of the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2000 (C) Employment Agreement between Resource Bancshares Mortgage Group, * Inc. and Douglas K. Freeman dated as of January 10, 2000 incorporated by reference to Exhibit 10.23 (C) of the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2000 (D) Indemnity Agreement between Resource Bancshares Mortgage Group, * Inc. and Douglas K. Freeman dated as of January 10, 2000 incorporated by reference to Exhibit 10.23 (D) of the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2000 10.24 Employee Stock Ownership Plan incorporated by reference to Exhibit * 10.29 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 10.25 First Amendment to Employee Stock Ownership Plan dated October 31, 1995 * incorporated by reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 10.26 Second Amendment to Employee Stock Ownership Plan dated August 12, 1996 * incorporated by reference to Exhibit 10.45 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1996 10.27 Amended Resource Bancshares Mortgage Group, Inc. Successor Employee * Stock Ownership Trust Agreement dated December 1, 1994, between the Registrant and Marine Midland Bank incorporated by reference to Exhibit 10.30 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 10.28 ESOP Loan and Security Agreement dated January 12, 1995, between the * Registrant and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.31 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 10.29 ESOP Loan and Security Agreement dated May 3, 1996, between the * Registrant and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.36 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.30 (A) ESOP Notes dated January 20, 1998, April 1, 1998, July 1, 1998 and * October 1, 1998 between the Registrant and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.30 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- (B) ESOP Notes dated March 8, 1999, April 26, 1999, July 1, 1999 and * October 1, 1999 between the Registrant and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.30(B) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 10.31 Formula Stock Option Plan incorporated by reference to Exhibit 10.36 of * the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995 10.32 Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock * Option Plan and Non-Qualified Stock Option Plan incorporated by reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.33 First Amendment to the Formula Stock Option Plan incorporated by * reference to Exhibit 99.8 of the Registrant's Registration No. 333-29245 as filed on December 1, 1997 10.34 Second Amendment to Resource Bancshares Mortgage Group, Inc. Formula * Stock Option Plan dated October 28, 1998 incorporated by reference to Exhibit 10.34 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.35 Amended and Restated Omnibus Stock Award Plan incorporated by reference * to Exhibit 99.10 of the Registrant's Registration No. 333-29245 filed on December 1, 1997 10.36 First Amendment to Omnibus Stock Award Plan and form of Incentive Stock * Option Agreement and Release to the Omnibus Stock Award Plan incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998. 10.37 Second Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus * Stock Award Plan dated October 29, 1998 incorporated by reference to Exhibit 10.37 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.38 (A) 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 (B) Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) effective June 2000 (officer vesting provisions) _____ (C) Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) effective June 2000 ($16 vesting provisions) _____ 10.39 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option * Plan dated September 1, 1996 incorporated by reference to Exhibit 10.33 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.40 Form of Non-Qualified Stock Option Agreement (Non-Qualified Stock * Option Plan), incorporated by reference to Exhibit 10.41 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.41 First Amendment to Resource Bancshares Mortgage Group, Inc. Non-Qualified * Stock Option Plan dated January 29, 1997 incorporated by reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.42 Second Amendment to the Non-Qualified Stock Option Plan dated February * 6, 1998 incorporated by reference to Exhibit 10.40 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998 10.43 Third Amendment to Resource Bancshares Mortgage Group, Inc. * Non-Qualified Stock Option Plan dated October 28, 1998 incorporated by reference to Exhibit 10.43 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.44 Agreement and Release Form of Non-Qualified Stock Option Agreement * incorporated by reference to Exhibit 10.41 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998 10.45 Amended and Restated Retirement Savings Plan dated April 1, 1996 * incorporated by reference to Exhibit 10.34 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.46 First Amendment to Amended and Restated Retirement Savings Plan dated * as of November 8, 1996 incorporated by reference to Exhibit 10.35 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.47 (A) 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 (B) Third Amendment to Amended and Restated Retirement Savings Plan dated May 31, 2000 _____ 10.48 (A) Agreement of Merger dated April 18, 1997 between Resource * Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Annex A of the Registrant's Registration No.333-29245 (B) First Amendment to Agreement of Merger dated April 18, 1997 between * Resource Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997 (C) Second Amendment to Agreement of Merger dated April 18, 1997 * between Resource Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Annex A of the Registrant's Registration No. 333-29245 10.49 (A) Mutual Release and Settlement Agreement between the Registrant, Lee * E. Shelton and Constance P. Shelton dated January 31, 1997 incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (B) Amendment to Mutual Release and Settlement Agreement between * Registrant, Lee E. Shelton and Constance P. Shelton dated January 31, 1997 incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997 10.50 Preferred Provider Organization Plan for Retired Executives incorporated * by reference to Exhibit 10.43 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.51 Resource Bancshares Mortgage Group, Inc. Flexible Benefits Plan Amended * and Restated as of January 1, 1998 incorporated by reference to Exhibit 10.51 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.52 The Resource Bancshares Mortgage Group, Inc. Nonqualified Deferred Compensation Plan effective April 1, 1999 incorporated by reference to Exhibit 10.52 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1999 * 10.53 Voluntary Employees' Beneficiary Association Trust for the Employees of Resource Bancshares Mortgage Group, Inc. incorporated by reference to Exhibit 10.53 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 * 10.54 Voluntary Employees' Beneficiary Association Plan for the Employees of Resource Bancshares Mortgage Group, Inc. incorporated by reference to Exhibit 10.54 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2000 * 10.55 MSC Stock Option Agreement between Resource Bancshares Mortgage Group, Inc. and Boyd M. Guttery dated February 2, 2000 _____ 10.56 MSC Stock Option Agreement between Resource Bancshares Mortgage Group, Inc. and Stuart M. Cable dated February 2, 2000 _____ 10.57 Director Deferred Compensation Plan dated June 2000 _____ 10.58 Outside Director Life Insurance Plan dated June 2000 _____ 11.1 Statement re: Computation of Net Income per Common Share _____ 27.1 Financial Data Schedule _____
- -------------- * Incorporated by reference G EX-3.7 2 ex3-7.txt AMENDMENT TO BYLAWS DATED 12/7/1999 1 Exhibit 3.7 AMENDMENT TO BYLAWS OF RESOURCE BANCSHARES MORTGAGE GROUP, INC. ADOPTED AT DECEMBER 7, 1999 BOARD OF DIRECTORS MEETING RESOLVED, that the Amended and Restated Bylaws of the Corporation, as previously amended, be, and they hereby are, amended by deleting the first sentence of Article IV, Section 1 and substituting in lieu thereof the following: The executive officers of the Corporation shall be appointed by the Board of Directors. EX-10.6.A 3 ex10-6_a.txt EMPLOYMENT AGREEMENT 4/3/2000 / HAROLD LEWIS, JR. 1 Exhibit 10.6(A) EMPLOYMENT AGREEMENT AGREEMENT made as of April 3, 2000 between RESOURCE BANCSHARES MORTGAGE GROUP, INC. ("RMBG") and Harold Lewis, Jr. ("Employee"). WITNESSETH: WHEREAS, the parties hereto desire to provide for the Employee's employment by RBMG. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. Employment. RBMG agrees to employ the Employee and the Employee agrees to enter into the employ of RMBG on the terms and conditions hereafter set forth. 2. Capacity and Duties. The Employee shall be employed as an Executive Vice President of RMBG. In addition, the Employee shall upon request serve as an officer and on the Board of Directors of such subsidiaries as the Board of Directors or management of RBMG may from time to time designate. The Employee shall perform his responsibilities in accordance with the direction and supervision of the Board of Directors and Chief Executive Officer of RBMG and he shall devote his full business time, skill, energies, business judgment, knowledge and best efforts to the advancement of the best interests of RBMG and the performance of such executive, administrative and operational duties on behalf of RBMG and its subsidiaries, appropriate to the offices he holds or shall hold hereunder, as the Board of Directors or Chief Executive Officer of RBMG may assign. The requirement that the Employee devote his full business time shall not be construed to prevent the Employee from making investments in stocks, bonds and other types of personal property, both tangible and intangible, and real estate or engaging in church, charitable or other community activities which do not, singly or in the aggregate, materially impair his ability to fulfill his responsibilities under this Agreement. 3. Term. The term of the Employee's employment hereunder shall be for the period commencing as of April 3, 2000 (the "Commencement Date") and ending on April 2, 2002 unless such term is terminated earlier by or pursuant to Section 5. 4. Compensation and Benefits. (a) Salary. RBMG shall pay or cause to be paid to the Employee, as compensation for all of the services to be rendered by him hereunder during the term hereof, a salary of $225,000 per year ("Base Salary"), payable in accordance with the 2 regular payroll practices of RBMG for executives, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations and less such other deductions or amounts, if any, as are authorized by the Employee. The Board of Directors of RBMG shall have the right to increase the Employee's Base Salary from time to time. (b) Annual Bonus. The Employee shall be eligible to be considered for an annual bonus. (c) Expenses. To the extent not otherwise paid for by RBMG or one of its subsidiaries, RBMG will reimburse the Employee or cause the Employee to be reimbursed for reasonable expenses incurred in promoting RBMG's and its subsidiaries' businesses, including expenses for travel and entertainment, such reimbursement to be made promptly upon presentation of appropriate receipts or other substantiation. (d) Plans. The Employee shall be entitled to participate in any and all employee benefit plans as may be in effect for executives of RBMG to the extent that he is eligible for participation therein and coverage thereunder. Such right of participation in any such plan and the degree or amount thereof shall be subject, however, to generally applicable RBMG policies and to action by RBMG's Board of Directors or any administrative or other committee or to any other administrative or managerial determination provided in or contemplated by such plan, it being agreed that this Agreement is not intended to impair the right of any committee or other group or person concerned with the administration of such plan to exercise in good faith the full discretion reposed in him or them by such plan. (e) Vacation. The Employee shall be entitled to paid vacation during each year of this Agreement in accordance with the policies of RBMG with respect thereto applicable to officers with comparable duties and responsibilities. Unused vacation time in any year shall not be carried over to subsequent years and the Employee shall not be entitled to pay in lieu of unused vacation time. (f) Withholding. The Employee acknowledges that certain payments provided for herein are subject to withholding and other taxes. 5. Termination. Notwithstanding Section 3, the term of the Employee's employment hereunder shall terminate on the first to occur of the (i) termination date provided for under Section 3 or (ii) any of the events described in the paragraphs of this Section 5. (a) Death. In the event of the Employee's death, the Employee's employment shall terminate automatically, effective as of the date of death, and RBMG shall pay to his estate the Base Salary that otherwise would have been paid to the Employee pursuant to Section 4(a) up to the end of the fiscal quarter in which he died. 2 3 (b) Disability. If the Employee, due to physical or mental illness, shall be disabled to perform substantially all of his duties for a continuous period of three months (a "disability"), then either the Employee or RBMG may by notice terminate the Employee's employment under this Agreement effective as of a date 30 days after the date such notice is given. The Employee's Base Salary during such three-month period and thereafter, prior to such termination, shall be reduced by the amount of any disability or similar benefits to which he is entitled, notwithstanding anything contained elsewhere in this Agreement to the contrary. (c) Termination for Cause. The Employee's employment may be terminated effective immediately by RBMG for "cause" by notice of termination to the Employee. "Cause" for such termination shall be limited to the following: (i) Breach by the Employee in any material respect of any of the material covenants contained in this Agreement, which breach continues for 30 days following receipt of written notice given by RBMG's Board of Directors or its Chief Executive Officer specifying the breach and requesting that the Employee correct the same; (ii) Chronic and disabling use of alcohol or controlled substances that materially inhibits the performance of the Employee's duties under this Agreement for a period of not less than three consecutive months; (iii) Employee's conviction of either a felony involving moral turpitude or any crime in connection with his employment by RBMG which causes RBMG a substantial detriment; (iv) Gross or willful neglect of the Employee's duties; or (v) Such conduct as results or as is likely to result in substantial damage to the reputation of RBMG or any of the affiliates of RBMG. (d) Compensation Upon Termination. Except as provided in Sections 5(a) and 5(b), all compensation to the Employee shall cease immediately on termination of the Employee's employment hereunder. 