-----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, CgZXG79VYt/r7XLihvvJIs92xjWq7/18zLBnkGYzjX37ZEkBKUsG/Vf47Rr7yQYV SIXba1NMk+7pMYVgYttcIg== /in/edgar/work/0000950144-00-013787/0000950144-00-013787.txt : 20001115 0000950144-00-013787.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950144-00-013787 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 765265 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 g65201e10-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 September 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 (Zip Code) Offices)
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 October 31, 2000 was 17,369,831. Page 1 Exhibit Index on Pages A to G 2 RESOURCE BANCSHARES MORTGAGE GROUP, INC. Form 10-Q for the quarter ended September 30, 2000 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE PART I. FINANCIAL INFORMATION - --------------------------------- Item 1. Financial Statements - (Unaudited) - ---------------------------------------------- Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Changes in Stockholders' Equity 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of 13 - --------------------------------------------------- Financial Condition and Results of Operations --------------------------------------------- ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 53 - ---------------------------------------------------------------------- PART II. OTHER INFORMATION 54 - ----------------------------- ITEM 6. Exhibits and Reports on Form 8-K 54 - -------------------------------------------- SIGNATURES 55 - ---------- EXHIBIT INDEX A-G - -------------
2 3 RESOURCE BANCSHARES MORTGAGE GROUP, INC. BALANCE SHEETS ($ IN THOUSANDS)
September 30, December 31, 2000 1999 ------------------------ -------------------- (Unaudited) ASSETS Cash $ 16,704 $ 30,478 Receivables 42,270 40,219 Trading securities: Residual interests in subprime securitizations 20,384 54,382 Mortgage loans held for sale 517,188 480,504 Lease receivables 185,463 155,559 Servicing rights, net 150,875 177,563 Premises and equipment, net 31,821 36,294 Accrued interest receivable 2,794 1,691 Goodwill and other intangibles 12,554 15,478 Other assets 34,032 35,014 ------------------------ -------------------- Total assets $ 1,014,085 $ 1,027,182 ------------------------ -------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 762,299 $ 709,803 Long-term borrowings 6,175 6,259 Accrued expenses 8,006 13,826 Other liabilities 78,910 84,822 ------------------------ -------------------- Total liabilities 855,390 814,710 ------------------------ -------------------- 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 September 30, 2000 and December 31, 1999 316 316 Additional paid-in capital 298,543 300,909 Retained earnings 10,541 56,506 Common stock held by subsidiary at cost - 7,767,099 shares at September 30, 2000 and December 31, 1999 (98,953) (98,953) Treasury stock - 6,434,558 and 4,686,391 shares at September 30, 2000 and December 31, 1999, respectively (46,900) (41,148) Unearned shares of employee stock ownership plan - 417,967 and 537,084 shares at September 30, 2000 and December 31, 1999, respectively (4,852) (5,158) ------------------------ -------------------- Total stockholders' equity 158,695 212,472 ------------------------ -------------------- Total liabilities and stockholders' equity $ 1,014,085 $ 1,027,182 ------------------------ --------------------
See accompanying notes 3 4 RESOURCE BANCSHARES MORTGAGE GROUP, INC. INCOME STATEMENTS ($ IN THOUSANDS EXCEPT SHARE AMOUNTS) (UNAUDITED)
For the Nine Months For the Quarter Ended Ended September 30, September 30, ----------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- REVENUES Interest income $ 52,896 $ 66,847 $ 18,607 $ 19,314 Interest expense (39,469) (45,774) (14,457) (12,924) ----------- ----------- ----------- ----------- Net interest income 13,427 21,073 4,150 6,390 Net gain on sale of mortgage loans 26,456 73,942 8,460 13,490 Gain on sale of mortgage servicing rights 2,212 6,317 673 1,494 Servicing fees 26,351 32,493 8,471 9,631 Mark-to-market on residual interests in subprime securitizations (39,338) (4,896) (29,892) (929) Other income 4,828 5,152 454 1,399 ----------- ----------- ----------- ----------- Total revenues 33,936 134,081 (7,684) 31,475 ----------- ----------- ----------- ----------- EXPENSES Salary and employee benefits 38,302 51,040 13,432 17,077 Occupancy expense 10,469 9,870 3,633 3,773 Amortization and provision for impairment of mortgage servicing rights 18,278 22,985 6,069 5,665 Provision expense 5,661 7,931 1,978 2,535 General and administrative expenses 19,452 23,361 7,358 6,507 ----------- ----------- ----------- ----------- Total expenses 92,162 115,187 32,470 35,557 ----------- ----------- ----------- ----------- Income (loss) from continuing operations before income taxes (58,226) 18,894 (40,154) (4,082) Income tax benefit (expense) 21,389 (6,396) 14,859 1,873 ----------- ----------- ----------- ----------- Income (loss) from continuing operations (36,837) 12,498 (25,295) (2,209) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $435 and $235 for the nine months and quarter ended September 30, 2000) (1,607) 393 Operating profits (losses) of Laureate Capital Corp. for the nine months ended September 30, 2000 and 1999 and for the quarter ended September 30, 2000 and 1999, respectively (less applicable income tax expense (benefit) of ($354), $298, $-0- and $389, respectively (660) 324 - 534 ----------- ----------- ----------- ----------- Net income (loss) $ (39,104) $ 12,822 $ (24,902) $ (1,675) ----------- ----------- ----------- ----------- Weighted average common shares outstanding - Basic 18,034,854 21,158,547 17,435,701 20,310,289 ----------- ----------- ----------- ----------- Net income (loss) per common share from continuing operations - Basic ($2.04) $0.59 ($1.45) ($0.11) ----------- ----------- ----------- ----------- Net income (loss) per common share from discontinued operations - Basic ($0.13) $0.02 $0.02 $0.03 ----------- ----------- ----------- ----------- Weighted average common shares outstanding - Diluted 18,034,854 21,351,034 17,435,701 20,310,289 ----------- ----------- ----------- ----------- Net income (loss) per common share from continuing operations - Diluted ($2.04) $0.59 ($1.45) ($0.11) ----------- ----------- ----------- ----------- Net income (loss) per common share from discontinued operations - Diluted ($0.13) $0.01 $0.02 $0.03 ----------- ----------- ----------- -----------
See accompanying notes 4 5 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ($ in thousands, except share information) (Unaudited)
Common Stock Additional Nine Months Ended -------------------------------------- Paid-in Retained September 30, 1999 Shares Amount Capital Earnings - -------------------------------------- ------------------ ------------------ ------------------ ------------------ Balance, December 31, 1998 31,637,331 $ 316 $ 307,114 $ 59,599 Issuance of restricted stock 116 Cash dividends (6,786) Treasury stock purchases Exercise of stock options (3) Shares committed to be released under Employee Stock Ownership Plan (158) Purchase of shares by Employee Stock Ownership Plan Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan (3,451) (86) Net income 12,822 Total comprehensive income ------------------ ------------------ ------------------ ------------------ Balance, September 30, 1999 31,637,331 $ 316 $ 303,618 $ 65,549 ------------------ ------------------ ------------------ ------------------
Common Unearned Shares Total Nine Months Ended Stock Held by Treasury of Employee Stock Stockholders' September 30, 1999 Subsidiary Stock Ownership Plan Equity - -------------------------------------- ------------------ ------------------ ------------------ ------------------ Balance, December 31, 1998 $ (98,953) $ (11,499) $ (4,419) 252,158 Issuance of restricted stock 1,285 1,401 Cash dividends (6,786) Treasury stock purchases (35,648) (35,648) Exercise of stock options 7 4 Shares committed to be released under Employee Stock Ownership Plan 1,213 1,055 Purchase of shares by Employee Stock Ownership Plan (2,250) (2,250) Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 8,974 5,437 Net income Total comprehensive income 12,822 ------------------ ------------------ ------------------ ------------------ Balance, September 30, 1999 $ (98,953) $ (36,881) (5,456) 228,193 ------------------ ------------------ ------------------ ------------------
Common Stock Additional Nine Months Ended -------------------------------------- Paid-in Retained September 30, 1999 Shares Amount Capital Earnings - -------------------------------------- ------------------ ------------------ ------------------ ------------------ Balance, December 31, 1999 31,637,331 $ 316 $ 300,909 $ 56,506 Issuance of restricted stock (960) Cash dividends (6,815) Treasury stock purchases Shares committed to be released under Employee Stock Ownership Plan 157 Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan (1,563) (46) Net income (loss) (39,104) Total comprehensive income ------------------ ------------------ ------------------ ------------------ Balance, September 30, 2000 31,637,331 $ 316 $ 298,543 $ 10,541 ------------------ ------------------ ------------------ ------------------
Common Unearned Shares Total Nine Months Ended Stock Held by Treasury of Employee Stock Stockholders' September 30, 1999 Subsidiary Stock Ownership Plan Equity - -------------------------------------- ------------------ ------------------ ------------------ ------------------ Balance, December 31, 1999 $ (98,953) $ (41,148) $ (5,158) $ 212,472 Issuance of restricted stock 1,750 790 Cash dividends (6,815) Treasury stock purchases (10,527) (10,527) Shares committed to be released under Employee Stock Ownership Plan 306 463 Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 3,025 1,416 Net income (loss) Total comprehensive income (39,104) ------------------ ------------------ ------------------ ------------------ Balance, September 30, 2000 $ (98,953) $ (46,900) $ (4,852) $ 158,695 ------------------ ------------------ ------------------ ------------------
See accompanying notes 5 6 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) ($ in thousands)
- ------------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) from continuing operations (36,837) 12,498 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation and amortization 24,588 27,874 Employee Stock Ownership Plan compensation 463 1,055 Provision for estimated foreclosure losses and repurchased loans 5,661 7,931 Decrease in receivables 11,554 17,611 Acquisition of mortgage loans (4,590,507) (7,259,294) Proceeds from sales of mortgage loans and mortgage-backed securities 4,576,826 8,180,400 Acquisition of mortgage servicing rights (108,942) (208,695) Sales of mortgage servicing rights 110,321 210,110 Net (loss) gain on sales of mortgage loans and servicing rights (28,668) (92,975) (Increase) decrease in accrued interest on loans (1,103) 1,782 Increase in lease receivables (32,112) (44,161) Decrease (increase) in other assets 556 (5,712) Decrease (increase) in residual certificates 33,998 (5,142) Increase in accrued expenses and other liabilities (8,754) 16,492 - ------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (42,956) 859,774 - ------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchases of premises and equipment (2,392) (7,264) Disposition of premises and equipment 485 0 Discontinued operations (6,187) 1,360 - ------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (8,094) (5,904) - ------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from borrowings 5,651,248 23,720,794 Repayment of borrowings (5,598,836) (24,545,131) Issuance of restricted stock 790 1,401 Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 1,416 5,437 Acquisition of treasury stock (10,527) (35,648) Cash dividends (6,815) (6,786) Exercise of stock options 0 4 Loans to Employee Stock Ownership Plan 0 (2,250) - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 37,276 (862,179) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash (13,774) (8,309) Cash, beginning of year 30,478 15,530 - ------------------------------------------------------------------------------------------------------------------------- Cash, end of year 16,704 7,221 - -------------------------------------------------------------------------------------------------------------------------
See accompanying notes 6 7 RESOURCE BANCSHARES MORTGAGE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 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 nine 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 nine months and quarters ended September 30, 2000 and 1999, respectively:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED FOR THE QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ------------------------------- 2000 1999 2000 1999 ------------ ------------- ------------- -------------- Net income from continuing operations $ (36,837) $ 12,498 $ (25,295) $ (2,209) ------------- ------------- ------------- -------------- Average common shares outstanding 18,034,854 21,158,547 17,435,701 20,310,289 ------------- ------------- ------------- -------------- Earnings per share - basic $ (2.04) $ 0.59 $ (1.45) $ (0.11) ------------- ------------- ------------- -------------- Dilutive stock options - 192,487 - - Average common and common equivalent shares outstanding 18,034,854 21,351,034 17,435,701 20,310,289 ------------- ------------- ------------- -------------- Earnings per share - diluted $ (2.04) $ 0.59 $ (1.45) $ (0.11) ------------- ------------- ------------- --------------
On September 29, 2000, the Company closed on an agreement to sell substantially all of the assets of Laureate to BB&T Corporation of Winston-Salem, N.C. Accordingly, the Company recorded a $1.6 million after-tax charge during the period primarily related to the write-off of intangible assets of Laureate. The following is a reconciliation of basic earnings (loss) per share from discontinued operations to diluted earnings (loss) per share from discontinued operations for the nine months and quarter ended September 30, 2000 and 1999, respectively:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED FOR THE QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ------------------------------ 2000 1999 2000 1999 ------------ ------------ ------------- ------------- Net income from discontinued operations $ (2,267) $ 324 $ 393 $ 534 ----------- ----------- ----------- ----------- Average common shares outstanding 18,034,054 21,158,547 17,435,701 20,310,289 ----------- ----------- ----------- ----------- Earnings per share - basic $ (0.13) $ 0.02 $ 0.02 $ 0.03 ----------- ----------- ----------- ----------- Dilutive stock options - 192,487 17,206 72,425 Average common and common equivalent shares outstanding 18,034,054 21,351,034 17,452,907 20,382,814 ----------- ----------- ----------- ----------- Earnings per share - diluted $ (0.13) $ 0.01 $ 0.02 $ 0.03 ----------- ----------- ----------- -----------
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 nine months and quarter ended September 30, 2000 and 1999, respectively:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED FOR THE QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ------------------------------ 2000 1999 2000 1999 ------------ ------------ ------------ ------------- Net income from operations $ (39,104) $ 12,822 $ (24,902) $ (1,675) ----------- ----------- ----------- ----------- Average common shares outstanding 18,034,854 21,158,547 17,435,701 20,310,289 ----------- ----------- ----------- ----------- Earnings per share - basic $ (2.17) $ 0.61 $ (1.43) $ (.08) ----------- ----------- ----------- ----------- Dilutive stock options -- 192,487 -- -- Average common and common equivalent shares outstanding 18,034,854 21,351,034 17,435,701 20,310,289 ----------- ----------- ----------- ----------- Earnings per share - diluted $ (2.17) $ 0.60 $ (1.43) $ (0.08) ----------- ----------- ----------- -----------
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 nine months and the quarter ended September 30, 2000 and 1999, respectively: 9 10
AGENCY-ELIGIBLE ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (1) (2) COMMERCIAL ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE - -------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 1,252 (3,661) (71) 9,890 0 Net gain on sale of mortgage loans 16,255 0 0 10,201 0 Gain on sale of mortgage servicing rights 0 2,212 0 0 0 Servicing fees 0 26,241 0 0 0 Mark to market on residual interests in subprime securitizations 0 0 0 (39,338) 0 Other income 534 365 2,408 544 0 ------------ ------------ ------------ ------------ ------------ Total revenues 18,041 25,157 2,337 (18,703) 0 ------------ ------------ ------------ ------------ ------------ Salary and employee benefits 20,860 2,057 0 9,911 0 Occupancy expense 8,484 146 0 1,991 0 Amortization and provision for impairment of mortgage servicing rights 0 18,278 0 0 0 Provision expense 1,702 0 0 1,751 0 General and administrative expenses 8,271 3,168 245 5,311 0 ------------ ------------ ------------ ------------ ------------ Total expenses 39,317 23,649 245 18,964 0 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes (21,276) 1,508 2,092 (37,667) 0 Income tax benefit (expense) 7,841 (556) (735) 13,842 0 ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations (13,435) 952 1,357 (23,825) 0 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $435) (1,607) Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $354) (660) ------------ ------------ ------------ ------------ ------------ Net income (loss) (13,435) 952 1,357 (23,825) (2,267) ------------ ------------ ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (1) (2) TOTAL OTHER/ ($ IN THOUSANDS) LEASING SEGMENTS ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------- ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 6,763 14,173 (746) 13,427 Net gain on sale of mortgage loans 0 26,456 0 26,456 Gain on sale of mortgage servicing rights 0 2,212 0 2,212 Servicing fees 368 26,609 (258) 26,351 Mark to market on residual interests in subprime securitizations 0 (39,338) 0 (39,338) Other income 859 4,710 118 4,828 ------------ ------------ ------------ ------------ Total revenues 7,990 34,822 (886) 33,936 ------------ ------------ ------------ ------------ Salary and employee benefits 2,107 34,935 3,367 38,302 Occupancy expense 373 10,994 (525) 10,469 Amortization and provision for impairment of mortgage servicing rights 0 18,278 0 18,278 Provision expense 2,208 5,661 0 5,661 General and administrative expenses 948 17,943 1,509 19,452 ------------ ------------ ------------ ------------ Total expenses 5,636 87,811 4,351 92,162 ------------ ------------ ------------ ------------ Income (loss) before income taxes 2,354 (52,989) (5,237) (58,226) Income tax benefit (expense) (934) 19,458 1,931 21,389 ------------ ------------ ------------ ------------ Income (loss) from continuing operations 1,420 (33,531) (3,306) (36,837) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $435) (1,607) (1,607) Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $354) (660) (660) ------------ ------------ ------------ ------------ Net income (loss) 1,420 (35,798) (3,306) (39,104) ------------ ------------ ------------ ------------
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) See discussion of unusual items in Management's Discussion and Analysis.
