-----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, Wv+gdR4YIGMaA8oiHQYDHZ7+0q2q3cycggdGBfBlFwtj55L7ZErQkZIuWVjDrwrl CS+xQumwRi+2oQ3c5SUD7Q== 0000950144-99-012883.txt : 19991115 0000950144-99-012883.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950144-99-012883 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE BANCSHARES MORTGAGE GROUP INC CENTRAL INDEX KEY: 0000893817 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 570962375 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21786 FILM NUMBER: 99748721 BUSINESS ADDRESS: STREET 1: 7909 PARKLANE ROAD SUITE 150 CITY: COLUMBIA STATE: SC ZIP: 29223 BUSINESS PHONE: 8037413000 MAIL ADDRESS: STREET 1: 7909 PARKLANE RD SUITE 150 STREET 2: 7909 PARKLANE RD SUITE 150 CITY: COLUMBI STATE: SC ZIP: 29223 10-Q 1 RESOURCE BANCSHARES MORT. CORP. FORM 10-Q 9/30/99 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, 1999 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________ to ____________ Commission File Number 000-21786 RESOURCE BANCSHARES MORTGAGE GROUP, INC. __________________________________________________________________________ (Exact name of registrant as specified in its charter) STATE OF DELAWARE 57-0962375 ______________________________________ ____________________________________ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7909 PARKLANE ROAD, COLUMBIA, SC 29223 _______________________________________ _____________________________________ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (803)741-3000 _____________________________ Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the registrant was required to file reports) and (ii) has been subject to such filing requirements for the past 90 days. YES X NO ________ _______ The number of shares of common stock of the Registrant outstanding as of October 31, 1999, was 20,025,597. Page 1 Exhibit Index on Pages A to F 2 RESOURCE BANCSHARES MORTGAGE GROUP, INC. Form 10-Q for the quarter ended September 30, 1999 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements - (Unaudited) Consolidated Balance Sheet 3 Consolidated Statement of Income 4 Consolidated Statement of Changes in Stockholders' Equity 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of 11 Financial Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 50 PART II. OTHER INFORMATION 51 ITEM 6. Exhibits and Reports on Form 8-K 51 SIGNATURES 52 EXHIBIT INDEX A-F 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED BALANCE SHEET ($ in thousands)
September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) ASSETS Cash $ 9,815 $ 18,124 Receivables 54,566 80,248 Trading Securities: Mortgage-backed securities 114,165 385,055 Residual interests in subprime securitizations 50,924 45,782 Mortgage loans held for sale 462,556 1,056,403 Lease receivables 144,887 102,029 Servicing rights, net 177,417 191,022 Premises and equipment, net 37,955 35,338 Accrued interest receivable 1,853 3,642 Goodwill and other intangibles 15,700 16,363 Other assets 38,511 35,629 ------------- ------------ Total assets $ 1,108,349 $ 1,969,635 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Short-term borrowings $ 742,028 $ 1,566,287 Long-term borrowings 6,286 6,364 Accrued expenses 12,682 30,098 Other liabilities 119,160 114,728 ------------- ------------ Total liabilities 880,156 1,717,477 ------------- ------------ Stockholders' equity Preferred stock - par value $.01 - 5,000,000 shares authorized; no shares issued or outstanding -- -- Common stock - par value $.01 - 50,000,000 shares authorized; 31,637,331 shares issued and outstanding at September 30, 1999 and December 31, 1998 316 316 Additional paid-in capital 303,618 307,114 Retained earnings 65,549 59,599 Common stock held by subsidiary at cost - 7,767,099 shares at September 30, 1999 and December 31, 1998 (98,953) (98,953) Treasury stock - 3,617,596 and 869,378 shares at September 30, 1999 and December 31 1998, respectively (36,881) (11,499) Unearned shares of employee stock ownership plan - 441,270 and 353,641 unallocated shares at September 30, 1999 and December 31, 1998, respectively (5,456) (4,419) ------------- ------------ Total stockholders' equity 228,193 252,158 ------------- ------------ Commitments and contingencies -- -- Total liabilities and stockholders' equity $ 1,108,349 $ 1,969,635 ============= ============
See accompanying notes to consolidated financial statements. 3 4 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED STATEMENT OF INCOME ($ in thousands, except share information) (Unaudited)
FOR THE NINE MONTHS ENDED FOR THE QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- --------------------- 1999 1998 1999 1998 --------- --------- -------- -------- REVENUES Interest income $ 68,218 $ 74,649 $ 19,587 $ 25,009 Interest expense (46,860) (60,297) (13,126) (20,408) ---------- ---------- ---------- ---------- Net interest income $ 21,358 $ 14,352 $ 6,461 $ 4,601 Net gain on sale of mortgage loans 80,300 129,226 16,823 45,597 Gain on sale of mortgage servicing rights 6,317 1,613 1,494 533 Servicing fees 35,893 31,134 10,898 11,419 Gain on sale of retail production franchise -- 1,490 -- -- Other income 305 1,894 488 487 ---------- ---------- ---------- ---------- Total revenues 144,173 179,709 36,164 62,637 ---------- ---------- ---------- ---------- EXPENSES Salary and employee benefits 56,722 62,041 19,511 20,479 Occupancy expense 10,700 8,058 4,062 2,627 Amortization and provision for impairment of mortgage servicing rights 24,582 20,053 6,280 7,750 General and administrative expenses 32,653 31,055 9,470 10,395 ---------- ---------- ---------- ---------- Total expenses 124,657 121,207 39,323 41,251 ---------- ---------- ---------- ---------- Income (loss) before income taxes 19,516 58,502 (3,159) 21,386 Income tax (expense) benefit (6,694) (22,557) 1,484 (8,134) ---------- ---------- ---------- ---------- Net income (loss) $ 12,822 $ 35,945 $ (1,675) $ 13,252 ========== ========== ========== ========== Weighted average common shares outstanding -- Basic 21,158,547 23,189,299 20,310,289 23,394,524 ========== ========== ========== ========== Net income (loss) per common share -- Basic $0.61 $1.55 $(0.08) $0.57 ========== ========== ========== ========== Weighted average common shares outstanding -- Diluted 21,351,034 23,569,021 20,310,289 23,831,297 ========== ========== ========== ========== Net income (loss) per common share -- Diluted $0.60 $1.53 $(0.08) $0.56 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 4 5 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ($ in thousands) (Unaudited)
COMMON STOCK ADDITIONAL NINE MONTHS ENDED --------------------------------- PAID-IN RETAINED SEPTEMBER 30, 1998 SHARES AMOUNT CAPITAL EARNINGS - --------------------------------------- ------------------ ------------ --------------- ------------- Balance, December 31, 1997 31,120,383 $ 311 $299,516 $17,763 Issuance of restricted stock 20,056 * 328 Cash dividends (4,417) Exercise of stock options 355,965 2 (26) Shares committed to be released under Employee Stock Ownership Plan 413 Purchase of Shares by Employee Stock Ownership Plan Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 198,722 1 3,271 (92) Acquisition of Meritage Mortgage Corporation 142,118 2 1,764 Treasury stock purchased (200,000) Net income 35,945 Total comprehensive income ------------ --------- ------------ ----------- Balance, September 30, 1998 31,637,244 $316 $305,266 $49,199 ============ ========= ============ ===========
UNEARNED SHARES OF COMMON TOTAL NINE MONTHS ENDED EMPLOYEE STOCK STOCK HELD BY TREASURY STOCKHOLDERS' SEPTEMBER 30, 1998 OWNERSHIP PLAN SUBSIDIARY STOCK EQUITY - ---------------------------------- -------------------- -------------------- --------------- --------------- Balance, December 31, 1997 $(3,498) $ (98,953) $215,139 Issuance of restricted stock 328 Cash dividends (4,417) Exercise of stock options $ 3,034 3,010 Shares committed to be released under Employee Stock Ownership Plan 774 1,187 Purchase of Shares by Employee Stock Ownership Plan (1,500) (1,500) Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 3,180 Acquisition of Meritage Mortgage Corporation 1,766 Treasury stock purchased (3,034) (3,034) Net income Total comprehensive income 35,945 -------- --------- ------- -------- Balance, September 30, 1998 $ (4,224) $ (98,953) $ -- $251,604 ======== ========= ======= ========
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 (loss) 12,822 Total comprehensive income ---------- ---- -------- ------- Balance, September 30, 1999 31,637,331 $316 $303,618 $65,549 ========== ==== ======== =======
UNEARNED SHARES OF COMMON TOTAL NINE MONTHS ENDED EMPLOYEE STOCK STOCK HELD BY TREASURY STOCKHOLDERS' SEPTEMBER 30, 1999 OWNERSHIP PLAN SUBSIDIARY STOCK EQUITY - ---------------------------------- -------------------- -------------------- --------------- ---------------- Balance, December 31, 1998 $ (4,419) $ (98,953) $ (11,499) $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 (loss) Total comprehensive income 12,822 ------- -------- -------- -------- Balance, September 30, 1999 $(5,456) $(98,953) $(36,881) $228,193 ======= ======== ======== ========
* Amount less than $1 See accompanying notes to consolidated financial statements. 5 6 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS ($ in thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------- 1999 1998 ----------- ------------ OPERATING ACTIVITIES: Net income $ 12,822 $ 35,945 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 29, 658 23,998 Employee Stock Ownership Plan compensation 1,055 1,187 Provision for estimated foreclosure losses and repurchased loans 7,931 6,452 Decrease (increase) in receivables 25,682 (25,069) Acquisition of mortgage loans (7,831,794) (12,062,075) Proceeds from sales of mortgage loans and mortgage-backed securities 8 770,407 12,042,649 Acquisition of mortgage servicing rights (211,670) (241,738) Sales of mortgage servicing rights 210,110 174,601 Net gain on sales of mortgage loans and servicing rights (86,617) (130,839) Increase in accrued interest on loans 1 789 78 Increase in lease receivables (44,161) (36,656) Increase in other assets (5,720) (50,559) Increase in residual certificates (5,142) (13,709) (Decrease) increase in accrued expenses and other liabilities (12,984) 54,347 ----------- ------------ Net cash provided by (used in) operating activities 861,366 (221,388) =========== ============ INVESTING ACTIVITIES: Purchases of premises and equipment, net (7,496) (10,315) ----------- ------------ Net cash used in investing activities (7,496) (10,315) =========== ============ FINANCING ACTIVITIES: Proceeds from borrowings 23,720,794 30,126,715 Repayment of borrowings (24,545,131) (29,802,505) Issuance of restricted stock 1,401 328 Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 5,437 3,180 Cash dividends (6,786) (4,417) Acquisition of treasury stock (35,648) (3,034) Issuance of treasury stock 1,674 Exercise of stock options 4 1,336 Loans to Employee Stock Ownership Plan (2,250) (1,500) ----------- ------------ Net cash (used in) provided by financing activities (862,179) 321,777 =========== ============ Net (decrease) increase in cash (8,309) 90,074 Cash, beginning of period 18,124 13,546 ----------- ------------ Cash, end of period $ 9,815 $ 103,620 =========== ============
See accompanying notes to consolidated financial statements. 6 7 RESOURCE BANCSHARES MORTGAGE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999 Note 1 - Basis of Presentation: The financial information included herein should be read in conjunction with the consolidated financial statements and related notes of Resource Bancshares Mortgage Group, Inc. (the Company), included in the Company's December 31, 1998, Annual Report on Form 10-K. Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, is not required for interim financial statements and has been omitted. The accompanying interim consolidated financial statements are unaudited. However, in the opinion of management of the Company, all adjustments, consisting of normal recurring items, necessary for a fair presentation of operating results for the periods shown have been made. Effective August 2, 1999, the Company implemented changes to its organizational structure, in order to manage more effectively the business diversity of its five distinct businesses: agency-eligible mortgage production, subprime mortgage production, commercial mortgage production, residential mortgage loan servicing and small-ticket equipment leasing. The Company will now operate as a holding company and each primary business will function independently. Holding company staff will coordinate the independent efforts of each unit. In connection with the reorganization, certain prior period amounts have been reclassified across divisions 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 Company has not yet determined either the impact that the adoption of SFAS 133 will have on its earnings or statement of financial position or the period in which the statement will be implemented. 7 8 The following is a reconciliation of basic earnings per share to diluted earnings per share for the nine months and quarter ended September 30, 1999 and 1998, respectively:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED FOR THE QUARTER ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net income (loss) $ 12,822 $ 35,945 $ (1,675) $ 13,252 ----------- ----------- ----------- ----------- Average common shares outstanding 21,158,547 23,189,299 20,310,289 23,394,524 ----------- ----------- ----------- ----------- Earnings (loss) per share - basic $ 0.61 $ 1.55 $ (0.08) $ 0.57 ----------- ----------- ----------- ----------- Dilutive stock options 192,487 379,722 0 436,773 Average common and common equivalent shares outstanding 21,351,034 23,569,021 20,310,289 23,831,297 ----------- ----------- ----------- ----------- Earnings (loss) per share - diluted $ 0.60 $ 1.53 $ (0.08) $ 0.56 ----------- ----------- ----------- -----------
Options to purchase 1,176,489 shares of common stock at prices ranging between $10.64 - $17.75 per share were outstanding during the first nine months of 1999 but were not included in the computation of diluted earnings (loss) per share because the options' exercise price was greater than the average market price of the common shares. Following is a summary of the allocated revenues and expenses for each of the Company's operating divisions for the nine months and quarter ended September 30, 1999 and 1998, respectively: 8 9
AGENCY-ELIGIBLE -------------------------------- FOR THE NINE MONTHS ENDED COMMERCIAL TOTAL SEPTEMBER 30, 1999* PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS OTHER ELIMINATIONS CONSOLIDATED - ------------------------- ---------- --------- ----------- -------- ---------- ------- -------- ------- ------------ ------------ (UNAUDITED) Net interest income (loss) $ 7,949 $(3,287) $ -- $11,552 $ 285 $5,299 $ 21,798 $ (440) $ 21,358 Net gain on sale of mortgage loans 58,717 -- 15,225 6,358 -- 80,300 -- 80,300 Gain on sale of mortgage servicing rights -- 6,317 -- -- -- -- 6,317 -- 6,317 Servicing fees -- 31,993 -- -- 3,400 500 35,893 -- 35,893 Other income (loss) 204 495 1,018 (2,742) 49 958 (18) 509 (186) 305 ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Total revenues 66,870 35,518 1,018 24,035 10,092 6,757 144,290 69 (186) 144,173 ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Salary and employee benefits 32,133 2,609 21 11,981 5,682 2,028 54,454 2,268 56,722 Occupancy expense 7,019 317 -- 1,862 830 330 10,358 559 (217) 10,700 Amortization and provision for impairment of mortgage servicing rights -- 22,985 -- -- 1,597 -- 24,582 -- 24,582 General and administrative expenses 16,631 4,542 303 7,306 1,361 2,236 32,379 401 (127) 32,653 ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Total expenses 55,783 30,453 324 21,149 9,470 4,594 121,773 3,228 (344) 124,657 ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Income (loss) before income taxes 11,087 5,065 694 2,886 622 2,163 22,517 (3 159) 158 19,516 Income tax (expense) benefit (3,707) (1,693) (245) (928) (298) (879) (7,750) 1,056 (6,694) ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Net income (loss) $ 7,380 $ 3,372 $ 449 $ 1,958 $ 324 $1,284 $ 14,767 $(2,103) $ 158 $ 12,822 ======= ======= ========= ======= ======= ====== ======== ======= ====== ======== *Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these revenues and expenses have been allocated to the respective divisions on a reasonable basis.