6. No Raid. The Employee acknowledges that he has had and will have extensive contacts with employees and customers of, and others having business dealings with, RBMG. For the purposes of this Section and Sections 7, 8 and 9, the term "RBMG" shall be deemed to include subsidiaries, parents and affiliates of RBMG. Accordingly, the Employee covenants and agrees that during the term of his employment and during the two-year period immediately thereafter he will not (i) solicit any of the employees of RBMG who were employed by RBMG during the time when the Employee was employed by RBMG to leave RBMG, (ii) interfere with the 3 4 relationship of RBMG with any such employees or (iii) personally target or solicit to the detriment of RBMG any customers or others having business dealings with RBMG in the business activities and endeavors in which the Employee was involved. The Employee further covenants and agrees that during the term of his employment and during the two-year period immediately thereafter he will not make public statements in derogation of RBMG. 7. Blue Pencil. The Employee acknowledges that the period and geographic area of restriction imposed by Section 6 is fair and reasonable and is reasonably required for the protection of RBMG. If any part or parts of Section 6 shall be held to be unenforceable or invalid, then the remaining parts thereof shall nevertheless continue to be valid and enforceable as though the invalid portion or portions were not a part hereof. If any of the provisions of Section 6 relating to the period or geographic area of restriction shall be deemed to exceed the maximum period of time or area which a court of competent jurisdiction would deem enforceable, then the time and area shall, for the purposes of Section 6, be deemed to be the maximum time period and area which a court of competent jurisdiction would deem valid and enforceable in any state in which such court of competent jurisdiction shall be convened. 8. Confidentiality. The Employee acknowledges that he has had and will have access to certain information related to the business, operations, future plans and customers of RBMG, the disclosure or use of which could cause RBMG substantial losses and damages. Accordingly, the Employee covenants that during the term of his employment with RBMG and thereafter he will keep confidential all information and documents furnished to him by or on behalf of RBMG and not use the same to his advantage, except to the extent such information or documents are or thereafter become lawfully obtainable from other sources or are in the public domain through no fault on his part or as is consented to in writing by RBMG. Upon termination of his employment, the Employee shall return to RBMG all records, lists, files and documents which are in his possession and which relate to RBMG. 9. Right to Injunctive Relief. The Employee agrees and acknowledges that a violation of the covenants contained in Sections 6 and 8 of this Agreement will cause irreparable damage to RBMG, and that it is and will be impossible to estimate or determine the damage that will be suffered by RBMG in the event of a breach by the Employee of any such covenant. Therefore, the Employee further agrees that in the event of any violation or threatened violation of such covenants, RBMG shall be entitled as a matter of course to an injunction issued by any court of competent jurisdiction restraining such violation or threatened violation by the Employee, such right to an injunction to be cumulative and in addition to whatever other remedies RBMG may have. 10. Representation by the Employee. 4 5 The Employee hereby represents and warrants to RBMG that the execution of this Agreement and the performance of his duties and obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or by which he is bound and that he is not now subject to any covenant against competition or similar covenant that would affect the performance of his duties hereunder. 11. No Assignment. This Agreement is personal and shall in no way be subject to assignment, except by RBMG incident to the sale of all or substantially all of its business (whether by asset sale, stock sale or merger). Any attempt by one party to assign this Agreement in any other circumstances without the prior written consent of the other party shall be null and void. 12. Enforceability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a duly authorized court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 13. Notices. All notices and other communications required or permitted to be given hereunder shall be given by delivering the same in hand or by mailing the same by certified or registered mail, return receipt requested, postage prepaid, as follows: if to RBMG, to: Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, South Carolina 29202-7486 Attention: Chief Executive Officer if to the Employee, to: Mr. Harold Lewis, Jr. ------------------------------ ------------------------------ ------------------------------ ------------------------------ (or to such other address as either party shall have furnished to the other by like notice) 5 6 A notice shall be effective as of the date of such delivery or mailing, as the case may be. 14. Entire Agreement. This Agreement constitutes the only agreement and understanding (other than the Change of Control Agreement dated as of May 3, 2000 between the Company and the Employee, employee benefit plans, policies and practices applicable to RBMG's executive officers generally) between RBMG, on the one hand, and the Employee, on the other hand, in relation to the subject of the Employee's employment by RBMG; and there are no promises, representations, conditions, provisions or terms related thereto other than those set forth herein. This Agreement supersedes all previous understandings, agreements and representations, written or oral, between RBMG and the Employee regarding the Employee's employment by RBMG. 15. Governing Law. This contract shall be construed under and be governed in all respects by the internal laws, and not the laws pertaining to choice or conflicts of laws, of the State of South Carolina. 16. Waiver; Amendment. No waiver in any instance by either party of any provision of this Agreement shall be deemed a waiver by such party of such provision in any other instance or a waiver of any other provision hereunder in any instance. This Agreement cannot be amended, supplemented or otherwise modified except in a writing signed by RBMG and the Employee. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day first above written. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ------------------------------------- Name: Douglas K. Freeman Title: Chief Executive Officer L.S.) ----------------------------------- Harold Lewis, Jr. 6 EX-10.6.B 4 ex10-6_b.txt CHANGE OF CONTROL AGREEMENT / HAROLD LEWIS, JR. 1 Exhibit 10.6(B) CHANGE OF CONTROL AGREEMENT AGREEMENT by and between Resource Bancshares Mortgage Group, Inc., a Delaware corporation ("RBMG"), and Harold Lewis, Jr. (the "Executive"), dated as of the 3rd day of May, 2000. The Board of Directors of RBMG (the "Board") has determined that it is in the best interests of RBMG and its shareholders to assure that the Company (as defined below) will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of RBMG. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control. Therefore, in order to accomplish these objectives, the Board has caused RBMG to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (a) "AFR" shall have the meaning set forth in Section 6. (b) "Affiliated Company" shall mean any corporation, partnership or other entity which controls, is controlled by or is under common control with RBMG. (c) "Annual Base Salary" shall have the meaning set forth in Section 1(q)(i). (d) "Board" shall have the meaning set forth in the recitals to this Agreement. (e) "Business Combination" shall have the meaning set forth in Section 1(g)(iii). (f) "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of RBMG which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties; or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. 2 For purposes of this provision, no act, or failure to act, on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of RBMG or based upon the advice of counsel for RBMG shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Section 1(f)(i) or 1(f)(ii) above, and specifying the particulars thereof in detail. (g) "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of RBMG (the "Outstanding RBMG Common Stock") or (B) the combined voting power of the then outstanding voting securities of RBMG entitled to vote generally in the election of directors (the "Outstanding RBMG Voting Securities"); provided, however, that for purposes of this Section 1(g)(i), the following acquisitions shall not constitute a Change of Control: (W) any acquisition directly from RBMG or any corporation controlled by RBMG, (X) any acquisition by RBMG or any corporation controlled by RBMG, (Y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by RBMG or any corporation controlled by RBMG or (Z) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of Section 1(g)(iii); or (ii) That individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by RBMG's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of RBMG or the acquisition of 2 3 assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding RBMG Common Stock and Outstanding RBMG Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns RBMG or all or substantially all of RBMG's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding RBMG Common Stock and Outstanding RBMG Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of RBMG or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns RBMG or all or substantially all of RBMG's assets either directly or through one or more subsidiaries) except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of RBMG of a complete liquidation or dissolution of RBMG. (h) "Change of Control Period" shall mean the period commencing on the Effective Date and ending on the second anniversary of the Effective Date. (i) "Code" shall mean the Internal Revenue Code of 1986, as amended. (j) "Company" shall include RBMG and its Affiliated Companies. (k) "Date of Termination" means (i) if the Executive's employment is terminated by RBMG for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by RBMG other than for Cause or Disability, the Date of Termination shall be the date on which RBMG notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 3 4 (l) "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 120 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by RBMG or its insurers and acceptable to the Executive or the Executive's legal representatives. (m) "Disability Effective Date" shall have the meaning set forth in Section 3. (n) "Effective Date" shall mean the first date on which a Change of Control occurs. If a Change of Control occurs and the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment arose in connection with or anticipation of a Change of Control, then "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (o) "Exchange Act" shall have the meaning set forth in Section 1(g)(i). (p) "Executive" shall have the meaning set forth in the recitals to this Agreement. (q) "Good Reason" shall mean: (i) a reduction by the Company in the Executive's annual base salary as in effect immediately prior to the Effective Date (the "Annual Base Salary"); (ii) the Company requiring the Executive to be based at a location more than 100 miles from the location at which he is based immediately prior to the Effective Date (except for required travel which is substantially consistent with travel obligations as of the date of this Agreement); (iii) the failure by the Company to pay the Executive any portion of the Executive's current compensation within seven days of the date such compensation is due, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iv) the failure by the Company to continue any material benefit plan in which the Executive participates immediately prior to the Effective Date (unless the failure did not occur in bad faith and is remedied by the Company, promptly after receipt of notice thereof given by the Executive, by the Company providing an equitable arrangement with respect to such plan); (v) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (vi) any failure by RBMG to comply with and satisfy Section 8(c) of this Agreement. 4 5 For purposes of this Section 1(q), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (r) "Incumbent Board" shall have the meaning set forth in Section 1(g)(ii). (s) "Most Recent Annual Bonus" shall have the meaning set forth in Section 4(a)(i)(A)(2)(x). (t) "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or RBMG to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or RBMG, respectively, hereunder or preclude the Executive or RBMG, respectively, from asserting such fact or circumstance in enforcing the Executive's or RBMG's rights hereunder. (u) "Outstanding RBMG Common Stock" shall have the meaning set forth in Section 1(g)(i). (v) "Outstanding RBMG Voting Securities" shall have the meaning set forth in Section 1(g)(i). (w) "Payment" shall have the meaning set forth in Section 4(c). (x) "Person" shall have the meaning set forth in Section 1(g)(i). (y) "RBMG" shall have the meaning set forth in the recitals to this Agreement. 2. Termination for Cause or Good Reason; Notice of Termination. RBMG may terminate the Executive's employment with the Company during the Change of Control Period for Cause and the Executive may terminate employment during the Change of Control Period for Good Reason. Any termination by RBMG for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto in accordance with Section 9(b) of this Agreement. 3. Termination by Reason of Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death. If RBMG determines in good faith during the Change of Control Period that the Disability of the Executive has occurred, it may give to the Executive written notice in accordance with Section 9(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability 5 6 Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. 4. Obligations of RBMG upon Termination. (a) Good Reason; Without Cause; Death or Disability. If, during the Change of Control Period, RBMG shall terminate the Executive's employment without Cause, the Executive shall terminate employment for Good Reason or the Executive's employment terminates for death or Disability, and subject to the limitation set forth in Section 4(c): (i) RBMG shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) the product of (x) the Executive's annual bonus paid or payable, including any bonus or portion thereof which has been earned but deferred, (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months) for the most recently completed fiscal year, if any (the "Most Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; provided, that, such amount shall not be paid if duplicative of any amounts payable under the Company's annual incentive plans, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any unused annual vacation pay, in each case to the extent not theretofore paid; and B. an amount equal to the sum of (1) the Executive's Annual Base Salary and (2) the lesser of (I) the Executive's Most Recent Annual Bonus or (II) $100,000; and (ii) RBMG shall provide medical, dental and vision insurance coverage for the Executive and his current spouse and eligible dependents until the first to occur of (A) the first anniversary of the Date of Termination or (B) the death of the Executive and his spouse, that is comparable to the most favorable medical, dental and vision insurance coverage provided by the Company for the Executive (and such spouse and dependents) during the 120-day period immediately prior to the Change of Control, with the Executive (or such spouse) continuing to pay the employee portion of the premiums for such coverage (in the same pro rata amount as during the 120-day period prior to the Change of Control). (b) Cause; Without Good Reason. If the Executive's employment shall be terminated for Cause during the Change of Control Period or if the Executive voluntarily terminates employment during the Change of Control Period without Good Reason, this Agreement shall terminate without further obligation to the Executive other than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination, and (ii) the amount of any compensation previously deferred by the Executive. 