AGENCY-ELIGIBLE ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (1) COMMERCIAL ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE - -------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 7,949 (3,287) 0 11,552 0 Net gain on sale of mortgage loans 58,717 0 15,225 0 Gain on sale of mortgage servicing rights 0 6,317 0 0 0 Servicing fees 0 31,993 0 0 0 Mark to market on residual interests in subprime securitizations 0 (4,896) Other income 204 495 1,018 2,154 0 ------------ ------------ ------------ ------------ ------------ Total revenues 66,870 35,518 1,018 24,035 0 ------------ ------------ ------------ ------------ ------------ Salary and employee benefits 32,133 2,609 21 11,981 0 Occupancy expense 7,019 317 0 1,862 0 Amortization and provision for impairment of mortgage servicing rights 0 22,985 0 0 0 Provision expense 4,722 203 1,702 General and administrative expenses 11,909 4,542 100 5,604 0 ------------ ------------ ------------ ------------ ------------ Total expenses 55,783 30,453 324 21,149 0 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes 11,087 5,065 694 2,886 0 Income tax benefit (expense) (3,707) (1,693) (245) (928) 0 ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations 7,380 3,372 449 1,958 0 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes -0-) 0 Operating profits of Laureate Capital Corp. (less applicable income taxes of $298) 324 ------------ ------------ ------------ ------------ ------------ Net income (loss) 7,380 3,372 449 1,958 324 ------------ ------------ ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (1) TOTAL OTHER/ ($ IN THOUSANDS) LEASING SEGMENT ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------- ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 5,299 21,513 (440) 21,073 Net gain on sale of mortgage loans 0 73,942 0 73,942 Gain on sale of mortgage servicing rights 0 6,317 0 6,317 Servicing fees 500 32,493 0 32,493 Mark to market on residual interests in subprime securitizations (4,896) (4,896) Other income 958 4,829 323 5,152 ------------ ------------ ------------ ------------ Total revenues 6,757 134,198 (117) 134,081 ------------ ------------ ------------ ------------ Salary and employee benefits 2,028 48,772 2,268 51,040 Occupancy expense 330 9,528 342 9,870 Amortization and provision for impairment 0 0 of mortgage servicing rights 0 22,985 0 22,985 Provision expense 1,304 7,931 7,931 General and administrative expenses 932 23,087 274 23,361 ------------ ------------ ------------ ------------ Total expenses 4,594 112,303 2,884 115,187 ------------ ------------ ------------ ------------ Income (loss) before income taxes 2,163 21,895 (3,001) 18,894 Income tax benefit (expense) (879) (7,452) 1,056 ( 6,396) ------------ ------------ ------------ ------------ Income (loss) from continuing operations 1,284 14,443 (1,945) 12,498 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes -0-) 0 0 Operating profits of Laureate Capital Corp. (less applicable income taxes of $298) 324 324 ------------ ------------ ------------ ------------ Net income (loss) 1,284 14,767 (1,945) 12,822 ------------ ------------ ------------ ------------
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 10 11
AGENCY-ELIGIBLE ---------------------------------------- FOR THE QUARTER ENDED SEPTEMBER 30, 2000 (1) (2) COMMERCIAL ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE - -------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 339 (1,345) (32) 3,233 0 Net gain on sale of mortgage loans 4,438 0 0 4,022 0 Gain on sale of mortgage servicing rights 0 673 0 0 0 Servicing fees 0 8,335 0 0 0 Mark to market on residual interests in subprime securitizations 0 0 0 (29,892) 0 Other income 102 117 813 (776) 0 ------------ ------------ ------------ ------------ ------------ Total revenues 4,879 7,780 781 (23,413) 0 ------------ ------------ ------------ ------------ ------------ Salary and employee benefits 7,737 684 (90) 2,785 0 Occupancy expense 2,961 35 0 686 0 Amortization and provision for impairment of mortgage servicing rights 0 6,069 0 0 0 Provision expense 450 0 0 841 0 General and administrative expenses 3,134 1,148 73 2,166 0 ------------ ------------ ------------ ------------ ------------ Total expenses 14,282 7,936 (17) 6,478 0 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes (9,403) (156) 798 (29,891) 0 Income tax benefit (expense) 3,472 56 (281) 11,079 0 ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations (5,931) (100) 517 (18,812) 0 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $235) 393 Operating profits of Laureate Capital Corp. (less applicable income taxes of $-0-) 0 ------------ ------------ ------------ ------------ ------------ Net income (loss) (5,931) (100) 517 (18,812) 393 ------------ ------------ ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (1) (2) TOTAL OTHER/ ($ IN THOUSANDS) LEASING SEGMENTS ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------- ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 2,343 4,538 (388) 4,150 Net gain on sale of mortgage loans 0 8,460 0 8,460 Gain on sale of mortgage servicing rights 0 673 0 673 Servicing fees 136 8,471 0 8,471 Mark to market on residual interests in subprime securitizations 0 (29,892) 0 (29,892) Other income 293 549 (95) 454 ------------ ------------ ------------ ------------ Total revenues 2,772 (7,201) (483) (7,684) ------------ ------------ ------------ ------------ Salary and employee benefits 669 11,785 1,647 13,432 Occupancy expense 127 3,809 (176) 3,633 Amortization and provision for impairment of mortgage servicing rights 0 6,069 0 6,069 Provision expense 687 1,978 0 1,978 General and administrative expenses 326 6,847 511 7,358 ------------ ------------ ------------ ------------ Total expenses 1,809 30,488 1,982 32,470 ------------ ------------ ------------ ------------ Income (loss) before income taxes 963 (37,689) (2,465) (40,154) Income tax benefit (expense) (378) 13,948 911 14,859 ------------ ------------ ------------ ------------ Income (loss) from continuing operations 585 (23,741) (1,554) (25,295) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $235) 393 393 Operating profits of Laureate Capital Corp. (less applicable income taxes of $-0-) 0 0 ------------ ------------ ------------ ------------ Net income (loss) 585 (23,348) (1,554) (24,902) ------------ ------------ ------------ ------------
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) See discussion of unusual items in Management's Discussion and Analysis.
AGENCY-ELIGIBLE --------------------------------------- FOR THE QUARTER ENDED SEPTEMBER 30, 1999 (1) COMMERCIAL ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE - -------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 1,438 (904) 0 4,096 0 Net gain on sale of mortgage loans 8,639 0 0 4,851 0 Gain on sale of mortgage servicing rights 0 1,494 0 0 0 Servicing fees 0 9,458 0 0 0 Mark to market on residual interests in subprime securitizations 0 0 0 (929) 0 Other income 187 151 577 (254) 0 ------------ ------------ ------------ ------------ ------------ Total revenues 10,264 10,199 577 7,764 0 ------------ ------------ ------------ ------------ ------------ Salary and employee benefits 9,781 804 21 5,197 0 Occupancy expense 2,942 110 0 610 0 Amortization and provision for impairment of mortgage servicing rights 0 5,665 0 0 0 Provision expense 1,050 0 82 770 0 General and administrative expenses 2,888 1,201 17 2,075 0 ------------ ------------ ------------ ------------ ------------ Total expenses 16,661 7,780 120 8,652 0 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes (6,397) 2,419 457 (888) 0 Income tax benefit (expense) 2,570 (901) (161) 483 0 ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations (3,827) 1,518 296 (405) 0 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of -0-) 0 Operating profits of Laureate Capital Corp. (less applicable income taxes of $389) 534 ------------ ------------ ------------ ------------ ------------ Net income (loss) (3,827) 1,518 296 (405) 534 ------------ ------------ ------------ ------------ ------------ FOR THE QUARTER ENDED SEPTEMBER 30, 1999 (1) TOTAL OTHER/ ($ IN THOUSANDS) LEASING SEGMENT ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------- ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 1,910 6,540 (150) 6,390 Net gain on sale of mortgage loans 0 13,490 0 13,490 Gain on sale of mortgage servicing rights 0 1,494 0 1,494 Servicing fees 173 9,631 0 9,631 Mark to market on residual interests in subprime securitizations 0 (929) 0 (929) Other income 424 1,085 314 1,399 ------------ ------------ ------------ ------------ Total revenues 2,507 31,311 164 31,475 ------------ ------------ ------------ ------------ Salary and employee benefits 675 16,478 599 17,077 Occupancy expense 116 3,778 (5) 3,773 Amortization and provision for impairment of mortgage servicing rights 0 5,665 0 5,665 Provision expense 633 2,535 0 2,535 General and administrative expenses 247 6,428 79 6,507 ------------ ------------ ------------ ------------ Total expenses 1,671 34,884 673 35,557 ------------ ------------ ------------ ------------ Income (loss) before income taxes 836 (3,573) (509) (4,082) Income tax benefit (expense) (336) 1,655 218 1,873 ------------ ------------ ------------ ------------ Income (loss) from continuing operations 500 (1,918) (291) (2,209) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of -0-) 0 0 Operating profits of Laureate Capital Corp. (less applicable income taxes of $389) 534 534 ------------ ------------ ------------ ------------ Net income (loss) 500 (1,384) (291) (1,675) ------------ ------------ ------------ ------------
(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 - Disposal of Commercial Mortgage Segment: On September 29, 2000, the Company closed on an agreement to sell substantially all of the assets of Laureate to BB&T Corporation of Winston-Salem, N.C. Accordingly, the Company recorded a $1.6 million after-tax charge during the period primarily related to the write-off of intangible assets of Laureate. Note 5 - Changes to Benefit Plans: During the second quarter of 2000 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 undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. THE COMPANY The Company is a 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, one of the Company's wholly-owned subsidiaries originates, sells and services small-ticket commercial equipment leases. 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 NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ----------- Agency-Eligible Loan Production: Correspondent $ 3,277,105 $ 5,259,196 $ 1,249,462 $ 1,138,671 Wholesale 831,451 1,447,891 288,230 292,161 ----------- ----------- ----------- ----------- Total Agency-Eligible Loan Production 4,108,556 6,707,087 1,537,692 1,430,832 Subprime Loan Production 481,951 552,142 160,637 182,287 Lease Production 78,215 75,181 24,915 30,316 ----------- ----------- ----------- ----------- Total Mortgage Loan and Lease Production $ 4,668,722 $ 7,334,410 $ 1,723,244 $ 1,643,435 =========== =========== =========== ===========
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. Correspondent operations accounted for 70% and 72% of the Company's total production for the nine months ended September 30, 2000 and 1999, respectively. Wholesale and subprime production accounted for 18% and 10%, respectively, of the Company's production for the nine months ended September 30, 2000 and 20% and 8%, respectively, of the Company's production for the nine months ended September 30, 1999. Lease production accounted for 2% and 1% of the Company's total production for the first nine months of 2000 and 1999, respectively. A summary of key information relevant to industry loan production activity is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ------------ ------------ U. S. 1-4 Family Mortgage Originations Statistics (1): U. S. 1-4 Family Mortgage Originations $290,000,000 $306,000,000 Adjustable Rate Mortgage Market Share 28.00% 25.00% Estimated Fixed Rate Mortgage Originations $209,000,000 $230,000,000 Company Information: Residential Loan Production $ 1,698,329 $ 1,613,119 Estimated Company Market Share 0.59% 0.53%
(1) Source: Mortgage Bankers Association of America, Economics Department. The Company's total residential mortgage production increased by 5% to $1.7 billion for the third quarter of 2000 from $1.6 billion for the third quarter of 1999. During the third quarter of 2000, interest rates were higher than during the third quarter of 1999, resulting in a decrease in industry wide residential loan originations of 5%. Likewise, the higher rate environment resulted in an increase in ARM market share in the third quarter of 2000. The Company has historically focused on fixed rate products, and only recently has commenced offering a broader spectrum of mortgage products, including adjustable rate products. Further, as often happens in the mortgage 14 15 banking industry, a rise in interest rates and resulting decrease in volumes prompted increasing price competition in the marketplace during the quarter. Correspondent Loan Production The Company purchases closed mortgage loans through its network of approved correspondent lenders. Correspondents are primarily mortgage lenders, larger mortgage brokers and smaller savings and loan associations and commercial banks that have met the Company's approval requirements. The Company continues to emphasize correspondent loan production as its basic business focus because of the lower fixed expenses and capital investment required of the Company. A summary of key information relevant to the Company's correspondent loan production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ----------- Correspondent Loan Production $3,277,105 $5,259,196 $1,249,462 $1,138,671 Estimated Correspondent Market Share (1) 0.43% 0.51% 0.43% 0.37% Approved Correspondents 918 886 918 886 Correspondent Division Expenses $ 30,780 $ 43,531 $ 10,698 $ 12,883
(1) Source: Mortgage Bankers Association of America, Economics Department. The Company's correspondent loan production increased by 10% to $1.2 billion for the third quarter of 2000 from $1.1 billion for the third quarter of 1999. During the third quarter of 2000, interest rates were higher than during the third quarter of 1999, resulting in a decrease in industry wide residential loan originations of 5%. Likewise, the higher rate environment resulted in an increase in ARM market share in the third 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. The correspondent division expenses decreased by 17% to $10.7 million for the third quarter of 2000 from $12.9 million for the third quarter of 1999. This is a result of the Company's continued plans to reduce operating expenses. Wholesale Loan Production The wholesale division receives loan applications through brokers, underwrites the loans, funds the loans at closing and prepares all closing documentation. The Company's regional operating centers handle all shipping and follow-up procedures on loans. Typically, mortgage brokers are responsible for taking applications and accumulating the information precedent to the Company's processing and underwriting of the loans. Although the establishment of regional operating centers involves the incurrence of fixed expenses associated with maintaining those offices, wholesale operations also generally provide for higher profit margins than correspondent loan production. Additionally, each regional operating center can serve a relatively sizable geographic area by establishing relationships with large numbers of independent mortgage loan brokers who bear much of the cost of identifying and interacting directly with loan applicants. During 2000 the Company completed the closure of all branches and consolidated from an 18 branch environment into regional operations centers to improve operating cost efficiency levels. The Company's nationwide wholesale salesforce is supported by these regional operating centers. At September 30, 2000, the Company had 6 such regional operating centers as noted in 15 16 the table below. However, during October of 2000 two of the 6 remaining regional operations centers were closed. A summary of key information relevant to the Company's wholesale production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ----------- Wholesale Loan Production $831,451 $1,447,891 $288,230 $292,161 Estimated Wholesale Market Share (1) 0.11% 0.14% 0.10% 0.10% Wholesale Division Direct Operating Expenses $ 8,537 $ 12,252 $ 3,584 $ 3,778 Approved Brokers 4,128 3,939 4,128 3,939 Regional Operation Centers 6 - 6 - Number of Branches - 18 - 18 Number of Employees 123 209 123 209
(1) Source: Mortgage Bankers Association of America, Economics Department. Wholesale loan production decreased 1% ($3.9 million) from $292.2 million for the third quarter of 1999 to $288.2 million for the third quarter of 2000. During the third quarter of 2000, interest rates were higher than during the third quarter of 1999, resulting in a decrease in industry wide residential loan origination of 5%. Likewise, the higher rate environment resulted in an increase in ARM market share in the third quarter of 2000. The Company has historically focused on fixed rate products, and only recently has commenced offering a broader spectrum of mortgage products, including adjustable rate products. Subprime Loan Production The Company conducts subprime business through its wholly-owned subsidiary, Meritage Mortgage Corporation (Meritage). A summary of key information relevant to the Company's subprime production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ----------- Subprime Loan Production $481,951 $552,142 $160,637 $182,287 Estimated Subprime Market Share (1) 0.06% 0.05% 0.06% 0.06% Subprime Division Direct Operating Expenses $ 18,964 $ 21,149 $ 6,478 $ 8,652 Number of Brokers 2,925 2,434 2,925 2,434 Number of Employees 240 354 240 354 Number of Branches - 18 - 18
Subprime loan production decreased by 12% to $160.6 million for the third quarter of 2000 as compared to $182.3 million during the third quarter of 1999 primarily due to a decrease in industry wide residential loan originations of 5%. Subprime division direct operating expenses decreased by 25% to $6.5 million for the third quarter of 2000 as compared to $8.7 million during the third quarter of 1999. This reduction in expenses is due to a decrease in production between quarters and reduction in the number of branches. Between September 30, 1999 and September 30, 2000, respectively, the Company increased the number of its subprime brokers by 491. As a result of reassessment of the geographic regions serviced by branches, during the third 16 17 quarter of 2000 the Company restructured its subprime units from branch facilities to sales staff servicing eight market areas supported by three processing centers. Commercial Mortgage Production On September 29, 2000, the Company closed on an agreement to sell substantially all of the assets of Laureate to BB&T Corporation of Winston-Salem, N.C. Accordingly, the Company recorded a $1.6 million after-tax charge during the period primarily related to the write-off of intangible assets of Laureate. Lease Production The Company's wholly-owned subsidiary, Republic Leasing Company, Inc. (Republic Leasing), originates and services small-ticket commercial equipment leases. Substantially all of Republic Leasing's lease receivables are acquired from independent brokers who operate throughout the continental United States. A summary of key information relevant to the Company's lease production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ----------- Lease Production $78,215 $75,181 $24,915 $30,316 Lease Division Direct Operating Expenses $ 5,636 $ 4,594 $ 1,809 $ 1,671 Number of Brokers 193 207 193 207 Number of Employees 67 67 67 67
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. 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: 17 18
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ----------- Underlying Unpaid Principal Balances: Beginning Balance * $7,822,394 $ 9,865,100 $ 8,529,100 $ 8,410,690 Agency-Eligible Loan Production (net of servicing- released production) 3,989,019 6,695,685 1,506,323 1,429,830 Bulk Acquisitions* - - - - Net Change in Work-in-Progress* 40,493 312,272 (1,119,163) 115,918 Sales of Servicing* (3,928,087) (7,848,456) (1,348,268) (1,743,730) Paid-In-Full Loans* (396,066) (851,143) (141,310) (202,087) Amortization, Curtailments and Other, net* (149,484) (225,788) (48,413) (62,951) ------------ ----------- ----------- ----------- Ending Balance* 7,378,269 7,947,670 7,378,269 7,947,670 Subservicing Ending Balance 1,354,124 1,874,201 1,354,124 1,874,201 ------------ ----------- ----------- ----------- Total Underlying Unpaid Principal Balances $ 8,732,393 $ 9,821,871 $ 8,732,393 $ 9,821,871 ============ =========== =========== ===========