AGENCY-ELIGIBLE -------------------------------- FOR THE NINE MONTHS ENDED COMMERCIAL TOTAL SEPTEMBER 30, 1998* PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS OTHER ELIMINATIONS CONSOLIDATED - ------------------------- ---------- --------- ----------- -------- ---------- ------- -------- ------- ------------ ------------ (UNAUDITED) Net interest income (loss) $ 4,972 $ -- $ -- $ 5,999 $ 374 $3,198 $ 14,543 $ (191) $ 14,352 Net gain on sale of mortgage loans 101,547 -- -- 22,218 5,461 -- 129,226 -- 129,226 Gain on sale of mortgage servicing rights -- 1,613 -- -- -- -- 1,613 -- 1,613 Servicing fees -- 27,257 -- -- 2,776 773 30,806 328 31,134 Other income (loss) 1,702 230 -- 272 (13) 571 2,762 622 -- 3,384 -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Total revenues 108,221 29,100 -- 28,489 8,598 4,542 178,950 759 -- 179,709 -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Salary and employee benefits 39,797 2,491 -- 11,270 4,924 1,561 60,043 1,998 62,041 Occupancy expense 5,059 313 -- 1,362 598 264 7,596 462 -- 8,058 Amortization and provision for impairment of mortgage servicing rights -- 19,081 -- -- 972 -- 20,053 -- 20,053 General and administrative expenses 19,650 4,456 -- 3,256 1,269 1,810 30,441 614 -- 31,055 -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Total expenses 64,506 26,341 -- 15,888 7,763 3,635 118,133 3,074 -- 121,207 -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Income (loss) before income taxes 43,715 2,759 -- 12,601 835 907 60,817 (2,315) -- 58,502 Income tax (expense) benefit (17,086) (1,069) -- (4,571) (317) (359) (23,402) 845 (22,557) -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Net income (loss) $ 26 629 $ 1,690 $ -- $ 8,030 $ 518 $ 548 $ 37,415 $(1,470) $ -- $ 35,945 ======== ======= ========= ======= ======= ====== ======== ======= ====== ========= *Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these revenues and expenses have been allocated to the respective divisions on a reasonable basis.
9 10
AGENCY-ELIGIBLE --------------------------------- FOR THE QUARTER ENDED COMMERCIAL TOTAL SEPTEMBER 30, 1999* PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS OTHER ELIMINATIONS CONSOLIDATED - --------------------- ---------- --------- ----------- -------- ---------- ------- -------- ------- ------------ ------------ (UNAUDITED) Net interest income (loss) $ 1,438 $ (904) $ -- $ 4,096 $ 71 $1,910 $ 6,611 $ (150) $ 6,461 Net gain on sale of mortgage loans 8,639 -- -- 4,851 3,333 -- 16,823 -- 16,823 Gain on sale of mortgage servicing rights -- 1,494 -- -- -- -- 1,494 -- 1,494 Servicing fees -- 9,458 -- -- 1,267 173 10,898 -- 10,898 Other income (loss) 187 151 577 (1,183) 18 424 174 500 $(186) 488 ------- ------- ------- ------- ------ ------ ------- ------ ----- ------- Total revenues 10,264 10,199 577 7,764 4,689 2,507 36,000 350 (186) 36,164 ------- ------- ------- ------- ------ ------ ------- ------ ----- ------- Salary and employee benefits 9,781 804 21 5,197 2,434 675 18,912 599 19,511 Occupancy expense 2,942 110 -- 610 289 116 4,067 212 (217) 4,062 Amortization and provision for impairment of mortgage servicing rights -- 5,665 -- -- 615 -- 6,280 -- 6,280 General and admini- strative expenses 3,938 1,201 99 2,845 428 880 9,391 206 (127) 9,470 ------- ------- ------- ------- ------ ------ ------- ------ ----- ------- Total expenses 16,661 7,780 120 8,652 3,766 1,671 38,650 1,017 (344) 39,323 ------- ------- ------- -------- ------ ------ ------- ------ ----- ------- Income (loss) before income taxes (6,397) 2,419 457 (888) 923 836 (2,650) (667) 158 (3,159) Income tax (expense) benefit 2,570 (901) (161) 483 (389) (336) 1,266 218 1,484 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Net income (loss) $(3,827) $ 1,518 $ 296 $ (405) $ 534 $ 500 $(1,384) $ (449) $ 158 $(1,675) ======= ======== ======= ======= ====== ====== ======= ====== ===== ======= * Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these revenues and expenses have been allocated to the respective divisions on a reasonable basis.
AGENCY-ELIGIBLE --------------------------------- FOR THE QUARTER ENDED COMMERCIAL TOTAL SEPTEMBER 30, 1998* PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS OTHER ELIMINATIONS CONSOLIDATED - --------------------- ---------- --------- ----------- -------- ---------- ------- -------- ------ ------------ ------------ (UNAUDITED) Net interest income (loss) $ 839 $ -- $ -- $ 2,586 $ 114 $1,216 $ 4,755 $ (154) $ 4,601 Net gain on sale of mortgage loans 34,782 -- -- 8,836 1,979 -- 45,597 -- 45,597 Gain on sale of mortgage servicing rights -- 533 -- -- -- -- 533 -- 533 Servicing fees -- 10,027 -- -- 964 264 11,255 164 11,419 Other income (loss) 7 89 -- 135 (11) 146 366 121 -- 487 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Total revenues 35,628 10,649 -- 11,557 3,046 1,626 62,506 131 -- 62,637 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Salary and employee benefits 12,788 843 -- 3,681 2,004 531 19,847 632 20,479 Occupancy expense 1,574 95 -- 491 209 98 2,467 160 -- 2,627 Amortization and provision for impairment of mortgage servicing rights -- 7,432 -- -- 318 -- 7,750 -- 7,750 General and admini- strative expenses 6,705 1,339 -- 1,141 426 546 10,157 238 -- 10,395 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Total expenses 21,067 9,709 -- 5,313 2,957 1,175 40,221 1,030 -- 41,251 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Income (loss) before income taxes 14,561 940 -- 6,244 89 451 22,285 (899) -- 21,386 Income tax (expense) benefit (5,575) (359) -- (2,322) (35) (171) (8,462) 328 (8,134) ------- -------- ------- ------- ------ ------ ------- ------ ------ ------- Net income (loss) $ 8,986 $ 581 $ -- $ 3,922 $ 54 $ 280 $13,823 $ (571) $ -- $13,252 ======= ======== ======= ======= ====== ====== ======= ====== ====== ======= * Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these revenues and expenses have been allocated to the respective divisions on a reasonable basis.
10 11 RESOURCE BANCSHARES MORTGAGE GROUP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements of Resource Bancshares Mortgage Group, Inc. (the Company) (and the notes thereto) and the other information included or incorporated by reference into the Company's 1998 Annual Report on Form 10-K and the interim Consolidated Financial Statements contained herein. Statements included in this discussion and analysis (or elsewhere in this document) which are not statements of historical fact are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following which are described in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, in this filing or from time to time in other reports filed by the Company with the Securities and Exchange Commission: (i) interest rate risks; (ii) changes in economic conditions; (iii) competition; (iv) possible changes in regulations and related matters; (v) litigation affecting the mortgage banking business; (vi) delinquency and default risks; (vii) changes in the market for servicing rights, mortgage loans and leases; (viii) environmental matters; (ix) changes in the demand for mortgage loans and leases; (x) changes in the value of residual interests in subprime securitizations; (xi) prepayment risks, (xii) Year 2000 risks; (xiii) possible changes in accounting estimates; (xiv) availability of funding sources; and (xv) other risks and uncertainties. The Company disclaims any obligation to update any forward-looking statements. THE COMPANY The Company is a diversified financial services company engaged through wholly-owned subsidiaries primarily in the business of mortgage banking, through the purchase (via a nationwide network of correspondents and brokers), sale and servicing of agency-eligible and subprime residential, single-family (i.e. one-four family), first-mortgage loans and the purchase and sale of servicing rights associated with agency-eligible loans. In addition, two of the Company's wholly-owned subsidiaries originate, sell and service small-ticket commercial equipment leases and originate, sell, underwrite for investors and service commercial mortgage loans. LOAN AND LEASE PRODUCTION The Company, through its wholly-owned subsidiary, RBMG, Inc., purchases agency-eligible residential mortgage loans from correspondents and through its wholesale division and, until the sale of its retail production platform in May 1998, originated mortgage loans through its retail division. Through its wholly owned subsidiary, Meritage Mortgage Corporation, the Company purchases and originates subprime mortgage loans. The Company also has a wholly-owned 11 12 subsidiary, Laureate Capital Corp., that originates and services commercial mortgage loans and a wholly-owned subsidiary, Republic Leasing Company, Inc., that purchases and originates and services leases of small-ticket equipment items. 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, ---------------------------- --------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Agency-Eligible Loan Production: Correspondent $ 5,259,196 $ 8,524,393 $ 1,138,671 $ 2,864,933 Wholesale 1,447,891 2,202,280 292,161 718,791 Retail N/A 264,059 N/A N/A ----------- ----------- ----------- ----------- Total Agency-Eligible Loan Production 6,707,087 10,990,732 1,430,832 3,583,724 Subprime Loan Production 552,142 417,892 182,287 165,760 Commercial Mortgage (for Investor and Conduits) Loan Production 572,565 653,451 264,463 290,829 Lease Production 75,181 55,853 30,316 22,310 ----------- ----------- ----------- ----------- Total Mortgage Loan and Lease Production $ 7,906,975 $12,117,928 $ 1,907,898 $ 4,062,623 =========== =========== =========== ===========
Initially, the Company was focused exclusively on purchasing agency-eligible mortgage loans through its correspondents. To diversify its sources of residential loan volume, the Company started a wholesale operation in 1994, a retail operation in 1995 which was later sold in 1998 and a subprime operation in 1997. To further diversify its sources of production and revenue, the Company acquired a small-ticket commercial equipment lease operation and a commercial mortgage loan business. These two new sources of production accounted for approximately 15% and 8% of the Company's total third quarter production for 1999 and 1998, respectively. A summary of key information relevant to industry residential mortgage loan production activity is set forth below: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ------------ ------------ U. S. 1-4 FAMILY MORTGAGE ORIGINATIONS STATISTICS (1): U. S. 1-4 Family Mortgage Originations $306,000,000 $375,000,000 Adjustable Rate Mortgage Market Share ("ARM") 25.00% 13.00% Estimated Fixed Rate Mortgage Originations $230,000,000 $326,000,000 COMPANY INFORMATION: Agency-Eligible Loan Production $ 1,430,832 $ 3,583,724 Estimated Company Market Share 0.47% 0.96%
[FN] (1) Source: Mortgage Bankers Association of America, Economics Department. The Company's total residential mortgage production decreased by 60% to $1.4 billion for the third quarter of 1999 from $3.6 billion for the third quarter of 1998. This decrease is primarily due to (1) the current level of competition in the market place; (2) an 18% decline in 12 13 estimated residential originations within the industry; (3) the increased ARM market share (the Company primarily offers competitive fixed rate products); and (4) the rise in mortgage interest rates beginning in the first quarter of 1999. CORRESPONDENT LOAN PRODUCTION The Company purchases closed mortgage loans through its network of approved correspondent lenders. Correspondents are primarily mortgage lenders, larger mortgage brokers and smaller savings and loan associations and commercial banks that have met the Company's approval requirements. The Company continues to emphasize correspondent loan production as its basic business focus because of the lower fixed expenses and capital investment required of the Company. A summary of key information relevant to the Company's correspondent residential loan production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------- ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Correspondent Loan Production $5,259,196 $8,524,393 $1,138,671 $2,864,933 Estimated Correspondent Market Share (1) 0.51% 0.82% 0.37% 0.76% Approved Correspondents 886 870 886 870 Correspondent Division Expenses $ 43,531 $ 52,856 $ 12,883 $ 17,157
[FN] (1) Source: Mortgage Bankers Association of America, Economics Department. The Company's correspondent loan production decreased by 60% to $1.1 billion for the third quarter of 1999 from $2.9 billion for the third quarter of 1998. This decrease in production is primarily due to (1) the current level of competition in the market place; (2) an 18% decline in estimated residential originations within the industry; (3) the increased ARM market share (the Company primarily offers competitive fixed rate products); and (4) the rise in mortgage interest rates beginning in the first quarter of 1999. This decline in production is the primary reason for the increase in correspondent division expenses as a percentage of production which increased from 60 basis points for the third quarter of 1998 to 113 basis points for the third quarter of 1999. The number of approved correspondent lenders increased 2% from quarter to quarter. WHOLESALE LOAN PRODUCTION The wholesale division receives loan applications through brokers, underwrites the loans, funds the loans at closing and prepares all closing documentation. The wholesale branches handle all shipping and follow-up procedures on loans. Typically mortgage brokers are responsible for taking applications and accumulating the information precedent to the Company's processing of the loans. Although the establishment of wholesale branch offices involves the incurrence of fixed expenses associated with maintaining those offices, wholesale operations also provide for higher profit margins than correspondent loan production. Additionally, each branch office can serve a relatively sizable geographic area by establishing relationships with large numbers of independent mortgage loan brokers who bear much of the cost of identifying and interacting directly with loan applicants. A summary of key information relevant to the Company's wholesale production activities is set forth below: 13 14 ($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------- ------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Wholesale Loan Production $1,447,891 $2,202,280 $ 292,161 $ 718,791 Estimated Wholesale Market Share (1) 0.14% 0.21% 0.10% 0.19% Wholesale Division Direct Operating Expenses $ 12,252 $ 11,650 $ 3,778 $ 3,910 Approved Brokers 3,939 3,232 3,939 3,232 Number of Branches 18 15 18 15 Number of Employees 194 155 194 155
