<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1996
-------------
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, Suite 150, Columbia, SC 29223
- --------------------------------------------- ---------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (803)741-3000
--------------------------
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for each shorter period that the registrant was
required to file reports) and has been subject to such filing requirements for
the past 90 days.
YES X NO
----- -----
The number of shares of common stock of the Registrant outstanding as of
July 31, 1996, was 18,018,115.
Page 1
Exhibit Index on Pages A to E
<PAGE> 2
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-Q for the quarter ended June 30, 1996
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 8
- ---------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
PART II. OTHER INFORMATION 22
- -----------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 22
- ---------------------------------------------------------------
ITEM 6. Exhibits and Reports on Form 8-K 22
- --------------------------------------------
SIGNATURES 23
- ----------
EXHIBIT INDEX A-E
- -------------
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 2,337 $ 2,161
Receivables 56,390 57,893
Mortgage-backed securities 98,105 22,391
Mortgage loans held for sale 595,172 1,012,838
Mortgage servicing rights, net 104,918 99,912
Premises and equipment, net 20,384 16,314
Accrued interest on loans held for sale 7,526 9,464
Other assets 10,605 10,124
------------ ------------
Total assets $ 895,437 $ 1,231,097
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 684,044 $ 1,005,557
Long-term borrowings 65,530
Accrued expenses 14,643 10,036
Other liabilities 45,343 56,570
------------ ------------
Total liabilities 744,030 1,137,693
------------ ------------
Stockholders' equity
Common stock 180 146
Additional paid-in capital 132,575 84,533
Retained earnings 21,452 10,725
Unearned shares of employee stock ownership plan (2,800) (2,000)
------------ ------------
Total stockholders' equity 151,407 93,404
------------ ------------
Total liabilities and stockholders' equity $ 895,437 $ 1,231,097
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except share information)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
June 30, June 30,
-------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUES
Interest income $ 35,301 $ 11,190 $ 16,856 $ 7,746
Interest expense (27,021) (8,968) (11,819) (6,318)
----------- ----------- ------------- -----------
Net interest income 8,280 2,222 5,037 1,428
Net gain on sale of mortgage loans 40,036 3,097 21,503 2,547
Gain on sale of mortgage servicing rights 189 5,840 123 4,024
Loan servicing fees 13,859 11,088 6,729 5,237
Other income 298 1,258 220 721
----------- ----------- ------------- -----------
Total revenues 62,662 23,505 33,612 13,957
----------- ----------- ------------- -----------
EXPENSES
Salary and employee benefits 25,515 8,676 12,849 4,876
Occupancy expense 2,640 1,069 1,364 676
Amortization of mortgage servicing rights 7,316 4,147 3,646 2,119
General and administrative expenses 9,750 3,950 5,563 2,297
----------- ----------- ------------- -----------
Total expenses 45,221 17,842 23,422 9,968
----------- ----------- ------------- -----------
Income before income taxes 17,441 5,663 10,190 3,989
Income tax expense (6,714) (2,170) (3,923) (1,529)
----------- ----------- ------------- -----------
Net income $ 10,727 $ 3,493 $ 6,267 $ 2,460
=========== =========== ============= ===========
Weighted average shares 16,387,679 14,530,737 17,812,045 14,538,007
=========== =========== ============= ===========
Net income per common share $ 0.65 $ 0.24 $ 0.35 $ 0.17
=========== =========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
(Unaudited)
<TABLE>
<CAPTION>
Unearned Shares of
Six Months Ended Additional Paid- Retained Employee Stock
June 30, 1995 Common Stock In Capital Earnings Ownership Plan Total
---------------- ------------------ ---------------- -------- ------------------ -----
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 11,944,304 $ 119 $ 60,157 $ 20,338 $ $ 80,614
Issuance of restricted stock 43,402 * 406 406
Stock dividend adjustment 1,858,022 26 23,805 (23,831)
Loans to ESOP (1,000) (1,000)
Net income 3,493 3,493
---------- ----- --------- --------- ----------- ----------
Balance, June 30, 1995 13,845,728 $ 145 $ 84,368 $ $ (1,000) $ 83,513
========== ===== ========= ========= =========== ==========
Six Months Ended
June 30, 1996
----------------
Balance, December 31, 1995 14,550,462 $ 146 $ 84,533 $ 10,725 $ (2,000) $ 93,404
Issuance of restricted stock 16,410 * 256 256
Net proceeds of public offering 3,426,552 34 47,417 47,451
Loans to ESOP (1,000) (1,000)
Shares committed to be
released under ESOP 97 200 297