6 7 (c) Notwithstanding anything in this Agreement to the contrary, if it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would constitute an "excess parachute payment" within the meaning of Section 280G of the Code, then the Payments, in the aggregate, shall be reduced (in a manner elected by the Executive, or by RBMG if the Executive fails to make such an election) to the greatest amount that could be paid to the Executive such that the receipt of Payments would not constitute an "excess parachute payment." 5. Non-exclusivity of Rights. Subject to the limitation set forth in Section 4(c), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any pension, profit sharing, 401(k), supplemental executive retirement or stock option plan provided by the Company and for which the Executive may qualify, nor, subject to Section 9(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any pension, profit sharing, 401(k), supplemental executive retirement or stock option plan or any contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan or contract or agreement except as explicitly modified by this Agreement. 6. Full Settlement. RBMG's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. RBMG agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by RBMG, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code ( the "AFR"). The Executive shall repay (with interest at the AFR) any such advanced legal fees and expenses in the event a court determines that the Executive's claim or action was in bad faith. 7. Confidential Information. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company which shall have been obtained by the Executive during the Executive's employment by the Company and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of RBMG or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by RBMG. In no event shall an asserted violation of the 7 8 provisions of this Section 7 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) The Executive agrees and acknowledges that a violation of the covenants contained in this Section 7 will cause irreparable damage to the Company, and that it is and will be impossible to estimate or determine the damage that will be suffered by the Company in the event of a breach by the Executive of any such covenant. Therefore, the Executive further agrees that in the event of any violation or threatened violation of such covenants, the Company shall be entitled as a matter of course to an injunction issued by any court of competent jurisdiction restraining such violation or threatened violation by the Executive, such right to an injunction to be cumulative and in addition to whatever other remedies the Company may have. 8. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of RBMG shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon RBMG and its successors and assigns. (c) RBMG will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of RBMG to assume expressly and agree to perform this Agreement in the same manner and to the same extent that RBMG would be required to perform it if no such succession had taken place. As used in this Agreement, "RBMG" shall mean RBMG as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Harold Lewis, Jr. _____________________________________ _____________________________________ 8 9 If to RBMG: Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, SC 29223 Attention: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) RBMG may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or RBMG's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or RBMG may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 2, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and RBMG acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(n), the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. This Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. (g) This Agreement shall terminate and be of no further force or effect if a Change of Control does not occur on or before April 3, 2002. 9 10 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, RBMG has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. ---------------------------- Harold Lewis, Jr. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By ------------------------- Douglas K. Freeman Chief Executive Officer 10 EX-10.16.B 5 ex10-16_b.txt AMENDMENT FOUR TO PENSION PLAN 1 Exhibit 10.16(B) Amendment No. IV to The RBMG, Inc. Pension Plan WHEREAS, Resource Bancshares Mortgage Group, Inc. (hereinafter referred to as the "Corporation") previously adopted the RBMG, Inc. Pension Plan (hereinafter referred to as the "Plan") effective as of January 1, 1994; and WHEREAS, the Corporation reserved the right in Section 13.01 of the Plan to amend said Plan; and WHEREAS, the Corporation is now desirous to amend said Plan in order to freeze the accrual of benefits under the Plan effective as of May 31, 2000. NOW, THEREFORE, the Plan is amended, effective May 31, 2000, in the following respects: 1. Section 1.01 is hereby amended by adding the following sentence at the end of such section: "No additional benefits shall be accrued under the Plan after May 31, 2000." 2. Section 1.09 is hereby amended by adding the following sentence at the end of such section: "No additional Benefit Accrual Service shall be earned after May 31, 2000." 3. Section 1.22 is hereby amended by adding the following sentence at the end of such section: "Earnings shall not include any compensation received after May 31, 2000." 4. Section 2.07 is hereby amended by adding the following sentence at the end of such section: "No additional Benefit Accrual Service shall be earned after May 31, 2000." 5. Section 2.08 is hereby amended by adding the following sentence at the end of such section: "No additional Benefit Accrual Service shall be earned after May 31, 2000." 2 6. Section 3.01 is hereby amended by adding the following sentence at the end of such section: "No Employee shall become a Participant in the Plan after May 31, 2000." 7. Section 3.02 is hereby amended by adding the following sentence at the end of such section: "No Employee shall become a Participant in the Plan after May 31, 2000." 8. Article 5 his hereby amended by adding the following new section to the end of the Article: "5.07 Freeze of Benefit Accruals - Notwithstanding the provisions of this Article, no additional benefits shall be accrued under the Plan after May 31, 2000." 9. The Corporation reserves the right by action of the Board of Directors to amend at any time any of the terms of provisions of this Fourth Amendment. Except as expressly or by necessary implication amended hereby, the Plan shall continue in full force and effect. IN WITNESS WHEREOF, the Corporation has caused this Amendment No. IV to the Plan to be duly executed by its authorized officer this the _________ day of May 2000, effective as of the 31st day of May 2000. Resource Bancshares Mortgage Group, Inc. By: ___________________________________ Title: ________________________________ Attest: By: ____________________________ John W. Currie, Secretary (Corporate Seal) EX-10.19.B 6 ex10-19_b.txt SECOND AMENDMENT--SUPP. EXECUTIVE RETIREMENT PLAN 1 Exhibit 10.19(B) STATE OF SOUTH CAROLINA ) ) SECOND AMENDMENT COUNTY OF RICHLAND ) THIS FIRST AMENDMENT, made as of this _____ day of May, 2000, by RESOURCE BANCSHARES MORTGAGE GROUP, INC. (the "Corporation") W I T N E S S E T H: WHEREAS, the Corporation maintains the Resource Bancshares Mortgage Group, Inc. Supplemental Executive Retirement Plan, effective as of January 1, 1998 (the "SERP") for the benefit of the eligible employees; and WHEREAS, the Corporation desires to amend the SERP so as to offset benefits under the SERP by certain additional benefits that will be provided through the Resource Bancshares Mortgage Group, Inc. Retirement Savings Plan; and WHEREAS, in Section 6.1 of the SERP, the Corporation reserved the right by action of the Management Compensation Committee (or, in the absence of a Management Compensation Committee, the Board of Directors of the Corporation) to amend the SERP. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Corporation covenants and agrees that the SERP as set forth is amended as follows: 1. Effective as of May 31, 2000, Section 2.1(b)(21) of the SERP shall be amended by deleting the section in its entirety and inserting the following in its place: "(21) Other Retirement Benefits means, with respect to a Participant (whether or not the Participant elects to receive such benefits at Normal Retirement, Early Retirement or retirement pursuant to Section 4.4), the sum of (a), (b) and (c) as follows: (a) the benefit payable by the Retirement Plan to such Participant expressed as an annual benefit payable as of the Benefit Commencement Date as a Qualified Joint and Survivor Annuity, and (b) the benefit payable by the Pension Restoration Plan to such Participant expressed as an annual benefit payable as of the Benefit Commencement Date as a Qualified Joint and Survivor Annuity, and (c) the non-matching Corporation funded benefit payable by the Retirement Savings Plan to such Participant expressed as an annual benefit payable as of the Benefit Commencement Date as a 2 Qualified Joint and Survivor Annuity. For purposes of this subsection (c), the non-matching Corporation funded benefit shall be determined as follows: All Corporation contributions (excluding elective deferrals and matching contributions on those deferrals) credited to a Participant's account in the Retirement Savings Plan for a Plan Year shall be assumed to have been made as of the last day of the respective Plan Year. Such contributions will be accumulated with 8% interest from the date of each contribution up to the Benefit Commencement Date of the Participant and then converted to an annual benefit as a Qualified Joint and Survivor Annuity (using the actuarial equivalence basis as defined in the Retirement Plan for other than lump sum calculations). The determination of the value of the joint and survivor annuities shall be based on the actuarial equivalence factors as defined in the Retirement Plan." 2. Effective as of May 31, 2000, Section 2.1 of the SERP shall be amended by adding the following subsection (32) at the end of the section: "(32) Retirement Savings Plan means the Resource Bancshares Mortgage Group, Inc. Retirement Savings Plan, as amended from time to time." 3. The Corporation reserves the right by action authorized under the SERP to amend at any time any of the terms and provisions of this Second Amendment. Except as expressly or by necessary implication amended hereby, the SERP shall continue in full force and effect. IN WITNESS WHEREOF, the Corporation has caused this First Amendment to be executed by its duly authorized officers as of the day and year first above written. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ----------------------------------- ----------------------------------- [CORPORATE SEAL] ATTEST: - ------------------------- John W. Currie, Secretary 2 EX-10.20.B 7 ex10-20_b.txt RESOLUTION OF BOARD OF DIRECTORS 1 Exhibit 10.20(B) RESOURCE BANCSHARES MORTGAGE GROUP, INC. BOARD OF DIRECTORS RETIREMENT PLAN RESOLUTIONS WHEREAS, Resource Bancshares Mortgage Group, Inc. (the "Corporation") maintains the RBMG, Inc. Pension Plan, effective January 1, 1994 (the "Pension Plan") for the benefit of the eligible employees of the Corporation; and WHEREAS, the Corporation maintains the RBMG, Inc. Pension Restoration Plan, amended and restated effective as of January 1, 1995 (the "Restoration Plan"), to provide an unfunded deferred compensation arrangement for selected executives which provides benefits without regard to the restrictions on benefits as contained in the federal regulations applicable to the Pension Plan; and WHEREAS, the Corporation maintains the Resource Bancshares Mortgage Group, Inc. Retirement Savings Plan (the "401(k) Plan") for the benefit of the eligible employees; and WHEREAS, the Corporation desires to restructure the retirement benefits payable to its eligible employees so as to increase the portability of retirement benefits and to concentrate the accrual of retirement benefits in the 401(k) Plan; and WHEREAS, the Corporation intends to implement the restructuring of the retirement benefits provided through the Corporation's retirement plans by freezing benefit accruals under the Pension plan and the Restoration Plan and amending the 401(k) Plan to provide for additional contributions; and WHEREAS, in Section 13.01 of the Pension Plan, the Corporation reserved the right by action of the Board of Directors to amend the Plan; and WHEREAS, in Section 4.1 of the Restoration Plan, the Corporation reserved the right by action of the Board of Directors to suspend or amend the Restoration Plan; and WHEREAS, in Section 10.1 of the 401(k) Plan, the Corporation reserved the right by action of its Board of Directors to amend the 401(k) Plan; and WHEREAS, in Section 1.05(a) of the 401(k) Plan, the employer contributions under the 401(k) Plan are established for each plan year by the Corporation. NOW, THEREFORE, IT IS HEREBY RESOLVED, that the Fourth Amendment to the Pension Plan, which has been distributed to and reviewed by the directors and a copy of which is directed to be attached to the minutes of this meeting, shall be and hereby is adopted and approved. 