* 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 third quarter of 2000 and 1999, respectively, includes $194,015 and $242,296, respectively, of subprime loans being temporarily serviced until these loans are sold. Of the $7.4 billion and $8.0 billion unpaid principal balance at September 30, 2000 and 1999, $5.6 billion and $6.1 billion, respectively, of the related mortgage servicing right asset is classified as available-for-sale, while $1.8 billion and $1.9 billion, respectively, of the related mortgage servicing right asset is classified as held-for-sale. A summary of agency-eligible servicing statistics follows:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ----------- Average Underlying Unpaid Principal Balances (including subservicing) $9,082,315 $12,490,733 $8,826,384 $11,163,496 Weighted Average Note Rate* 7.64% 7.45% 7.64% 7.45% Weighted Average Servicing Fee* 0.42% 0.43% 0.42% 0.43% Delinquency (30+ days) Including Bankruptcies and Foreclosures* 2.40% 2.55% 2.40% 2.55% Number of Servicing Division Employees 71 119 71 119
* These numbers and statistics apply to the Company's owned agency-eligible servicing portfolio and, therefore, exclude the subservicing portfolio. The average underlying unpaid principal balance of agency-eligible mortgage loans being serviced and subserviced for the third quarter of 2000 as compared to the third quarter of 1999 decreased $2.3 billion, or 21%. The Company generally sells servicing rights related to the agency-eligible loans it produces within 90 to 180 days of purchase or origination. While production levels increased during the third quarter, the average underlying unpaid principal balance of agency-eligible mortgage loans being serviced and subserviced decreased due to the timing of sales which historically have occurred during the latter part of the quarter. 18 19 Lease Servicing Republic Leasing services leases that are owned by it and also services leases for investors. A summary of key information relevant to the Company's lease servicing activity is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ------------ ------------ Owned Lease Servicing Portfolio $182,444 $141,509 Serviced For Investors Servicing Portfolio 5,392 18,795 -------- -------- Total Managed Lease Servicing Portfolio $187,836 $160,304 ======== ======== Weighted Average Net Yield For Managed Lease Servicing Portfolio 10.73% 10.66% Delinquencies (30+ Days) Managed Lease Servicing Portfolio 2.27% 1.95%
Consolidated Coverage Ratios A summary of the Company's consolidated ratios of servicing fees and net interest income from owned leases to cash operating expenses net of amortization and depreciation follows:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ----------- Total Company Servicing Fees $ 26,351 $ 32,493 $ 8,471 $ 9,631 Net Interest Income from Owned Leases 6,763 5,299 2,343 1,910 -------- -------- ------- ------- Total Servicing Fees and Interest from Owned Leases $ 33,114 $ 37,792 $10,814 $11,541 -------- -------- ------- ------- Total Company Operating Expenses $ 92,162 $115,187 $32,470 $35,557 Total Company Amortization and Depreciation (24,588) (27,874) (7,391) (8,675) -------- -------- ------- ------- Total Company Operating Expenses, Net of Amortization and Depreciation $67,574 $ 87,313 $25,079 $26,882 -------- -------- ------- ------- Coverage Ratio 49% 43% 43% 43% ======== ======== ======= =======
The Company's coverage ratios for the third quarter of 2000 and 1999 were 43% and 43%, respectively, and for the first nine months of 2000 and 1999 were 49% and 43% respectively. These coverage ratios were lower than the Company's target level of between 50% and 80%. In the opinion of Company's management, market prices for servicing rights were attractive throughout that period. Accordingly, management consciously determined on a risk-versus-return basis to allow this ratio to stay below its stated goals. Opportunistically and as market conditions permit, management would expect to remain in line with the stated objective of maintaining a coverage ratio of between 50% and 80%. 19 20 RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999 SUMMARY BY OPERATING DIVISION Net income (loss) from continuing operations per common share on a diluted basis for the first nine months of 2000 was ($2.04) as compared to $0.59 for the first nine months of 1999. Following is a summary of the revenues and expenses for each of the Company's operating divisions for the nine months ended September 30, 2000 and 1999, respectively: 20 21
AGENCY-ELIGIBLE ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (1) (2) COMMERCIAL ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE - -------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 1,252 (3,661) (71) 9,890 0 Net gain on sale of mortgage loans 16,255 0 0 10,201 0 Gain on sale of mortgage servicing rights 0 2,212 0 0 0 Servicing fees 0 26,241 0 0 0 Mark to market on residual interests in subprime securitizations 0 0 0 (39,338) 0 Other income 534 365 2,408 544 0 ------------ ------------ ------------ ------------ ------------ Total revenues 18,041 25,157 2,337 (18,703) 0 ------------ ------------ ------------ ------------ ------------ Salary and employee benefits 20,860 2,057 0 9,911 0 Occupancy expense 8,484 146 0 1,991 0 Amortization and provision for impairment of mortgage servicing rights 0 18,278 0 0 0 Provision expense 1,702 0 0 1,751 0 General and administrative expenses 8,271 3,168 245 5,311 0 ------------ ------------ ------------ ------------ ------------ Total expenses 39,317 23,649 245 18,964 0 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes (21,276) 1,508 2,092 (37,667) 0 Income tax benefit (expense) 7,841 (556) (735) 13,842 0 ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations (13,435) 952 1,357 (23,825) 0 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $435) (1,607) Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $354) (660) ------------ ------------ ------------ ------------ ------------ Net income (loss) (13,435) 952 1,357 (23,825) (2,267) ------------ ------------ ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (1) (2) TOTAL OTHER/ ($ IN THOUSANDS) LEASING SEGMENTS ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------- ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 6,763 14,173 (746) 13,427 Net gain on sale of mortgage loans 0 26,456 0 26,456 Gain on sale of mortgage servicing rights 0 2,212 0 2,212 Servicing fees 368 26,609 (258) 26,351 Mark to market on residual interests in subprime securitizations 0 (39,338) 0 (39,338) Other income 859 4,710 118 4,828 ------------ ------------ ------------ ------------ Total revenues 7,990 34,822 (886) 33,936 ------------ ------------ ------------ ------------ Salary and employee benefits 2,107 34,935 3,367 38,302 Occupancy expense 373 10,994 (525) 10,469 Amortization and provision for impairment of mortgage servicing rights 0 18,278 0 18,278 Provision expense 2,208 5,661 0 5,661 General and administrative expenses 948 17,943 1,509 19,452 ------------ ------------ ------------ ------------ Total expenses 5,636 87,811 4,351 92,162 ------------ ------------ ------------ ------------ Income (loss) before income taxes 2,354 (52,989) (5,237) (58,226) Income tax benefit (expense) (934) 19,458 1,931 21,389 ------------ ------------ ------------ ------------ Income (loss) from continuing operations 1,420 (33,531) (3,306) (36,837) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $435) (1,607) (1,607) Operating losses of Laureate Capital Corp. (plus applicable income tax benefit of $354) (660) (660) ------------ ------------ ------------ ------------ Net income (loss) 1,420 (35,798) (3,306) (39,104) ------------ ------------ ------------ ------------
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) See discussion of unusual items in Management's Discussion and Analysis.
AGENCY-ELIGIBLE ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (1) COMMERCIAL ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE - -------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 7,949 (3,287) 0 11,552 0 Net gain on sale of mortgage loans 58,717 0 15,225 0 Gain on sale of mortgage servicing rights 0 6,317 0 0 0 Servicing fees 0 31,993 0 0 0 Mark to market on residual interests in subprime securitizations 0 (4,896) Other income 204 495 1,018 2,154 0 ------------ ------------ ------------ ------------ ------------ Total revenues 66,870 35,518 1,018 24,035 0 ------------ ------------ ------------ ------------ ------------ Salary and employee benefits 32,133 2,609 21 11,981 0 Occupancy expense 7,019 317 0 1,862 0 Amortization and provision for impairment of mortgage servicing rights 0 22,985 0 0 0 Provision expense 4,722 203 1,702 General and administrative expenses 11,909 4,542 100 5,604 0 ------------ ------------ ------------ ------------ ------------ Total expenses 55,783 30,453 324 21,149 0 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes 11,087 5,065 694 2,886 0 Income tax benefit (expense) (3,707) (1,693) (245) (928) 0 ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations 7,380 3,372 449 1,958 0 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes -0-) 0 Operating profits of Laureate Capital Corp. (less applicable income taxes of $298) 324 ------------ ------------ ------------ ------------ ------------ Net income (loss) 7,380 3,372 449 1,958 324 ------------ ------------ ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (1) TOTAL OTHER/ ($ IN THOUSANDS) LEASING SEGMENT ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------- ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 5,299 21,513 (440) 21,073 Net gain on sale of mortgage loans 0 73,942 0 73,942 Gain on sale of mortgage servicing rights 0 6,317 0 6,317 Servicing fees 500 32,493 0 32,493 Mark to market on residual interests in subprime securitizations (4,896) (4,896) Other income 958 4,829 323 5,152 ------------ ------------ ------------ ------------ Total revenues 6,757 134,198 (117) 134,081 ------------ ------------ ------------ ------------ Salary and employee benefits 2,028 48,772 2,268 51,040 Occupancy expense 330 9,528 342 9,870 Amortization and provision for impairment 0 0 of mortgage servicing rights 0 22,985 0 22,985 Provision expense 1,304 7,931 7,931 General and administrative expenses 932 23,087 274 23,361 ------------ ------------ ------------ ------------ Total expenses 4,594 112,303 2,884 115,187 ------------ ------------ ------------ ------------ Income (loss) before income taxes 2,163 21,895 (3,001) 18,894 Income tax benefit (expense) (879) (7,452) 1,056 ( 6,396) ------------ ------------ ------------ ------------ Income (loss) from continuing operations 1,284 14,443 (1,945) 12,498 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes -0-) 0 0 Operating profits of Laureate Capital Corp. (less applicable income taxes of $298) 324 324 ------------ ------------ ------------ ------------ Net income (loss) 1,284 14,767 (1,945) 12,822 ------------ ------------ ------------ ------------
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 21 22 AGENCY-ELIGIBLE MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage production operations.
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ------------ ----------- Net interest income $ 1,252 $ 7,949 Net gain on sale of mortgage loans 16,255 58,717 Other income 534 204 ---------- ---------- Total production revenue 18,041 66,870 ---------- ---------- Salary and employee benefits 20,860 32,133 Occupancy expense 8,484 7,019 Provision expense 1,702 4,722 General and administrative expenses 8,271 11,909 ---------- ---------- Total production expenses 39,317 55,783 ---------- ---------- Net pre-tax production margin $ (21,276) $ 11,087 ---------- ---------- Production $4,108,556 $6,707,087 Pool delivery $3,946,280 $7,278,856 Total production revenue to pool delivery 46 bps 92 bps Total production expenses to production 96 bps 83 bps ---------- ---------- Net pre-tax production margin (50) bps 9 bps ========== ==========
Summary The production revenue to pool delivery ratio decreased 46 basis points for the first nine months of 2000 as compared to the first nine months of 1999. Net gain on sale of mortgage loans (41 basis points for the first nine months of 2000 versus 81 basis points for the first nine 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 nine months of 1999 to 3 basis points in the first nine months of 2000 primarily as a result of a flattened yield curve and, in part, due to higher financing costs associated with the renewal of the Company's bank lines during the third quarter of 2000. The production expenses to production ratio increased 12 basis points from the first nine months of 1999 to the first nine months of 2000. This is primarily due to the 39% decline in production for the first nine months of 2000 as compared to the first nine months of 1999 which was only partially offset by a 30% decline in production expenses. For the nine months ended September 30, 2000, production expenses included a net $1.5 million in unusual charges related to the (1) restructuring of regional processing offices, (2) certain changes in the Company's senior management team, (3) compensation expense associated with the repricing of certain options and (4) expenses for consultants who are assisting management in re-engineering work processes. Included in these net charges were reductions in production expenses as a result of curtailment of the Company's pension plan benefits and changes in the 401(k) benefits. As a consequence of the foregoing, the Company's net agency-eligible pre-tax production margin declined 59 basis points. Absent the $1.5 million in unusual charges, the Company's net agency-eligible pre-tax production margin would have only declined 55 basis points. See further discussion of unusual items elsewhere in this Management's Discussion and Analysis. 22 23 Net Interest Income The following table analyzes net interest income allocated to the Company's agency-eligible mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest rates paid on interest-bearing sources of funds) for the nine months ended September 30, 2000 and 1999, respectively:
($ 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 $352,717 $764,763 8.16% 6.70% Securities $21,598 $38,414 $(16,816) $ 3,881 $(20,697) - -------- -------- ----- ----- ------- ------- -------- ------- -------- INTEREST EXPENSE $288,355 $364,787 5.39% 3.77% Warehouse Line * $11,633 $10,274 $ 1,359 $ 3,512 $ (2,153) 54,631 390,606 6.81% 5.20% Gestation Line 2,781 15,191 (12,410) 656 (13,066) 122,443 110,487 7.17% 6.00% Servicing Secured Line 6,564 4,959 1,605 1,068 537 3,610 26,760 5.96% 5.28% Servicing Receivables 161 1,056 (895) 19 (914) 8,807 7,327 8.94% 8.03% Other Borrowings 58 440 149 60 89 Facility Fees & Other Charges 2,594 2,113 481 0 481 - -------- -------- ----- ----- ------- ------- -------- ------- -------- $477,846 $899,967 6.81% 5.06% Total Interest Expense $24,322 $34,033 $ (9,711) $ 5,315 $(15,026) ======== ======== ===== ===== ======= ======= ======== ======= ======== Net Interest Income Before Interdivisional 1.35% 1.64% Allocations $(2,724) $ 4,381 $ (7,105) $ (1,434) $ (5,671) ===== ===== ------- ------- ========= ======== ========= Allocation to Agency-Eligible Servicing Division 3,661 3,128 Allocation to Other 531 440 Intercompany Net Interest Expense Included In Segment (216) ------- -------- Net Interest Income $ 1,252 $ 7,949 ======= ========
* The interest-rate yield on the warehouse line is net of the benefit of escrow deposits. The 29 basis point decrease in the interest-rate spread was primarily a result of a flattened yield curve and, in part, due to higher financing costs associated with the renewal of the Company's bank lines during the third quarter of 2000. 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: 23 24
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ---------- ----------- Gross proceeds on sales of mortgage loans $4,042,380 $7,288,196 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results 4,052,805 7,293,015 ---------- ---------- Unadjusted gain (loss) on sale of mortgage loans (10,425) (4,819) Loan origination and correspondent program administrative fees 7,771 19,243 ---------- ---------- Unadjusted aggregate margin (2,654) 14,424 Acquisition basis allocated to mortgage servicing rights (SFAS No. 125) 21,280 45,573 Net deferred costs and administrative fees recognized (2,371) (1,280) ---------- ---------- Net gain on sale of agency-eligible mortgage loans $ 16,255 $ 58,717 ========== ==========
Net gain on sale of agency-eligible mortgage loans decreased $42.5 million from $58.7 million for the first nine months of 1999 to $16.2 million for the first nine months 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. 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 nine months of 2000 and 1999, the Company recognized premium and investment income of approximately $2.4 million and $1.0 million, respectively, that has been included as other income in the agency-eligible reinsurance segment. SUBPRIME MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's subprime mortgage production operations for the periods indicated: 24 25
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ---------- ----------- Net interest income $ 9,890 $ 11,552 Net gain on sale of mortgage loans 10,201 15,225 Mark to market on residual interests in subprime securitizations (39,338) (4,896) Other income 544 2,154 -------- -------- Total production revenue (18,703) 24,035 -------- -------- Salary and employee benefits 9,911 11,981 Occupancy expense 1,991 1,862 Provision expense 1,751 1,702 General and administrative expenses 5,311 5,604 -------- -------- Total production expenses 18,964 21,149 -------- -------- Net pre-tax production margin $(37,667) $ 2,886 -------- -------- Production $481,951 $552,142 Whole loan sales and securitizations $489,184 501,500 Total production revenue to whole loan sales and securitizations (382)bps 479 bps Total production expenses to production 393 bps 383 bps -------- -------- Net pre-tax production margin (775)bps 96 bps ======== ========
Summary During the first nine months of 2000, the Company executed delivery of all of its subprime loan production into secondary markets through whole loan sales. At September 30, 2000, the Company had unsold subprime mortgage loans of $111.9 million as compared to $145.7 million at September 30, 1999. The $40.6 million decline in the pre-tax subprime production margin is primarily due to the ($39.3) million adjustment during the first nine months of 2000 in the mark to market on residual interests in subprime securitizations and a $1.7 million adjustment to the residual hedges. During the period the Company marked down its residual interests in prior subprime securitizations as a result of changes in valuation assumptions due to changing market conditions and also wrote down such residuals and the associated residual hedges (including hedge amortization expense) as a result of signing a definitive agreement to sell all of the Company's residuals. Absent the ($39.3) million mark-to-market adjustment to residual interests and the ($1.1) million adjustment to the residual hedges, the margin on sale of subprime loans was 444 bps. Also contributing to the decline in pretax production margin is the $5.0 million decline in net gain on sale of subprime mortgage loans. This decline is primarily attributable to lower sales volume and tighter margins associated with selling exclusively into the cash markets for 2000 versus securitizations for 1999. The production expenses to production ratio increased 10 bps during the first nine months of 2000 as compared to the first nine months of 2000. Contributing to this increase were $1.5 million in unusual charges to salary and employee benefits and $0.8 million in unusual charges to general and administratives expenses during the first nine months of 2000 as compared to the same period for 1999 related to (1) restructuring of regional processing offices, (2) certain changes in the Company's senior management team, (3) compensation expense associated with 25 26 the repricing of certain options and (4) expenses for consultants who are assisting management in re-engineering work process. Offsetting the increase in the production expenses to production ratio were reductions in salary and employee benefit costs primarily due to a 32% reduction in the number of subprime employees from the first nine months of 1999 to the first nine months of 2000. Absent the $42.7 million in unusual charges during the first nine months of 2000, the Company's net agency-eligible pre-tax production margin would have increased 1 basis point. See further discussion of unusual items elsewhere in this Management's Discussion and Analysis. Net Interest Income The following table analyzes net interest income allocated to the Company's subprime mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and residual certificates and interest rates paid on interest-bearing sources of funds) for the nine months ended September 30, 2000 and 1999, respectively.