[FN] (1) Source: Mortgage Bankers Association of America, Economics Department. The wholesale loan production decreased 59% ($427 million) from $718.8 million for the third quarter of 1998 to $292.2 million for the third quarter of 1999 primarily due to (1) the current level of competition in the market place; (2) an 18% decline in estimated residential originations within the industry; (3) the increased ARM market share (the Company primarily offers competitive fixed rate products); and (4) the rise in mortgage interest rates beginning in the first quarter of 1999. Wholesale division operating expenses as a percentage of production increased from 54 basis points in the third quarter of 1998 to 129 basis points in the third quarter of 1999 primarily as a result of the decline in production. RETAIL LOAN PRODUCTION Effective May 1, 1998, the Company sold its retail production franchise to CFS Bank. Retail loan production and retail divisional direct operating expenses for the nine months ended September 30, 1998 were $264.1 million and $5.7 million, respectively. SUBPRIME LOAN PRODUCTION In 1997, the Company began its initial expansion into subprime lending activities. The Company does subprime business under the name of its wholly-owned subsidiary, Meritage Mortgage Corporation. A summary of key information relevant to the Company's subprime production activities is set forth below: 14 15
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------- ------------------------- 1999 1998 1999 1998 -------- --------- --------- --------- Subprime Loan Production $ 552,142 $ 417,892 $ 182,287 $ 165,760 Subprime Division Direct Operating Expenses $ 21,149 $ 15,888 $ 8,652 $ 5,313 Number of Brokers 2,434 835 2,434 835 Number of Employees 343 243 343 243 Number of Branches 18 17 18 17
[FN] (1) Source: Mortgage Bankers Association of America, Economics Department. Subprime loan production increased by 10% to $182.3 million for the third quarter of 1999 as compared to $165.8 million during the third quarter of 1998 as the Company has expanded its operations. Between September 30, 1998 and September 30, 1999 the Company increased the number of its wholesale brokers by 1,599. COMMERCIAL MORTGAGE PRODUCTION The Company's subsidiary, Laureate Capital Corp. (Laureate), originates commercial mortgage loans for various insurance companies and other investors. Commercial mortgage loans are generally originated in the name of the investor and, in most instances, Laureate retains the right to service the loans under a servicing agreement. A summary of key information relevant to the Company's commercial mortgage production activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------- ------------------------ 1999 1998 1999 1998 --------- --------- --------- --------- Commercial Mortgage Production $ 572,565 $ 653,451 $ 264,463 $ 290,829 Commercial Mortgage Division Direct Operating Expenses $ 9,470 $ 7,763 $ 3,766 $ 2,957 Number of Branches 13 11 13 11 Number of Employees 93 77 93 77
LEASE PRODUCTION The Company's wholly-owned subsidiary, 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, ------------------------- ----------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Lease Production $ 75,181 $ 55,853 $ 30,316 $ 22,310 Lease Division Direct Operating Expenses $ 4,594 $ 3,635 $ 1,671 $ 1,175 Number of Brokers 207 210 207 210 Number of Employees 67 61 67 61
15 16 SERVICING AGENCY-ELIGIBLE MORTGAGE SERVICING Agency-eligible mortgage servicing includes collecting and remitting mortgage loan payments, accounting for principal and interest, holding escrow funds for payment of mortgage-related expenses such as taxes and insurance, making advances to cover delinquent payments, making inspections as required of the mortgaged premises, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults and generally administering mortgage loans. The Company is somewhat unique in that its strategy is to sell substantially all of its produced agency-eligible mortgage servicing rights to other approved servicers. Typically, the Company sells its agency-eligible mortgage servicing rights within 90 to 180 days of purchase or origination. However, for strategic reasons, the Company also strives to maintain a servicing portfolio whose size is determined by reference to the Company's cash operating costs which, in turn, are largely determined by the size of its loan production platform. A summary of key information relevant to the Company's agency-eligible loan servicing activities is set forth below:
($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Underlying Unpaid Principal Balances: Beginning Balance * $ 9,865,100 $ 7,125,222 $ 8,410,690 $ 9,369,326 Agency-Eligible Loan Production (net of Servicing-released production) * 6,695,685 11,547,716 1,429,830 3,715,794 Bulk Acquisitions* -- 122,467 -- -- Net Change in Work-in-Progress* 312,272 (151,839) 115,918 (84,229) Sales of Servicing* (7,848,456) (7,675,411) (1,743,730) (2,871,176) Paid-In-Full Loans* (851,143) (989,514) (202,087) (338,623) Amortization, Curtailments and Other, net* (225,788) (255,649) (62,951) (68,100) ------------ ------------ ----------- ------------ Ending Balance* 7,947,670 9,722,992 7,947,670 9,722,992 Subservicing Ending Balance 1,874,201 3,206,581 1,874,201 3,206,581 ------------ ------------ ----------- ------------ Total Underlying Unpaid Principal Balances $ 9,821,871 $ 12,929,573 $ 9,821,871 $ 12,929,573 ============ ============ =========== ============
[FN] * These numbers and statistics apply to the Company's owned agency-eligible servicing portfolio and therefore exclude the subservicing portfolio. Of the $8.0 billion and $9.7 billion unpaid principal balance at September 30, 1999 and 1998, approximately $6.1 billion and $5.6 billion, respectively, are classified as available for sale, while $1.9 billion and $4.1 billion, respectively, are classified as held for sale. 16 17 A summary of agency-eligible servicing statistics follows: ($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------------- -------------------------------- 1999 1998 1999 1998 ---------------- --------------- -------------------------------- Average Underlying Unpaid Principal Balances (including subservicing) $ 12,490,733 $ 11,394,262 $ 11,163,496 $ 12,428,469 Weighted Average Note Rate* 7.45% 7.36% 7.45% 7.36% Weighted Average Servicing Fee* 0.43% 0.40% 0.43% 0.40% Delinquency (30+ days) Including Bankruptcies and Foreclosures* 1.89% 1.81% 1.89% 1.81% Number of Servicing Division Employees 106 128 106 128
* These numbers and statistics apply to the Company's owned agency-eligible servicing portfolio and therefore exclude the subservicing portfolio. The $1.3 billion, or 11%, decrease in the average underlying unpaid principal balance of agency-eligible mortgage loans being serviced and subserviced for the third quarter of 1999 as compared to the third quarter of 1998 is primarily related to the Company's decreased loan production volumes during 1999. Since the Company generally sells servicing rights related to the agency-eligible loans it produces within 90 to 180 days of purchase or origination, decreased production volumes generally result in a lower volume of mortgage servicing rights held in inventory pending sale. COMMERCIAL MORTGAGE SERVICING Laureate originates commercial mortgage loans for investors and in most cases, Laureate retains the right to service the loans. A summary of key information relevant to the Company's commercial mortgage servicing activities is set forth below: ($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------------- --------------------------------- 1999 1998 1999 1998 -------------------------------- ---------------- ---------------- Commercial Mortgage Loan Servicing Portfolio $ 4,018,649 $ 3,133,185 $ 4,018,649 $ 3,133,185 Weighted Average Note Rate 8.00% 8.18% 8.00% 8.18% Delinquencies (30+ Days) 0.29% 0.49% 0.29% 0.49%
LEASE SERVICING The Company's leasing subsidiary services leases that are owned by the Company and also services leases for investors. A summary of key information relevant to the Company's lease servicing activity is set forth below: 17 18 ($ IN THOUSANDS) AT SEPTEMBER 30, AT SEPTEMBER 30, ------------------------ ----------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Owned Lease Servicing Portfolio $141,509 $ 85,685 $141,509 $ 85,685 Serviced For Investors Servicing Portfolio 18,795 45,780 18,795 45,780 -------- -------- -------- -------- Total Managed Lease Servicing Portfolio $160,304 $131,465 $160,304 $131,465 ======== ======== ======== ======== Weighted Average Net Yield For Managed Lease Servicing Portfolio 10.66% 10.76% 10.66% 10.76% Delinquencies (30+ Days) Managed Lease Servicing Portfolio 1.95% 1.96% 1.95% 1.96%
CONSOLIDATED COVERAGE RATIOS A summary of the Company's consolidated ratios of servicing fees and interest income for owned leases to cash operating expenses net of amortization and depreciation follows: ($ IN THOUSANDS) AT OR FOR THE NINE MONTHS AT OR FOR THE QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------- ----------------------- 1999 1998 1999 1998 -------- ------- ------- ------- Total Company Servicing Fees $ 35,893 $31,134 $10,898 $11,419 Net Interest Income from Owned Leases 5,299 3,198 1,910 1,216 -------- ------- ------- ------- Total Servicing Fees and Interest from Owned Leases $ 41,192 $34,332 $12,808 $12,635 -------- ------- ------- ------- Total Company Operating Expenses $124,657 $121,207 $39,323 $41,251 Total Company Amortization and Depreciation (29,658) (23,998) (8,675) (9,112) --------- -------- ------- ------- Total Company Operating Expenses, Net of Amortization and Depreciation $ 94,999 $ 97,209 $30,648 $32,139 -------- -------- ------- ------- Coverage Ratio 43% 35% 42% 39% ======== ======== ======= =======
The Company's coverage ratios for the third quarter of 1999 and 1998, at 42% and 39%, respectively, were lower than the Company's target level of between 50% and 80%. As market conditions permit, management would expect to bring this ratio back in line with the stated objective. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 SUMMARY BY OPERATING DIVISION Net income per common share on a diluted basis for the first nine months of 1999 was $0.60 as compared to $1.53 for the first nine months of 1998. This 61% decrease in net income per common share was less than the 64% decrease in net income due primarily to the impact of the Company's stock repurchase program which reduced the number of weighted average shares outstanding across comparative periods. Following is a summary of the allocated revenues and expenses for each of the Company's operating divisions for the nine months ended September 30, 1999 and 1998, respectively: 18 19
AGENCY-ELIGIBLE -------------------------------- FOE THE NINE MONTHS ENDED COMMERCIAL TOTAL SEPTEMBER 30, 1999* PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS OTHER ELIMINATIONS CONSOLIDATED - ------------------------- ---------- --------- ----------- -------- ---------- ------- -------- ------- ------------ ------------ (UNAUDITED) Net interest income (loss) $ 7,949 $(3,287) $ -- $11,552 $ 285 $5,299 $ 21,798 $ (440) $ 21,358 Net gain on sale of mortgage loans 58,717 -- -- 15,225 6,358 -- 80,300 -- 80,300 Gain on sale of mortgage servicing rights -- 6,317 -- -- -- -- 6,317 -- 6,317 Servicing fees -- 31,993 -- -- 3,400 500 35,893 -- 35,893 Other income (loss) 204 495 1,018 (2,742) 49 958 (18) 509 (186) 305 ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Total revenues 66,870 35,518 1,018 24,035 10,092 6,757 144,290 69 (186) 144,173 ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Salary and employee benefits 32,133 2,609 21 11,981 5,682 2,028 54,454 2,268 56,722 Occupancy expense 7,019 317 -- 1,862 830 330 10,358 559 (217) 10,700 Amortization and provision for impairment of mortgage servicing rights -- 22,985 -- -- 1,597 -- 24,582 -- 24,582 General and administrative expenses 16,631 4,542 303 7,306 1,361 2,236 32,379 401 (127) 32,653 ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Total expenses 55,783 30,453 324 21,149 9,470 4,594 121,773 3,228 (344) 124,657 ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Income (loss) before income taxes 11,087 5,065 694 2,886 622 2,163 22,517 (3,159) 158 19,516 Income tax (expense) benefit (3,707) (1,693) (245) (928) (298) (879) (7,750) 1,056 (6,694) ------- ------- --------- ------- ------- ------ -------- ------- ------ -------- Net income (loss) $ 7,380 $ 3,372 $ 449 $ 1,958 $ 324 $1,284 $ 14,767 $(2,103) $ 158 $ 12,822 ======= ======= ========= ======= ======= ====== ======== ======= ====== ======== *Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these revenues and expenses have been allocated to the respective divisions on a reasonable basis.
AGENCY-ELIGIBLE -------------------------------- FOE THE NINE MONTHS ENDED COMMERCIAL TOTAL SEPTEMBER 30, 1998* PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS OTHER ELIMINATIONS CONSOLIDATED - ------------------------- ---------- --------- ----------- -------- ---------- ------- -------- ------- ------------ ------------ (UNAUDITED) Net interest income (loss) $ 4,972 $ -- $ -- $ 5,999 $ 374 $3,198 $ 14,543 $ (191) $ 14,352 Net gain on sale of mortgage loans 101,547 -- -- 22,218 5,461 -- 129,226 -- 129,226 Gain on sale of mortgage servicing rights -- 1,613 -- -- -- -- 1,613 -- 1,613 Servicing fees -- 27,257 -- -- 2,776 773 30,806 328 31,134 Other income (loss) 1,702 230 -- 272 (13) 571 2,762 622 -- 3,384 -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Total revenues 108,221 29,100 -- 28,489 8,598 4,542 178,950 759 -- 179,709 -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Salary and employee benefits 39,797 2,491 -- 11,270 4,924 1,561 60,043 1,998 62,041 Occupancy expense 5,059 313 -- 1,362 598 264 7,596 462 -- 8,058 Amortization and provision for impairment of mortgage servicing rights -- 19,081 -- -- 972 -- 20,053 -- 20,053 General and administrative expenses 19,650 4,456 -- 3,256 1,269 1,810 30,441 614 -- 31,055 -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Total expenses 64,506 26,341 -- 15,888 7,763 3,635 118,133 3,074 -- 121,207 -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Income (loss) before income taxes 43,715 2,759 -- 12,601 835 907 60,817 (2,315) -- 58,502 Income tax (expense) benefit (17,086) (1,069) -- (4,571) (317) (359) (23,402) 845 (22,557) -------- ------- --------- ------- ------- ------ -------- ------- ------ --------- Net income (loss) $ 26 629 $ 1,690 $ -- $ 8,030 $ 518 $ 548 $ 37,415 $(1,470) $ -- $ 35,945 ======== ======= ========= ======= ======= ====== ======== ======= ====== ========= *Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these revenues and expenses have been allocated to the respective divisions on a reasonable basis.
19 20 AGENCY-ELIGIBLE PRODUCTION OPERATIONS Following is a comparison of the revenues and expenses allocated to the Company's agency-eligible mortgage production operations.