2 RESOLVED, FURTHER, the officers of the Corporation are hereby authorized and directed to execute and deliver the Fourth Amendment as adopted to be effective as specified therein. RESOLVED, FURTHER, that additional benefit accruals under the Restoration Plan shall be frozen effective as of May 31, 2000; such freezing of additional benefit accruals shall remain in effect until the Board of Directors of the Corporation approves a resolution approving the resumption of benefit accruals under the Restoration Plan and, subject to the Corporation's rights to terminate, suspend, or amend the Restoration Plan, the remaining sections of the Restoration Plan shall remain in full force and effect. RESOLVED, FURTHER, that the Third Amendment to the 401(k) Plan, which has been distributed to and reviewed by the directors and a copy of which is directed to be attached to the minutes of this meeting, shall be and hereby is adopted and approved. RESOLVED, FURTHER, the officers of the Corporation shall be and hereby are authorized and directed (1) to execute and deliver the Third Amendment as adopted to be effective as specified therein, and (2) to revise the adoption agreement of the 401(k) Plan to reflect the adoption of the Third Amendment. RESOLVED, FURTHER, the Board of Directors establishes an employer contribution under the 401(k) Plan equal to two percent (2%) of the participant's compensation. The above described employer contributions shall be effective for all compensation earned on or after January 1, 2000 and such employer contributions shall continue until suspended, amended, or changed by action of the Corporation's Board of Directors. RESOLVED, FURTHER, that the officers of the Corporation are hereby authorized to take such further action as may be appropriate to carry out the purpose and intent of the foregoing resolutions. EX-10.38.B 8 ex10-38_b.txt FORM OF INCENTIVE STOCK OPTION PLAN 1 Exhibit 10.38(B) [RBMG Logo] PERSONAL AND CONFIDENTIAL INCENTIVE STOCK OPTION AGREEMENT UNDER THE RESOURCE BANCSHARES MORTGAGE GROUP, INC. OMNIBUS STOCK AWARD PLAN - -------------------------------------------------------------------------------- OPTIONEE AGREEMENT DATE SHARES GRANTED - -------------------------------------------------------------------------------- John Doe June 1, 2000 Apt. A ------------------------------------------- 123 Main Street PLAN NAME VESTING CODE OPTION PRICE Anytown, USA 12345 ------------------------------------------- Omnibus Plan OFFICER $4.75 - -------------------------------------------------------------------------------- COUNTRY COMPANY SOCIAL SECURITY NO. ANNIVERSARY DATE - -------------------------------------------------------------------------------- ###-##-#### USA RBMG June 1 - -------------------------------------------------------------------------------- This Incentive Stock Option Agreement is entered into as of the Agreement Date shown above, between Resource Bancshares Mortgage Group, Inc., a Delaware corporation ("RBMG"), and the Optionee shown above. 1. Definitions. Capitalized terms used in this Option Agreement but not defined herein are used herein as defined in the Plan. In addition, throughout this Option Agreement, the following terms shall have the meanings indicated: (a) "Exercise Date" shall have the meaning indicated in paragraph 3 hereof. (b) "Option Period" shall mean the period commencing on the date of this Option Agreement and ending at the close of RBMG's business ten years from the date hereof. Notwithstanding the previous sentence, in the case of an Option granted to a 10% Stockholder, the Option Period shall mean the period commencing on the date of this Option Agreement and ending at the close of RBMG's business five years from the date hereof. (c) "Plan" shall mean the Resource Bancshares Mortgage Group, Inc. Amended and Restated Omnibus Stock Award Plan. (d) "Securities Act" shall mean the Securities Act of 1933, as amended. 2. Award of Option. Effective upon the date hereof, and subject to the terms and conditions set forth herein and in the Plan, RBMG has awarded to the Optionee the option to purchase from RBMG, at an Option Price per share as shown above, up to but not exceeding in the aggregate the shares of Common Stock shown above as the Shares Granted. RBMG intends the Option Price to be at least 100% of the Fair Market Value of the shares of Common Stock subject to the Option as of the Agreement Date. In the case of an Option granted to a 10% Stockholder, the Option Price of each share of Common Stock covered by the Option is at least 110% of the Fair Market Value per share of Common Stock on the Agreement Date. It is intended that this Option qualify to the extent possible as an ISO. RBMG shall have no liability if this Option shall not qualify as an ISO, but this Option shall continue in full force and effect as an NQSO notwithstanding such failure to so qualify. 2 3. Exercise of Option. (a) The Option shall be exercisable, in whole or in part, at any time and from time to time during the Option Period, but not thereafter, to the extent set forth in the schedule below. then the maximum percentage of the Option Shares that may be purchased through if the Exercise Date is: such Exercise Date is: Prior to the Anniversary Date that occurs in the year following the Agreement Date ("1st Anniversary Date"), 20% On or after the 1st Anniversary Date and prior to the Anniversary Date that occurs in the year following the 1st Anniversary Date ("2nd Anniversary Date"), 40% On or after the 2nd Anniversary Date and prior to the Anniversary Date that occurs in the year following the 2nd Anniversary Date ("3rd Anniversary Date"), 60% On or after the 3rd Anniversary Date and prior to the Anniversary Date that occurs in the year following the 3rd Anniversary Date ("4th Anniversary Date"), 80% On or after the 4th Anniversary Date, 100% The Exercise Dates contained herein are intended to comply with Code Section 422(d). In the event the aggregate Fair Market Value of the Common Stock with respect to ISOs exercisable for the first time by Optionee during any calendar year exceeds $100,000, the Optionee shall give notice promptly (as provided in Section 6(e)) of such fact to RBMG. The number of shares of Common Stock subject to this Option and the per share Option Price under each outstanding Option shall be adjusted, to the extent the Committee deems appropriate, as provided in Section 4.1(e) of the Plan. Sections 4.1(e), 4.1(f), 4.1(g) and 4.1(i) of the Plan are incorporated in this Option Agreement by reference as if fully set forth herein. (b) Notwithstanding Section 3(a), the Option shall terminate and may not be exercised if the Optionee ceases to be employed by RBMG, except: (1) that, if such Optionee's employment terminates for any reason other than conduct that in the judgment of the Committee involves dishonesty or action by the Optionee that is detrimental to the best interest of RBMG, then the Optionee may at any time within three months after termination of employment exercise the Option but only to the extent the Option was exercisable on the date of termination of employment unless termination of employment is due to retirement at or after Optionee attains age sixty-five, in which event the Option shall be exercisable with respect to all Option Shares; (2) that, if such Optionee's employment terminates on account of total and permanent disability, then the Optionee may at any time within one year after termination of employment exercise the Option with respect to all Option Shares; and (3) that, if such Optionee dies while in the employ of RBMG, or within the three or twelve month period following termination of employment as described in clause (1) or (2) above, then the Option may be exercised at any time within twelve months following death by the person or persons to whom the rights under the Option shall pass by will or by the laws of descent and distribution with respect to all Option Shares. (c) No less than 100 shares of Common Stock may be purchased upon any one exercise of the Option granted unless the number of shares purchased at such time is the total remainder of shares subject to this Option. (d) Upon exercise of the Option, the Option Price shall be payable in United States dollars, in cash or check or (unless the Committee otherwise prescribes) in shares of Common Stock owned by the Optionee for a period exceeding six months, or in a combination of cash and such Common Stock. If all or any portion of the Option exercise price is paid in Common Stock owned by the Optionee, then that stock shall be valued at its Fair Market Value as of the date the Option is exercised. The Option shall be deemed to be exercised on the date (the "Exercise Date") that RBMG receives full payment of the exercise price for the number of shares for which the Option is being exercised. (e) During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee and is not be assignable or transferable and no person shall acquire any rights therein. The Option may be transferred by will or the laws of descent and distribution. 4. Compliance with the Securities Act; No Registration Rights. Anything in this Option Agreement to the contrary notwithstanding, if, at any time specified herein for the issuance of Option Shares, any law, regulation or requirement of any governmental authority having jurisdiction in the premises shall require RBMG or the Optionee, in the judgment of RBMG, to take any action in connection with the shares then to be issued, then the issuance of such shares shall be deferred until such action shall have been taken. Nothing in this Option Agreement shall be construed to obligate 3 RBMG at any time to file or maintain the effectiveness of a registration statement under the Securities Act, or under the securities laws of any state or other jurisdiction, or to take or cause to be taken any action that may be necessary in order to provide an exemption from the registration requirements of the Securities Act under Rule 144 or any other exemption with respect to the Option Shares or otherwise for resale or other transfer by the Optionee (or by the executor or administrator of the Optionee's estate or a person who acquired the Option or any Option Shares or other rights by bequest or inheritance or by reason of the death of the Optionee) as a result of the exercise of the Option evidenced by this Option Agreement. 5. Resolution of Disputes. Any dispute or disagreement that arises under, or as a result of, or pursuant to, this Option Agreement shall be determined by the Committee in its absolute and uncontrolled discretion, and any such determination or other determination by the Committee under or pursuant to this Option Agreement, and any interpretation by the Committee of the terms of this Option Agreement, shall be conclusive as to all persons affected thereby. 6. Miscellaneous. (a) Binding on Successors and Representatives. The parties understand that this Option Agreement shall be binding not only upon themselves, but also upon their heirs, executors, administrators, personal representatives, successors and assigns (including any transferee of a party hereto); and the parties agree, for themselves and their successors, assigns and representatives, to execute any instrument that may be necessary or desirable legally to effect such understanding. (b) Entire Agreement; Relationship to Plan. The Optionee acknowledges that a copy of the Plan has been available on the RBMG intranet ("iris"). Requests for paper copies of the Plan or communications with respect to the Plan may be made in writing to RBMG's plan administrator, MAVRICC Management Systems, P.O. Box 7090, Troy, MI 48007. This Option Agreement, together with the Plan, constitutes the entire agreement of the parties with respect to the Option and supersedes any previous agreement, whether written or oral, with respect thereto. This Option Agreement has been entered into in compliance with the terms of the Plan; to the extent that any interpretive conflict may arise between the terms of this Option Agreement and the terms of the Plan, the terms of the Plan shall control. (c) Amendment. Neither this Option Agreement nor any of the terms and conditions herein set forth may be altered or amended orally, and any such alteration or amendment shall be effective only when reduced to writing and signed by each of the parties or their respective successors or assigns. (d) Construction of Terms. Any reference herein to the singular or plural shall be construed as plural or singular whenever the context requires. (e) Governing Law; Submission to Jurisdiction. This Option Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina. The parties hereby consent to the exclusive jurisdiction and venue of the Court of Common Pleas in Richland County, South Carolina for purposes of adjudicating any issue arising hereunder. (f) Severability. The invalidity or unenforceability of any particular provision of this Option Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision was omitted. IN WITNESS WHEREOF, a duly authorized agent of RBMG has executed this Option Agreement to be effective as of the Agreement Date stated above and the Optionee shall have assented to, entered into and accepted this Option Agreement if the Optionee does not notify RBMG in writing (at the address contained in Section 5(b) of this Option Agreement) within 30 days of receipt of this Option Agreement of the Optionee's refusal to enter into this Option Agreement. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ---------------------------------------------- Douglas K. Freeman, Chief Executive Officer EX-10.38.C 9 ex10-38_c.txt FORM OF INCENTIVE STOCK OPTION AGREEMENT 1 Exhibit 10.38(C) [RBMG Logo] PERSONAL AND CONFIDENTIAL INCENTIVE STOCK OPTION AGREEMENT UNDER THE RESOURCE BANCSHARES MORTGAGE GROUP, INC. OMNIBUS STOCK AWARD PLAN - -------------------------------------------------------------------------------- OPTIONEE AGREEMENT DATE SHARES GRANTED - -------------------------------------------------------------------------------- John Doe June 1, 2000 250 Apt. A ------------------------------------------- 123 Main Street PLAN NAME VESTING CODE OPTION PRICE Anytown, USA 12345 ------------------------------------------- Omnibus Plan SWT16 $4.75 - -------------------------------------------------------------------------------- COUNTRY COMPANY SOCIAL SECURITY NO. - -------------------------------------------------------------------------------- ###-##-#### USA RBMG - -------------------------------------------------------------------------------- This Incentive Stock Option Agreement is entered into as of the Agreement Date shown above, between Resource Bancshares Mortgage Group, Inc., a Delaware corporation ("RBMG"), and the Optionee shown above. 1. Award of Option. Effective on the Agreement Date, and subject to the terms and conditions set forth in this document and in the Resource Bancshares Mortgage Group, Inc. Amended and Restated Omnibus Stock Award Plan, as amended from time to time (the "Plan"), RBMG has awarded to the Optionee the Option to purchase from RBMG, at the per share Option Price shown above, shares of RBMG Common Stock in the amount shown above as Shares Granted. RBMG intends the Option Price to be at least 100% of the Fair Market Value of the shares of Common Stock subject to the Option as of the Agreement Date. It is intended that this Option qualify to the extent possible as an Incentive Stock Option (an "ISO") under Section 422 of the Internal Revenue Code of 1986, as amended. RBMG shall have no liability if this Option shall not qualify as an ISO, but this Option shall continue in full force and effect as a nonqualified stock option notwithstanding such failure to so qualify. 