($ IN THOUSANDS) Variance Average Volume Average Rate Interest Attributable to - ------------------- ----------------- ----------------- -------------------- 2000 1999 2000 1999 2000 1999 Variance Rate Volume - -------- -------- ------- -------- ------- -------- --------- -------- ---------- Mortgages Held-for-Sale and Residual $196,991 $253,973 11.63% 9.76% Certificates $17,181 $18,600 $(1,419) $2,754 $(4,173) - -------- -------- ------ ----- ------- ------- ------- ------ ------- $141,309 $176,730 7.20% 5.45% Total Interest Expense $ 7,615 $ 7,207 $ 408 $1,859 $(1,451) - -------- -------- ------ ----- ------- ------- ------- ------ ------- 4.42% 4.31% Net Interest Income $ 9,566 $11,393 $(1,827) $ 895 $(2,722) ===== ===== ======= ====== ======= Allocation to Agency-Eligible Servicing Division 159 Intercompany Net Interest Expense Included In Segment 324 ------- ------- Net Interest Income $ 9,890 $11,552 ======= =======
Net interest income from subprime products decreased to $9.9 million for the first nine months of 2000 as compared to $11.6 million for the first nine months of 1999. This was primarily a result of a flattened yield curve and the decline in production volume, which was partially offset by a $0.8 million increase in accretion income from $4.8 million for the first nine months of 1999 to $5.6 million for the first nine months of 2000. Net Gain on Sale and Securitization of Subprime Mortgage Loans The Company sold subprime mortgage loans for cash on a whole loan basis during the first nine months of 2000 and 1999. Whole loans are generally sold without recourse to third parties with the gain or loss being calculated based on the difference between the carrying value of the 26 27 loans sold and the gross proceeds received from the purchaser less expenses. Generally, no interest in these loans is retained by the Company. A reconciliation of the gain on subprime mortgage whole loan sales for the periods indicated follows:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ---------- ----------- Gross proceeds on whole loan sales of subprime mortgage loans $506,278 $390,839 Initial acquisition cost of subprime mortgage loans sold, net of fees 489,184 375,457 -------- -------- Unadjusted gain on whole loan sales of subprime mortgage loans 17,094 15,382 Net deferred costs and administrative fees recognized (6,893) (5,215) -------- -------- Net gain on whole loan sales of subprime mortgage loans $ 10,201 $ 10,167 ======== ========
The net gain on whole loan sales of subprime mortgage loans remained constant at $10.2 for the first nine months of 1999 and the first nine 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 loans to $6.9 million in the first nine months of 2000 as compared to $5.2 million in the first nine months of 1999. There were no securitization transactions during the first nine months of 2000. A reconciliation of the gain on securitization of subprime mortgage loans for the nine months ended September 30, 1999 follows:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 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. However, during the first nine months of 2000 the Company executed no securitization transactions of subprime loans and marked down its residual interests in prior subprime securitizations as a result of signing a definitive agreement to sell all of the residual interests remaining on its balance sheet at September 30, 2000. Following is a summary 27 28 of key information relevant to the subprime residual assets for the nine months ended September 30, 2000 and 1999, respectively: 28 29 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
SECURITIZATIONS ---------------------------------------------- ($ IN THOUSANDS) 1997-1 1997-2 1998-1 1998-2 ---------- ---------- ---------- ---------- Balance at December 31,1999 $ 5,971 $ 7,153 $ 10,334 $ 12,460 Initial Capitalization of Residual Certificates - - - - Accretion 737 850 1,111 1,275 Mark-to-Market (4,159) (5,132) (6,996) (8,072) Cash Flow (206) (511) (1,205) - Prepayment Penalty Reclassed from MSR - - - - ---------- ---------- ---------- ---------- Balance at September 30, 2000 $ 2,343 $ 2,360 $ 3,244 $ 5,663 ---------- ---------- ---------- ---------- SECURITIZATIONS ---------------------- ($ IN THOUSANDS) 1999-1 1999-2 OTHER TOTAL ---------- ---------- ---------- ---------- Balance at December 31,1999 $ 9,566 $ 8,898 $ - $ 54,382 Initial Capitalization of Residual Certificates - - - - Accretion 930 731 - 5,634 Mark-to-Market (7,012) (8,166) - (39,537)* Cash Flow - - - (1,922) Prepayment Penalty Reclassed from MSR 856 971 - 1,827 ---------- ---------- ---------- ---------- Balance at September 30, 2000 $ 4,340 $ 2,434 $ - $ 20,384 ---------- ---------- ---------- ----------
* 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 nine months of 2000 of $39.3 million net of this $0.2 recovery. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
SECURITIZATIONS ---------------------------------------------- ($ IN THOUSANDS) 1997-1 1997-2 1998-1 1998-2 ---------- ---------- ---------- ---------- Balance at December 31,1998 $ 7,997 $ 9,702 $ 10,815 $ 12,569 Initial Capitalization of Residual Certificates - - - - Accretion 867 941 978 1,123 Mark-to-Market (957) (216) (480) 34 Cash Flow (1,478) (2,106) - - ---------- ---------- ---------- ---------- Balance at September 30, 1999 $ 6,429 $ 8,321 $ 11,313 $ 13,726 ---------- ---------- ---------- ---------- SECURITIZATIONS ------------------------ ($ IN THOUSANDS) 1999-1 1999-2 OTHER * TOTAL ---------- ---------- ---------- ---------- Balance at December 31,1998 $ - $ - $ 4,700 $ 45,783 Initial Capitalization of Residual Certificates 8,867 - 8,867 Accretion 291 - 554 4,754 Mark-to-Market 1,027 - (4,304) (4,896) Cash Flow - - - (3,584) ---------- ---------- ---------- ---------- Balance at September 30, 1999 $ 10,185 $ - $ 950 $ 50,924 ---------- ---------- ---------- ----------
* Represents a portion of a residual certificate the Company received in 1997 in settlement of an account receivable. In the fourth quarter of 1999 the Company decided to conservatively write off this residual. 29 30 AGENCY-ELIGIBLE MORTGAGE SERVICING Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage servicing operations:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ----------- ------------ Net interest expense $ (3,661) $ (3,287) Loan servicing fees 26,241 31,993 Other income 365 495 ---------- ---------- Servicing revenues 22,945 29,201 Salary and employee benefits 2,057 2,609 Occupancy expense 146 317 Amortization and provision for impairment of mortgage Servicing rights 18,278 22,985 General and administrative expenses 3,168 4,542 ---------- ---------- Total loan servicing expenses 23,649 30,453 ---------- ---------- Net pre-tax servicing margin (704) (1,252) Gain on sale of mortgage servicing rights 2,212 6,317 ---------- ---------- Net pre-tax servicing contribution $ 1,508 $ 5,065 ========== ========== Average servicing portfolio $7,964,645 $9,598,947 Servicing sold $3,928,087 $7,848,456 Net pre-tax servicing margin to average servicing portfolio (1)bps (2)bps Gain on sale of servicing to servicing sold 6 bps 8 bps
Summary The ratio of net pre-tax servicing margin to the average servicing portfolio increased 1 basis points primarily due to the $4.7 million reduction in amortization and provision for impairment of mortgage servicing rights from the first nine months of 1999 to the first nine 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 $4.1 million decline in gain on sale of mortgage servicing rights is primarily due to the lower production volumes that resulted in a lower balance of agency-eligible servicing rights sold. Loan servicing fees were $26.2 million for the first nine months of 2000, compared to $32.0 million for the first nine months of 1999, a decrease of 18%, 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 nine months of 2000 and the first nine months of 1999 is composed of benefits from escrow accounts of $6.1 million and $6.3 million, respectively, that is offset by $9.8 million and $9.6 million, respectively, in interest expense. Gain on Sale of Mortgage Servicing Rights A reconciliation of the components of gain on sale of mortgage servicing rights for the periods indicated follows:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ----------- ------------ Underlying unpaid principal balances of agency-eligible mortgage loans on which servicing rights were sold during the period $3,928,087 $7,848,456 ========== ========== Gross proceeds from sales of mortgage servicing rights $ 110,321 $ 210,110 Initial acquisition basis, net of amortization and hedge results 92,364 154,356 ---------- ---------- Unadjusted gain on sale of mortgage servicing rights 17,957 55,754 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 125) 15,745 (49,437) ---------- ---------- Gain on sale of mortgage servicing rights $ 2,212 $ 6,317 ========== ==========
Gain on sale of mortgage servicing rights decreased $4.1 million from $6.3 million for the first nine months of 1999 to $2.2 million for the first nine 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 On September 29, 2000, the Company closed on an agreement to sell substantially all of the assets of Laureate to BB&T Corporation of Winston-Salem, N.C. Accordingly, the Company recorded a $1.6 million after-tax charge during the period primarily related to the write-off of intangible assets of Laureate. LEASING OPERATIONS Following is a summary of the revenues and expenses of the Company's small-ticket equipment leasing operations for the periods indicated: 31 32
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ----------- ------------ Net interest income $ 6,763 $ 5,299 Other income 859 958 -------- -------- Leasing production revenue 7,622 6,257 -------- -------- Salary and employee benefits 2,107 2,028 Occupancy expense 373 330 Provision expense 2,208 1,304 General and administrative expenses 948 932 -------- -------- Total lease operating expenses 5,636 4,594 -------- -------- Net pre-tax leasing production margin 1,986 1,663 Servicing fees 368 500 -------- -------- Net pre-tax leasing margin $ 2,354 $ 2,163 -------- -------- Average owned leasing portfolio $167,278 $118,322 Average serviced leasing portfolio 9,348 27,570 -------- -------- Average managed leasing portfolio $176,626 $145,892 ======== ======== Leasing production revenue to average owned portfolio 608 bps 705 bps Leasing operating expenses to average owned portfolio 449 bps 518 bps -------- -------- Net pre-tax leasing production margin 159 bps 187 bps ======== ======== Servicing fees to average serviced leasing portfolio 525 bps 242 bps ======== ========
The 22% increase in leasing production revenue for the first nine months of 2000 as compared to the first nine months of 1999 is primarily due to the 41% 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 28 bps in the first nine months of 2000 as compared to the first nine 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 nine months of 2000 was $6.8 million as compared to $5.3 million for the first nine months of 1999. This is equivalent to an annualized net interest margin of 3.86% and 2.96% for the first nine months of 2000 and 1999, respectively, based upon average lease receivables owned of $167.3 million and $118.3 million, respectively, and average debt outstanding of $142.3 and $82.4 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 32 33 employee benefits of corporate personnel; 3) depreciation on the corporate headquarters; and 4) income taxes. The segmented income statement for the first nine months of 1999 has been restated to conform with the segmented income statement presentation for the first nine 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 adapted to a smaller overall residential mortgage market and intensely competitive pricing conditions. During the nine month period ended September 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 continued 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 $2.5 million during the nine month period ending September 30, 2000. In connection with the planned reorganization, the Company is making certain changes in its senior management team and has closed certain regional processing offices. Also, during the first nine months of 2000, the Company (1) redesignated a lease of a former operations center as a nonoperating lease, (2) marked down its residual interests in prior subprime securitizations as a result of changes in valuation assumptions due to changing market conditions, (3) marked down its residual interests in prior securitizations, and the associated residual hedges (including hedge amortization expense) as a result of signing a definitive agreement to sell all of the Company's residuals. (3) disposed of its commercial mortgage operation, Laureate Capital Corp., (4) amended its defined benefit pension plan to freeze benefits under the plan, (5) changed the benefits available to employees under its 401(k) plan, (6) realized a gain on sale of a branch facility, (5) contributed to a fund that will benefit qualified charitable organizations, (6) incurred expenses for consultants who are assisting management in re-engineering work processes, (7) restructured and closed certain regional processing offices and (8) made changes in the Company's senior management team. 33 34 The net impact of these unusual items in the first nine months of 2000 is summarized below by financial statement component and operating division:
AGENCY-ELIGIBLE --------------------- COMMERCIAL PRODUCTION SERVICING SUBPRIME MORTGAGE LEASING OTHER TOTAL ---------- --------- ---------- ------------ ----------- --------- -------- Mark-to market on residual interest in subprime securitizations $ 39,338 $ 39,338 Residual hedge mark-to-market and amortization 1,077 1,077 Salary and employee benefits $ 307 $(45) 1,454 $(22) $ 234 $ 1,928 Occupancy expense 171 General and administrative expenses 1,027 796 741 2,735 Other income (392) (392) ------ ---- -------- ------ ---- ----- ------- Net pre-tax effect on continuing operations 1,505 (45) 42,665 (22) 583 44,686 Estimated allocable income tax (563) 17 (15,771) 8 (219) (16,528) ------ ---- -------- ------ ---- ----- -------- Net after-tax impact on continuing operations 942 (28) 26,894 (14) 364 28,158 Loss on sale of operating assets of Laureate Capital Corp. $1,607 1,607 Operating loss of Laureate Capital Corp. 660 660 ------ ---- -------- ------ ---- ----- -------- Net after-tax impact $ 942 $(28) $ 26,894 $2,267 $(14) $ 364 $ 30,425 ====== ==== ======== ====== ==== ===== ========
34 35 RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 2000, COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999 SUMMARY BY OPERATING DIVISION Net income (loss) from continuing operations per common share on a diluted basis for the third quarter of 2000 was ($1.45) as compared to ($0.11) for the third quarter of 1999. Following is a summary of the revenues and expenses for each of the Company's operating divisions for the nine months ended September 30, 2000 and 1999, respectively: 35 36
AGENCY-ELIGIBLE ---------------------------------------- FOR THE QUARTER ENDED SEPTEMBER 30, 2000 (1) (2) COMMERCIAL ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE - -------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 339 (1,345) (32) 3,233 0 Net gain on sale of mortgage loans 4,438 0 0 4,022 0 Gain on sale of mortgage servicing rights 0 673 0 0 0 Servicing fees 0 8,335 0 0 0 Mark to market on residual interests in subprime securitizations 0 0 0 (29,892) 0 Other income 102 117 813 (776) 0 ------------ ------------ ------------ ------------ ------------ Total revenues 4,879 7,780 781 (23,413) 0 ------------ ------------ ------------ ------------ ------------ Salary and employee benefits 7,737 684 (90) 2,785 0 Occupancy expense 2,961 35 0 686 0 Amortization and provision for impairment of mortgage servicing rights 0 6,069 0 0 0 Provision expense 450 0 0 841 0 General and administrative expenses 3,134 1,148 73 2,166 0 ------------ ------------ ------------ ------------ ------------ Total expenses 14,282 7,936 (17) 6,478 0 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes (9,403) (156) 798 (29,891) 0 Income tax benefit (expense) 3,472 56 (281) 11,079 0 ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations (5,931) (100) 517 (18,812) 0 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $235) 393 Operating profits of Laureate Capital Corp. (less applicable income taxes of $-0-) 0 ------------ ------------ ------------ ------------ ------------ Net income (loss) (5,931) (100) 517 (18,812) 393 ------------ ------------ ------------ ------------ ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (1) (2) TOTAL OTHER/ ($ IN THOUSANDS) LEASING SEGMENTS ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------- ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 2,343 4,538 (388) 4,150 Net gain on sale of mortgage loans 0 8,460 0 8,460 Gain on sale of mortgage servicing rights 0 673 0 673 Servicing fees 136 8,471 0 8,471 Mark to market on residual interests in subprime securitizations 0 (29,892) 0 (29,892) Other income 293 549 (95) 454 ------------ ------------ ------------ ------------ Total revenues 2,772 (7,201) (483) (7,684) ------------ ------------ ------------ ------------ Salary and employee benefits 669 11,785 1,647 13,432 Occupancy expense 127 3,809 (176) 3,633 Amortization and provision for impairment of mortgage servicing rights 0 6,069 0 6,069 Provision expense 687 1,978 0 1,978 General and administrative expenses 326 6,847 511 7,358 ------------ ------------ ------------ ------------ Total expenses 1,809 30,488 1,982 32,470 ------------ ------------ ------------ ------------ Income (loss) before income taxes 963 (37,689) (2,465) (40,154) Income tax benefit (expense) (378) 13,948 911 14,859 ------------ ------------ ------------ ------------ Income (loss) from continuing operations 585 (23,741) (1,554) (25,295) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of $235) 393 393 Operating profits of Laureate Capital Corp. (less applicable income taxes of $-0-) 0 0 ------------ ------------ ------------ ------------ Net income (loss) 585 (23,348) (1,554) (24,902) ------------ ------------ ------------ ------------
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) See discussion of unusual items in Management's Discussion and Analysis.