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 1999 1998 ----------- ------------ Net interest income $ 7,949 $ 4,972 Net gain on sale of mortgage loans 58,717 101,547 Other income 204 1,702 ----------- ------------ Total production revenue 66,870 108,221 ----------- ------------ Salary and employee benefits 32,133 39,797 Occupancy expense 7,019 5,059 General and administrative expenses 16,631 19,650 ----------- ------------ Total production expenses 55,783 64,506 ----------- ------------ Net pre-tax production margin $ 11,087 $ 43,715 ----------- ------------ Production $ 6,707,087 $ 10,990,732 Pool delivery 7,278,856 10,934,899 Total production revenue to pool delivery 92 bps 99 bps Total production expenses to production 83 bps 59 bps ----------- ------------ Net pre-tax production margin 9 bps 40 bps =========== ============
SUMMARY The production revenue to pool delivery ratio decreased 7 basis points for the first nine months of 1999 as compared to the first nine months of 1998. Generally, net gain on sale of mortgage loans (81 basis points for 1999 versus 93 basis points for 1998) declined primarily due to compressed margins attributable to an aggressive competitive pricing environment and lower overall agency-eligible production volume. Net interest income increased from 5 basis points in 1998 to 11 basis points in 1999 primarily as a result of the generally steeper yield curve environment. The production expenses to production ratio increased 24 basis points for the first nine months of 1999 as compared to the first nine months of 1998. This is primarily due to the 39% decline in production for the first nine months of 1999 as compared to the first nine months of 1998. As a consequence of the foregoing, the Company's net agency-eligible pre-tax production margin declined 31 basis points. NET INTEREST INCOME The following table analyzes net interest income allocated to the Company's agency-eligible mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest rates paid on interest-bearing sources of funds) for the nine months ended September 30, 1999 and 1998, respectively. 20 21
($ IN THOUSANDS) VARIANCE AVERAGE VOLUME AVERAGE RATE INTEREST ATTRIBUTABLE TO - ----------------------------------------- ------------------ -------------------- 1999 1998 1999 1998 1999 1998 VARIANCE RATE VOLUME - --------- ----------- ----- ----- -------- -------- --------- -------- ---------- INTEREST INCOME Mortgages Held for Sale and $ 764,763 $ 1,155,602 6.70% 6.86% Mortgage-Backed Securities $ 38,414 $ 59,445 $ (21,031) $ (926) $ (20,105) - --------- ----------- ----- ----- -------- -------- --------- -------- --------- INTEREST EXPENSE $ 364,787 $ 452,737 3.77% 4.63% Warehouse Line $ 10,274 $ 15,678 $ (5,404) $ (2,358) $ (3,046) 390,606 673,677 5.20% 5.91% Gestation Line 15,191 29,755 (14,564) (2,061) (12,503) 110,487 95,755 6.00% 6.73% Servicing Secured Line 4,959 4,820 139 (603) 742 26,760 33,321 5.28% 5.90% Servicing Receivables Line 1,056 1,470 (414) (125) (289) 7,327 7,918 8.03% 8.09% Other Borrowings 440 479 (39) (3) (36) Facility Fees & Other Charges 2,113 2,462 (349) (349) - --------- ----------- ----- ----- -------- -------- --------- -------- --------- $ 899,967 $ 1,263,408 5.06% 5.78% Total Interest Expense $ 34,033 $ 54,664 $ (20,631) $ (5,150) $ (15,481) - --------- ----------- ----- ----- -------- -------- --------- -------- --------- Net Interest Income Before 1.64% 1.08% Interdivisional Allocations $ 4,381 $ 4,781 $ (400) $ 4,224 $ (4,624) ===== ===== ========= ======== ========= Allocation to Other 440 N/A Allocation to Agency-Eligible Servicing Division 3,128 191 -------- -------- Net Interest Income $ 7,949 $ 4,976 ======== ========
The 56 basis point increase in the interest-rate spread was primarily the result of the steeper yield curve environment in the first nine months of 1999 compared to the first nine months of 1998. The Company's mortgages and mortgage-backed securities are generally sold and replaced within 30 to 35 days. Accordingly, the Company generally borrows at rates based upon short-term indices, while its asset yields are primarily based upon long-term mortgage rates. NET GAIN ON SALE OF AGENCY-ELIGIBLE MORTGAGE LOANS A reconciliation of gain on sale of agency-eligible mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 1999 1998 ----------- ------------ Gross proceeds on sales of mortgage loans $ 7,288,196 $ 11,126,158 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results 7,293,015 11,124,898 ----------- ------------ Unadjusted (loss) gain on sale of mortgage loans (4,819) 1,260 Loan origination and correspondent program administrative fees 19,243 28,669 ----------- ------------ Unadjusted aggregate margin 14,424 29,929 Acquisition basis allocated to mortgage servicing rights (SFAS No. 125) 45,573 70,984 Net deferred costs and administrative fees recognized (1,280) 634 ----------- ------------ Net gain on sale of agency-eligible mortgage loans $ 58,717 $ 101,547 =========== ============
Net gain on sale of agency-eligible mortgage loans decreased $42.8 million from $101.5 million for the first nine months of 1998 to $58.7 million for the first nine months of 1999. 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. 21 22 OTHER INCOME The $1.5 million decline in other income for the nine months ended September 30, 1999 as compared to the nine months ended September 30, 1998 is primarily attributed to the sale of the Company's retail production franchise in 1998 which resulted in a nonrecurring gain of approximately $1.4 million. AGENCY-ELIGIBLE REINSURANCE OPERATIONS In November 1998, the Company formed a captive insurance company, MG Reinsurance Company (MG Reinsurance). MG Reinsurance is licensed as a property and casualty insurer and operates as a monoline captive insurance company assuming reinsurance for agency-eligible mortgage loans initially purchased or produced by the Company. During the first nine months of 1999, the Company recognized premium and investment income of approximately $1.0 million that has been included as other income in the agency-eligible reinsurance segment. SUBPRIME MORTGAGE OPERATIONS Following is an analysis of the revenues and expenses allocated to the Company's subprime mortgage production operations. ($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------ 1999 1998 -------- -------- Net interest income $ 11,552 $ 5,999 Net gain on sale of mortgage loans 15,225 22,218 Other income (2,742) 272 -------- -------- Total production revenue 24,035 28,489 -------- -------- Salary and employee benefits 11,981 11,270 Occupancy expense 1,862 1,362 General and administrative expenses 7,306 3,256 -------- -------- Total production expenses 21,149 15,888 -------- -------- Net pre-tax production margin $ 2,886 $ 12,601 ======== ======== Production $552,142 $417,892 Whole loan sales and securitizations 501,500 365,946 Total production revenue to whole loan sales and securitizations 479 bps 779 bps Total production expenses to production 383 bps 380 bps -------- -------- Net pre-tax production margin 96 bps 399 bps ======== ========
22 23 SUMMARY During the first nine months of 1999, subprime production volume of $552.1 million exceeded whole loan sales of $500.5 million by $51.6 million. At September 30, 1999, the Company had unsold subprime mortgage loans of $145.7 million as compared to $90.5 million at September 30, 1998. Overall, the Company operated during the first nine months of 1999 at a 0.96% pre-tax subprime production margin. The 303 basis point decline in the pre-tax subprime production margin is primarily due to the 303 basis point decline in net gain on the sale of subprime mortgage loans. This decline is primarily attributable to compressed margins in the subprime market during the first nine months of 1999. NET INTEREST INCOME The following table analyzes net interest income allocated to the Company's subprime mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and residual certificates and interest rates paid on interest-bearing sources of funds) for the nine months ended September 30, 1999, and 1998, respectively.
($ IN THOUSANDS) VARIANCE AVERAGE VOLUME AVERAGE RATE INTEREST ATTRIBUTABLE TO - -------------------- -------------- ----------------- --------------- 1999 1998 1999 1998 1999 1998 Variance Rate Volume - -------- -------- ----- ----- INTEREST INCOME ------- ------ -------- ----- ------ Mortgages Held for Sale and $253,973 $129,822 9.76% 9.89% Residual Certificates $18,600 $9,630 $8,970 $(239) $9,209 - -------- -------- ---- ---- ------- ------ ------ ----- ------ INTEREST EXPENSE $176,730 $ 87,261 5.45% 5.56% Total Interest Expense $ 7,207 $3,631 $3,576 $(147) 3,723 - -------- -------- ---- ---- ------- ------ ------ ----- ----- 4.31% 4.33% Net Interest Income $11,393 $5,999 $5,394 $ (92) $5,486 ==== ==== Allocation to Agency Eligible ------- ====== ====== ===== ====== Servicing Division 159 ------- Net Interest Income $11,552 =======
Net interest income from subprime products increased to $11.6 million for the first nine months of 1999 as compared to $6.0 million for the first nine months of 1998. This was primarily the result of the increase in subprime loan production volume and an increase in accretion income earned on residual interests to $4.8 million for the nine months ended September 30, 1999 as compared to $2.4 for the nine months ended September 30, 1998. NET GAIN ON SECURITIZATION AND SALE OF SUBPRIME MORTGAGE LOANS A reconciliation of the gain on securitization of subprime mortgage loans for the periods indicated follows: 23 24 ($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------- 1999 1998 -------- -------- Gross proceeds on securitization of subprime mortgage loans $124,242 $149,063 Initial acquisition cost of subprime mortgage loans securitized, net of fees 126,043 152,286 -------- -------- Unadjusted loss on securitization of subprime mortgage loans (1,801) (3,223) Initial capitalization of residual certificates 8,867 11,227 Net deferred costs and administrative fees recognized (2,008) -------- -------- Net gain on securitization of subprime mortgage loans $ 5,058 $ 8,004 ======== ========
The Company assesses the fair value of residual certificates quarterly, based on an independent third party valuation and other factors. This valuation is based on the discounted cash flows expected to be available to the holder of the residual certificates. Significant assumptions used at September 30, 1999 for residual certificates then held by the Company generally include a discount rate of 13%, a constant default rate of 3% and a loss severity rate of 25%, and ramping periods are based on prepayment penalty periods and adjustable rate mortgage first reset dates. Constant prepayment rate assumptions specific to the individual certificates for purposes of the September 30, 1999 valuations are set forth below: 1997-1 1997-2 1998-1 1998-2 1999-1 OTHER -------- -------- -------- -------- -------- -------- Prepayment Speeds Fixed rate mortgages 34% cpr 32% cpr 32% cpr 32% cpr 30% cpr 32% cpr Adjustable rate mortgages 34% cpr 32% cpr 32% cpr 32% cpr 30% cpr 24% cpr
The assumptions used in the independent third party valuation referred to above are estimated based on current conditions for similar instruments that are subject to prepayment and credit risks. Other factors considered in the determination of fair value include credit and collateral quality of the underlying loans, current economic conditions and various fees and costs (such as prepayment penalties) associated with ownership of the residual certificate including actual credit history of the individual residual certificates. Although the Company believes that the fair values of its residual certificates are reasonable given current market conditions, the assumptions used are estimates and actual experience may vary from these estimates. Differences in the actual prepayment speed and loss experience from the assumptions used, could have a significant effect on the fair value of the residual certificates. As summarized in the following analysis, the recorded residual values imply that the Company's securitizations are valued at 1.59 times the implied excess yield at September 30, 1999, as compared to the 1.48 multiple implied at June 30, 1999. The table below represents balances as of August 31, 1999, unless otherwise noted. 24 25
($ IN THOUSANDS) SECURITIZATIONS ---------------------------------------------------------- ---------- ---------- ---------- 1997-1 1997-2 1998-1 1998-2 1999-1 SUBTOTAL OTHER TOTAL --------- --------- --------- --------- ---------- ---------- ---------- ---------- Residual Certificates $ 6,429 $ 8,321 $11,313 $ 13,726 $ 10,185 $ 49,974 $ 950 $ 50,924 Bonds $30,426 * $47,709 * $84,612 * $153,241 * $121,887 * $437,875 $28,763 * $466,638 ------- ------- ------- -------- -------- -------- ------- -------- Subtotal $36,855 $56,030 $95,925 $166,967 $132,072 $487,849 $29,713 $517,562 Unpaid Principal Balance $35,111 * $52,564 * $89,868 * $157,077 * $122,689 * $457,308 $31,253 * $488,562 ------- ------- ------- -------- -------- -------- ------- -------- Implied Price 104.97 106.60 106.74 106.29 107.65 106.68 95.07 105.94 ------- ------- ------- -------- -------- -------- ------- -------- Collateral Yield 11.35 10.07 9.78 9.71 9.85 9.93 10.37 9.96 Collateral Equivalent Securitization Costs (0.71) (0.65) (0.60) (0.60) (0.63) (0.62) (0.50) (0.61) Collateral Equivalent Bond Rate (5.03) (5.14) (5.24) (5.88) (5.62) (5.53) (6.68) (5.61) ------- ------- ------- -------- -------- -------- ------- -------- Implied Collateral Equivalent Excess Yield 5.61 4.28 3.94 3.23 3.60 3.78 3.19 3.74 ------- ------- ------- -------- -------- -------- ------- -------- Implied Premium Above Par 4.97 6.60 6.74 6.29 7.65 6.68 -- 5.94 Implied Collateral Equivalent Excess Yield 5.61 4.28 3.94 3.23 3.60 3.78 3.19 3.74 ------- ------- ------- -------- -------- -------- ------- -------- Multiple 0.89 x 1.54 x 1.71 x 1.95 x 2.13 x 1.77 x -- x 1.59 x ------- ------- ------- -------- -------- -------- ------- -------- * Amounts were based upon trustee statements dated September 25, 1999 that covered the period ended August 31, 1999.
A summary of key information relevant to the subprime residual assets is set forth below:
($ IN THOUSANDS) SECURITIZATIONS ----------------------------------------------------------------- ----------- ----------- 1997-1 1997-2 1998-1 1998-2 1999-1 OTHER TOTAL ------ ------ ------ ------ ------ ----------- ----------- Residual Certificates: Balance at December 31, 1998 $ 7,997 $ 9,702 $10,815 $12,569 $ -- $ 4,700 $45,783 Initial Capitalization of Residual Certificates -- -- -- -- 8,867 -- 8,867 Accretion income 867 941 978 1,123 291 554 4,754 Mark to market (957) (216) (480) 34 1,027 (4,304) (4,896) Cash flow (1,478) (2,106) -- -- -- -- (3,584) ------- ------- ------- ------- ------- ------- ------- Balance at September 30, 1999 $ 6,429 $ 8,321 $11,313 $13,726 $10,185 $ 950 $50,924 ======= ======= ======= ======= ======= ======= =======
The Company sold subprime mortgage loans on a whole loan basis during the first nine months of 1999 and 1998. Whole loans are generally sold without recourse to third parties with the gain or loss being calculated based on the difference between the carrying value of the loans sold and the gross proceeds received from the purchaser less expenses. Generally, no interest in these loans is retained by the Company. A reconciliation of the gain on subprime mortgage whole loan sales for the periods indicated follows:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- 1999 1998 --------- -------- Gross proceeds on whole loan sales of subprime mortgage loans $390,839 $227,874 Initial acquisition cost of subprime mortgage loans sold, net of fees 375,457 213,660 -------- -------- Unadjusted gain on whole loan sales of subprime mortgage loans 15,382 14,214 Net deferred costs and administrative fees recognized (5,215) -------- -------- Net gain on whole loan sales of subprime mortgage loans $ 10,167 $ 14,214 ======== ========
25 26 The $4.0 million decrease in the net gain on whole loan sales of subprime mortgage loans from the first nine months of 1998 gain of $14.2 million to $10.2 million reported for the first nine months of 1999 is primarily due to compressed margins in the subprime market during the first nine months of 1999. Also, in response to the growth in the subprime division, management reassessed its application of estimates related to Statement of Financial Accounting Standard No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases" in the fourth quarter of 1998. This resulted in a $5.2 million reduction in the net gain on whole loan sales of subprime mortgage loans in the first nine months of 1999. Had this application occurred at September 30, 1998 approximately $0.7 million in net production costs would have been deferred during the nine months ended September 30, 1998. OTHER INCOME The Company generally retains residual certificates in connection with the securitization of subprime loans. These residual certificates are adjusted to approximate market value each quarter. For the nine months ended September 30, 1999 and 1998, respectively, mark-to-market gain (loss) on residuals was approximately $(4.9) million and $0.1 million, respectively. This amount is reflected as other income (loss) within the subprime division. AGENCY-ELIGIBLE MORTGAGE SERVICING Following is a summary of the revenues and expenses allocated to the Company's agency-eligible mortgage servicing operations for the nine months ended September 30, 1999 and 1998:
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1999 1998 --------- ---------- Net interest expense $ (3,287) $ -- Loan servicing fees 31,993 27,257 Other income 495 230 ---------- ---------- Servicing revenues 29,201 27,487 ---------- ---------- Salary and employee benefits 2,609 2,491 Occupancy expense 317 313 Amortization and provision for impairment of mortgage servicing rights 22,985 19,081 General and administrative expenses 4,542 4,456 ---------- ---------- Total loan servicing expenses 30,453 26,341 ---------- ---------- Net pre-tax servicing margin (1,252) 1,146 Gain on sale of mortgage servicing rights 6,317 1,613 ---------- ---------- Net pre-tax servicing contribution $ 5,065 $ 2,759 ========== ========== Average servicing portfolio $9,598,947 $9,024,339 Servicing sold 7,848,456 7,675,411 Net pre-tax servicing margin to average servicing portfolio (2) bps 2 bps Gain on sale of servicing to servicing sold 8 bps 2 bps
26 27 SUMMARY The ratio of net pre-tax servicing margin to the average servicing portfolio declined four basis points primarily due to the Company beginning during the first quarter of 1999 to allocate net interest expense to the agency-eligible servicing division. Had the $3.3 million in interest expense not been allocated to the agency-eligible servicing division in the first nine months of 1999, the net pre-tax servicing margin to average servicing portfolio would have been 3 basis points, a slight improvement over the 1998 margin. The 6 basis point increase in the gain on sale of servicing sold is primarily attributed to better execution of servicing sales in the marketplace. Loan servicing fees were $32.0 million for the first nine months of 1999, compared to $27.3 million for the first nine months of 1998, an increase of 17%. This increase is partially related to an increase in the average aggregate underlying unpaid principal balance of mortgage loans serviced to $9.6 billion during the first nine months of 1999 from $9.0 billion during the first nine months of 1998, an increase of 6%. Similarly, amortization and provision for impairment of mortgage servicing rights also increased to $23.0 million during the first nine months of 1999 from $19.1 million during the first nine months of 1998, an increase of 20%. The increase in amortization is primarily attributable to the growth in the average balance of the mortgage loans serviced. Given current market conditions, management continually assesses market prepay trends and adjusts amortization accordingly. Management believes that the value of mortgage servicing rights are reasonable in light of current market conditions. However, there can be no guarantee that market conditions will not change such that mortgage servicing rights valuations will require additional amortization or impairment charges. NET INTEREST EXPENSE During the first quarter of 1999, the Company began to allocate interest expense to the agency-eligible servicing division. the net interest expense for the nine months ended September 30, 1999 is comprised of benefits from escrow accounts of $6.3 million that is offset by $9.6 million in interest expense. GAIN ON SALE OF MORTGAGE SERVICING RIGHTS A reconciliation of the components of gain on sale of mortgage servicing rights for the periods indicated follows: 27 28
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1999 1998 ---------- ---------- Underlying unpaid principal balances of agency-eligible mortgage loans on which servicing rights were sold during the period $7,848,456 $7,675,411 ---------- ---------- Gross proceeds from sales of mortgage servicing rights $ 210,110 $ 174,601 Initial acquisition basis, net of amortization and hedge results 154,356 131,504 ---------- ---------- Unadjusted gain on sale of mortgage servicing rights 55,754 43,097 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 125) (49,437) (41,484) ---------- ---------- Gain on sale of mortgage servicing rights $ 6,317 $ 1,613 ========== ==========
Gain on sale of mortgage servicing rights increased $4.7 million from $1.6 million for the first nine months of 1998 to $6.3 million for the first nine months of 1999. The increase in the gain on sale of mortgage servicing rights is primarily attributable to the increase in the volume sold and to rising rates which benefited the current nine months execution of servicing sales into the secondary markets. COMMERCIAL MORTGAGE OPERATIONS Following is a summary of the revenues and expenses allocated to the Company's commercial mortgage production operations.