2. (a) Exercise of Option. During the period beginning with the first date after the Agreement Date that the Fair Market Value per share of Common Stock equals or exceeds $16.00 and ending at the close of RBMG's business ten years from the date of this Option Agreement (the "Option Period"), the Option shall be exercisable, in whole or in part, at any time and from time to time during, but not after the Option Period. The number of shares of Common Stock subject to this Option and the per share exercise price under each outstanding Option may be adjusted as provided in Section 4.1(e) of the Plan. Sections 4.1(e), 4.1(f), and 4.1(g) of the Plan are incorporated in this Option Agreement by reference as if the text were fully included in this document. (b) Notwithstanding Section 2 (a), the Option shall terminate and may not be exercised if the Optionee ceases to be employed by RBMG, except: (1) that, if such Optionee's employment terminates for any reason other than conduct that in the judgment of the Committee involves dishonesty or action by the Optionee that is detrimental to the best interest of RBMG, then the Optionee may at any time within three months after this termination of employment exercise this Option but only to the extent the Option was exercisable on the date of termination of employment; (2) that, if such Optionee's employment terminates on account of total and permanent disability, then the Optionee may at any time within one year after termination of employment exercise the Option with respect to all Option Shares; and (3) that, if such Optionee dies while in the employ of RBMG, or within the three or twelve month period following termination of employment as described in clause (1) or (2) above, then this Option may be exercised at any time within twelve months following the Optionee's death by the person(s) to whom the rights under the Option shall pass by will or by the laws of descent and distribution with respect to all Option Shares. (c) No less than 100 shares of Common Stock may be purchased at any one exercise of the Option granted unless the number of shares purchased at such time is the total remainder of shares subject to this Option. 1 2 (d) Upon exercise of the Option, the Option Price shall be payable in United States dollars in cash or check. The Option shall be deemed to be exercised on the date that RBMG receives full payment of the exercise price for the number of shares for which the Option is being exercised (the "Exercise Date"). (e) During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee and is not assignable or transferable and no person shall acquire any rights therein. The Option may be transferred by will or the laws of descent and distribution. 3. Compliance with the Securities Act; No Registration Rights. Anything in this Option Agreement to the contrary notwithstanding, if, at any time specified herein for the issuance of Option Shares, any law, regulation or requirement of any governmental authority having jurisdiction in the premises shall require RBMG or the Optionee, in the judgment of RBMG, to take any action in connection with the shares then to be issued, then the issuance of such shares shall be deferred until such action shall have been taken. Nothing in this Option Agreement shall be construed to obligate RBMG at any time to file or maintain the effectiveness of a registration statement under the Securities Act of 1933, as amended, or under the securities laws of any state or other jurisdiction, or to take or cause to be taken any action that may be necessary in order to provide an exemption from the registration requirements of the Securities Act of 1933, as amended, under Rule 144 or any other exemption with respect to the Option Shares or otherwise for resale or other transfer by the Optionee (or by the executor or administrator of the Optionee's estate or a person who acquired the Option or any Option Shares or other rights by bequest or inheritance or by reason of the death of the Optionee) as a result of the exercise of the Option evidenced by this Option Agreement. 4. Resolution of Disputes. Any dispute or disagreement that arises under, or as a result of, or pursuant to, this Option Agreement shall be determined by the Committee in its absolute and uncontrolled discretion, and any such determination or other determination by the Committee under or pursuant to this Option Agreement, and any interpretation by the Committee of the terms of this Option Agreement, shall be conclusive as to all persons affected thereby. 5. Miscellaneous. (a) Binding on Successors and Representatives. The parties understand that this Option Agreement shall be binding not only upon themselves, but also upon their heirs, executors, administrators, personal representatives, successors and assigns (including any transferee of a party hereto); and the parties agree, for themselves and their successors, assigns and representatives, to execute any instrument that may be necessary or desirable legally to effect such understanding. (b) Entire Agreement; Relationship to Plan. The Optionee acknowledges that a copy of the Plan has been available on the RBMG intranet ("iris"). Requests for paper copies of the Plan or communications with respect to the Plan may be made in writing to RBMG's plan administrator, MAVRICC Management Systems, P.O. Box 7090, Troy, MI 48007. This Option Agreement, together with the Plan, constitutes the entire agreement of the parties with respect to the Option and supersedes any previous agreement, whether written or oral, with respect thereto. This Option Agreement has been entered into in compliance with the terms of the Plan; to the extent that any interpretive conflict may arise between the terms of this Option Agreement and the terms of the Plan, the terms of the Plan shall control. (c) Amendment. Neither this Option Agreement nor any of the terms and conditions herein set forth may be altered or amended orally, and any such alteration or amendment shall be effective only when reduced to writing and signed by each of the parties or their respective successors or assigns. (d) Definitions and Construction of Terms. Capitalized terms used in this Option Agreement but not defined herein are used herein as defined in the Plan. Any reference herein to the singular or plural shall be construed as plural or singular whenever the context requires. (e) Governing Law; Submission to Jurisdiction. This Option Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina. The parties hereby consent to the exclusive jurisdiction and venue of the Court of Common Pleas in Richland County, South Carolina for purposes of adjudicating any issue arising hereunder. (f) Severability. The invalidity or unenforceability of any particular provision of this Option Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision was omitted. 2 3 IN WITNESS WHEREOF, a duly authorized agent of RBMG has executed this Option Agreement to be effective as of the Agreement Date stated above and the Optionee shall have assented to, entered into and accepted this Option Agreement if the Optionee does not notify RBMG in writing (at the address contained in Section 5(b) of this Option Agreement) within 30 days of receipt of this Option Agreement of the Optionee's refusal to enter into this Option Agreement. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: --------------------------------------------- Douglas K. Freeman, Chief Executive Officer EX-10.47.B 10 ex10-47_b.txt THIRD AMENDMENT TO RETIREMENT SAVINGS PLAN 1 Exhibit 10.47(B) STATE OF SOUTH CAROLINA ) ) THIRD AMENDMENT COUNTY OF RICHLAND ) THIS AGREEMENT, made as of this _____ day of May, 2000, by RESOURCE BANCSHARES MORTGAGE GROUP, INC. (the "Corporation") W I T N E S S E T H: WHEREAS, the Corporation maintains the Resource Bancshares Mortgage Group, Inc. Retirement Savings Plan, effective as of July 1, 1993 (the "Plan") for the benefit of the eligible employees; and WHEREAS, effective April 1, 1996, the Corporation amended and restated the Plan into a prototype plan utilizing the Fidelity Prototype Plan Basic Plan Document No. 07 and the applicable adoption agreement (the "Restated Plan"); and WHEREAS, in the opinion of the Board of Directors of the Corporation, the provisions of the Restated Plan should be amended so as (1) permit the contribution of employer contributions throughout a plan year, and (2) to conform the vesting schedule for employer contributions to the vesting schedule for matching contributions; and WHEREAS, in Section 10.1 of the Restated Plan, the Corporation reserved the right by action of its Board of Directors to amend the Restated Plan. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Corporation covenants and agrees that the Restated Plan as set forth is amended as follows: 1. Effective May 31, 2000, Section 1.05(a)(3) of the Restated Plan shall be amended by deleting "is employed by the Employer on the last day of the Plan Year" and deleting "earns at least 1000 Hours of Service during the Plan Year" and inserting in their place "no requirements". 2. Effective May 31, 2000, Section 1.07 of the Restated Plan shall be amended by deleting "5 year cliff (see D below)" and inserting "Other vesting (Complete G1 below)" 3. Effective May 31, 2000, Part G1 of Section 1.07 shall be amended to provide for vesting for the following Years of Service for Vesting: (1) 0 Years of Service for Vesting-0%, (2) 1 Year of Service for Vesting-25%, (3) 2 Years of Service for Vesting-50%, (4) 3 Years of Service 2 for Vesting-75%, and (5) 4 or more Years of Service for Vesting-100%. 4. The Corporation reserves the right by action of the Board of Directors to amend at any time any of the terms and provisions of this Third Amendment. Except as expressly or by necessary implication amended hereby, the Restated Plan shall continue in full force and effect. IN WITNESS WHEREOF, the Corporation has caused this Amendment to be executed by its duly authorized officers as of the day and year first above written. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ---------------------------------- -------------------------------------- [CORPORATE SEAL] ATTEST: - ------------------------------ John W. Currie, Secretary 2 EX-10.55 11 ex10-55.txt MSC STOCK OPTION AGREEMENT / BOYD M. GUTTERY 1 Exhibit 10.55 MSC STOCK OPTION AGREEMENT This MSC Stock Option Agreement (the "Option Agreement") is entered into as of the 2nd day of February, 2000, between Resource Bancshares Mortgage Group, Inc., a Delaware corporation (the "Company"), and Boyd M. Guttery (the "Optionee"). 1. Definitions. Throughout this Option Agreement, the following terms shall have the meanings indicated: (a) "Change of Control" shall mean: (A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of Common Stock (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (A), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (C) of this paragraph 1(a); or (B) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (C) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (a "Business Combination"), in each 1 2 case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (D) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. (c) "Common Stock" shall mean the Common Stock, par value $.01 per share, of the Company. (d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (e) "Exercise Date" shall have the meaning indicated in paragraph 3 hereof. (f) "Fair Market Value" shall mean, with respect to the Common Stock on any day, the closing sales price of a share of Common Stock for the immediately preceding day or, if the principal market for trading the Common Stock is not open or if no closing sales price of a share of Common Stock is available on that day, the closing sales price of a share of Common Stock for the day most immediately preceding that day for which a closing sales price is available. The market value of the Option on any day shall be the market 2 3 value of the underlying Common Stock, determined as aforesaid, less the exercise price of the Option. (g) "Notice" shall have the meaning indicated in paragraph 3 hereof. (h) "Option" shall have the meaning indicated in paragraph 2 hereof. (i) "Option Period" shall mean the period commencing on the date of this Option Agreement and ending at the close of the Company's business ten years from the date hereof. (j) "Option Shares" shall have the meaning indicated in paragraph 2 hereof. (k) "Securities Act" shall mean the Securities Act of 1933, as amended. (l) "Total Option Price" shall have the meaning indicated in paragraph 3 hereof. 2. Award of Option. Effective upon the date hereof, and subject to the terms and conditions set forth herein, the Company has awarded to the Optionee the option (the "Option") to purchase from the Company, at an exercise price of $4.0625 per share, up to but not exceeding in the aggregate 19,230 shares of the Common Stock (the "Option Shares"). 3. Exercise of Option (a) The Option shall be exercisable, in whole or in part, at any time and from time to time during the Option Period, but not thereafter. The Option shall terminate on the expiration of the Option Period, if not earlier terminated. (b) No less than 100 shares of Common Stock may be purchased upon any one exercise of the Option granted hereby unless the number of shares purchased at such time is the total number of shares in respect of which the Option is then exercisable. (c) An Option shall not be exercisable for a fractional share; provided that, if an Option for a fractional share results from an event described in paragraph 7, then, upon exercise of such Option, the Optionee shall receive the Fair Market Value of such fractional share in cash. (d) The Option shall be exercised by the Optionee by delivery to the Secretary of the Company, on any business day during the Option Period (the "Exercise Date"), of (i) a written notice specifying the number of shares the Optionee then desires to purchase (the "Notice") and (ii) cash or a check made payable to the order of the Company in an aggregate amount in United States dollars equal to the exercise price for the number of shares specified in the Notice (the "Total Option Price"), or shares of Common Stock owned by the Optionee for a period of six months with a Fair Market Value equal to the 3 4 Total Option Price, or a combination thereof. In all cases, the Notice shall state that the Optionee acknowledges that payment of the Total Option Price is his absolute and personal liability enforceable by the Company against him or his estate. (e) Within 60 days after the Exercise Date, subject to the receipt of payment of the Total Option Price and of any payment in cash of federal, state or local income tax withholding or other employment tax that may be due upon the issuance of the Option Shares as determined and computed by the Company pursuant to paragraph 6, the Company shall issue to the Optionee the number of shares with respect to which such Option shall be so exercised and shall deliver to the Optionee a certificate or certificates therefor. (f) The Option is not transferable by the Optionee otherwise than by will or the laws of descent or distribution or pursuant to a qualified domestic relations order as defined in the Code. No assignment or transfer of the Option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except by will or the laws of descent or distribution or pursuant to a qualified domestic relations order as defined in the Code, shall vest in the assignee or transferee any interest or right whatsoever; but, immediately upon any attempt to assign or transfer the Option, except as expressly permitted herein, the same shall terminate and be of no force or effect. 