AGENCY-ELIGIBLE --------------------------------------- FOR THE QUARTER ENDED SEPTEMBER 30, 1999 (1) COMMERCIAL ($ IN THOUSANDS) PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE - -------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 1,438 (904) 0 4,096 0 Net gain on sale of mortgage loans 8,639 0 0 4,851 0 Gain on sale of mortgage servicing rights 0 1,494 0 0 0 Servicing fees 0 9,458 0 0 0 Mark to market on residual interests in subprime securitizations 0 0 0 (929) 0 Other income 187 151 577 (254) 0 ------------ ------------ ------------ ------------ ------------ Total revenues 10,264 10,199 577 7,764 0 ------------ ------------ ------------ ------------ ------------ Salary and employee benefits 9,781 804 21 5,197 0 Occupancy expense 2,942 110 0 610 0 Amortization and provision for impairment of mortgage servicing rights 0 5,665 0 0 0 Provision expense 1,050 0 82 770 0 General and administrative expenses 2,888 1,201 17 2,075 0 ------------ ------------ ------------ ------------ ------------ Total expenses 16,661 7,780 120 8,652 0 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes (6,397) 2,419 457 (888) 0 Income tax benefit (expense) 2,570 (901) (161) 483 0 ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations (3,827) 1,518 296 (405) 0 Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of -0-) 0 Operating profits of Laureate Capital Corp. (less applicable income taxes of $389) 534 ------------ ------------ ------------ ------------ ------------ Net income (loss) (3,827) 1,518 296 (405) 534 ------------ ------------ ------------ ------------ ------------ FOR THE QUARTER ENDED SEPTEMBER 30, 1999 (1) TOTAL OTHER/ ($ IN THOUSANDS) LEASING SEGMENT ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------- ------------ ------------ ------------ ------------ (UNAUDITED) Net interest income 1,910 6,540 (150) 6,390 Net gain on sale of mortgage loans 0 13,490 0 13,490 Gain on sale of mortgage servicing rights 0 1,494 0 1,494 Servicing fees 173 9,631 0 9,631 Mark to market on residual interests in subprime securitizations 0 (929) 0 (929) Other income 424 1,085 314 1,399 ------------ ------------ ------------ ------------ Total revenues 2,507 31,311 164 31,475 ------------ ------------ ------------ ------------ Salary and employee benefits 675 16,478 599 17,077 Occupancy expense 116 3,778 (5) 3,773 Amortization and provision for impairment of mortgage servicing rights 0 5,665 0 5,665 Provision expense 633 2,535 0 2,535 General and administrative expenses 247 6,428 79 6,507 ------------ ------------ ------------ ------------ Total expenses 1,671 34,884 673 35,557 ------------ ------------ ------------ ------------ Income (loss) before income taxes 836 (3,573) (509) (4,082) Income tax benefit (expense) (336) 1,655 218 1,873 ------------ ------------ ------------ ------------ Income (loss) from continuing operations 500 (1,918) (291) (2,209) Discontinued operations: Loss on sale of operating assets of Laureate Capital Corp. (less applicable income taxes of -0-) 0 0 Operating profits of Laureate Capital Corp. (less applicable income taxes of $389) 534 534 ------------ ------------ ------------ ------------ Net income (loss) 500 (1,384) (291) (1,675) ------------ ------------ ------------ ------------
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 36 37 AGENCY-ELIGIBLE MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage production operations.
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ---------------------------------------- 2000 1999 ---------- ---------- Net interest income $ 339 $ 1,438 Net gain on sale of mortgage loans 4,438 8,639 Other income 102 187 ---------- ---------- Total production revenue 4,879 10,264 ---------- ---------- Salary and employee benefits 7,737 9,781 Occupancy expense 2,961 2,942 Provision expense 450 1,050 General and administrative expenses 3,134 2,888 ---------- ---------- Total production expenses 14,282 16,661 ---------- ---------- Net pre-tax production margin $ (9,403) $ (6,397) ---------- ---------- Production $1,537,692 $1,430,832 Pool delivery $1,457,191 $1,568,512 Total production revenue to pool delivery 33 bps 65 bps Total production expenses to production 93 bps 116 bps ---------- ---------- Net pre-tax production margin (60)bps (51)bps ========== ==========
Summary The production revenue to pool delivery ratio decreased 32 basis points for the third quarter of 2000 as compared to the third quarter of 1999. Net gain on sale of mortgage loans (30 basis points for the first nine months of 2000 versus 55 basis points for the third quarter of 1999) declined primarily due to compressed margins attributable to an aggressive competitive pricing environment. Net interest income decreased from 9 basis points in the third quarter of 1999 to 2 basis points in the third quarter of 2000 primarily as a result of a flattened yield curve and, in part, due to higher financing costs associated with the renewal of its bank line during the third quarter of 2000. The production expenses to production ratio decreased from the third quarter of 1999 to the third quarter of 2000, in spite of a 7% increase in production between periods. Total production expenses declined $2.4 million from $16.7 million for the third quarter of 1999 to $14.3 million for the third quarter of 2000. For the quarter ended September 30, 2000, production expenses included a $1.6 million in unusual charges related to the (1) restructuring of regional processing offices, (2) certain changes in the Company's senior management team, (3) compensation expense associated with the repricing of certain options and (4) expenses for consultants who are assisting management in re-engineering work process As a consequence of the foregoing, the Company's net agency-eligible pre-tax production margin declined 9 basis points. Absent the $1.0 million in unusual charges, the Company's net agency-eligible pre-tax production margin would have only increased 1 basis points. See further discussion of unusual items elsewhere in this Management's Discussion and Analysis. 37 38 39 Net Interest Income The following table analyzes net interest income allocated to the Company's agency-eligible mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest rates paid on interest-bearing sources of funds) for the quarters ended September 30, 2000 and 1999, respectively:
($ 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 $397,390 $519,101 8.22% 6.68% Securities $ 8,170 $8,669 $ (499) $1,534 $(2,033) - -------- -------- ----- ----- ------- ------ ------- ------ ------- INTEREST EXPENSE $268,608 $323,169 5.93% 4.71% Warehouse Line * $ 4,017 $3,837 $ 180 $ 828 $ (648) 121,138 190,378 6.70% 5.48% Gestation Line 2,046 2,632 (586) 371 (957) 124,323 91,624 6.95% 4.27% Servicing Secured Line 2,179 987 1,192 840 352 2,929 20,846 5.96% 5.42% Servicing Receivables Line 44 285 (241) 4 (245) 11,074 6,555 9.21% 7.57% Other Borrowings 257 125 132 46 86 Facility Fees & Other Charges 750 695 55 0 55 - -------- -------- ----- ----- ------- ------ ------- ------ ------- $528,072 $632,572 6.98% 5.37% Total Interest Expense $ 9,293 $8,561 $ 732 $2,089 $(1,357) ======== ======== ----- ----- ------- ------ ------- ------ ------- Net Interest Income Before Interdivisional 1.24% 1.31% Allocations $(1,123) $ 108 $(1,231) $ (555) $ (676) ===== ===== ======= ====== ======= Allocation to Agency-Eligible Servicing Division 1,345 890 Allocation to Other 242 440 Intercompany Net Interest Expense Included In Segment (125) - ------- ------ Net Interest Income $ 339 $1,438 ======= ======
* The interest-rate yield on the warehouse line is net of the benefit of escrow deposits. The 7 basis point decrease in the interest-rate spread was primarily as a result of a flattened yield curve. The Company's mortgages and mortgage-backed securities are generally sold and replaced within 30 to 35 days. Accordingly, the Company generally borrows at rates based upon short-term indices, while its asset yields are primarily based upon long-term mortgage rates. Net Gain on Sale of Agency-Eligible Mortgage Loans A reconciliation of gain on sale of agency-eligible mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ---------------------------------------- 2000 1999 ---------- ---------- Gross proceeds on sales of mortgage loans $1,483,913 $1,563,392 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results 1,489,203 1,568,228 ---------- ---------- Unadjusted gain (loss) on sale of mortgage loans (5,290) (4,836) Loan origination and correspondent program administrative fees 2,775 3,913 ---------- ---------- Unadjusted aggregate margin (2,515) (923) Acquisition basis allocated to mortgage servicing rights (SFAS No. 125) 7,802 9,791
38 40
Net deferred costs and administrative fees recognized (849) (229) ---------- ---------- Net gain on sale of agency-eligible mortgage loans $ 4,438 $ 8,639 ========== ==========
Net gain on sale of agency-eligible mortgage loans decreased $4.2 million from $8.6 million for the third quarter of 1999 to $4.4 million for the third quarter of 2000. The decrease is primarily due to compressed margins attributable to an aggressive competitive pricing environment in the correspondent channel. 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 third quarter of 2000 and 1999, the Company recognized premium and investment income of approximately $0.8 million and $0.6 million, respectively, that has been included as other income in the agency-eligible reinsurance segment. SUBPRIME MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's subprime mortgage production operations for the periods indicated:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ---------------------------------------- 2000 1999 -------- -------- Net interest income $ 3,233 $ 4,096 Net gain on sale of mortgage loans 4,022 4,851 Mark to market on residual interests in subprime securitizations (29,892) (929) Other income (776) (254) ---------- -------- Total production revenue (23,413) 7,764 ---------- -------- Salary and employee benefits 2,785 5,197 Occupancy expense 686 610 Provision expense 841 770 General and administrative expenses 2,166 2,075 ---------- -------- Total production expenses 6,478 8,652 ---------- -------- Net pre-tax production margin $(29,891) $ (888) ---------- -------- Production $160,637 $182,287 Whole loan sales and securitizations $182,606 $178,590 Total production revenue to whole loan sales and securitizations (1,282)bps 435 bps Total production expenses to production 403 bps 475 bps ---------- -------- Net pre-tax production margin (1,685)bps (40)bps ========== ========
39 41 Summary During the third quarter of 2000, the Company executed delivery of all of its subprime loan production into secondary markets for cash through whole loan sales. At September 30, 2000, the Company had unsold subprime mortgage loans of $111.9 million as compared to $145.7 million at September 30, 1999. Overall, the Company operated during the third quarter of 2000 at a (16.85)% pre-tax subprime production margin. The $29.0 million (1,645 basis point) decline in the pre-tax subprime production margin is primarily due to the ($29.9) million adjustment during the third quarter of 2000 in the mark to market on residual interests in subprime securitizations and a ($1.1) million adjustment to the residual hedges. The Company marked down its residual interests in prior subprime securitizations as a result of signing a definitive agreement to sell all of the Company's residuals. During the period the Company marked down its residual interests in subprime securitizations and the associated residual hedges (including hedge amortization expense) as a result of signing a definitive agreement to sell all of the Company's residuals. Absent the ($39.3) million mark-to-market adjustment to residual interests and the ($1.7) million adjustment to the residual hedges, the margin on sale of subprime loans was 414 bps. Also contributing to the decline in the pre-tax subprime production margin during the third quarter of 2000 is the $0.8 million decline in net gain on sale of subprime mortgage loans. This decline is primarily attributable to compressed margins as a result of a competitive pricing environment. The production expenses to production ratio decreased 72 bps during the first quarter of 2000 as compared to the first quarter of 2000. This was primarily due to reductions in salary and employee benefit costs primarily due to a 32% reduction in the number of subprime employees from the third quarter of 1999 to the third quarter of 2000. This reduction was partially offset by $0.2 million in unusual charges to salary and employee benefits and $0.8 million in unusual charges to general and administratives expenses during the third quarter of 2000 as compared to the same period for 1999 related to (1) restructuring of regional processing offices, (2) certain changes in the Company's senior management team, (3) compensation expense associated with the repricing of certain options and (4) expenses for consultants who are assisting management in re-engineering work process. Absent the $32.0 million in unusual charges during the third quarter of 2000, the Company's net agency-eligible pre-tax production margin would have increased 113 basis point. See further discussion of unusual items elsewhere in this Management's Discussion and Analysis. Net Interest Income The following table analyzes net interest income allocated to the Company's subprime mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and residual certificates and interest rates paid on interest-bearing sources of funds) for the quarters ended September 30, 2000 and 1999, respectively. 40 42
($ IN THOUSANDS) Variance Average Volume Average Rate Interest Attributable to - ------------------- ----------------- ----------------- -------------------- 2000 1999 2000 1999 2000 1999 Variance Rate Volume - -------- -------- ------- ------- ------- -------- --------- -------- ---------- Mortgages Held-for-Sale and Residual $185,120 $253,973 11.76% 10.53% Certificates $5,438 $6,684 $(1,246) $569 $(1,815) - -------- -------- ------ ------ ------ ------ ------- ---- ------- $133,789 $188,036 7.21% 5.49% Total Interest Expense $2,430 $2,603 $ (173) $578 $ (751) 4.55% 5.04% Net Interest Income $3,008 $4,081 $(1,073) $ (9) $(1,064) ====== ====== ======= ==== ======= Allocation to Agency-Eligible - 15 Servicing Division Intercompany Net Interest Expense Included In Segment 225 - ------ ------ Net Interest Income $3,233 $4,096 ====== ======
Net interest income from subprime products decreased to $3.2 million for the third quarter of 2000 as compared to $4.1 million for the third quarter of 1999. This was primarily a result of a flattened yield curve and the decline in production volume. Accretion income for the third quarter of 2000 and 1999, respectively, remained constant at $1.8 million and therefore offered no offset to the decline in net interest income between quarters. Net Gain on Sale and Securitization of Subprime Mortgage Loans The Company sold subprime mortgage loans on a whole loan basis for cash during the third quarter of 2000 and 1999. Whole loans are generally sold without recourse to third parties with the gain or loss being calculated based on the difference between the carrying value of the loans sold and the gross proceeds received from the purchaser less expenses. Generally, no interest in these loans is retained by the Company. A reconciliation of the gain on subprime mortgage whole loan sales for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ---------------------------------------- 2000 1999 -------- -------- Gross proceeds on whole loan sales of subprime mortgage loans $189,366 $186,522 Initial acquisition cost of subprime mortgage loans sold, net of fees 182,606 178,590 -------- -------- Unadjusted gain on whole loan sales of subprime mortgage loans 6,760 7,932 Net deferred costs and administrative fees recognized (2,738) (3,081) -------- -------- Net gain on whole loan sales of subprime mortgage loans $ 4,022 $ 4,851 ======== ========
The net gain on whole loan sales of subprime mortgage loans decreased 17% from $4.9 million for the third quarter of 1999 to $4.0 million reported for the third 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 41 43 loans by $2.7 million in the third quarter of 2000 as compared to $3.1 million in the third quarter of 1999. There were no securitization transactions during the third quarter of 2000 or 1999. Mark to Market on Residual Interests in Subprime Securitizations The Company historically has retained residual certificates in connection with the securitization of subprime loans. However, during the first nine months of 2000 the Company executed no securitization transactions of subprime loans and marked down its residual interests in prior subprime securitizations as a result of signing a definitive agreement to sell 100% of the residual interests remaining on its balance sheet at September 30, 2000. AGENCY-ELIGIBLE MORTGAGE SERVICING Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage servicing operations for the quarters ended September 30, 2000 and 1999:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ---------- ---------- Net interest expense $ (1,345) $ (904) Loan servicing fees 8,335 9,458 Other income 117 151 ---------- ---------- Servicing revenues 7,107 8,705 ---------- ---------- Salary and employee benefits 684 804 Occupancy expense 35 110 Amortization and provision for impairment of mortgage Servicing rights 6,069 5,665 General and administrative expenses 1,148 1,201 ---------- ---------- Total loan servicing expenses 7,936 7,780 ---------- ---------- Net pre-tax servicing margin (829) 925 Gain on sale of mortgage servicing rights 673 1,494 ---------- ---------- Net pre-tax servicing contribution $ (156) $ 2,419 ========== ========== Average servicing portfolio $7,722,359 $8,592,644 Servicing sold $1,348,268 $1,743,730 Net pre-tax servicing margin to average servicing portfolio (4)bps 4 bps Gain on sale of servicing to servicing sold 5 bps 9 bps