($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1999 1998 ---------- ---------- Net interest income $ 285 $ 374 Net gain on sale of mortgage loans 6,358 5,461 Other income 49 (13) ---------- ---------- Total production revenue 6,692 5,822 ---------- ---------- Salary and employee benefits 5,682 4,924 Occupancy expense 830 598 General and administrative expenses 1,361 1,269 ---------- ---------- Total production expenses 7,873 6,791 ---------- ---------- Net pre-tax production margin (1,181) (969) ---------- ---------- Servicing fees 3,400 2,776 Amortization of mortgage servicing rights 1,597 972 ---------- ---------- Net pre-tax servicing margin 1,803 1,804 ---------- ---------- Pre-tax income $ 622 $ 835 ========== ========== Production $ 572,565 $ 653,451 Whole loan sales 596,365 653,451 Average commercial mortgage servicing portfolio $3,718,860 $2,939,070
28 29 Total production revenue to whole loan sales 112 bps 89 bps Total production expenses to production 138 bps 104 bps -------- -------- Net pre-tax production margin (26) bps (15) bps -------- -------- Servicing fees to average commercial mortgage servicing portfolio 12 bps 13 bps Amortization of mortgage servicing rights to average commercial mortgage servicing portfolio 6 bps 4 bps -------- -------- Net pre-tax servicing margin 6 bps 9 bps -------- --------
Laureate originates commercial mortgage loans for various insurance companies and other investors, primarily in Alabama, Florida, Indiana, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia. Substantially all loans originated by Laureate have been originated in the name of the investor, and in most cases, Laureate has retained the right to service the loans under a servicing agreement with the investor. Most commercial mortgage loan servicing agreements are short-term, and retention of the servicing contract is dependent on maintaining the investor relationship. NET GAIN ON SALE OF COMMERCIAL MORTGAGE LOANS A reconciliation of gain on sale of commercial mortgage loans for the periods indicated follows: ($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1999 1998 -------- -------- Gross proceeds on sales of commercial mortgage loans $596,365 $653,451 Initial unadjusted acquisition cost of commercial mortgage loans sold 596,365 653,451 -------- -------- Unadjusted gain on sale of commercial mortgage loans N/A N/A Commercial mortgage and origination fees 4,834 4,816 -------- -------- Unadjusted aggregate margin 4,834 4,816 Initial acquisition cost allocated to basis in commercial mortgage servicing rights (SFAS No. 125) 1,524 645 -------- -------- Net gain on sale of commercial mortgage loans $ 6,358 $ 5,461 ======== ========
The net gain on sale of commercial mortgage loans increased $0.9 million (16%) from $5.5 million for the first nine months of 1998 to $6.4 million for the first nine months of 1999. The increase is primarily attributable to improved margins on sales of commercial mortgage loans. In the fourth quarter of 1998 management reassessed its application of estimates relating to SFAS No. 125. As a result of this reassessment, initial acquisition cost allocated to basis in commercial mortgage servicing rights increased to 25 basis points for the nine months ended September 30, 1999 as compared to 10 basis points for the nine months ended September 30, 1998. LEASING OPERATIONS Following is a summary of the revenues and expenses allocated to the Company's small-ticket equipment leasing operations for the periods indicated: 29 30 ($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1999 1998 -------- -------- Net interest income $ 5,299 $ 3,198 -------- -------- Other income 958 571 -------- -------- Leasing production revenue 6,257 3,769 -------- -------- Salary and employee benefits 2,028 1,561 Occupancy expense 330 264 General and administrative expenses 2,236 1,810 -------- -------- Total lease operating expenses 4,594 3,635 -------- -------- Net pre-tax leasing production margin 1,663 134 -------- -------- Servicing fees 500 773 -------- -------- Net pre-tax leasing margin $ 2,163 $ 907 -------- -------- Average owned leasing portfolio $118,322 $ 66,332 Average serviced leasing portfolio 27,570 57,909 ======== ======== Average managed leasing portfolio $145,892 $124,241 ======== ======== Leasing production revenue to average owned portfolio 705 bps 758 bps Leasing operating expenses to average owned portfolio 518 bps 731 bps ======== ======== Net pre-tax leasing production margin 187 bps 27 bps ======== ======== Servicing fees to average serviced leasing portfolio 242 bps 178 bps
Substantially all of the Company's lease receivables are acquired from independent brokers who operate throughout the continental United States and referrals from independent banks. The Company has made an effort to increase the owned portfolio. As it has increased its owned portfolio more cost efficiencies have been achieved thereby increasing the net pre-tax leasing production margin. NET INTEREST INCOME Net interest income for the first nine months of 1999 was $5.3 million as compared to $3.2 million for the first nine months of 1998. This is an annualized net interest margin of 2.96% and 3.39% for the first nine months of 1999 and the first nine months of 1998, respectively, based upon average lease receivables owned of $118.3 million and $66.3 million, respectively, and average debt outstanding of $82.4 and $42.5 million, respectively. OTHER During the third quarter of 1999 the Company reorganized and is now reporting holding company costs as a reconciling item between the segmented income statement and the consolidated income statement. The primary components are 1) interest expense on the debt on the Company's corporate headquarters; 2) salary and employee benefits of corporate personnel; and 3) depreciation on the corporate headquarters. 30 31 RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998 SUMMARY BY OPERATING DIVISION Net income (loss) per common share on a diluted basis for the third quarter of 1999 was ($0.08) as compared to $0.56 for the third quarter of 1998. Following is a summary of the allocated revenues and expenses for each of the Company's operating divisions for the quarter ended September 30, 1999 and 1998, respectively: 31 32
AGENCY-ELIGIBLE ------------------------------------------- FOR THE QUARTER ENDED COMMERCIAL TOTAL SEPTEMBER 30, 1999* PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS OTHER ELIMINATIONS CONSOLIDATED - --------------------- ---------- --------- ----------- -------- ---------- ------- -------- ------- ------------ ------------ (UNAUDITED) Net interest income (loss) $ 1,438 $ (904) $ -- $ 4,096 $ 71 $1,910 $ 6,611 $ (150) $ 6,461 Net gain on sale of mortgage loans 8,639 -- -- 4,851 3,333 -- 16,823 -- 16,823 Gain on sale of mortgage servicing rights -- 1,494 -- -- -- -- 1,494 -- 1,494 Servicing fees -- 9,458 -- -- 1,267 173 10,898 -- 10,898 Other income (loss) 187 151 577 (1,183) 18 424 174 500 $(186) 488 ------- ------- ------- ------- ------ ------ ------- ------ ----- ------- Total revenues 10,264 10,199 577 7,764 4,689 2,507 36,000 350 (186) 36,164 ------- ------- ------- ------- ------ ------ ------- ------ ----- ------- Salary and employee benefits 9,781 804 21 5,197 2,434 675 18,912 599 19,511 Occupancy expense 2,942 110 -- 610 289 116 4,067 212 (217) 4,062 Amortization and provision for impairment of mortgage servicing rights -- 5,665 -- -- 615 -- 6,280 -- 6,280 General and admini- strative expenses 3,938 1,201 99 2,845 428 880 9,391 206 (127) 9,470 ------- ------- ------- ------- ------ ------ ------- ------ ----- ------- Total expenses 16,661 7,780 120 8,652 3,766 1,671 38,650 1,017 (344) 39,323 ------- ------- ------- -------- ------ ------ ------- ------ ----- ------- Income (loss) before income taxes (6,397) 2,419 457 (888) 923 836 (2,650) (667) 158 (3,159) Income tax (expense) benefit 2,570 (901) (161) 483 (389) (336) 1,266 218 1,484 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Net income (loss) $(3,827) $ 1,518 $ 296 $ (405) $ 534 $ 500 $(1,384) $ (449) $ 158 $(1,675) ======= ======== ======= ======= ====== ====== ======= ====== ===== ======= * Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these revenues and expenses have been allocated to the respective divisions on a reasonable basis.
AGENCY-ELIGIBLE ------------------------------------------- FOR THE QUARTER ENDED COMMERCIAL TOTAL SEPTEMBER 30, 1998* PRODUCTION SERVICING REINSURANCE SUBPRIME MORTGAGE LEASING SEGMENTS OTHER ELIMINATIONS CONSOLIDATED - --------------------- ---------- --------- ----------- -------- ---------- ------- -------- ------ ------------ ------------ (UNAUDITED) Net interest income (loss) $ 839 $ -- $ -- $ 2,586 $ 114 $1,216 $ 4,755 $ (154) $ 4,601 Net gain on sale of mortgage loans 34,782 -- -- 8,836 1,979 -- 45,597 -- 45,597 Gain on sale of mortgage servicing rights -- 533 -- -- -- -- 533 -- 533 Servicing fees -- 10,027 -- -- 964 264 11,255 164 11,419 Other income (loss) 7 89 -- 135 (11) 146 366 121 -- 487 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Total revenues 35,628 10,649 -- 11,557 3,046 1,626 62,506 131 -- 62,637 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Salary and employee benefits 12,788 843 -- 3,681 2,004 531 19,847 632 20,479 Occupancy expense 1,574 95 -- 491 209 98 2,467 160 -- 2,627 Amortization and provision for impairment of mortgage servicing rights -- 7,432 -- -- 318 -- 7,750 -- 7,750 General and admini- strative expenses 6,705 1,339 -- 1,141 426 546 10,157 238 -- 10,395 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Total expenses 21,067 9,709 -- 5,313 2,957 1,175 40,221 1,030 -- 41,251 ------- -------- ------- ------- ------ ------ ------- ------ ----- ------- Income (loss) before income taxes 14,561 940 -- 6,244 89 451 22,285 (899) -- 21,386 Income tax (expense) benefit (5,575) (359) -- (2,322) (35) (171) (8,462) 328 (8,134) ------- -------- ------- ------- ------ ------ ------- ------ ------ ------- Net income (loss) $ 8,986 $ 581 $ -- $ 3,922 $ 54 $ 280 $13,823 $ (571) $ -- $13,252 ======= ======== ======= ======= ====== ====== ======= ====== ====== ======= * Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these revenues and expenses have been allocated to the respective divisions on a reasonable basis.
32 33 AGENCY-ELIGIBLE MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses allocated to the Company's agency-eligible mortgage production operations.