Shares issued under dividend
reinvestment and stock
purchase plan 24,691 * 272 272
Net income 10,727 10,727
---------- ----- --------- --------- ----------- ----------
Balance, June 30, 1996 18,018,115 $ 180 $ 132,575 $ 21,452 $ (2,800) $ 151,407
========== ===== ========= ========= =========== ==========
</TABLE>
* Amount less than $1
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Six Months Ended June 30,
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,727 $ 3,493
Adjustments to reconcile net
income to cash used in operating activities:
Depreciation and amortization 8,554 4,807
Net increase in allowance for estimated foreclosure losses 200
Decrease in receivables 1,503 3,365
Acquisition of mortgage loans (5,674,298) (1,777,090)
Proceeds from sales of mortgage loans and mortgage-backed securities 6,056,032 1,234,738
Acquisition of mortgage servicing rights (114,634) (26,300)
Sales of mortgage servicing rights 102,555 16,594
Net gain on sales of mortgage loans and servicing rights (40,225) (8,937)
Decrease (increase) in accrued interest on loans 1,938 (2,045)
Increase in other assets (481) (1,886)
(Decrease) increase in accrued expenses and other liabilities (6,620) 11,142
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 345,251 (542,119)
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of premises and equipment, net (5,308) (2,338)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,308) (2,338)
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings 19,805,491 5,590,812
Repayment of borrowings (20,192,534) (5,044,456)
Issuance of restricted stock 256 406
Net proceeds of public offering 47,451
Activity under Employee Stock Ownership Plan, net (703) (1,000)
Shares issued under dividend reinvestment and stock purchase plan 272
- ------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (339,767) 545,762
- ------------------------------------------------------------------------------------------------------------
Net increase in cash 176 1,305
Cash, beginning of year 2,161 232
- ------------------------------------------------------------------------------------------------------------
Cash, end of year $ 2,337 $ 1,537
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
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, 1995, Annual Report on Form 10-K. Certain
financial information, which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, is not required for interim financial statements and has
been omitted. The accompanying interim consolidated financial
statements are unaudited. However, in the opinion of management of the
Company, all adjustments, consisting of normal recurring items,
necessary for a fair presentation of operating results for the periods
shown have been made. Certain prior period amounts have been
reclassified to conform to current period presentation.
Prior to April 1, 1995, and in conjunction with the acquisition of
mortgage loans, the Company capitalized as mortgage servicing rights
the portion of the purchase price which represented the premium paid
for the right to service the mortgage loans. The amount capitalized
was subsequently reduced if the mortgage loans were sold at a gain.
Effective April 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing
Rights-An amendment of FASB Statement No. 65." Accordingly, effective
April 1, 1995, and as required by SFAS No. 122, the Company now
allocates the total cost of a whole mortgage loan to the mortgage
servicing right (MSR) and the loan (without servicing rights) based on
relative fair values. The amount capitalized is no longer required to
be reduced if the mortgage loan is sold at a gain. The market value of
the servicing rights for purposes of allocating cost and evaluating
impairments is estimated based upon forward committed delivery prices
allocated thereto under the terms of existing contracts to sell the
underlying MSRs. The Company periodically assesses its capitalized
MSRs for impairment (on a stratified basis) based on the fair values of
those rights. Impairment would be recognized as a valuation allowance
for each impaired stratum.
7
<PAGE> 8
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Information, the Consolidated Financial Statements of the Company
(and the notes thereto) and the other information included or incorporated by
reference into the Company's 1995 Annual Report on Form 10-K and the interim
Consolidated Financial Statements contained herein. To the extent that any
statement below (or elsewhere in this document) is not a statement of
historical fact and could be considered a forward-looking statement, the "Risk
Factors" discussion set forth in the Company's final Prospectus dated March 11,
1996 identifies important factors that could cause actual results to differ
materially from those in the forward-looking statement.