Summary The ratio of net pre-tax servicing margin to the average servicing portfolio decreased 8 bps between the third quarter of 1999 and the third quarter of 2000. The 4 basis point decrease in the gain on sale of servicing sold is primarily attributable to compressed margins in a competitive market during the third quarter of 2000. Loan servicing fees were $8.3 million for the third quarter of 2000, compared to $9.5 million for the third quarter of 1999, a decrease of 12%, primarily related to lower average balance of agency-eligible servicing rights held in inventory pending sale. 42 44 Management regularly assesses market prepay trends and adjusts amortization accordingly. Management believes that the value of the Company's mortgage servicing rights is 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. Net Interest Expense The net interest expense for the third quarter of 2000 and the third quarter of 1999 is composed of benefits from escrow accounts of $2.0 million and $0.5 million, respectively, that is offset by $3.3 million and $1.4 million, respectively, in interest expense. Gain on Sale of Mortgage Servicing Rights A reconciliation of the components of gain on sale of mortgage servicing rights for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ----------------------------------------- 2000 1999 ---------- ---------- Underlying unpaid principal balances of agency-eligible mortgage loans on which servicing rights were sold during the period $1,348,268 $1,743,730 ========== ========== Gross proceeds from sales of mortgage servicing rights $ 38,084 $ 47,065 Initial acquisition basis, net of amortization and hedge results 31,860 35,415 ---------- ---------- Unadjusted gain on sale of mortgage servicing rights 6,224 11,650 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 125) (5,551) (10,156) ---------- ---------- Gain on sale of mortgage servicing rights $ 673 $ 1,494 ========== ==========
Gain on sale of mortgage servicing rights decreased $0.8 million from $1.5 million for the third quarter of 1999 to $0.7 million for the third quarter of 2000. The decrease in the gain on sale of mortgage servicing rights is primarily attributable to a lower balance of agency-eligible servicing rights sold. COMMERCIAL MORTGAGE OPERATIONS On September 29, 2000, the Company closed on an agreement to sell substantially all of the assets of Laureate to BB&T Corporation of Winston-Salem, N.C. Accordingly, the Company recorded a $1.6 million after-tax charge during the period primarily related to the write-off of intangible assets of Laureate LEASING OPERATIONS Following is a summary of the revenues and expenses of the Company's small-ticket equipment leasing operations for the periods indicated: 43 45
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, -------------------------------------- 2000 1999 -------- -------- Net interest income $ 2,343 $ 1,910 Other income 293 424 -------- -------- Leasing production revenue 2,636 2,334 -------- -------- Salary and employee benefits 669 675 Occupancy expense 127 116 Provision expense 687 633 General and administrative expenses 326 247 -------- -------- Total lease operating expenses 1,809 1,671 -------- -------- Net pre-tax leasing production margin 827 663 Servicing fees 136 173 -------- -------- Net pre-tax leasing margin $ 963 $ 836 -------- -------- Average owned leasing portfolio $178,199 $132,682 Average serviced leasing portfolio 6,445 21,353 -------- -------- Average managed leasing portfolio $184,644 $154,035 ======== ======== Leasing production revenue to average owned portfolio 592 bps 704 bps Leasing operating expenses to average owned portfolio 406 bps 504 bps -------- -------- Net pre-tax leasing production margin 186 bps 200 bps ======== ======== Servicing fees to average serviced leasing portfolio 844 bps 324 bps ======== ========
The 13% increase in leasing production revenue for the third quarter of 2000 as compared to the third quarter of 1999 is primarily due to the 34% 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 14 bps in the third quarter of 2000 as compared to the third 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. 44 46 Net Interest Income Net interest income for the third quarter of 2000 was $2.3 million as compared to $1.9 million for the third quarter of 1999. This is equivalent to an annualized net interest margin of 3.75% and 2.14% for the third quarter of 2000 and 1999, respectively, based upon average lease receivables owned of $178.1 million and $132.7 million, respectively, and average debt outstanding of $152.6 and $84.1 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) 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 third quarter ended September 30, 2000, the Company continued to reconsider it's current positioning in the market and its corporate, management and leadership structures. As a result, the Company continued 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 $1.8 during the period. In connection with the planned reorganization, the Company is making certain changes in its senior management team and has closed regional processing offices. During the third quarter of 2000, the Company (1) disposed of its commercial mortgage operation, Laureate Capital Corp., (3) marked down its residual interests in prior securitizations, and the associated residual hedges (including hedge amortization expense) as a result of signing a definitive agreement to sell all of the Company's residuals. (3) incurred expenses for consultants who are assisting management in re-engineering work processes, (4) restructured and closed certain regional processing offices and (5) made changes in the Company's senior management team. The net impact of these unusual items in the third quarter of 2000 is summarized below by financial statement component and operating division:
AGENCY-ELIGIBLE --------------------- COMMERCIAL PRODUCTION SERVICING SUBPRIME MORTGAGE LEASING OTHER TOTAL ---------- --------- ---------- ------------ ----------- --------- ------- Mark-to market on residual interest in subprime securitizations $ 29,892 $ 29,892 Residual hedge mark-to-market and amortization 1,077 1,077
45 47
Salary and employee benefits $ 551 203 $ 213 967 General and administrative expenses 1,027 796 289 2,112 Other income ------ --------- -------- ----- ----------- ----- -------- Net pre-tax effect on continuing operations 1,578 31,968 502 34,048 Estimated allocable income tax (592) (11,833) (188) (12,613) ------ --------- -------- ----- ----------- ----- -------- Net after-tax impact on continuing operations 986 20,135 314 21,435 Loss on sale of operating assets of Laureate Capital Corp. $(393) (393) Operating profits of Laureate Capital Corp. ------ --------- -------- ----- ----------- ----- -------- Net after-tax impact $ 986 $ 20,135 $ (393) $ 314 $ 21,042 ====== ========= ======== ===== =========== ===== ========
46 48 FINANCIAL CONDITION During the third quarter of 2000, the Company experienced a 9% decrease in the volume of production originated and acquired compared to the second quarter of 2000. Production decreased from $1.9 billion during the second quarter of 2000 to $1.7 billion during the third quarter of 2000. The September 30, 2000, locked residential mortgage application pipeline (mortgage loans not yet closed but for which the interest rate has been locked) was approximately $0.5 billion and the application pipeline (mortgage loans for which the interest rate has not yet been locked) was approximately $0.4 billion. This compares to a locked mortgage application pipeline of $0.6 billion and a $0.5 billion application pipeline at June 30, 2000. Mortgage loans held-for-sale and mortgage-backed securities totaled $0.52 billion at September 30, 2000, versus $0.48 billion at December 31, 1999, an increase of 8%. The Company's servicing portfolio (exclusive of loans under subservicing agreements) decreased to $7.4 billion at September 30, 2000, from $7.8 billion at December 31, 1999, a decrease of 6%. Short-term borrowings, which are the Company's primary source of funds, totaled $0.8 billion at September 30, 2000, compared to $0.7 billion at December 31, 1999, an increase of 7%. At September 30, 2000, there were $6.18 million in long-term borrowings, compared to $6.26 million at December 31, 1999. Other liabilities totaled $78.9 million as of September 30, 2000, compared to the December 31, 1999 balance of $84.8 million, a decrease of $5.9 million, or 7%. 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 $150 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, (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 47 49 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 September 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 November 30, 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 July 2001. 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 48 50 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 September 30, 2000, the Company had remaining authority to repurchase up to $2.0 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 September 30, 2000, there were 6,434,558 shares held in the Company's treasury account at an average cost of $7.29 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. SUMMARY On a combined divisional basis, during the nine months ended September 30, 2000 and 1999, the Company generated approximately $14.2 million and $65.9 million, respectively, of positive funds from continuing operations. 49 51
($ IN THOUSANDS) FOR THE NINE MONTHS ENDING SEPTEMBER 30, ---------------------------------------- 2000 1999 -------- -------- Agency-eligible production $(16,151) $30,659 Agency-eligible servicing 17,673 22,161 Subprime production 7,849 9,389 Leasing 4,810 3,698 -------- ------- $ 14,181 $65,907 ======== =======
Each of the Company's divisions produced positive operating funds during both periods except for agency-eligible production in the first nine months of 2000. The combined positive operating funds were invested to reduce indebtedness, pay dividends, repurchase stock and purchase fixed assets. AGENCY-ELIGIBLE PRODUCTION Generally, the Company purchases agency-eligible mortgage loans which are resold with the rights to service the loans being retained by the Company. The Company then separately sells a large percentage of the servicing rights so produced. When the loans are sold, current accounting principles require that the Company capitalize the estimated fair value of the retained mortgage servicing rights sold and subsequently amortize the servicing rights retained to expense. Accordingly, amounts reported as gains on sale of agency-eligible mortgage loans may not represent positive funds flow to the extent that the associated servicing rights are not sold for cash but are instead retained and capitalized. In this context, the table below reconciles the major elements of pre-tax operating funds flow of the Company's agency-eligible production activities.
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 2000 1999 -------- -------- Income (loss) before income taxes $(21,276) $ 11,087 Deduct: Net gain on sale of mortgage loans, as reported (16,255) (58,717) Add back: Cash gains on sale of mortgage loans (2,654) 14,424 Cash gains on sale of mortgage servicing rights 17,957 55,754 Depreciation 4,375 3,389 Provision expense 1,702 4,722 -------- -------- $(16,151) $ 30,659 ======== ========
50 52 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 NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 2000 1999 -------- -------- Income before income taxes $ 1,508 $ 5,065 Deduct: Net gain on sale of mortgage servicing rights, as reported (2,212) (6,317) Add back: Amortization and provision for impairment of Mortgage servicing rights 18,278 22,985 Depreciation 99 428 ------- ------- $17,673 $22,161 ======= =======
SUBPRIME PRODUCTION Generally, the Company purchases subprime loans through a wholesale broker network. The Company then separately sells or securitizes the loans so produced. Existing accounting principles require that at the time loans are securitized, the Company capitalize the estimated fair value of future cash flows to be received in connection with retention by the Company of a residual interest in the securitized loans. Accordingly, amounts reported as gains on sale of subprime mortgage loans may not represent cash gains to the extent that associated residual interests are retained and capitalized. In this context, the table below reconciles the major elements of pre-tax operating funds flow of the Company's subprime mortgage production activities. 51 53
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 2000 1999 -------- -------- Income (loss) before income taxes $(37,667) $ 2,886 Deduct: Net gain on sale of subprime loans, as reported (10,201) (15,225) Accretion income on residuals (5,634) (4,754) Add back: Cash gains on sale of whole subprime loans 17,094 15,382 Cash received from investments in residual certificates 1,922 3,584 Depreciation and amortization of goodwill and intangibles 1,246 918 Provision expense 1,751 1,702 Mark to market on residuals 39,338 4,896 ------- -------- $ 7,849 $ 9,389 ======= ========
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 NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 2000 1999 ------ ------ Income before income taxes $2,354 $2,163 Add back: Depreciation and amortization of goodwill and intangibles 248 231 Provision expense 2,208 1,304 ------ ------ $4,810 $3,698 ====== ======
52 54 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary market risk facing the Company is interest rate risk. The Company manages this risk by striving to balance its loan origination and loan servicing business segments, which are countercyclical in nature. In addition, the Company utilizes various financial instruments, including derivatives contracts, to manage the interest rate risk related specifically to its committed pipeline, mortgage loan inventory, mortgage backed securities held for sale, servicing rights, leases and residual interests retained in securitizations. The overall objective of the Company's interest rate risk management policies is to mitigate potentially significant adverse effects that changes in the values of these items resulting from changes in interest rates might have on the Company's consolidated balance sheet. The Company does not speculate on the direction of interest rates in its management of interest rate risk. For purposes of disclosure in the 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. 53 55 PART II. OTHER INFORMATION ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K - (A) A LIST OF EXHIBITS FILED WITH THIS FORM 10-Q, ALONG WITH THE EXHIBIT INDEX CAN BE FOUND ON PAGES A TO F FOLLOWING THE SIGNATURE PAGE. - (B) NO REPORTS ON FORM 8-K WERE FILED DURING THE THIRD QUARTER OF 2000. 54 56 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 ---------------------------------------- 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: November 13, 2000 55 57 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 dated as of 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 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
A 58
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.5 (A) 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 (B) Change of Control Agreement by and between Resource Bancshares _____ Mortgage Group, Inc. and Steven F. Herbert, dated as of July 27, 2000. 10.6 (A) Employment Agreement dated April 3, 2000, between Resource Bancshares Mortgage * Group, Inc. and Harold Lewis, Jr. incorporated by reference to Exhibit 10.6 (A) of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 (B) Change of Control Agreement dated May 3, 2000, by and between Resource Bancshares * Mortgage Group, Inc. and Harold Lewis, Jr.. incorporated by reference to Exhibit 10.6 (B) of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 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 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 59
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- (B)Amendment Four to Pension Plan effective May 31, 2000 incorporated by * reference to Exhibit 10.16 (B) of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 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 incorporated by reference to Exhibit 10.19 (B) of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 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 accruals under * the Pension Restoration Plan effective May 31, 2000 incorporated by reference to Exhibit 10.20 (B) of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 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 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.