4. Termination. The Option evidenced hereby shall terminate immediately and thereafter be of no force or effect upon and following the occurrence of any of the following events: (a) The expiration of the Option Period. (b) The termination of the Optionee's status as a Director of the Company incidental to conduct that, in the judgment of the Board of Directors of the Company, involves conduct detrimental to the Company. (c) The expiration of twelve months following the Optionee's death. During such extended period, the Option may be exercised by the person or persons to whom his or her rights under the Option shall pass by will or by the laws of descent or distribution, but only to the extent that the Option was exercisable on the date of the Optionee's death. (d) To the extent set forth in paragraph 7, in the event of (i) a Change of Control of the type set forth in paragraph (C) of the definition of Change of Control and (ii) the complete liquidation or dissolution of the Company, and, to the extent set forth in subparagraph 3(f), upon an attempted assignment or transfer of the Option otherwise than as expressly permitted herein. 5. Rights as Stockholder. An Optionee shall have no rights as a stockholder of the Company with respect to any shares underlying the Option until the day of the issuance of a stock certificate to him or her for 4 5 those shares upon payment of the exercise price in accordance with the terms and provisions hereof. Subject to paragraph 7, no adjustments shall be made for dividends (whether ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued. 6. Payment of Withholding Taxes. Upon the Optionee's exercise of his Option with respect to any of the Option Shares in accordance with the provisions of paragraph 3, the Optionee shall pay to the Company at the time of delivery of the Notice and the Total Option Price the amount of any federal, state or local income tax withholding or other employment tax that may be due upon the exercise of the Option. The determination of the amount of any such federal, state or local income tax withholding or other employment tax due in such event shall be made by the Company and shall be binding upon the Optionee. 7. Recapitalization; Reorganization. The shares underlying the Option are shares of Common Stock as constituted on the date of this Option Agreement, but if, during the Option Period and prior to the delivery by the Company of all of the shares of Common Stock with respect to which this Option has been awarded, the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend or some other increase or decrease in the number of shares of Common Stock outstanding without receiving compensation therefor in money, services or property, then (a) in the event of any increase in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to the Option shall be proportionately increased (except that any fraction of a share resulting from any such adjustment shall be excluded from the operation of this Option Agreement), and the exercise price per share shall be proportionately reduced, and (b) in the event of a reduction in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to the Option shall be proportionately reduced (except that any fraction of a share resulting from any such adjustment shall be excluded from the operation of this Option Agreement), and the exercise price per share shall be proportionately increased. Subject to any action required by the stockholders, in the event of a Business Combination that does not result in a Change of Control, the Option shall pertain to and apply to the securities or other consideration that a holder of the number of shares of Common Stock underlying the Option would have been entitled to receive in the Business Combination. In the event of a Business Combination that results in a Change of Control of the type set forth in paragraph (C) of the definition of Change of Control or in the event of the complete liquidation or dissolution of the Company, then the Option shall terminate; provided, however, that the Optionee shall, in such event, have the right immediately prior to such Change of Control or complete liquidation or dissolution, to exercise the Option in whole or in part. In the event of a change in the Common Stock as presently constituted, which change is limited to a change of all of the authorized shares with par value into the same number of 5 6 shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of this Option Agreement. The existence of the Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, dividends, stock dividends, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or other stocks with preference prior to or convertible into, or otherwise affecting, the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 8. Compliance With the Act: No Registration Rights. Anything in this Option Agreement to the contrary notwithstanding, if, at any time specified herein for the issuance of Option Shares, any law, regulation or requirements of any governmental authority having jurisdiction in the premises shall require either the Company or the Optionee, in the judgment of the Company, to take any action in connection with the shares then to be issued, then the issue of such shares shall be deferred until such action shall have been taken. Nothing in this Option Agreement shall be construed to obligate the Company at any time to file or maintain the effectiveness of a registration statement under the Securities Act, or under the securities laws of any state or other jurisdiction, or to take or cause to be taken any action that may be necessary in order to provide an exemption from the registration requirements of the Securities Act under Rule 144 or any other exemption with respect to the Option Shares or otherwise for resale or other transfer by the Optionee (or by the executor or administrator of the Optionee's estate or a person who acquired the Option or any Option Shares or other rights by bequest or inheritance or by reason of the death of the Optionee) as a result of the exercise of the Option evidenced by this Option Agreement. 9. Miscellaneous. (a) Binding on Successors and Representatives. The parties understand that this Option Agreement shall be binding not only upon themselves, but also upon their heirs, executors, administrators, personal representatives, successors and assigns (including any transferee of a party hereto); and the parties agree, for themselves and their successors, assigns and representatives, to execute any instrument that may be necessary or desirable legally to effect such understanding. (b) Entire Agreement. This Option Agreement constitutes the entire agreement of the parties with respect to the Option and supersedes any previous agreement, whether written or oral, with respect thereto. (c) Amendment. Neither this Option Agreement nor any of the terms and conditions herein set forth may be altered or amended orally, and any such alteration or amendment shall be effective only when reduced to writing and signed by each of the parties or their respective successors and assigns. 6 7 (d) Construction of Terms. Any reference herein to the singular or plural shall be construed as plural or singular whenever the context requires. (e) Notices. All notices and requests under this Option Agreement shall be in writing and shall be deemed to have been given when personally delivered or sent prepaid registered mail: (i) if to the Company, to the following address: Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, South Carolina 29223 Attention: Chief Financial Officer or to such other address as the Company shall designate by notice. (ii) if to the Optionee, to the Optionee's address appearing in the Company's records, or to such other address as the Optionee shall designate by notice. (f) Governing Law; Submission to Jurisdiction. This Option Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina. The parties hereby consent to the jurisdiction and venue of the Court of Common Pleas of South Carolina for purposes of adjudicating any issue arising hereunder. (g) Severability. The invalidity or unenforceability of any particular provision of this Option Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the day and year first written above. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ____________________________________ Douglas K. Freeman Chief Executive Officer OPTIONEE: __________________________________(SEAL) Name: Boyd M. Guttery 8 EX-10.56 12 ex10-56.txt MSC STOCK OPTION AGREEMENT / STUART M. CABLE 1 Exhibit 10.56 MSC STOCK OPTION AGREEMENT This MSC Stock Option Agreement (the "Option Agreement") is entered into as of the 2nd day of February, 2000, between Resource Bancshares Mortgage Group, Inc., a Delaware corporation (the "Company"), and Stuart M. Cable (the "Optionee"). 1. Definitions. Throughout this Option Agreement, the following terms shall have the meanings indicated: (a) "Change of Control" shall mean: (A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of Common Stock (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (A), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (C) of this paragraph 1(a); or (B) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (C) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (a "Business Combination"), in each 1 2 case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (D) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. (c) "Common Stock" shall mean the Common Stock, par value $.01 per share, of the Company. (d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (e) "Exercise Date" shall have the meaning indicated in paragraph 3 hereof. (f) "Fair Market Value" shall mean, with respect to the Common Stock on any day, the closing sales price of a share of Common Stock for the immediately preceding day or, if the principal market for trading the Common Stock is not open or if no closing sales price of a share of Common Stock is available on that day, the closing sales price of a share of Common Stock for the day most immediately preceding that day for which a closing sales price is available. The market value of the Option on any day shall be the market 2 3 value of the underlying Common Stock, determined as aforesaid, less the exercise price of the Option. (g) "Notice" shall have the meaning indicated in paragraph 3 hereof. (h) "Option" shall have the meaning indicated in paragraph 2 hereof. (i) "Option Period" shall mean the period commencing on the date of this Option Agreement and ending at the close of the Company's business ten years from the date hereof. (j) "Option Shares" shall have the meaning indicated in paragraph 2 hereof. (k) "Securities Act" shall mean the Securities Act of 1933, as amended. (l) "Total Option Price" shall have the meaning indicated in paragraph 3 hereof. 2. Award of Option. Effective upon the date hereof, and subject to the terms and conditions set forth herein, the Company has awarded to the Optionee the option (the "Option") to purchase from the Company, at an exercise price of $4.0625 per share, up to but not exceeding in the aggregate 11,538 shares of the Common Stock (the "Option Shares"). 3. Exercise of Option (a) The Option shall be exercisable, in whole or in part, at any time and from time to time during the Option Period, but not thereafter. The Option shall terminate on the expiration of the Option Period, if not earlier terminated. (b) No less than 100 shares of Common Stock may be purchased upon any one exercise of the Option granted hereby unless the number of shares purchased at such time is the total number of shares in respect of which the Option is then exercisable. (c) An Option shall not be exercisable for a fractional share; provided that, if an Option for a fractional share results from an event described in paragraph 7, then, upon exercise of such Option, the Optionee shall receive the Fair Market Value of such fractional share in cash. (d) The Option shall be exercised by the Optionee by delivery to the Secretary of the Company, on any business day during the Option Period (the "Exercise Date"), of (i) a written notice specifying the number of shares the Optionee then desires to purchase (the "Notice") and (ii) cash or a check made payable to the order of the Company in an aggregate amount in United States dollars equal to the exercise price for the number of shares specified in the Notice (the "Total Option Price"), or shares of Common Stock owned by the Optionee for a period of six months with a Fair Market Value equal to the 3 4 Total Option Price, or a combination thereof. In all cases, the Notice shall state that the Optionee acknowledges that payment of the Total Option Price is his absolute and personal liability enforceable by the Company against him or his estate. (e) Within 60 days after the Exercise Date, subject to the receipt of payment of the Total Option Price and of any payment in cash of federal, state or local income tax withholding or other employment tax that may be due upon the issuance of the Option Shares as determined and computed by the Company pursuant to paragraph 6, the Company shall issue to the Optionee the number of shares with respect to which such Option shall be so exercised and shall deliver to the Optionee a certificate or certificates therefor. (f) The Option is not transferable by the Optionee otherwise than by will or the laws of descent or distribution or pursuant to a qualified domestic relations order as defined in the Code. No assignment or transfer of the Option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except by will or the laws of descent or distribution or pursuant to a qualified domestic relations order as defined in the Code, shall vest in the assignee or transferee any interest or right whatsoever; but, immediately upon any attempt to assign or transfer the Option, except as expressly permitted herein, the same shall terminate and be of no force or effect. 4. Termination. The Option evidenced hereby shall terminate immediately and thereafter be of no force or effect upon and following the occurrence of any of the following events: (a) The expiration of the Option Period. (b) The termination of the Optionee's status as a Director of the Company incidental to conduct that, in the judgment of the Board of Directors of the Company, involves conduct detrimental to the Company. (c) The expiration of twelve months following the Optionee's death. During such extended period, the Option may be exercised by the person or persons to whom his or her rights under the Option shall pass by will or by the laws of descent or distribution, but only to the extent that the Option was exercisable on the date of the Optionee's death. (d) To the extent set forth in paragraph 7, in the event of (i) a Change of Control of the type set forth in paragraph (C) of the definition of Change of Control and (ii) the complete liquidation or dissolution of the Company, and, to the extent set forth in subparagraph 3(f), upon an attempted assignment or transfer of the Option otherwise than as expressly permitted herein. 