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, -------------------------------------- 1999 1998 ----------- ----------- Net interest income $ 1, 438 $ 839 Net gain on sale of mortgage loans 8,639 34,782 Other income 187 7 ----------- ----------- Total production revenue 10,264 35,628 ----------- ----------- Salary and employee benefits 9,781 12,788 Occupancy expense 2,942 1,574 General and administrative expenses 3,938 6,705 ----------- ----------- Total production expenses 16,661 21,067 ----------- ----------- Net pre-tax production margin $ (6,397) $ 14,561 ----------- ----------- Production $ 1,430,832 $ 3,583,724 Pool delivery 1,568,512 3,763,526 Total production revenue to pool delivery 65 bps 95 bpc Total production expenses to production 116 bps 59 bps =========== =========== Net pre-tax production margin (51) bps 36 bps =========== ===========
SUMMARY The production revenue to pool delivery ratio decreased 30 basis points, or 32%, for the third quarter of 1999 as compared to the third quarter of 1998. Generally, net gain on sale of mortgage loans (55 basis points for 1999 versus 92 basis points for 1998) declined primarily due to compressed margins attributable to an aggressive competitive pricing environment and lower overall agency-eligible production volume. Net interest income increased from 2 basis points in 1998 to 9 basis points in 1999 primarily as a result of the generally steeper yield curve environment. The production expenses to production ratio increased 57 basis points for the third quarter of 1999 as compared to the third quarter of 1998. This is primarily due to the decrease in production from quarter to quarter. As a consequence of the foregoing, the Company's net agency-eligible pre-tax production margin declined by 87 basis points to (51) basis points. NET INTEREST INCOME The following table analyzes net interest income allocated to the Company's agency-eligible mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest rates paid on interest-bearing sources of funds) for the quarter ended September 30, 1999 and 1998, respectively. 33 34
($ IN THOUSANDS) VARIANCE AVERAGE VOLUME AVERAGE RATE INTEREST ATTRIBUTABLE TO - ----------------------------------------- ------------------ --------------------- 1999 1998 1999 1998 1999 1998 VARIANCE RATE VOLUME - --------- ----------- ----- ----- -------- -------- ---------- --------- ---------- INTEREST INCOME Mortgages Held for Sale and $ 519,101 $ 1,111,581 6.68% 6.69% Mortgage-Backed Securities $ 8,669 $ 18,589 $ (9,920) $ (12) $ (9,908) - --------- ----------- ----- ----- ------- -------- --------- -------- --------- INTEREST EXPENSE $ 323,169 $ 429,658 4.71% 4.65% Warehouse Line $ 3,837 $ 5,035 $ (1,198) $ 50 $ (1,248) 190,378 658,379 5.48% 5.96% Gestation Line 2,632 9,886 (7,254) (227) (7,027) 91,624 98,819 4.27% 6.61% Servicing Secured Line 987 1,646 (659) (539) (120) 20,846 33,822 5.42% 5.91% Servicing Receivables Line 285 504 (219) (26) (193) 6,555 10,270 7.57% 8.34% Other Borrowings 125 216 (39) (13) (78) Facility Fees & Other Charges 695 654 41 41 - --------- ----------- ----- ----- ------- -------- --------- -------- --------- $ 632,572 $ 1,230,948 5.37% 5.78% Total Interest Expense $ 8,561 $ 17,941 $ (9,280) $ (755) $ (8,625) - --------- ----------- ----- ----- ------- -------- --------- -------- --------- Net Interest Income Before 1.64% 1.08% Interdivisional Allocations $ 108 $ 648 $ (540) $ 743 $ (1,283) ===== ===== ------- -------- ========= ======== ========= Allocation to Other 440 Allocation to Agency-Eligible Servicing Division 890 191 ------- -------- Net Interest Income $ 1,438 $ 839 ======= ========
The 40 basis point increase in the interest-rate spread was primarily the result of the steeper yield curve environment in the third quarter of 1999 compared to the third quarter of 1998. The Company's mortgages and mortgage-backed securities are generally sold and replaced within 30 to 35 days. Accordingly, the Company generally borrows at rates based upon short-term indices, while its asset yields are primarily based upon long-term mortgage rates. NET GAIN ON SALE OF AGENCY-ELIGIBLE MORTGAGE LOANS A reconciliation of gain on sale of agency-eligible mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, --------------------------------------- 1999 1998 ----------- ----------- Gross proceeds on sales of mortgage loans $ 1,563,392 $ 3,886,406 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results 1,568,228 3,887,623 ----------- ----------- Unadjusted gain on sale of mortgage loans (4,836) (1,217) Loan origination and correspondent program administrative fees 3,913 8,833 ----------- ----------- Unadjusted aggregate margin (923) 7,616 Acquisition basis allocated to mortgage servicing rights (SFAS No. 125) 9,791 27,128 Net deferred costs and administrative fees recognized (229) 38 ----------- ----------- Net gain on sale of agency-eligible mortgage loans $ 8,639 $ 34,782 =========== ===========
Net gain on sale of agency-eligible mortgage loans decreased $26.1 million (75%) from $34.8 million for the third quarter of 1998 to $8.6 million for the third quarter of 1999. 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. 34 35 AGENCY-ELIGIBLE REINSURANCE OPERATIONS MG Reinsurance is licensed as a property and casualty insurer and operates as a monoline captive insurance company assuming reinsurance for agency-eligible mortgage loans initially purchased or produced by the Company. During the third quarter of 1999, the Company recognized premium and investment income of approximately $0.6 million that has been included as other income. SUBPRIME MORTGAGE OPERATIONS Following is an analysis of the revenues and expenses allocated to the Company's subprime mortgage production operations.
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ------------------------- 1999 1998 --------- ---------- Net interest income $ 4,096 $ 2,586 Net gain on sale of mortgage loans 4,851 8,836 Other income (1,183) 135 --------- --------- Total production revenue 7,764 11,557 --------- --------- Salary and employee benefits 5,197 3,681 Occupancy expense 610 491 General and administrative expenses 2,845 1,141 --------- --------- Total production expenses 8,652 5,313 ========= ========= Net pre-tax production margin $ (888) $ 6,244 ========= ========= Production $ 182,287 $ 165,760 Whole loan sales and securitizations 178,590 149,252 Total production revenue to whole loan sales and securitizations 435 bps 774 bps Total production expenses to production 475 bps 321 bps ========= ========= Net pre-tax production margin (40) bps 453 bps ========= =========
SUMMARY During the third quarter of 1999 there were no securitization transactions. Overall, the subprime division operated during the third quarter of 1999 at a (0.40)% pre-tax subprime production margin. The decline in pre-tax subprime production margin is primarily attributed to 1) compressed margins in the subprime market during the third quarter of 1999 and 2) an increase in production expenses primarily due to $0.9 million in costs associated with operations and closure of the subprime telemarketing operation during the third quarter of 1999. 35 36 NET INTEREST INCOME The following table analyzes net interest income allocated to the Company's subprime mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and residual certificates and interest rates paid on interest-bearing sources of funds) for the quarter ended September 30, 1999 and 1998, respectively.
($ IN THOUSANDS) VARIANCE AVERAGE VOLUME AVERAGE RATE INTEREST ATTRIBUTABLE TO - ----------------------------------------- ----------------- ------------------ 1999 1998 1999 1998 1999 1998 VARIANCE RATE VOLUME - -------- ----------- ----- ----- ------ ------ ---------- ------ -------- INTEREST INCOME Mortgages Held for Sale and $253,973 $165,487 10.53% 10.13% Residual Certificates $6,684 $4,191 $2,493 $252 $2,241 - -------- -------- ----- ----- ------ ------ ------ ---- ------ INTEREST EXPENSE $188,036 $122,353 5.49% 5.20% Total Interest Expense $2,603 $1,605 $ 998 $136 862 - -------- -------- ----- ----- ------ ------ ------ ---- ------ Net Interest Income Before Interdivisional Allocations $4,081 $2,586 $1,495 $116 $1,379 ====== ==== ====== Allocation to Agency-Eligible Servicing Division 15 N/A ------ ------ 5.04% 4.93% Net Interest Income $4,096 $2,586 ==== ==== ====== ======
Net interest income from subprime products increased 58% to $4.1 million for the third quarter of 1999 as compared to $2.6 million for the third quarter of 1998. This was primarily the result of the increase in subprime loan production volume and an increase in accretion income from $1.0 million for the quarter ended September 30, 1998 to $1.8 million for the quarter ended September 30, 1999. NET GAIN ON SECURITIZATION AND SALE OF SUBPRIME MORTGAGE LOANS A reconciliation of the gain on securitization of subprime mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ---------------------- 1999 1998 ------- ------- Gross proceeds on securitization of subprime mortgage loans N/A $24,826 Initial acquisition cost of subprime mortgage loans securitized, net of fees N/A 25,311 ------- ------- Unadjusted loss on securitization of subprime mortgage loans N/A (485) Initial capitalization of residual certificates N/A 1,965 Net deferred costs and administrative fees recognized N/A ------- ------- Net gain on securitization of subprime mortgage loans N/A $ 1,480 ======= =======
During the third quarter of 1999, there were no securitization transactions. The Company sold subprime mortgage loans on a whole loan basis during the third quarter of 1999 and 1998. Whole loans are generally sold without recourse to third parties with the gain or loss being calculated based on the difference between the carrying value of the loans sold and the 36 37 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, ------------------------ 1999 1998 --------- --------- Gross proceeds on whole loan sales of subprime mortgage loans $ 186,522 $ 131,297 Initial acquisition cost of subprime mortgage loans sold, net of fees 178,590 123,941 --------- --------- Unadjusted gain on whole loan sales of subprime mortgage loans 7,932 7,356 Net deferred costs and administrative fees recognized (3,081) --------- --------- Net gain on whole loan sales of subprime mortgage loans $ 4,851 $ 7,356 ========= =========
The $2.5 million decrease in the net gain on whole loan sales of subprime mortgage loans from the third quarter 1998 gain of $7.4 million to $4.9 million reported for the third quarter of 1999 is primarily due to compressed margins in the subprime market during the third quarter of 1999. OTHER INCOME The Company generally retains residual certificates in connection with the securitization of subprime loans. These residual certificates are adjusted to approximate market value each quarter. For the quarters ended September 30, 1999 and 1998, respectively, mark-to-market loss on residuals was approximately $0.9 million and none, respectively. This amount is reflected as other income (loss) within the subprime division. AGENCY-ELIGIBLE MORTGAGE SERVICING Following is a summary of the revenues and expenses allocated to the Company's agency-eligible mortgage servicing operations for the quarters ended September 30, 1999 and 1998: 37 38
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ---------- ---------- Net interest expense $ (904) $ -- Loan servicing fees 9,458 10,027 Other income 151 89 ---------- ---------- Servicing revenues 8,705 10,116 ---------- ---------- Salary and employee benefits 804 843 Occupancy expense 110 95 Amortization and provision for impairment of mortgage servicing rights 5,665 7,432 General and administrative expenses 1,201 1,339 ---------- ---------- Total loan servicing expenses 7,780 9,709 ---------- ---------- Net pre-tax servicing margin 925 407 Gain on sale of mortgage servicing rights 1,494 533 ---------- ---------- Net pre-tax servicing contribution $ 2,419 $ 940 ========== ========== Average servicing portfolio $8,592,644 $9,994,019 Servicing sold 1,743,730 2,871,176 Net pre-tax servicing margin to average servicing portfolio 4 bps 2 bps Gain on sale of servicing to servicing sold 9 bps 2 bps
SUMMARY The ratio of net pre-tax servicing margin to the average servicing portfolio increased by two basis points due primarily to a $1.4 million reversal of prior impairment provisions on mortgage servicing rights. The 7 basis point increase in the gain on sale of servicing sold is primarily attributable to better execution of servicing sales in the marketplace. Loan servicing fees were $9.5 million for the third quarter of 1999, compared to $10.0 million for the third quarter of 1998, a decrease of 6%. This decrease is slightly less than the decrease in the average aggregate underlying unpaid principal balance of mortgage loans serviced to $8.6 billion during the third quarter of 1999 from $10.0 billion during the third quarter of 1998, a decrease of 14%. NET INTEREST EXPENSE During the first quarter of 1999, the Company began to allocate interest expense to the agency-eligible servicing division. For the quarter ended September 30, 1999, the net interest expense is comprised of benefits from escrow accounts of ($0.5) million that is offset by ($1.4) million in interest expense. GAIN ON SALE OF MORTGAGE SERVICING RIGHTS A reconciliation of the components of gain on sale of mortgage servicing rights for the periods indicated follows: 38 39
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ----------------------------- 1999 1998 =========== ========== Underlying unpaid principal balances of agency-eligible mortgage loans on which servicing rights were sold during the period $ 1,743,730 $2,871,176 =========== ========== Gross proceeds from sales of mortgage servicing rights $ 47,065 $ 63,940 Initial acquisition basis, net of amortization and hedge results 35,415 45,564 ----------- ---------- Unadjusted gain on sale of mortgage servicing rights 11,650 18,376 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 125) (10,156) (17,843) ----------- ---------- Gain on sale of mortgage servicing rights $ 1,494 $ 533 =========== ==========
Gain on sale of mortgage servicing rights increased $1.0 million (180%) from $0.5 million for the third quarter of 1998 to $1.5 million for the third quarter of 1999. The increase in the gain on sale of mortgage servicing rights is primarily attributable to the increase in the volume sold and to rising rates which benefited the current quarter's execution of servicing sales into the secondary markets. COMMERCIAL MORTGAGE OPERATIONS Following is a summary of the revenues and expenses allocated to the Company's commercial mortgage production operations:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, ----------------------------- 1999 1998 =========== ========== Net interest income 71 114 Net gain on sale of mortgage loans $ 3,333 $ 1,979 Other income 18 (11) ----------- ---------- Total production revenue 3,422 2,082 ----------- ---------- Salary and employee benefits 2,434 2,004 Occupancy expense 289 209 General and administrative expenses 428 426 ----------- ---------- Total production expenses 3,151 2,639 ----------- ---------- Net pre-tax production margin 271 (557) ----------- ---------- Servicing fees 1,267 964 Amortization of mortgage servicing rights 615 318 ----------- ---------- Net pre-tax servicing margin 652 646 ----------- ---------- Pre-tax income $ 923 $ 89 ----------- ---------- Production $ 264,463 $ 290,829 Whole loan sales 275,738 290,829 Average commercial mortgage servicing portfolio 3,999,550 3,079,683
39 40
Total production revenue to whole loan sales 124 bps 72 bps Total production expenses to production 119 bps 91 bps ----------- ---------- Net pre-tax production margin 5 bps (19) bps ----------- ---------- Servicing fees to average commercial mortgage servicing portfolio 13 bps 13 bps Amortization of mortgage servicing rights to average commercial mortgage servicing portfolio 6 bps 4 bps ----------- ---------- Net pre-tax servicing margin 7 bps 9 bps ----------- ----------
NET GAIN ON SALE OF COMMERCIAL MORTGAGE LOANS A reconciliation of gain on sale of commercial mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, --------------------------- 1999 1998 --------- -------- Gross proceeds on sales of commercial mortgage loans $275,738 $290,829 Initial unadjusted acquisition cost of commercial mortgage loans sold 275,738 290,829 -------- -------- Unadjusted gain on sale of commercial mortgage loans N/A N/A Commercial mortgage and origination fees 2,522 1,835 -------- -------- Unadjusted aggregate margin 2,522 1,835 Initial acquisition cost allocated to basis in commercial mortgage servicing rights (SFAS No. 125) 811 144 -------- -------- Net gain on sale of commercial mortgage loans $ 3,333 $ 1,979 ======== ========
The net gain on sale of commercial mortgage loans increased $1.4 million (68%) from $2.0 million for the third quarter of 1998 to $3.3 million for the third quarter of 1999. The increase is primarily attributable to improved margins on sales of commercial mortgage loans. In the fourth quarter of 1998 management reassessed its application of estimates relating to SFAS No. 125. As a result of this reassessment, initial acquisition cost allocated to basis in commercial mortgage servicing rights increased to 29 basis points for the quarter ended September 30, 1999 as compared to 5 basis points for the quarter ended September 30, 1998. LEASING OPERATIONS Following is a summary of the revenues and expenses allocated to the Company's small-ticket equipment leasing operations for the periods indicated:
($ IN THOUSANDS) FOR THE QUARTER ENDED SEPTEMBER 30, --------------------------- 1999 1998 --------- -------- Net interest income $ 1,910 $ 1,216 Other income 424 146 --------- -------- Leasing production revenue 2,334 1,362 --------- -------- Salary and employee benefits 675 531 Occupancy expense 116 98 General and administrative expenses 880 546 --------- -------- Total lease operating expenses 1,671 1,175 --------- -------- Net pre-tax leasing production margin 663 187 --------- --------
40 41
Servicing fees 173 264 --------- --------- Net pre-tax leasing margin $ 836 $ 451 --------- --------- Average owned leasing portfolio $ 132,682 $ 78,197 Average serviced leasing portfolio 21,353 50,009 ========= ========= Average managed leasing portfolio $ 154,035 $ 128,206 ========= ========= Leasing production revenue to average owned portfolio 704 bps 697 bps Leasing operating expenses to average owned portfolio 504 bps 601 bps ========= ========= Net pre-tax leasing production margin 200 bps 96 bps ========= ========= Servicing fees to average serviced leasing portfolio 324 bps 211 bps