C 60
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- (B) 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 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 (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 (A) 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 (B) 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 (C) 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
D 61
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- (D) Third Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock Option Plan _____ 10.33 Form of Indemnity Agreement by and between Resource Mortgage Bancshares Group, Inc. and _____ Directors and/or Officers of the Corporation. 10.34 Resource Bancshares Mortgage Group, Inc. Outside Directors' Stock Option Plan effective as of _____ July 27, 2000. 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) incorporated by reference to Exhibit 10.38 (B) of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 (C)Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) effective * June 2000 ($16 vesting provisions) incorporated by reference to Exhibit 10.38 (C) of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 10.39 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option Plan * dated September 1, 1996 incorporated by reference to Exhibit 10.33 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.40 Form of Non-Qualified Stock Option Agreement (Non-Qualified Stock * Option Plan), incorporated by reference to Exhibit 10.41 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.41 First Amendment to Resource Bancshares Mortgage Group, Inc. * Non-Qualified Stock Option Plan dated January 29, 1997 incorporated by reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.42 Second Amendment to the Non-Qualified Stock Option Plan dated February * 6, 1998 incorporated by reference to Exhibit 10.40 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998 10.43 Third Amendment to Resource Bancshares Mortgage Group, Inc. * Non-Qualified Stock Option Plan dated October 28, 1998 incorporated by reference to Exhibit 10.43 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 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 incorporated by reference to Exhibit 10.47 (B) of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 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 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
F 63
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 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 * 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 incorporated by reference to Exhibit 10.55 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 10.56 MSC Stock Option Agreement between Resource Bancshares Mortgage Group, Inc. and * Stuart M. Cable dated February 2, 2000 incorporated by reference to Exhibit 10.56 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 10.57 Director Deferred Compensation Plan dated June 2000 incorporated by * reference to Exhibit 10.57 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 10.58 Outside Director Life Insurance Plan dated June 2000 incorporated by * reference to Exhibit 10.58 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 11.1 Statement re: Computation of Net Income per Common Share _____ 27.1 Financial Data Schedule _____
- ---------------------------------- * Incorporated by reference G EX-3.4 2 g65201ex3-4.txt AMENDED & RESTATED BYLAWS 1 AMENDED AND RESTATED BYLAWS OF RESOURCE BANCSHARES MORTGAGE GROUP, INC. December 7, 1999 ARTICLE I. OFFICES Section 1. Registered Office. The registered office of the Corporation required by the Delaware General Corporation Law as the same exists or may hereafter be amended ("Delaware Law") to be maintained in the State of Delaware may be, but need not be, identical with the principal office of the Corporation, and the address of the registered office may be changed from time to time by the Corporation. Section 2. Other Offices. The Corporation also may have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require. Section 3. Books. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II. MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meetings. All meetings of stockholders shall be held at such place, within or without the State of Delaware, at such time as may be determined from time to time by the Board of Directors or, in the absence of a designation by the Board of Directors, by the Chairman of the Board of Directors. Section 2. Annual Meetings. Annual meetings of stockholders, commencing with the year 1993, shall be held to elect directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of stockholders may be called by the Board of Directors or the Chairman of the Board of Directors, and may not be called by any other person. Notwithstanding the foregoing, whenever holders of one or more classes or series of Preferred Stock have the right, voting separately as a 1 2 class or series, to elect directors, such holders may call special meetings of such holders for the purpose of electing such directors pursuant to the certificate of designation for such classes or series. Section 4. Notice of Meetings; Waivers of Notice. (a) Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by Delaware Law, such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Unless these bylaws otherwise require, when a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (b) A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (c) Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 5. Quorum. Unless otherwise provided in Delaware Law, the certificate of incorporation or these bylaws, the presence, in person or by proxy, of the holders of a majority of the outstanding stock of the Corporation entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. Section 6. Voting. (a) Unless otherwise provided in Delaware Law or the certificate of incorporation, each stockholder shall be entitled to one vote for each outstanding share of stock of the Corporation held by such stockholder. Unless otherwise provided in Delaware Law or the certificate of incorporation, in all matters other than the election of directors, the vote of a majority of the shares of stock of the Corporation present, in person or by proxy, at a meeting of stockholders at which a quorum is present and then entitled to vote on the subject matter shall be the act of the stockholders. Directors shall be elected by a plurality of the votes of the shares present, in 2 3 person or by proxy, at a meeting of the stockholders at which a quorum is present and then entitled to vote on the election of directors. (b) Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 7. Stockholders' List. (a) The officer who has charge of the stock ledger for the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (b) Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors, they shall be ineligible for election to any office at such meeting. (c) The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the stockholders' list or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 8. No Action by Consent. Whenever, and so long as, the Corporation is subject to the reporting requirements of Section 12 or 15(d) of the Securities Exchange Act of 1934 (or any successor law), any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with Delaware Law and may not be taken by written consent of stockholders without a meeting. Section 9. Organization. At each meeting of stockholders, the Chairman of the Board of Directors (or in his absence or if one shall not then be in office, another principal officer of the Corporation designated by the Board of Directors) shall act as chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. 3 4 Section 10. Order of Business. The order of business at all meetings of stockholders shall be determined by the chairman of the meeting. Section 11. Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in these bylaws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 11, who shall be entitled to vote for the election of directors at the meeting and who complies with the procedures set forth below. Any such nominations (other than those made by or at the direction of the Board of Directors) must be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 45 days prior to the anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting; provided, however, if no annual meeting was held in the preceding year or the date of the annual meeting has been changed by more than 30 days from the date of the preceding year's annual meeting, notice by the stockholder to be timely must be so received not later than the close of business on the later of 90 days in advance of the annual meeting or 10 days following the date on which public announcement of the date of the meeting is first made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including such person's written consent to being named as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of stock of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. Notwithstanding anything in these bylaws to the contrary, no person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 11. If the chairman of the meeting shall determine, based on the facts, that a nomination was not made in accordance with the procedures set forth in this Section 11, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 11, a stockholder also shall comply with all applicable requirements of 4 5 the Securities Exchange Act of 1934, and the rules and regulations thereunder with respect to the matters set forth in this Section 11. Section 12. Notice of Business. At any meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section 12, who shall be entitled to vote at such meeting and who complies with the procedures set forth below. For business to be properly brought before a stockholders meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 45 days prior to the anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting; provided, however, if no annual meeting was held in the preceding year or the date of the annual meeting has been changed by more than 30 days from the date of the preceding year's annual meeting, notice by the stockholder to be timely must be so received not later than the close of business on the later of 90 days in advance of the annual meeting or 10 days following the date on which public announcement of the date of the meeting is first made. Such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the meeting, (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of stock of the Corporation which are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at a stockholders meeting except in accordance with the procedures set forth in this Section 12. If the chairman of the meeting shall determine, based on the facts, that business was not properly brought before the meeting in accordance with the procedures set forth in this Section 12, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 12, a stockholder also shall comply with all applicable requirements of the Securities Exchange Act of 1934, and the rules and regulations thereunder with respect to the matters set forth in this Section 12. ARTICLE III. DIRECTORS Section 1. General Powers. Unless otherwise provided in Delaware Law or the certificate of incorporation, the business and 5 6 affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 2. Number, Classes, Term of Office, Etc. (a) The Board of Directors shall consist of not less than three nor more than 15 directors, with the exact number of directors to be determined from time to time solely by resolution adopted by the affirmative vote of a majority of the directors then in office. The board of directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire board of directors. Each director shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected, except that directors initially designated as Class I directors shall serve for a term ending on the date of the 1993 annual meeting, directors initially designated as Class II directors shall serve for a term ending on the date of the 1994 annual meeting, and directors initially designated as Class III directors shall serve for a term ending on the date of the 1995 annual meeting. Notwithstanding the foregoing, each director shall hold office until such director's successor shall have been duly elected and qualified or until such director's earlier death, resignation or removal. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no event will a decrease in the number of directors shorten the term of any incumbent director. Vacancies on the board of directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office (although less than a quorum) or by a sole remaining director, and each director so elected shall hold office for a term that shall coincide with the remaining term of the class to which such director shall have been elected. (b) No person may stand for election to, or be elected to, the Board of Directors or be appointed by the directors to fill a vacancy on the Board of Directors who shall have made, or be making, improper or unlawful use of the Corporation's confidential information, or who has interests which conflict materially with the interests of the Corporation. Directors need not be stockholders of the Corporation. Section 3. Quorum and Manner of Acting. Unless the certificate of incorporation or these bylaws require a greater number, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time or place (whether or not a quorum is 6 7 present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 4. Time and Place of Meetings. The Board of Directors shall hold its meetings at such place, within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors or, in the absence of a determination by the Board of Directors, by the Chairman of the Board of Directors. Section 5. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place, within or without the State of Delaware, at such time as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice. Section 6. Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the President, or by any two directors. Notice of special meetings of the Board of Directors shall be given to each director in such manner as is determined by the Board of Directors at least 24 hours before the time set for the meeting. Section 8. Order of Business. The order of business at all meetings of the board of directors shall be determined by the chairman of the meeting. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. No director who is also an executive officer of the Corporation shall be appointed a member of the compensation committee. The Board may designate one or more directors 7 8 as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the bylaws of the Corporation; and, unless the resolution of the Board of Directors, the certificate of incorporation or these bylaws expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Delaware Law. A majority of the members of a committee shall constitute a quorum for the transaction of business unless a committee has only one member in which case such member shall constitute a quorum. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 10. Action by Consent. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 11. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 12. Resignation. Any director may resign at any time by giving written notice to the Board of Directors or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be 8 9 specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 13. Vacancies. Unless otherwise provided in the certificate of incorporation, vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office (although less than a quorum) or by a sole remaining director, and each director so elected shall hold office for a term that shall coincide with the remaining term of the class to which such director shall have been elected. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the certificate of incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of the other vacancies. Section 14. Removal. No director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not less than a majority of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class. Section 15. Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursements of expenses; provided, however, that no such compensation or fees shall be paid to directors who are also employees of the Corporation. Section 16. Preferred Directors. Notwithstanding anything else contained herein, whenever the holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the nomination, election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the certificate of designation for such classes or series, and such directors so elected shall not be subject to the provisions of Section 2, 13 and 14 of this Article III unless otherwise provided therein. 9 10 ARTICLE IV. OFFICERS Section 1. Officers Generally. The executive officers of the Corporation shall be appointed by the Board of Directors. In addition, the Corporation shall have a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book to be kept for that purpose. The Corporation also may have such other officers, including a President, one or more Vice Presidents and a Treasurer, as the Board may in its discretion appoint. One person may hold the offices and perform the duties of any two or more officers. Section 2. Election, Term of Office and Remuneration. The officers of the Corporation referred to in Section 1 shall be elected annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. Any vacancy in any such office shall be filled in such manner as the Board of Directors shall determine. Section 3. Subordinate Officers. In addition to the officers enumerated in Section 1 of this Article IV, the Corporation may have one or more Assistant Treasurers and Assistant Secretaries and such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any executive officer the power to appoint and to remove any such subordinate officers, agents or employees. Section 4. Removal. Any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors. Section 5. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors (or to an executive officer if the Board of Directors has delegated to such executive officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6. Powers and Duties. The Board of Directors may designate an officer as the chief executive officer. The chief executive officer shall, subject to the direction and control of the Board of Directors, be the general manager of, and supervise and direct, the business and affairs of the Corporation and the conduct of 10 11 the officers of the Corporation. The other officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors or the chief executive officer. ARTICLE V. GENERAL PROVISIONS Section 1. Fixing the Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) If no record date is fixed by the Board of Directors (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 2. Dividends. Subject to limitations contained in Delaware Law and the certificate of incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, securities of the Corporation or in other property. Section 3. Fiscal Year. The fiscal year of the Corporation shall end on December 31 each year. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. Section 5. Voting of Stock Owned by the Corporation. The 11 12 Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. Section 6. Amendments. Except as otherwise provided in the certificate of incorporation, the board of directors or the stockholders shall have the power to adopt, amend or repeal these bylaws. Section 7. Construction. Unless the context specifically requires otherwise, any reference in these bylaws to the masculine gender shall include the feminine and neuter genders; any reference to the singular shall include the plural; and any reference to the plural shall include the singular. Section 8. Indemnification. Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware Law. The right to indemnification conferred by this Section shall also include the right to be paid by the Corporation the expenses incurred in connection with such proceeding in advance of its final disposition to the fullest extent permitted by Delaware Law. The right to indemnification conferred by this Section shall be a contract right and shall not be exclusive of any other right which any person may otherwise have or hereafter acquire. 12 EX-10.5B 3 g65201ex10-5b.txt CHANGE OF CONTROL AGREEMENT / STEVEN F. HERBERT 1 EXHIBIT 10.5(B) CHANGE OF CONTROL AGREEMENT AGREEMENT by and between Resource Bancshares Mortgage Group, Inc., a Delaware corporation ("RBMG"), and Steven F. Herbert (the "Executive"), dated as of the 27th day of July, 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. 1 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 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 2 3 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. (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. 3 4 (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. 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). 4 5 (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 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 5 6 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. (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." 6 7 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 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 7 8 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: Steven F. Herbert ________________________________________ ________________________________________ If to RBMG: Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, SC 29223 Attention: Chief Executive Officer 8 9 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 December 31, 2001. 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. _______________________________________ Steven F. Herbert RESOURCE BANCSHARES MORTGAGE GROUP, INC. By_____________________________________ Douglas K. Freeman Chief Executive Officer 9 EX-10.32D 4 g65201ex10-32d.txt THIRD AMENDMENT TO FORMULA STOCK OPTION PLAN 1 THIRD AMENDMENT TO RESOURCE BANCSHARES MORTGAGE GROUP, INC. FORMULA STOCK OPTION PLAN THIS THIRD AMENDMENT TO RESOURCE BANCSHARES MORTGAGE GROUP, INC. FORMULA STOCK OPTION PLAN is made as of the 27th day of July, 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. Formula Stock Option Plan (the "Plan") for the benefit of its directors who are not full-time employees or executive officers of the Corporation ("Independent Directors"); and WHEREAS, in Section 5.2 of the Plan, the Corporation reserved the right by action of a committee (the "Committee") composed of all members of its Board of Directors except Independent Directors to amend the Plan; and WHEREAS, the Committee now desires to amend certain provisions of the Plan; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Corporation covenants and agrees that the Plan is amended as follows, effective as of the date first above written: 1. Effective July 27, 2000, Section 3.2 of the Plan is amended to provide that the maximum number of shares that may be issued under the Plan shall not exceed in the aggregate 284,850, as such number of shares may be adjusted after the date of this Third Amendment pursuant to Section 4.2 of the Plan. 2. Effective July 27, 2000, Section 4.1 of the Plan is amended by deleting the first sentence of the section and substituting in lieu thereof the following: "Effective July 27, 2000, no additional Options will be awarded under this Plan. The amendment to discontinue the award of additional Options under this Plan shall not affect any Option heretofore awarded pursuant to the provisions of the Plan." 3. The Corporation reserves the right by action of the Committee to amend further at any time any of the terms and provisions of the Plan as amended hereby. Except as expressly or by necessary implication amended hereby, the Plan shall continue in full force and effect. EX-10.33 5 g65201ex10-33.txt FORM OF INDEMNITY AGREEMENT 1 EXHIBIT 10.33 INDEMNITY AGREEMENT This Agreement is made as of the _____ day of _______________, 1998, by and between Resource Bancshares Mortgage Group, Inc., a Delaware corporation (the "Corporation"), and __________________ (the "Indemnitee"), a Director and/or Officer of the Corporation. WHEREAS, it is essential to the Corporation to attract and retain as Directors and Officers the most capable persons available; and WHEREAS, the substantial increase in corporate litigation subjects Directors and Officers to expensive litigation risks; and WHEREAS, the Corporation does not regard the protection available to the Indemnitee as adequate in the present circumstances and realizes that the Indemnitee may not be willing to serve as a Director or Officer without adequate protection, and the Corporation desires the Indemnitee to serve in such capacity; NOW, THEREFORE, in consideration of the Indemnitee's service as a Director or Officer after the date hereof, the parties agree as follows: 1. Definitions. As used in this Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature. (b) The term "Expenses" shall include, but is not limited to, all expenses (including attorneys' fees), losses, damages, liabilities, judgments, fines, amounts paid in settlement by or on behalf of the Indemnitee and disbursements and any expenses of establishing a right to indemnification under this Agreement. (c) The terms "Director" and "Officer" shall include the Indemnitee's service at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise as well as Director, Officer, employee or agent of the Corporation. (d) The phrase "other enterprise" shall include employee benefit plans; the term "fines" shall include any excise taxes assessed on the Indemnitee with respect to an employee benefit plan; and the phrase "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries. 2 2. Indemnity. Subject only to the limitations set forth in Section 3, the Corporation will pay on behalf of the Indemnitee all Expenses actually and reasonably incurred by the Indemnitee because of any claim or claims made against him in a Proceeding by reason of the fact that he is or was a Director and/or Officer. 