THE COMPANY
Resource Bancshares Mortgage Group, Inc. (the Company), was organized
under Delaware law in 1992 to acquire and operate the mortgage banking business
of Resource Bancshares Corporation (RBC), which commenced operations in May
1989. The assets and liabilities of the mortgage banking business of RBC were
transferred to the Company on June 3, 1993, when the Company sold 58% of its
common stock in an initial public offering. As a result, RBC retained a
significant ownership interest in the Company. As of June 30, 1996, RBC owns
approximately 38% of the outstanding common stock of the Company.
The Company is principally engaged in the purchase and origination of
mortgage loans, which it aggregates into mortgage-backed securities issued or
guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC), the Federal
National Mortgage Association (FNMA) and the Government National Mortgage
Association (GNMA). The Company sells the mortgage-backed securities it
creates to institutional purchasers with the rights to service the underlying
loans being retained by the Company. The servicing rights retained are
generally sold separately but may be held for extended periods by the Company.
LOAN PRODUCTION
A summary of loan production by source for the periods indicated is set
forth below:
<TABLE>
<CAPTION>
($ in thousands)
(Unaudited) Six Months Ended June 30, Quarter Ended June 30,
1996 1995 1996 1995
------------------------- ----------------------
<S> <C> <C> <C> <C>
Loan Production:
Correspondent Division $4,584,869 $1,631,276 $2,028,118 $1,183,866
Wholesale Division 736,696 137,967 368,056 111,244
Retail Division 310,419 7,847 192,250 7,847
---------- ---------- ---------- ----------
Total Loan Production $5,631,984 $1,777,090 $2,588,424 $1,302,957
========== ========== ========== ==========
</TABLE>
8
<PAGE> 9
Average estimated market share for the second quarter of 1996 was 1.33% as
compared to 0.92% for the comparable period of 1995. Historically, the Company
was exclusively focused on purchasing loans through its correspondents. In
order to diversity its sources of loan volume, the Company started a wholesale
operation, which purchased its first loan in May of 1994, and a retail
operation, which originated its first loan in May of 1995. Accordingly,
correspondent operations accounted for 78% of the Company's loan production and
1.04% of total market share for the second quarter of 1996 as compared to
91% and 0.84% for the second quarter of 1995.
Correspondent Loan Production
A summary of key information relevant to the Company's correspondent loan
production activities is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or For the Quarter
(Unaudited) Ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
U.S. 1-4 Family Mortgage Originations Statistics (1)
U.S. 1-4 Family Mortgage Originations $195,000,000 $141,000,000
Adjustable Rate Mortgage Market Share 27.00% 35.00%
Company Information
Correspondent Loan Production $ 2,028,118 $ 1,183,866
Estimated Market Share of Correspondent Division 1.04% 0.84%
Approved Correspondents 803 637
</TABLE>
(1) Source: Mortgage Bankers Association of America, Economics Department.
The 71% increase in correspondent loan production to $2.0 billion for the
second quarter of 1996 from $1.2 billion for the second quarter of 1995 was
primarily due to the combined positive impact of expansion of the Company's
correspondent network, the overall increase in the overall market volume of
originations which is related to the mortgage interest rate environment, and the
decline in the adjustable rate mortgage (ARM) share of the U.S. market to an
estimated 27% for the second quarter of 1996 from an estimated 35% for the
second quarter of 1995. The number of approved correspondents increased by 166
or 26% to 803 at June 30, 1996, from 637 at June 30, 1995.
Wholesale Loan Production
A summary of key information relevant to the Company's wholesale
production activities is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or For the Six Months At or For the Quarter
(Unaudited) Ended June 30, Ended June 30,
---------------------------- ------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Wholesale Loan Production $736,696 $137,967 $368,056 $111,244
Wholesale Division Direct
Operating Expenses $ 4,255 $ 996 $ 2,382 $ 604
Approved Brokers 1,694 635 1,694 635
Number of Branches 11 8 11 8
Number of Employees 118 48 118 48
</TABLE>
9
<PAGE> 10
The $257 million increase in wholesale loan production to $368 million for
the second quarter of 1996 from $111 million for the second quarter of 1995
relates to the Company's expansion into these activities beginning in May of
1994. That is, during the second quarter of 1995, this division was still in
the latter phase of its initial startup stage. Similarly, the numbers of
approved brokers, branches and employees has also increased significantly.