The Company has made an effort to increase the owned portfolio. As it has increased its owned portfolio more cost efficiencies have been achieved thereby increasing the net pre-tax leasing production margin. NET INTEREST INCOME Net interest income for the third quarter of 1999 was $1.9 million as compared to $1.2 million for the third quarter of 1998. This is an annualized net interest margin of 2.14% and 3.40% for the third quarter of 1999 and the third quarter of 1998, respectively, based upon average lease receivables owned of $132.7 million and $78.2 million, respectively, and average debt outstanding of $84.1 and $58.4 million, respectively. OTHER During the third quarter of 1999 the Company reorganized and is now reporting holding company costs as a reconciling item between the segmented income statement and the consolidated income statement. The primary components are 1) interest expense on the debt on the Company's corporate headquarters; 2) salary and employee benefits of corporate personnel; and 3) depreciation on the corporate headquarters. 41 42 FINANCIAL CONDITION During third quarter 1999, the Company experienced a 24% decrease in the volume of production originated and acquired compared to second quarter 1999. Production decreased to $1.9 billion during third quarter 1999 from $2.5 billion during second quarter 1999. The September 30, 1999, locked residential mortgage application pipeline (mortgage loans not yet closed but for which the interest rate has been locked) was approximately $0.6 billion and the application pipeline (mortgage loans for which the interest rate has not yet been locked) was approximately $0.3 billion. Mortgage loans held-for-sale and mortgage-backed securities totaled $577 million at September 30, 1999, versus $1.4 billion at December 31, 1998, a decrease of 60%. The Company's servicing portfolio (exclusive of loans under subservicing agreements) decreased to $7.9 billion at September 30, 1999, from $9.9 billion at December 31, 1998. Short-term borrowings, which are the Company's primary source of funds, totaled $0.7 billion at September 30, 1999, compared to $1.6 billion at December 31, 1998, a decrease of 53%. The decrease in the balance outstanding at September 30, 1999, resulted from decreased funding requirements related to the decrease in the balance of mortgage loans held-for-sale and mortgage-backed securities. Other liabilities totaled $119 million as of September 30, 1999, compared to the December 31, 1998 balance of $115 million, an increase of $4 million, or 4%. The Company continues to face the same challenges as other companies within the mortgage banking industry and as such is not immune from significant volume declines precipitated by a rise in interest rates or other factors beyond the Company's control. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash-flow requirement involves the funding of loan production, which is met primarily through external borrowings. In August 1999, 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 $540 million warehouse line of credit provided by a syndicate of unaffiliated banks that expires in July 2000. The credit agreement includes covenants requiring the Restricted Group to maintain (i) a minimum net worth of $170 million, plus the Restricted Group's net income subsequent to June 30, 1999, 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 and (iv) a mortgage servicing rights portfolio with an underlying unpaid principal balance of at least $5 billion. 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. 42 43 In August the Company and Restricted Group also entered into a $210 million subprime revolving credit facility and a $250 million servicing revolving credit facility, which expire in July 2000. 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, 1999. 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, a wholly-owned subsidiary of Meritage Mortgage Corporation, and a bank are parties to a master repurchase agreement, pursuant to the terms of which RBMG Asset Management Co. is entitled from time to time to deliver eligible subprime mortgage loans in an aggregate principal amount of up to $250 million to the bank. The master repurchase agreement has been extended through December 31, 1999. 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 has entered into a $6.6 million note agreement in May 1997. This debt is secured by the Company's corporate headquarters. The terms of the agreement require the Company to make 120 equal monthly principal and interest payments based upon a fixed interest rate of 8.07%. The note contains covenants similar to those previously described. The Company has entered into a $10.0 million unsecured line of credit agreement that expires in July 2000. The interest rate on funds borrowed is based upon prime. Republic Leasing Company, Inc. (RLC), 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 August 2000 and contains various covenants regarding characteristics of the collateral and the performance of the leases originated and serviced by RLC and that require the Company to maintain a minimum net worth of $60 million and that RLC 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, 1999 the Company had remaining authority to repurchase up to $3.1 million of the Company's common stock in either open market transactions or in private or block trades. Decisions regarding the amount and timing of repurchases will be made by management based upon market conditions and other factors. The repurchase authority will enable the Company to repurchase shares to meet the Company's obligations pursuant to existing bonus, stock option, dividend reinvestment and employee stock purchase and ESOP plans. Shares repurchased are maintained in the Company's treasury account and are not retired. At September 43 44 30, 1999, there were 3,617,596 shares held in the Company's treasury account at an average cost of $10.19 per share. DIVISIONAL ANALYSIS OF PRE-TAX FUNDS GENERATED FROM OPERATIONS The analyses which follow are included solely to assist investors in obtaining a better understanding of the material elements of the Company's funds generated by operations at a divisional level. It is intended as a supplement, and not an alternative to, and should be read in conjunction with the Consolidated Statement of Cash Flows which provides information concerning elements of the Company's cash flows. SUMMARY On a combined divisional basis, during the nine months ended September 30, 1999 and 1998, the Company generated approximately $55.2 million and $44.7 million, respectively, of positive funds from operations. ($ in thousands) FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1999 1998 ---------- ---------- Agency-eligible production $ 25,937 $ 19,359 Agency-eligible servicing 22,161 20,705 Subprime production 2,791 3,079 Commercial mortgage 980 1,560 Leasing 2,394 1,143 --------- --------- $ 54,263 $ 45,846 ========= =========
Each of the Company's divisions produced positive operating funds during both periods. The combined positive operating funds were invested to reduce indebtedness, pay dividends, repurchase stock and purchase fixed assets. AGENCY-ELIGIBLE PRODUCTION Generally, the Company purchases agency-eligible mortgage loans which are resold with the rights to service the loans being retained by the Company. The Company then separately sells a large percentage of the servicing rights so produced. At the time loans are sold, current accounting principles require capitalization of the estimated fair value of the retained mortgage servicing rights. Accordingly, amounts reported as gains on sale of agency-eligible mortgage loans may not represent positive funds flow to the extent that the associated servicing rights are not sold for cash but are instead retained and capitalized. In this context, the table below reconciles the major elements of pre-tax operating funds flow allocable to agency-eligible production activities. 44 45 ($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1999 1998 -------- --------- Income (loss) before income taxes $ 11,087 $ 43,715 Deduct: Net gain on sale of mortgage loans, as reported (58,717) (101,547) Add back: Cash gains on sale of mortgage loans 14,424 29,929 Cash gains on sale of mortgage servicing rights 55,754 43,097 Depreciation 3,389 4,165 ======== ========= $ 25,937 $ 19,359 ======== =========
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 allocable to agency-eligible mortgage servicing activities. ($ IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1999 1998 ------- ------- Income (loss) before income taxes $ 5,065 $ 2,759 Deduct: Net gain on sale of mortgage servicing Rights, as reported (6,317) (1,613) Add back: Amortization and impairment of Mortgage servicing rights 22,985 19,081 Depreciation 428 478 ======= ======= $22,161 $20,705 ======= =======
SUBPRIME PRODUCTION Generally, the Company purchases subprime loans through a wholesale broker network. The Company then separately sells or securitizes the loans so produced. At the time loans are securitized, existing accounting principles require capitalization of the estimated fair value of future cash flows to be received in connection with retention by the Company of a residual interest in the securitized loans. Accordingly, amounts reported as gains on sale of subprime 45 46 mortgage loans may not represent cash gains to the extent that associated residual interests are retained and capitalized. In this context, the table below reconciles the major elements of pre-tax operating funds flow allocable to subprime mortgage production activities. ($ in thousands) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1999 1998 -------- -------- Income before income taxes $ 2,886 $ 12,601 Deduct: Net gain on sale of subprime loans, as reported (15,225) (22,218) Accretion income on residuals (4,754) (2,355) Add back: Cash gains on sale of whole subprime loans 15,382 14,214 Cash received from investments in residual certificates 3,584 -- Depreciation and amortization of goodwill and intangibles 918 837 -------- -------- $ 2,791 $ 3,079 ======== ========
COMMERCIAL MORTGAGE Generally, the Company originates commercial mortgage loans for conduits, insurance companies and other investors. The Company either table funds the loans or originates the loans pursuant to pre-existing investor commitments to purchase the loans so originated. Similar to the agency-eligible operation, the Company generally retains the right to service the loans under various servicing agreements. At the time loans are sold, current accounting principles require capitalization of the estimated fair value of mortgage servicing rights produced. Accordingly, amounts reported as gains on sale of commercial mortgage loans may not represent cash gains to the extent that the associated servicing rights are not sold for cash but are instead retained and capitalized. Mortgage servicing rights initially capitalized must be amortized subsequently to expense. Much like depreciation, such amortization charges are "non-cash." In this context, the table below reconciles the major elements of pre-tax operating funds flow allocable to commercial mortgage production and servicing activities. 46 47
($ in thousands) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1999 1998 -------- -------- Income before income taxes $ 622 $ 835 Deduct: Net gain on sale of commercial loans, as reported (6,358) (5,461) Add back: Cash gains on sale of whole Commercial loans 4,834 4,816 Amortization and impairment of Commercial mortgage servicing rights 1,597 972 Depreciation and amortization of Goodwill and intangibles 285 398 ======== ======== $ 980 $ 1,560 ======== ========
LEASING Generally, the Company originates small-ticket equipment leases for commercial customers that are retained as investments by the Company. Investments in leases originated and retained are financed through a borrowing facility at draw rates that approximate the net cash investment in the lease. Accordingly, financing activities related to growth in the balance of leases held for investment does not significantly impact operating cash flow. In this context, the table below reconciles the major elements of operating funds flow allocable to leasing activities.
($ in thousands) FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1999 1998 -------- -------- Income before income taxes $ 2,163 $ 907 Add back: Depreciation and amortization of Goodwill and intangibles 231 236 ======== ======== $ 2,394 $ 1,143 ======== ========
YEAR 2000 The Company recognizes the need to address the potentially adverse impact that Year 2000 issues might have on its business operations. The Company's compliance efforts are ongoing under the guidance of its director of operations and involve employees throughout the Company as well as outside consultants and contractors. The Company's Year 2000 Project leadership team meets with the Company's executive management weekly and the Board of Directors is routinely updated on the status of the Company's efforts. 47 48 OVERVIEW OF THE COMPANY'S STATE OF READINESS The Company has reviewed its critical information technology and non-information technology systems and summarizes its state of readiness as follows: * The Company's growth motivated a generalized review of the adequacy of its existing software environment and technological infrastructure to meet the Company's long-term operating requirements. Accordingly, the Company undertook an 18-month project to design and implement the Cybertek LoanXchange Mortgage Processing System (LoanXchange). Testing and implementation of this Year 2000 compliant system has been completed and the system is now in use. * The Company's internally developed applications have been remediated and are now Year 2000 compliant. The remediated versions were also modified to work in conjunction with the LoanXchange system. * The Company uses various applications that were purchased or are used in a service bureau relationship with third parties. Compliant versions have been placed into production for all of these applications. * The Company uses desktop software at each PC. Implementation of a standardized package that delivers Year 2000 compliant desktop software has been completed and distributed. * The Company uses computer hardware, including servers, desktop PCs and network infrastructure components. Remediation and upgrade of all data center hardware and network infrastructure to Year 2000 compliant hardware are complete. Desktop hardware including the rollout of 1,200 new desktops has been completed. REVIEW OF MISSION CRITICAL BUSINESS SPECIFIC YEAR 2000 COMPLIANCE STATUS AGENCY-ELIGIBLE MORTGAGE PRODUCTION mission critical applications have been remediated or replaced by our new enterprise system, LoanXchange. MORTGAGE SERVICING - The only mission critical system is the Alltel servicing system which is used by the Company through a third-party service bureau relationship. Alltel has issued the Company a letter stating that it has completed modification of all systems used by the Company bringing them to Year 2000 compliance. Alltel is the largest vendor of servicing systems in the United States. Alltel and the Company participated in an industry sponsored testing program and the Company has received confirmation of the successful testing. LAUREATE CAPITAL CORP. - The Company operates its commercial mortgage origination and servicing business through its subsidiary, Laureate Capital Corp. (Laureate). Upgrade of Laureate's mission critical McCracken commercial mortgage servicing system to a Year 2000 48 49 compliant version has been completed and Laureate's mission critical systems are Year 2000 compliant. REPUBLIC LEASING COMPANY, INC. - The Company operates its leasing business through its subsidiary Republic Leasing Company, Inc.(Republic Leasing). Republic Leasing's mission critical systems are Year 2000 compliant. MERITAGE MORTGAGE CORPORATION - The Company operates substantially all of its subprime loan origination business through its subsidiary, Meritage Mortgage Corporation (Meritage). Upgrade of Meritage's mission critical Contour front-end loan processing system to a Year 2000 compliant version has been completed and Meritage's mission critical systems are Year 2000 compliant. OTHER - The Company and all of its subsidiaries use the same general ledger, accounts payable and human resources systems, and all of such systems are Year 2000 compliant. The HVAC system at the Company's home office is not compliant and should be replaced by November 30, 1999. THIRD PARTY SUPPLIERS Mission critical third party suppliers are Fannie Mae, Freddie Mac and Alltel. Software supplied to the Company by Fannie Mae and Freddie Mac has been certified as compliant and the Company has installed the compliant versions. In addition, Fannie Mae, Freddie Mac and the Company participated in an industry sponsored testing program and the Company has received confirmation of the successful testing. As discussed above, Alltel has also stated that its software and systems are compliant and the industry sponsored test program was successfully completed. TRADING PARTNERS The Company is communicating with suppliers, dealers, financial institutions and others with whom it does business to coordinate Year 2000 compliance. However, the Company's residential mortgage business is conducted through relationships with over 6,000 correspondents and brokers. The primary points of interaction with these customers relate to loan registration, loan locking and loan closing activities. These activities are initiated via phone and fax and through a compliant and proprietary interface that is made available over the Internet. The Company is not undertaking a readiness review of these relationships based on its assessment that the Year 2000 issue is not likely to have a material impact on the Company's ability to interact with these trading partners. FINANCIAL IMPACT Direct costs associated exclusively with achieving Year 2000 compliance are expected to be between $0.5 and $1 million dollars and will be paid out of cash flow. Additional system costs exceeding $8 million that are not directly related to Year 2000 but, that relate to upgrades noted above, serve to solve Year 2000 issues. Direct costs associated with the work performed to date 49 50 were approximately $0.9 million through November 1, 1999. The Year 2000 effort is expected to use approximately 5% of Information Technology's 1999 budget. RISKS AND CONTINGENCY PLANNING The costs of the project are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the ability to locate and correct all relevant computer code and unforeseen circumstances causing the Company to allocate its resources elsewhere. Failure by either the Company or third parties to achieve Year 2000 compliance could cause short-term operational inconveniences and inefficiencies for the Company. This may temporarily divert management's time and attention from ordinary business activities. To the extent reasonably achievable, the Company will seek to prevent or mitigate the effects of such possible failures through its contingency planning efforts. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary market risk facing the Company is interest rate risk. The Company manages this risk by striving to balance its loan origination and loan servicing business segments, which are countercyclical in nature. In addition, the Company utilizes various financial instruments, including derivatives contracts, to manage the interest rate risk related specifically to its committed pipeline, mortgage loan inventory, mortgage backed securities held for sale, servicing rights, leases and residual interests retained in securitizations. The overall objective of the Company's interest rate risk management policies is to mitigate potentially significant adverse effects that changes in the values of these items resulting from changes in interest rates might have on the Company's consolidated balance sheet. The Company does not speculate on the direction of interest rates in its management of interest rate risk. For purposes of disclosure in the 1998 Annual Report on Form 10-K, the Company performed various sensitivity analyses that quantify the net financial impact of hypothetical changes in interest rates on its interest rate-sensitive assets, liabilities and commitments. These analyses presume an instantaneous parallel shift of the yield curve. Various techniques are employed to value the underlying financial instruments which rely upon a number of critical assumptions. Actual experience may differ materially from the estimated. To the extent that yield curve shifts are non-parallel and to the extent that actual variations in significant assumptions differ from those applied for purposes of the valuations, the resultant valuations can also be expected to vary. Such variances may prove material. The Company has procedures in place that monitor whether material changes in market risk are likely to have occurred since December 31, 1998. The Company does not believe that there have been any material changes in market risk from those reported in the 1998 Annual Report on Form 10-K. 50 51 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) NONE 51 52 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RESOURCE BANCSHARES MORTGAGE GROUP, INC. (Registrant) /s/ Steven F. Herbert ---------------------------- Steven F. Herbert Corporate Senior Executive Vice President and Corporate Chief Financial Officer (signing in the capacity of (i) duly authorized officer of the registrant and (ii) principal financial officer of the registrant) DATED: November 12, 1999 52 53 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.3 * of the Registrant's Registration No. 33-53980 3.2 Certificate of Amendment of Certificate of Incorporation of the Registrant incorporated by reference * to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 3.3 Certificate of Designation of the Preferred Stock of the Registrant incorporated by reference to * Exhibit 4.1 of the Registrant's Form 8-A filed on February 8, 1998 3.4 Amended and Restated Bylaws of the Registrant incorporated by reference to Exhibit 3.4 of the * Registrant's Registration No. 33-53980 3.5 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. dated January 28, 1999 incorporated by * reference to Exhibit 3.5 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 3.6 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. incorporated by reference to Exhibit 3.1 * of the Registrant's Registration No. 333-82105 4.1 Specimen Certificate of Registrant's Common Stock incorporated by reference to Exhibit 4.1 of the * Registrant's Registration No. 33-53980 4.2 Rights Plan dated as of February 6, 1998 between the Registrant and First Chicago Trust Company of New York * incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-A filed on February 8, 1998 4.3 Note Agreement between the Registrant and UNUM Life Insurance Company of America dated May 16, 1997 * incorporated by reference to Exhibit 10.45 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997 10.1 Employment Agreement dated June 3, 1993, between the Registrant and David W. Johnson, Jr. as amended by * amendment dated October 22, 1993 incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.2 (A) Stock Option Agreement between the Registrant and David W. Johnson, Jr. incorporated by reference to * Exhibit 10.8 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (B) Stock Option Agreement between the Registrant and Lee E. Shelton incorporated by reference to * Exhibit 10.8 (B) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.3 Termination Agreement dated June 3, 1993, between the Registrant and David W. Johnson, Jr. incorporated * by reference to Exhibit 10.9 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.4 (A) Deferred Compensation Agreement dated June 3, 1993, between the Registrant and David W. Johnson, Jr. * incorporated by reference to Exhibit 10.10 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (B) Deferred Compensation Rabbi Trust, for David W. Johnson, dated January 19, 1994, between Registrant * and First Union National Bank of North Carolina incorporated by reference to Exhibit 10.10 (C) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.5 Employment Agreement dated June 30, 1995, between the Registrant and Steven F. Herbert incorporated by * reference to Exhibit 10.34 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995 10.6 Employment Agreement dated September 25, 1995, between the Registrant and Richard M. Duncan incorporated by * reference to Exhibit 10.38 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995 10.7 Office Building Lease dated March 8, 1991, as amended by Modification of Office Lease dated October 1, 1991, * incorporated by reference to Exhibit 10.5 of the Registrant's Registration No. 33-53980 10.8 Assignment and Assumption of Office Lease incorporated by reference to Exhibit 10.6 of the Registrant's * Registration No. 33-53980 10.9 Governmental Real Estate Sub-Lease-Office, between Resource Bancshares Mortgage Group, Inc. and the South * Carolina Department of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.19 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1994 10.10 First Sub-Lease Amendment to Governmental Real Estate Sub-Lease-Office, between Resource Bancshares Mortgage * Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994 10.11 Request for Extension of Governmental Real Estate Sub-Lease-Office, between the Registrant and the South * Carolina Department of Labor, Licensing and Regulation dated December 12, 1995 incorporated by reference to Exhibit 10.39 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 10.12 Section 125 Plan incorporated by reference to Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for * the year ended December 31, 1993 10.13 Pension Plan incorporated by reference to Exhibit 10.18 of the Registrant's Annual Report on Form 10-K for * the year ended December 31, 1993 10.14 Amendment I to Pension Plan incorporated by reference to Exhibit 10.21 of the Registrant's Annual Report on * Form 10-K for the year ended December 31, 1994 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
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EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.16 Amendment to Pension Plan effective January 1, 1995 incorporated by reference to Exhibit 10.42 of the * Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 10.17 (A) Phantom 401(k) Plan incorporated by reference to Exhibit 10.24 of the Registrant's Annual Report on * Form 10-K for the year ended December 31, 1994 (B) Amendment to Phantom 401(k) Plan 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 10.18 Resource Bancshares Mortgage Group, Inc. Supplemental Executive Retirement Plan incorporated by reference * to Exhibit 10.14 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1998. 10.19 First Amendment to Resource Bancshares Mortgage Group, Inc. Supplemental Executive Retirement Plan dated * October 28, 1998 incorporated by reference to Exhibit 10.19 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.20 Pension Restoration Plan incorporated by reference to Exhibit 10.25 of the Registrant's Annual Report on Form * 10-K for the year ended December 31, 1994 10.21 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the Registrant's Registration No. 33-87536 * 10.22 Amendment I to Stock Investment Plan incorporated by reference to Exhibit 10.27 of the Registrant's Annual * Report on Form 10-K for the year ended December 31, 1994 10.23 Amendment II to Stock Investment Plan dated November 30, 1998 incorporated by reference To Exhibit 4.1(c) * of the Registrant's Registration Statement No. 333-68909 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
C 56
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.28 ESOP Loan and Security Agreement dated January 12, 1995, between the Registrant and The Resource Bancshares * Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.31 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 10.29 ESOP Loan and Security Agreement dated May 3, 1996, between the Registrant and The Resource Bancshares * Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.36 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.30 ESOP Loan Agreements dated January 20, 1998, April 1, 1998, July 1, 1998 and October 1, 1998 between the * Registrant and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.30 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.31 Formula Stock Option Plan incorporated by reference to Exhibit 10.36 of the Registrant's Quarterly Report * on Form 10-Q for the period ended September 30, 1995 10.32 Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock Option Plan and Non-Qualified Stock * Option Plan incorporated by reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.33 First Amendment to the Formula Stock Option Plan incorporated by reference to Exhibit 99.8 of the * Registrant's Registration No. 333-29245 as filed on December 1, 1997 10.34 Second Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock Option Plan dated October 28, 1998 * incorporated by reference to Exhibit 10.34 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.35 Amended and Restated Omnibus Stock Award Plan incorporated by reference to Exhibit 99.10 of the Registrant's * Registration No. 333-29245 filed on December 1, 1997 10.36 First Amendment to Omnibus Stock Award Plan and form of Incentive Stock Option Agreement and Release to the * Omnibus Stock Award Plan incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998. 10.37 Second Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus Stock Award Plan dated October 29, 1998 * incorporated by reference to Exhibit 10.37 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.38 Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) incorporated by reference to Exhibit 10.40 * of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.39 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option Plan dated September 1, 1996 incorporated * by reference to Exhibit 10.33 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.40 Form of Non-Qualified Stock Option Agreement (Non-Qualified Stock Option Plan), incorporated by reference to * Exhibit 10.41 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997
D 57
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.41 First Amendment to Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option Plan dated * January 29, 1997 incorporated by reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.42 Second Amendment to the Non-Qualified Stock Option Plan dated February 6, 1998 incorporated by reference to * Exhibit 10.40 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998 10.43 Third Amendment to Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option Plan dated * October 28, 1998 incorporated by reference to Exhibit 10.43 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.44 Agreement and Release Form of Non-Qualified Stock Option Agreement incorporated by reference to Exhibit 10.41 * of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998 10.45 Amended and Restated Retirement Savings Plan dated April 1, 1996 incorporated by reference to Exhibit 10.34 * of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.46 First Amendment to Amended and Restated Retirement Savings Plan dated as of November 8, 1996 incorporated by * reference to Exhibit 10.35 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.47 Second Amendment to Amended and Restated Retirement Savings Plan dated January 1997, incorporated by reference * to Exhibit 10.38 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.48 (A) Agreement of Merger dated April 18, 1997 between Resource Bancshares Mortgage Group, Inc., RBC Merger * Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Annex A of the Registrant's Registration No.333-29245 (B) First Amendment to Agreement of Merger dated April 18, 1997 between Resource Bancshares Mortgage * Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997 (C) Second Amendment to Agreement of Merger dated April 18, 1997 between Resource Bancshares Mortgage * Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Annex A of the Registrant's Registration No. 333-29245 10.49 (A) Mutual Release and Settlement Agreement between the Registrant, Lee E. Shelton and Constance P. Shelton * dated January 31, 1997 incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (B) Amendment to Mutual Release and Settlement Agreement between Registrant, Lee E. Shelton and Constance P. * Shelton dated January 31, 1997 incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997
E 58
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.50 Preferred Provider Organization Plan for Retired Executives incorporated by reference to Exhibit 10.43 * of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998 10.51 Resource Bancshares Mortgage Group, Inc. Flexible Benefits Plan Amended and Restated as of January 1, 1998 * incorporated by reference to Exhibit 10.51 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.52 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 Merger and Transfer Agreement Between The Resource Bancshares Mortgage Group, Inc. and Fidelity Management _____ Trust Company 11.1 Statement re: Computation of Net Income (Loss) per Common Share _____ 27.1 Financial Data Schedule _____ - ---------------------------------- * Incorporated by reference
F EX-10.53 2 MERGER AND TRANSFER AGREEMENT (RESOURCE/FIDELITY) 1 EXHIBIT 10.53 MERGER AND TRANSFER AGREEMENT BETWEEN THE RESOURCE BANCSHARES MORTGAGE GROUP, INC. AND FIDELITY MANAGEMENT TRUST COMPANY Resource Bancshares Mortgage Group, Inc. (the "Corporation") makes this Merger and Transfer Agreement (the "Transfer Agreement") in its capacity as the sponsor of the RBMG, Inc. Phantom 401(k) Plan (the "Phantom Plan") and the Resource Bancshares Mortgage Group, Inc. Nonqualified Deferred Compensation Plan (the "Nonqualified Plan") and Fidelity Management Trust Company (the "Trustee") makes this Transfer Agreement, as the Trustee under the Trust Agreement between Resource Bancshares Mortgage Group, Inc. and Fidelity Management Trust Company, dated March 31, 1999 (the "Trust"). WITNESSETH WHEREAS, the Corporation deems it in the best interest of the plan administration of the Phantom Plan and the Nonqualified Plan to merge the Phantom Plan into the Nonqualified Plan; NOW, THEREFORE, for and in consideration of the premises, the Corporation, acting in its respective capacities on behalf of the Phantom Plan and the Nonqualified Plan, and the Trustee on behalf of the Trust, hereby agrees as follows: (1) MERGER OF PHANTOM PLAN INTO NONQUALIFIED PLAN. Pursuant to resolutions adopted on July 27, 1999 by the Board of Directors of the Corporation, effective October 1, 1999, certain provisions of the Phantom Plan will be amended so as to be identical to the provisions of the Nonqualified Plan and, immediately thereafter, the Phantom Plan shall be merged into the Nonqualified Plan. Upon the merger, the Phantom Plan shall thereupon cease to exist and the Nonqualified Plan shall be the surviving plan. Upon the completion of the merger, all benefits previously payable under the Phantom Plan shall become payable under the Nonqualified Plan. (2) PARTICIPANTS' ACCOUNTS. With respect to the account balance of a participant under the Nonqualified Plan, the following conditions shall apply: (a) Immediately after the merger, participants of the Nonqualified Plan that were participants of the Phantom Plan shall be credited with a Transfer Account equal to the participant's Contribution Credits Account (as defined in Section 1.5 of the Phantom Plan) as of September 30, 1999. (b) Subject to the provisions of the Nonqualified Plan and the eventual combination of the Transfer Account with the participant's account, amounts initially credited to the Transfer Account shall be invested in accordance with the participant's investment directions under the Nonqualified Plan as of October 1, 1999. Thereafter, the investment of amounts credited to the Transfer Account shall be governed by participant directions pursuant to the provisions of the Nonqualified Plan. 1 2 (c) Until mutually agreed to by the Trustee and the Corporation (in its capacity as the Administrator), the Trustee and/or Administrator shall maintain for each employee a separate Transfer Account to properly reflect the amounts in the participants' accounts after the merger of the plans. (3) CONTRIBUTION TO NONQUALIFIED PLAN. As soon as practical on or after October 1, 1999, the Corporation shall contribute and transfer directly to the Trustee on behalf of the Trust a contribution in the amount equal to the sum of the participants' Contribution Credits Accounts (as defined in Section 1.5 of the Phantom Plan) as of September 30, 1999. (4) HOLDING AND INVESTMENT OF ASSETS. The Trustee shall hold, invest, administer and distribute the assets contributed and transferred pursuant to this Transfer Agreement in accordance with the terms of the Nonqualified Plan. (5) BENEFITS. Upon the completion of the merger, the distribution of benefits attributable to benefits that accrued under the Phantom Plan shall be governed by the provisions of the Nonqualified Plan. (6) BINDING EFFECT. The terms and conditions of this Transfer Agreement shall bind the Corporation (and its successors) and the Trustee (and its successors) and shall operate as if fully set forth within the Nonqualified Plan. (7) EFFECTIVE DATES. This Transfer Agreement shall be effective upon the execution of both parties. The merger of the Phantom Plan into the Nonqualified Plan shall take place on October 1, 1999 and the contributions described herein shall take place as soon as practical on or after October 1, 1999. IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Transfer Agreement as of the day and year indicated below. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ________________________________ Date: ______________________________ FIDELITY MANAGEMENT TRUST COMPANY By: ________________________________ Date: ______________________________ 2 EX-11.1 3 STATEMENT RE: COMPUTATION OF NET EARNINGS 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, 1999 ENDED SEPTEMBER 30, 1999 ------------------------ ------------------------ Net income (loss) $ (1,675) $ 12,822 Net income (loss) per common share - basic (1) $ (0.08) $ 0.61 Net income (loss) per common share - diluted (2) $ (0.08) $ 0.60
[FN] 1) The number of common shares outstanding used to compute net income (loss) per share-basic was 20,310,289 and 21,158,547 for the quarter and nine months ended September 30, 1999, respectively. 2) Diluted earnings (loss) per common share for the quarter and nine months ended September 30, 1999, was calculated based on weighted average common shares outstanding of 20,310,289 and 21,351,034, respectively. Diluted earnings (loss) per common share assumes the exercise of options covering 717,035 shares and computes incremental shares using the treasury stock method for the nine months ended September 30, 1999, respectively. EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 9,815 114,165 199,453 0 639,973 1,054,694 54,017 16,062 1,108,349 873,870 6,286 0 0 316 227,877 1,108,349 19,587 36,164 29,853 39,323 9,470 2,453 13,126 (3,159) (1,484) (1,675) 0 0 0 (1,675) (0.08) (0.08)
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