3. Limitations on Indemnity. The Corporation shall not be obligated under this Agreement to make any payment of Expenses to the Indemnitee: (a) the payment of which is prohibited by applicable law; (b) for which and to the extent payment is actually and unqualifiedly made to the Indemnitee under an insurance policy or otherwise; (c) which result from a claim, issue or matter as to which the Indemnitee is adjudged liable to the Corporation in a Proceeding by or in the right of the Corporation, unless it is decided in such Proceeding that the Indemnitee is entitled to indemnification hereunder despite such adjudication; or (d) which result from a claim, issue or matter decided in a Proceeding adversely to the Indemnitee based upon or attributable to: (i) the breach of the Indemnitee's duty of loyalty to the Corporation or its stockholders; (ii) acts or omissions of the Indemnitee not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) Section 174 of the General Corporation Law of the State of Delaware; or (iv) a transaction from which the Indemnitee derived an improper personal benefit. For purposes of Sections 3 and 4, the phrase "decided in a Proceeding" shall mean a decision by a court, arbitrator(s), hearing officer or other judicial agent having the requisite legal authority to make such a decision which decision has become final and from which no appeal or other review proceeding is permissible. 4. Advance Payment of Costs. Expenses actually and reasonably incurred by the Indemnitee in defending a claim against him in a Proceeding, other than a Proceeding by the Corporation, shall be paid by the Corporation as incurred and in advance of the final disposition of such Proceeding. As a condition precedent to his right to receive any such advancement of 3 Expenses, the Indemnitee hereby agrees and undertakes to repay such amounts advanced if it shall be decided in such Proceeding that he is not entitled to be indemnified by the Corporation pursuant to this Agreement or otherwise. 5. Settlement. The termination of a Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the Indemnitee is not entitled to indemnification under this Agreement. 6. Enforcement. If a claim under this Agreement is not paid by the Corporation, or on its behalf, within thirty days after a written claim has been received by the Corporation, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, the Indemnitee also shall be entitled to be paid the Expenses of prosecuting such claim. 7. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. 8. Notice and Cooperation. The Indemnitee, as a condition precedent to his right to be indemnified under this Agreement, shall notify the Corporation in writing promptly upon receipt of notice of any claim made against him for which indemnity will or could be sought under this Agreement; provided, however, that failure of the Indemnitee to so notify the Corporation shall relieve the Corporation of its obligations hereunder only to the extent that such failure materially prejudices the Corporation. In addition, the Indemnitee shall give the Corporation such information and cooperation as it may reasonably require. Notice to the Corporation shall be in writing and shall be deemed to have been given when personally delivered or sent by telecopy (with confirmation of receipt) or by prepaid certified mail to the Corporation at the following address (or such other address as the Corporation shall designate in writing to the Indemnitee): Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, South Carolina 29223 Attention: Chairman Telecopier: (803) 741-3586 9. Severability. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, the Corporation shall nevertheless indemnify the Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law. 4 10. Exclusivity. Nothing herein shall be deemed to diminish or otherwise restrict the Indemnitee's right to indemnification under any provision of the Certificate of Incorporation or Bylaws of the Corporation or under Delaware law. 11. Applicable Law. This agreement shall be governed by and construed in accordance with Delaware law. 12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 13. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns. 14. Continuation of Indemnification. The indemnification under this Agreement shall continue as to the Indemnitee even though he may have ceased to be a Director and/or Officer and shall inure to the benefit of the heirs and personal representatives of the Indemnitee. 15. Coverage of Indemnification. The indemnification under this Agreement shall cover the Indemnitee's service as a Director and/or Officer and all of his acts in such capacity, whether prior to or on or after the date of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first above written. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ________________________ Its: ________________________ INDEMNITEE _________________________________ EX-10.34 6 g65201ex10-34.txt OUTSIDE DIRECTORS' STOCK OPTION PLAN 1 RESOURCE BANCSHARES MORTGAGE GROUP, INC. OUTSIDE DIRECTORS' STOCK OPTION PLAN ARTICLE I PURPOSE; EFFECTIVE DATE; DEFINITIONS 1.1 Purpose. This Resource Bancshares Mortgage Group, Inc. Outside Directors' Stock Option Plan is intended to secure for Resource Bancshares Mortgage Group, Inc. and its stockholders the benefits of the incentive inherent in common stock ownership by the Outside Directors of the Company, who are responsible in part for the Company's growth and financial success, and to afford such persons the opportunity to obtain and thereafter increase a proprietary interest in the Company on a favorable basis and thereby share in its success. 1.2 Effective Date. Subject to the approval of the Board and to ratification by the Company's stockholders as provided in Section 5.8, this Plan shall become effective as of July 27, 2000. 1.3 Definitions. Capitalized terms used in this Plan but not defined herein are used herein as defined in the Option Agreement. In addition, throughout this Plan, the following terms shall have the meanings indicated: (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. (c) "Committee" shall mean the a committee of the Board that is composed solely of two or more "nonemployee directors" within the meaning of Rule 16b-3 promulgated under the Exchange Act. (d) "Common Stock" shall mean the Common Stock, par value $.01 per share, of the Company. (e) "Company" shall mean Resource Bancshares Mortgage Group, Inc., a Delaware corporation. (f) "Director" shall mean any member of the Board. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (h) "Fair Market Value" shall mean, with respect to the Common Stock on any 1 2 day, the closing sales price of a share of Common Stock for the immediately preceding 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 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 an Option granted under the Plan on any day shall be the market value of the underlying Common Stock, determined as aforesaid, less the exercise price of the Option. (i) "Option" shall mean an option to purchase shares of Common Stock awarded to an Outside Director pursuant to this Plan. (j) "Option Agreement" shall mean an agreement between the Company and an Outside Director, in substantially the form of Annex A to this Plan, evidencing the award of an Option. (k) "Option Shares" shall mean the shares of Common Stock purchased upon exercise of an Option. (l) "Outside Director" shall mean any Director other than a Director who, at the time of an Option award to such Director hereunder, is a full-time employee or executive officer of the Company or any subsidiary of the Company. (m) "Plan" shall mean this Resource Bancshares Mortgage Group, Inc. Outside Directors' Stock Option Plan, as the same may be amended from time to time. (j) "Change of Control" shall mean: (1) 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 paragraph (1), 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 subparagraphs (i), (ii) and (iii) of paragraph (3) of this subsection 1.3(n); or (2) 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 2 3 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; or (3) 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 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, providing for such Business Combination; or (4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. ARTICLE II COMMITTEE 2.1 Committee Work. The Company's Senior Vice President for Human Resources (or other person with the responsibilities of such an officer) shall advise the Committee, upon 3 4 request, as to the proper interpretation, construction and administration of this Plan and the Options. Nevertheless, this Plan and the Options shall be interpreted, construed and administered by the Committee alone. An Outside Director may appeal to the Committee, in writing, any decision or action of the Committee with respect to the Plan that adversely affects the Outside Director. Upon review of such appeal, and in any other case where the Committee has acted with respect to the Plan or Options, the decision on appeal or the interpretation or construction by the Committee of any provision of this Plan or of any Option shall be conclusive and binding on all parties. A majority of the entire Committee shall constitute a quorum, and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. In addition, any decision or determination reduced to writing and signed by all members of the Committee shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. Subject to the provisions of the Plan and the Company's bylaws, the Committee may make such additional rules and regulations for the conduct of its business as it shall deem advisable and shall hold meetings at such times and places as it may determine. 2.2 Good Faith Determinations.No member of the Committee or other member of the Board shall be liable for any action or determination made in good faith with respect to this Plan or any Option granted hereunder. ARTICLE III ELIGIBILITY; SHARES SUBJECT TO THE PLAN 3.1 Eligibility. Only Outside Directors shall be eligible to receive Option awards under this Plan. 3.2 Shares Subject to the Plan. Subject to the provisions of Section 4.3(d) (relating to adjustment for changes in the Common Stock), the maximum number of shares that may be issued under this Plan shall not exceed in the aggregate 300,000 shares of Common Stock, as such number of shares may be adjusted after July 27, 2000 pursuant to Section 4.3(d). Such shares may be authorized and unissued shares or, in the alternative, authorized and issued shares that have been reacquired by the Company as treasury stock. If any Option awarded under this Plan shall for any reason terminate or expire or be surrendered without having been exercised in full, then the underlying shares not acquired by Option exercise shall be available again for grant hereunder. ARTICLE IV OPTION AWARDS 4.1 Grant of Options. As of July 27, 2000, each person who is then an Outside Director shall be awarded an Option to purchase 10,000 shares of Common Stock, in each case at an exercise price per share equal to the Fair Market Value per share of Common Stock on the July 27, 2000. On September 1 of each year during the term of the Plan (including September 1, 2000), 4 5 the Committee, upon recommendation of the Company's Chief Executive Officer, shall award Options to Outside Directors to purchase shares of Common Stock, in each case at an exercise price equal to the Fair Market Value per share of Common Stock on the September 1 that is the award date. The number of shares of Common Stock that are subject to an Option to an Outside Director may not exceed the number of shares recommended to the Committee for such Outside Director by the Company's Chief Executive Officer. In making any such recommendation to the Committee and the Committee's award of an Option, the Company's Chief Executive Officer and the Committee may take into account the nature of the services rendered by the Outside Director, other compensation payable to the Outside Director by the Company, the capacity of the Outside Director to contribute to the success of the Company and such other factors that the Company's Chief Executive Officer and the Committee may consider relevant. Notwithstanding Section 4.2 of the Plan, grants of options made prior to shareholder approval, as provided in Section 5.8 of the Plan, shall be subject to such shareholder approval and shall not be exercisable prior to such approval. 4.2 Vesting. Each 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: if the period from then the maximum percentage of the Option the date of the award Shares that may be purchased through such until the Exercise Date is: Exercise Date is: - --------------------------------- ----------------------------------------- less than 1 year, 20% at least 1 year, 40% but less than 2 years, at least 2 years, 60% but less than 3 years, at least 3 years, 80% but less than 4 years, at least 4 years, 100% Provided, however, that (i) in the event of a Change of Control of the type set forth in paragraph (1), (2) or (4) of the definition of Change of Control and (ii) immediately prior to the occurrence of a Change of Control of the type set forth in paragraph (3) of the definition of Change of Control, each Option outstanding under the Plan shall become exercisable in whole or in part without regard to the foregoing schedule. In addition, each Option Agreement shall provide for acceleration of exercisability in the event of death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code). Each Option shall terminate on the expiration of its Option Period, if not earlier terminated. 5 6 4.3 Other Terms and Conditions. Each Option award under this Plan shall be evidenced by an Option Agreement. The Option Agreements need not be identical with one another, but each one shall include the substance of all of the following terms and conditions: (a) Numbers of Shares, Option Exercise Price and Vesting Schedule. Each Option Agreement shall state the number of shares of Common Stock to which it pertains, the Option exercise price and the schedule by which the Options subject thereto shall become exercisable, all in accordance with this Plan. (b) Medium and Time of Payment. Upon exercise of an Option, the Option exercise price shall be payable in United States dollars, in cash (including check) or (unless the Board otherwise prescribes) in shares of Common Stock owned by the optionee for a period of 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. An Option shall be deemed to be exercised on the date that the Company receives full payment of the exercise price for the number of shares for which the Option is being exercised. For the purpose of assisting an optionee to exercise an Option, the Company may, in the discretion of the Board, make recourse loans to the optionee or guarantee recourse loans made by third parties to the optionee, in either case on such terms and conditions as the Board may authorize. (c) Minimum Exercise; No Transfers. Not less than 100 shares of Common Stock may be purchased by Option exercise at any one time unless the number purchased is the total number of shares in respect of which the Option is then exercisable. No Option shall be assignable or transferable by an optionee, and no other person shall acquire any rights therein, except that the Option may be transferred by will or the laws of descent or distribution or pursuant to a formal court order in connection with the divorce of the optionee. (d) Recapitalization; Reorganization. Subject to any action required by the stockholders of the Company, the maximum number of shares of Common Stock that may be issued under this Plan pursuant to Section 3.2, the number of shares of Common Stock covered by each outstanding Option and the per-share exercise price applicable to each outstanding Option shall, in each case, be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company. Subject to any action required by the stockholders, in the event of a Business Combination that does not result in a Change of Control, each Option outstanding under the Plan shall pertain to and apply to the securities or other consideration that a holder of the 6 7 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 each outstanding Option shall terminate; provided however, that each optionee shall, in such event, have the right immediately prior to such Change of Control or complete liquidation or dissolution, to exercise his or her Option in whole or in part without regard to any installment provision that might be contained in the applicable Option Agreement. 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 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 contemplation of this Plan. The foregoing adjustments shall be made by the Committee, whose determination shall be conclusive. Except as expressly provided in this subsection, the optionee shall have no rights by reason of (i) any subdivision or consolidation of shares of any class, (ii) any stock dividend, (iii) any other increase or decrease in the number of shares of stock of any class, (iv) any dissolution, liquidation, merger or consolidation or spin-off, split-off or split-up of assets of the Company or stock of another corporation or (v) any issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class. Moreover, except as expressly provided in this subsection, the occurrence of one or more of the above-listed events shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of, or the exercise price relative to, the shares of Common Stock underlying the Option. The grant of an Option pursuant to this Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes to, of or in its capital or business structure or to merge, consolidate, dissolve or liquidate or sell or transfer all or any part of its business or assets. (e) Rights as a Stockholder. An optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares underlying his or her Option until the date of the issuance of a stock certificate for those shares upon payment of the exercise price. No adjustments shall be made for dividends (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, except as provided in subsection 4.3(d). (f) Option Termination. 7 8 (1) Each Option Agreement shall provide that, if the optionee ceases to be a Director incidental to conduct that, in the judgment of the Committee, involves a breach of fiduciary duty by such optionee or other conduct detrimental to the Company, then his or her Option shall terminate immediately and thereafter be of no force or effect. (2) Each Option Agreement shall also provide that, if the optionee ceases to be a Director for a reason other than conduct that, in the judgment of the Committee, involves a breach of fiduciary duty by such optionee or other conduct detrimental to the Company, then the optionee may at any time within three months after he or she ceases to be a Director exercise his or her Option but only to the extent the Option was exercisable by him or her on the date he or she ceased to be a Director (the unexercisable portion of the Option shall terminate and thereafter be of no force or effect). (3) Each Option Agreement also shall provide that, if the optionee becomes permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code) while serving as a Director, then such Option may be fully exercised not later than the expiration of twelve months following such permanent and total disability by the optionee or person, if any, appointed by a court to administer the affairs of the optionee. (4) Each Option Agreement also shall provide that, if the optionee dies while serving as a Director, then such Option may be fully exercised not later than the expiration of twelve months following such death 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. In addition, each Option Agreement also shall provide that, if the optionee dies within the three month period described in clause (2) above or the one year period described in clause (3) above, then his or her Option may be exercised at any time within one year following his or her death by the person or persons to whom his or her rights under the Option shall pass by will or by the laws of descent and distribution, but only to the extent that such Option was exercisable by him or her on his or her date of death. (5) Each Option Agreement also shall provide for acceleration of exercisability in the event of a Change of Control. (6) Notwithstanding anything to the contrary in this subsection, an Option may not be exercised by anyone after the expiration of its term. ARTICLE V MISCELLANEOUS 5.1 Designation. This Plan may be referred to in other documents and instruments as the "Resource Bancshares Mortgage Group, Inc. Outside Directors' Stock Option Plan." 8 9 5.2 Amendment, Suspension, Discontinuance and Termination of Plan. The Committee may from time to time amend, suspend or discontinue this Plan or revise it in any respect whatsoever for the purpose of maintaining or improving its effectiveness as an incentive device, for the purpose of conforming it to applicable governmental regulations or to any change in applicable law or regulations, or for any other purpose permitted by law; provided, however, that no such action by the Committee shall adversely affect any Option theretofore awarded hereunder without the consent of the holder so affected; provided further that any amendment to this Plan that would materially increase the benefits accruing to participants hereunder, materially increase the number of shares of Common Stock that may be issued upon exercise of Options granted hereunder or materially modify this Plan's requirements as to eligibility for participation herein must be approved by the stockholders of the Company. This Plan will terminate on the date when all shares of the Common Stock received for issuance under the Plan have been acquired upon exercise of Options granted hereunder or on such earlier date as the Board may determine. 5.3 Governing Law. This Plan and all rights and obligations hereunder shall be construed in accordance with and governed by the laws of the State of South Carolina. 5.4 Indemnification of Committee. In addition to such other rights of indemnification as they may have as Directors or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including legal fees actually and necessarily incurred in connection with the defense of any investigation, action, suit or proceeding, or in connection with any appeal therefrom, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with this Plan or any Option granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in or dismissal or other discontinuance of any such investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such investigation, action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his or her duties, provided that, within 60 days after institution of any such investigation, action, suit or proceeding, a Committee member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same. 5.5 Reservation of Shares. The Company shall, at all times during the term of this Plan and so long as any Option shall be outstanding, reserve and keep available such number of shares of Common Stock as shall be sufficient to satisfy the requirements hereof. Notwithstanding the foregoing, the inability of the Company to obtain, from any regulatory body of appropriate jurisdiction, authority considered by the Company to be necessary or desirable to the lawful issuance of any shares of its Common Stock hereunder shall relieve the Company of any liability in respect of the non-issuance or sale of such Common Stock as to which such requisite authority shall not have been obtained. 5.6 Application of Funds. The proceeds received by the Company from the sale of 9 10 Common Stock upon the exercise of Options will be used for general corporate purposes. 5.7 No Obligation to Exercise.The award of an Option under this plan shall impose no obligation upon the optionee to exercise that Option. 5.8 Approval of Stockholders. No Options awarded pursuant to this Plan shall be enforceable against the Company unless and until the Plan shall have been ratified by the stockholders of the Company. * * * * * 10 EX-11.1 7 g65201ex11-1.txt STATEMENT RE: COMPUTATION OF NET INCOME 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 Nine Months Ended September 30, Ended September 30, 2000 2000 ------------------------- ------------------------ Net loss from continuing operations $ (25,295) $ (36,837) Net loss from continuing operations per common share - basic (1) $ (1.45) $ (2.04) Net loss from continuing operations per common share - diluted (2) $ (1.45) $ (2.04) Net income (loss) from discontinued operations $ 393 $ (2,667) Net income (loss) from discontinued operations per common share - basic (1) $ 0.02 $ (0.13) Net income (loss) from discontinued operations per common share - diluted (2) $ 0.02 $ (0.13)
1) The number of common shares outstanding used to compute net income (loss) per share from continuing and discontinued operations-basic was 17,435,701 and 18,034,854 for the quarter and nine months ended September 30, 2000. 2) Diluted earnings from continuing and discontinued operations per common share for the quarter and nine months ended September 30, 2000, was calculated based on weighted average common shares outstanding of 17,435,701 and 18,034,854 which assumes the exercise of options covering -0- shares and computes incremental shares using the treasury stock method. EX-27.1 8 g65201ex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 16,704 20,384 248,117 0 668,063 969,710 52,126 20,305 1,014,085 849,215 6,175 0 0 316 158,379 158,695 52,896 33,936 67,049 92,162 25,113 5,661 39,469 (58,226) 21,389 (36,837) (2,267) 0 0 (39,104) (2.04) (2.04)
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