5. Rights as Stockholder. An Optionee shall have no rights as a stockholder of the Company with respect to any shares underlying the Option until the day of the issuance of a stock certificate to him or her for 4 5 those shares upon payment of the exercise price in accordance with the terms and provisions hereof. Subject to paragraph 7, no adjustments shall be made for dividends (whether ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued. 6. Payment of Withholding Taxes. Upon the Optionee's exercise of his Option with respect to any of the Option Shares in accordance with the provisions of paragraph 3, the Optionee shall pay to the Company at the time of delivery of the Notice and the Total Option Price the amount of any federal, state or local income tax withholding or other employment tax that may be due upon the exercise of the Option. The determination of the amount of any such federal, state or local income tax withholding or other employment tax due in such event shall be made by the Company and shall be binding upon the Optionee. 7. Recapitalization; Reorganization. The shares underlying the Option are shares of Common Stock as constituted on the date of this Option Agreement, but if, during the Option Period and prior to the delivery by the Company of all of the shares of Common Stock with respect to which this Option has been awarded, the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend or some other increase or decrease in the number of shares of Common Stock outstanding without receiving compensation therefor in money, services or property, then (a) in the event of any increase in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to the Option shall be proportionately increased (except that any fraction of a share resulting from any such adjustment shall be excluded from the operation of this Option Agreement), and the exercise price per share shall be proportionately reduced, and (b) in the event of a reduction in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to the Option shall be proportionately reduced (except that any fraction of a share resulting from any such adjustment shall be excluded from the operation of this Option Agreement), and the exercise price per share shall be proportionately increased. Subject to any action required by the stockholders, in the event of a Business Combination that does not result in a Change of Control, the Option shall pertain to and apply to the securities or other consideration that a holder of the number of shares of Common Stock underlying the Option would have been entitled to receive in the Business Combination. In the event of a Business Combination that results in a Change of Control of the type set forth in paragraph (C) of the definition of Change of Control or in the event of the complete liquidation or dissolution of the Company, then the Option shall terminate; provided, however, that the Optionee shall, in such event, have the right immediately prior to such Change of Control or complete liquidation or dissolution, to exercise the Option in whole or in part. In the event of a change in the Common Stock as presently constituted, which change is limited to a change of all of the authorized shares with par value into the same number of 5 6 shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of this Option Agreement. The existence of the Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, dividends, stock dividends, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or other stocks with preference prior to or convertible into, or otherwise affecting, the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 8. Compliance With the Act: No Registration Rights. Anything in this Option Agreement to the contrary notwithstanding, if, at any time specified herein for the issuance of Option Shares, any law, regulation or requirements of any governmental authority having jurisdiction in the premises shall require either the Company or the Optionee, in the judgment of the Company, to take any action in connection with the shares then to be issued, then the issue of such shares shall be deferred until such action shall have been taken. Nothing in this Option Agreement shall be construed to obligate the Company at any time to file or maintain the effectiveness of a registration statement under the Securities Act, or under the securities laws of any state or other jurisdiction, or to take or cause to be taken any action that may be necessary in order to provide an exemption from the registration requirements of the Securities Act under Rule 144 or any other exemption with respect to the Option Shares or otherwise for resale or other transfer by the Optionee (or by the executor or administrator of the Optionee's estate or a person who acquired the Option or any Option Shares or other rights by bequest or inheritance or by reason of the death of the Optionee) as a result of the exercise of the Option evidenced by this Option Agreement. 9. Miscellaneous. (a) Binding on Successors and Representatives. The parties understand that this Option Agreement shall be binding not only upon themselves, but also upon their heirs, executors, administrators, personal representatives, successors and assigns (including any transferee of a party hereto); and the parties agree, for themselves and their successors, assigns and representatives, to execute any instrument that may be necessary or desirable legally to effect such understanding. (b) Entire Agreement. This Option Agreement constitutes the entire agreement of the parties with respect to the Option and supersedes any previous agreement, whether written or oral, with respect thereto. (c) Amendment. Neither this Option Agreement nor any of the terms and conditions herein set forth may be altered or amended orally, and any such alteration or amendment shall be effective only when reduced to writing and signed by each of the parties or their respective successors and assigns. 6 7 (d) Construction of Terms. Any reference herein to the singular or plural shall be construed as plural or singular whenever the context requires. (e) Notices. All notices and requests under this Option Agreement shall be in writing and shall be deemed to have been given when personally delivered or sent prepaid registered mail: (i) if to the Company, to the following address: Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, South Carolina 29223 Attention: Chief Financial Officer or to such other address as the Company shall designate by notice. (ii) if to the Optionee, to the Optionee's address appearing in the Company's records, or to such other address as the Optionee shall designate by notice. (f) Governing Law; Submission to Jurisdiction. This Option Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina. The parties hereby consent to the jurisdiction and venue of the Court of Common Pleas of South Carolina for purposes of adjudicating any issue arising hereunder. (g) Severability. The invalidity or unenforceability of any particular provision of this Option Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the day and year first written above. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By:__________________________________________ Douglas K. Freeman Chief Executive Officer OPTIONEE: _____________________________________________(SEAL) Name: Stuart M. Cable 8 EX-10.57 13 ex10-57.txt DIRECTOR DEFERRED COMPENSATION PLAN -- JUNE 2000 1 RESOURCE BANCSHARES MORTGAGE GROUP, INC. OUTSIDE DIRECTOR DEFERRED COMPENSATION PLAN 2000 ELECTION FORM NAME: SOCIAL SECURITY NO: ____________________________________ ___________________ COMPLETE SECTIONS A, B, C AND D OF THIS FORM. IN ORDER TO BE EFFECTIVE, YOU MUST SUBMIT YOUR COMPLETED FORM BY JUNE 30, 2000. A. DEFERRED COMPENSATION TO COMPLETE THIS SECTION, INDICATE THE TOTAL AMOUNT THAT YOU WANT TO DEFER FROM THE AMOUNTS OTHERWISE PAYABLE TO YOU IN 2000. I elect to defer the following amounts otherwise payable to me in 2000 (select all that apply): 1. $ _________________ of the retainer payable to me for the last two quarters of 2000. 2. All of the retainer payable to me for the last two quarters of 2000. 3. $ _________________ of the meeting fees payable to me for the last two quarters of 2000. 4. All of the meeting fees payable to me for the last two quarters of 2000. 5. $_________________ of the tax gross-up bonus payable to me in 2000 under the Outside Director Life Insurance Program. 6. All of the tax gross-up bonus payable to me in 2000 under the Outside Director Life Insurance Program. B. INVESTMENT ELECTION TO COMPLETE THIS SECTION, INDICATE THE PERCENTAGE OF THE TOTAL AMOUNT YOU ELECTED TO DEFER THAT YOU WANT TO INVEST IN THE EQUITY INDEX ACCOUNT OR FIXED ACCOUNT. JUNE 2000 PAGE 1 OF 4 2 I ELECT TO ALLOCATE MY DEFERRAL AMOUNTS AS FOLLOWS (USE INCREMENTS OF 25% AND THE TOTAL MUST EQUAL 100%). _______% EQUITY INDEX ACCOUNT _______% FIXED ACCOUNT C. FORM OF PAYMENT AND TIMING FOR DEFERRALS COMPLETE PART 1 OF THIS SECTION TO INDICATE WHETHER YOU WANT TO RECEIVE YOUR DEFERRAL PAYMENT IN A LUMP SUM OR ANNUAL INSTALLMENTS, AND COMPLETE PART 2 OF THIS SECTION TO INDICATE WHEN YOU WOULD LIKE TO RECEIVE YOUR DEFERRED COMPENSATION DISTRIBUTION. 1. FORM OF DISTRIBUTION INDICATE THE FORM OF DISTRIBUTION FOR YOUR DEFERRED COMPENSATION. YOU CAN ELECT TO RECEIVE PAYMENT IN A LUMP SUM OR IN UP TO 10 ANNUAL INSTALLMENTS. I ELECT TO RECEIVE PAYMENT OF MY DEFERRED COMPENSATION AS FOLLOWS (SELECT A OR B): A. [ ] IN A LUMP SUM. B. [ ] IN _________ (SPECIFY NUMBER NOT EXCEEDING 10) ANNUAL INSTALLMENTS. 2. TIMING OF DISTRIBUTION INDICATE WHETHER YOU WANT TO RECEIVE YOUR FIRST INSTALLMENT (OR YOUR ENTIRE AMOUNT, IF YOU ELECT TO RECEIVE PAYMENT IN A LUMP SUM) OF YOUR DEFERRED COMPENSATION IN A SPECIFIC YEAR OR IN THE YEAR FOLLOWING TERMINATION OF YOUR BOARD SERVICE. NOTWITHSTANDING AN ELECTION TO THE CONTRARY, IF YOU ELECT TO RECEIVE PAYMENT IN A SPECIFIC YEAR AND TERMINATE BOARD SERVICE BEFORE THAT YEAR, YOU WILL RECEIVE PAYMENT OF YOUR ACCOUNT AS IF YOU HAD ELECTED TO RECEIVE PAYMENT AT TERMINATION OF SERVICE. I ELECT TO RECEIVE THE FIRST INSTALLMENT (OR MY ENTIRE ACCOUNT, IF I ELECT A LUMP SUM) OF MY DEFERRED COMPENSATION (SELECT A OR B): A [ ] IN A SPECIFIC YEAR ______________ (SPECIFY YEAR). B. [ ] FOLLOWING MY TERMINATION OF SERVICE ON THE BOARD OF DIRECTORS. JUNE 2000 PAGE 2 OF 4 3 D. DEATH BENEFITS IN THIS SECTION, DESIGNATE A BENEFICIARY TO RECEIVE ANY DEATH BENEFITS PAYABLE FROM YOUR DEFERRED COMPENSATION ACCOUNT. If I die prior to the receipt of all payments to which I am entitled under the Plan, payments shall be made to (select one): a. My estate b. The following beneficiary or beneficiaries (if multiple beneficiaries, indicate percentage interest for each): Primary beneficiary(ies): ____________________________________ ______________________________________________________________ ______________________________________________________________ Contingent beneficiary(ies): _________________________________ ______________________________________________________________ ______________________________________________________________ My account balance shall be paid to my beneficiary (select one): a. In a lump sum b. In _____________ (specify number not exceeding 10) annual installments Notwithstanding the above, if my death occurs after I have begun receiving payments with respect to amounts deferred during a Cycle, the amount remaining for that Cycle shall continue to be paid in accordance with my payment election, subject to the beneficiary's ability to request a lump sum distribution. If I fail to designate a beneficiary as provided above, or if my beneficiary designation is revoked by divorce or otherwise without execution of a new designation, or if all my designated beneficiaries predecease me, then the distribution of such benefits shall be made to my estate in a lump sum. If a designated beneficiary survives me but dies before receiving a complete distribution of my benefits, the remaining account balance shall be paid to the estate of such beneficiary in a lump sum. I reserve the right to change this designation of beneficiary at any time by completing a Beneficiary Designation Form. The filing of a new Beneficiary Designation Form for a Cycle will cancel all previously filed beneficiary designations relating to such Cycle. June 2000 Page 3 of 4 4 E. ACKNOWLEDGMENT SIGN AND DATE IN THIS SECTION. I agree to be bound by the terms and conditions of the Plan and agree that such terms and conditions shall be binding upon my beneficiaries and personal representatives. I further acknowledge that the receipt of this election form is not intended to indicate the amount of incentive compensation that I will receive, or that an award will be made. I further acknowledge that any deferred compensation that I allocate to the Equity Index Account can increase or decrease in value. - ------------------------------------------- ----------------------- Signature of Employee Date MAIL COMPLETED FORM BY JUNE 30, 2000 TO: THE AYCO COMPANY, L.P. MANAGEMENT BENEFIT SERVICES MS020 P. O. BOX 8009 CLIFTON PARK, NY 12065-8009 800-342-2779 JUNE 2000 PAGE 4 OF 4 5 RESOURCE BANCSHARES MORTGAGE GROUP, INC. OUTSIDE DIRECTOR DEFERRED COMPENSATION PLAN SUMMARY RBMG adopted the Outside Director Deferred Compensation Plan (the "Plan") to allow directors who are not employees of RBMG the opportunity to defer cash compensation otherwise payable to them currently. Amounts deferred will not be subject to tax until paid out. The features of the Plan are reviewed in this summary. - - ELIGIBILITY. All directors who are not employees of RBMG are eligible to participate in the Plan. - - AMOUNTS THAT CAN BE DEFERRED. A director can elect to defer all or a portion of the cash compensation payable to him or her. This includes the cash retainer, meeting fees, and any tax gross-up bonus payable to the director under the Outside Director Life Insurance Program. - - ELECTION TO DEFER. The initial election to defer will apply to any retainer and meeting fee amounts for the last two quarters of the year 2000, as well as any Outside Director Life Insurance program tax gross-up bonus payable for 2000. An election to defer any amounts payable in each future year will be made by the end of the prior year. - - PAYMENT OF DEFERRED AMOUNTS. A director will elect the time of payment for deferred amounts when the deferral election is made. Payment will be made at the earlier of the specific year elected by the director or when the director terminates board service. A director can elect to receive payment in a single sum or in up to 10 annual installments. - - INVESTMENT OF DEFERRED AMOUNTS. A participant can elect to invest any deferred amounts in one or both of two investment funds. The choices are as follows: - THE EQUITY INDEX ACCOUNT provides a rate of return assuming the deferred amount is invested in the AGSPC Stock Index Fund available in the Platinum Investor variable life insurance policies issued by American General Life Insurance Company. This fund attempts to duplicate the performance of the S&P 500 Index. Since this is a stock investment fund, amounts allocated to this investment can realize gains or losses. Also, although the fund attempts to duplicate the performance of the S&P 500 Index, there can be no assurance that the objective will be achieved. Recent performance of the AGSPC Stock Index Fund is as follows (past returns are not an assurance of possible future performance): JUNE 2000 -1- 6
YTD 04/30/00 1999 1998 1997 ------------ -------- -------- -------- (0.9)% 13.6% 28.4% 33.1%
- THE FIXED ACCOUNT provides a rate of return assuming the deferred amount is invested in the AGL Declared Fixed Interest Account available in the Platinum Investor variable life insurance policies issued by American General Life Insurance Company. The rate payable is a rate declared by American General based on its investment performance in its general investment account. This investment option provides for a fixed rate of return with no principal risk (other than the principal risk associated with being a general creditor of RBMG with respect to deferred amounts and earnings). The fixed rate has been as follows in recent years (past rates are not an assurance or representation of possible future rates): January 1, 1998 - September 30, 1998 5.85% October 1, 1998 - September 23, 1999 5.60% September 24, 1999 - December 31, 1999 6.10% January 1, 2000 - Present 6.35%
Deferred amounts can be invested in one fund, or can be allocated between the funds in 25% increments. Investment elections can be changed once each year as to prior deferred amounts. It is important to note that a participant's deferred amounts are not actually invested in the funds. Rather, the return on the deferred amounts is determined as if the amounts were hypothetically invested in the funds. Even if RBMG decides to invest in the actual funds to informally fund its obligations to directors who defer amounts under the Plan, any such funds belong to and are general assets of RBMG, and neither a participating director nor his or her beneficiaries will have any interest in such funds or any other assets of RBMG as a result of deferring amounts under the Plan, except as a general creditor of RBMG. - ACCESS TO FUNDS. An election to defer is irrevocable. However, a director can request access to funds before the elected payment time if he or she has a severe financial hardship. Also, a director can access his or her entire account at any time subject to a 10% penalty and a one year exclusion from participating in the plan. - PAYMENT AT DEATH. If a director has an account balance in the Plan at the time of his or her death, the balance will be paid to the director's designated beneficiary. Payment to a beneficiary can be in a single sum or installments, as elected by the director. However, if a director has already begun to receive installment payments, payments will continue for the remaining number of installments. JUNE 2000 -2- 7 - - INFORMAL FUNDING OF PLAN. RBMG intends to purchase variable life insurance policies on some or all of the participants, and to invest the policy cash values to attempt to duplicate the returns achieved by the participants based on their investment elections for deferred amounts, as a means of informally funding the Plan obligations. Any such policies and cash values are the property of and part of the general assets of RBMG, and neither the directors nor their beneficiaries will have any interest in such policies or funds or any other assets of RBMG as a result of participating in the Plan. - - GENERAL CREDITOR STATUS. A director's status with regard to deferred amounts and any earnings thereon is as a general unsecured creditor of RBMG, and neither a director nor his or her beneficiaries will have any rights to any specific assets of RBMG (including any assets acquired or identified by RBMG to informally fund RBMG's liabilities under the Plan) as a result of participating in the Plan. - - ENROLLMENT. To enroll in the Plan, a director must return a 2000 Enrollment Form to our Plan Administrator, The Ayco Company, L.P., by June 30. An addressed envelope is included with this form. For the year 2000, a participant can elect to defer any retainer or meeting fee amounts payable for the last two quarters of 2000, as well as any tax gross-up bonus payable under the Outside Director Life Insurance program for 2000. In enrolling in the Plan, a director consents to allow RBMG to acquire life insurance on his or her life as informal funding for its liabilities under the Plan, and to provide any necessary information and submit to any medical tests in order to allow RBMG to secure the coverage. (It is expected that most or all directors who enroll in the Outside Director Life Insurance Plan can qualify for any coverage secured by RBMG under this Plan without any additional medical requirements.) QUESTIONS ABOUT THE PROGRAM CAN BE DIRECTED TO GARY HIND OR PATRICK JOYNT AT AYCO, WHO CAN BE REACHED BETWEEN 9:00 AM AND 4:00 PM EASTERN TIME AT 800-342-2779. JUNE 2000 -3- EX-10.58 14 ex10-58.txt OUTSIDE DIRECTOR LIFE INSURANCE PLAN -- JUNE 2000 1 RESOURCE BANCSHARES MORTGAGE GROUP, INC. OUTSIDE DIRECTOR LIFE INSURANCE PROGRAM SUMMARY The RBMG Outside Director Life Insurance program is designed to provide permanent life insurance protection to directors who are not employees of RBMG. Participants will also be paid a tax gross-up bonus each year to offset the income tax cost resulting from participation in the program, so there will be no cost to a participating director. The features of the program are reviewed in this summary. - - ELIGIBILITY. All directors who are not employees of RBMG are eligible to participate. Participation is voluntary. - - AMOUNT OF COVERAGE. The amount of coverage will generally be $350,000 of single life coverage on the director's life. However, married directors can opt for second-to-die coverage on the lives of the director and his or her spouse, with the death benefit payable at the death of the survivor. If second-to-die coverage is elected, the coverage amount will be the amount that can be supported with the same premium payments that would have been paid on the single life coverage on the director. The second-to-die coverage amount will generally be higher than the single life coverage amount if the spouse is about the same age as or younger than the director. - - VESTING. A director will vest in the coverage on a pro-rata basis between program inception and the year in which age plus years of board service (including service before the adoption of the program) equals 65. - - PAYMENT OF PREMIUMS. RBMG will pay an equal amount of premiums each year based on the number of vesting years for a director. For example, if a director will fully vest in 8 years, RBMG will pay an equal amount of premiums each year for 8 years, so that the policy will be fully funded when all premiums are paid. If a director terminates board service before all premiums are paid, no further premiums will be paid by RBMG. - - OWNERSHIP OF POLICY. Each participating director will own his or her policy. However, a director can elect to have the policy owned by another individual or a trust. Participants are encouraged to review this program with their estate planning attorneys or other advisors before enrolling, as it might be appropriate for a trust or other third party to own the policy from inception. - - TYPE OF POLICY. The policies issued under the program will be variable policies. With a variable policy, the policy cash values are invested among an available portfolio of stock, bond and balanced investment funds as elected by the policy owner. JUNE 2000 -1- 2 - - POLICY FUNDING. The premium funding of the policies is designed so that the policy will have zero cash value at maturity (generally age 95 for single life policies and age 100 for second-to-die policies) based on an assumed gross annual cash value return (before expenses) of 10%. If a policy cash value reaches zero, the policy will lapse unless additional premiums are paid. The actual cash value performance will depend on the actual performance of the investment funds selected by the director (or other owner of the director's policy). RBMG's commitment is to pay the fixed premium amount for a specified number of years, regardless of actual policy cash value performance. - - TERMINATION OF BOARD SERVICE. RBMG will not pay premiums on a director's policy after he or she terminates board service. Therefore, if a director terminates service before all policy premiums have been paid, any further premium payments will be the responsibility of the director. In such a case, a director might choose to pay additional policy premiums to continue the full amount of coverage; the amount of premiums needed to maintain the full coverage amount will depend on actual policy cash value growth. Alternatively, a director might choose to reduce the policy coverage amount to a level that can be maintained by the premiums already paid. - - COST TO DIRECTORS. The program is designed to have no cost to the directors. The amount of premium paid by RBMG for a director in a year will be taxable income to the director for the year. However, in each year in which RBMG pays a premium for a director, RBMG will pay a tax gross-up bonus to the director to offset the director's income tax cost (including the cost of the income taxes on the tax gross-up bonus). If a director's policy is owned by a trust or other third party, the director could be deemed to be making a gift of the premium amount to such trust or third party each time a premium is paid by RBMG. If a director incurs any gift tax cost as a result of making such a gift, such cost will be the responsibility of the director and will not be reimbursed by RBMG. - - QUALIFYING FOR COVERAGE. You (and your spouse, if you elect second-to-die coverage) will need to provide medical history information to qualify, and might need to submit to a medical examination or tests to qualify. You will need to submit to any such requirements in order to be eligible for coverage. Coverage for a director will not be effective until all requirements are satisfied and the first policy premium is paid by RBMG. - - EFFECT OF HEALTH ISSUES. If a director cannot qualify for standard insurance rates due to health or medical history issues, RBMG can elect to provide a reduced coverage amount to the director. If health or medical history issues would cause a significant increase in premium cost, participation might be denied. Any such decisions related to coverage amount and participation will be made by the Chief Executive Officer of RBMG, in his sole discretion. JUNE 2000 -2- 3 DISCRETION OF COMPENSATION COMMITTEE. The Compensation Committee of the Board of Directors of RBMG, upon recommendation of the Chief Executive Officer of RBMG, may change the terms of the program (i.e., coverage amount, vesting requirements, etc.) as to a director as the Compensation Committee deems appropriate. Any such decisions shall be in the sole discretion of the Compensation Committee. - - PROGRAM ADMINISTRATION AND POLICY SERVICE. RBMG has retained the Ayco Company L.P. to provide program services, including insurance brokerage and underwriting and ongoing policy servicing. - - ENROLLMENT IN PROGRAM. To enroll, a director should complete the Enrollment Form included with these materials, and return it to Ayco in the envelope provided. Then, Ayco will contact participants directly to complete the insurance underwriting process. QUESTIONS ABOUT THE PROGRAM CAN BE DIRECTED TO GARY HIND OR PATRICK JOYNT AT AYCO, WHO CAN BE REACHED BETWEEN 9:00 AM AND 4:00 PM EASTERN TIME AT 800-342-2779. JUNE 2000 -3- 4 RESOURCE BANCSHARES MORTGAGE GROUP, INC. OUTSIDE DIRECTOR LIFE INSURANCE PROGRAM ENROLLMENT FORM Name: -------------------------------------------------------------- Mailing Address: -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- Daytime Phone: -------------------------------------------------------------- TYPE OF COVERAGE I elect (select one): [ ] Single life coverage on my life. My date of birth is ______________________. [ ] Second-to-die coverage on the lives of my spouse and me. My date of birth is ______________________ And my spouse's date of birth is ________________. OWNER OF POLICY The owner of my policy will be (select one): [ ] I will own my policy. [ ] The owner of my policy will be the following individuals(s) (include full name, address, social security number and percentage interest for each owner): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ ] The owner will be the following existing trust (include full name of trust, name and address of trustee(s), and trust tax identification number): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ ] The owner of my policy will be a trust that has not yet been executed. JUNE 2000 -1- 5 BENEFICIARY The beneficiary of my policy death benefit will be (include full name, relationship to you, and percentage interest for each designated beneficiary): PRIMARY BENEFICIARY [ ] Owner of policy [ ] Other: --------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTINGENT BENEFICIARY (IF PRIMARY BENEFICIARY DOES NOT SURVIVE): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ACKNOWLEDGEMENT I understand that I (and my spouse, if I have elected second-to-die coverage) will need to provide medical history information and might need to submit to a physical examination or medical tests in order to qualify for the insurance, and that the coverage will be denied if such requirements are not completed. Also, I understand that the coverage will not be effective until all requirements are satisfied, coverage is approved by the insurance company, and the first premium is paid by RBMG. - ----------------------------------------------- -------------------------- Signature Date RETURN THIS COMPLETED FORM IN THE ENCLOSED ENVELOPE TO: THE AYCO COMPANY, L.P. MANAGEMENT BENEFIT SERVICES MS020 P. O. BOX 8009 CLIFTON PARK, NY 12065-8009 800-342-2779 EX-11.1 15 ex11-1.txt COMPUTATION OF NET INCOME PER COMMON SHARE 1 EXHIBIT 11.1 RESOURCE BANCSHARES MORTGAGE GROUP, INC. STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE, BASIC AND DILUTED EARNINGS PER SHARE ($ in thousands, except per share amounts)
For the Quarter For the Six Months Ended June 30, 2000 Ended June 30, 2000 ------------------- ------------------- Net income (loss) from continuing operations $ (2,340) $ (11,542) Net income (loss) from continuing operations per common share - basic (1) $ (0.13) $ (0.63) Net income (loss) from continuing operations per common share - diluted (2) $ (0.13) $ (0.63) Net income (loss) from discontinued operations $ (1,895) $ (2,660) Net income (loss) from discontinued operations per common share - basic (1) $ (0.11) $ (0.15) Net income (loss) from discontinued operations per common share - diluted (2) $ (0.11) $ (0.15)
1) The number of common shares outstanding used to compute net income (loss) per share from continuing and discontinued operations-basic was 18,017,764 and 18,337,723 for the quarter and six months ended June 30, 2000. 2) Diluted earnings from continuing and discontinued operations per common share for the quarter and six months ended June 30, 2000, was calculated based on weighted average common shares outstanding of 18,017,764 and 18,337,723 which assumes the exercise of options covering -0- shares and computes incremental shares using the treasury stock method. EX-27.1 16 ex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 22,073 48,878 276,565 0 738,317 1,120,470 55,176 21,350 1,167,039 970,772 6,203 0 0 316 189,748 190,064 34,289 41,620 43,915 59,692 15,777 3,683 25,012 (18,072) 6,530 (11,542) (2,660) 0 0 (14,202) (0.78) (0.78)
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