Retail Loan Production
A summary of key information relevant to the Company's retail production
activities that commenced in May of 1995 is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or For the Six Months At or For the Quarter
(Unaudited) Ended June 30, Ended June 30,
------------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Retail Loan Production $310,419 $7,847 $192,250 $7,847
Retail Division Operating Expenses $ 7,831 $1,189 $ 3,753 $1,189
Number of Branches 6 6 6 6
Number of Employees 190 114 190 114
</TABLE>
LOAN SERVICING
A summary of key information relevant to the Company's loan servicing
activities is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or For the Six Months At or For the Quarter
(Unaudited) Ended June 30, Ended June 30,
------------------------------ ------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<C> <C> <C> <C> <C>
Underlying Unpaid Principal Balances:
Beginning Balance $5,562,930 $4,039,847 $5,827,271 $3,994,538
Loan Production (net of servicing
released production) 5,605,013 1,461,893 2,569,458 1,102,426
Net Change in Work-in-Process 66,433 15,620 320,391 15,620
Bulk Acquisitions 60,887 334,346 60,887 312,711
Sales of Servicing (4,965,473) (950,685) (2,608,374) (578,339)
Paid-In-Full Loans (246,339) (100,956) (108,007) (75,733)
Amortization, Curtailments, and
Others, net (157,252) (239,325) (135,427) (210,483)
---------- ---------- ---------- ----------
Ending Balance $5,926,199 $4,560,740 $5,926,199 $4,560,740
========== ========== ========== ==========
Loan Servicing Fees $ 13,859 $ 11,088 $ 6,729 $ 5,237
Cash Operating Expenses 37,905 13,695 19,776 7,849
Coverage Ratio 37% 81% 34% 67%
Average Underlying Unpaid Principal
Balances $6,159,870 $4,260,206 $6,425,960 $4,355,761
Weighted Average Note Rate 7.80% 7.96% 7.80% 7.96%
Weighted Average Servicing Fee 0.41% 0.43% 0.41% 0.43%
Delinquency (30+ days) 2.84% 2.32% 2.84% 2.32%
Number of Servicing Division Employees 129 106 129 106
</TABLE>
10
<PAGE> 11
The $2.1 billion or 48% increase in the average underlying unpaid principal
balance of mortgage loans being serviced for the second quarter of 1996 as
compared to the second quarter of 1995 is primarily related to the Company's
increased loan production volumes. Specifically, since the Company generally
sells servicing rights related to the loans it produces within 90 to 180 days of
purchase or origination, increased production volumes generally result in a
higher volume of mortgage servicing rights held in inventory pending sale.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1995
SUMMARY
Total revenues of the Company increased 167% to $62.7 million for the first
six months of 1996 as compared to $23.5 million for the first six months of
1995. The $39.2 million increase in revenues was primarily due to a $6.1
million increase in net interest income and a $31.3 million increase in gains on
sales of loans and servicing rights, which were partially offset by a $24.2
million increase in operating expenses (exclusive of amortization and taxes).
The increase in net interest income is primarily due to the increased volume of
loans originated and purchased, which resulted in higher average volumes of
mortgages held pending resale. Similarly, the increase in gains on sales of
loans and servicing rights is related to the Company's increased loan production
volumes for the first six months of 1996. The increase in operating expenses is
primarily attributable to increased costs associated with increased loan
production and loan servicing volumes and increased costs associated with
expansion into wholesale and retail operations. Direct costs related to the
Company's expansion into retail and wholesale operations account for
approximately $7.8 million and $3.3 million, or 28% and 12%, respectively, of
the total increase in operating expenses for the first six months of 1996
compared to the same period of the prior year.
The following sections discuss the components of the Company's results of
operations in greater detail.
NET INTEREST INCOME
The following table analyzes net interest income in terms of rate and
volume variances of the interest spread (the difference between interest rates
earned on loans and mortgage-backed securities and interest rates paid on
interest-bearing sources of funds). All dollars are in thousands; the
information presented is unaudited.
<TABLE>
Variance
Average Volume Average Rate Interest Attributable to
- --------------------------------- ---------------- ----------------------
1996 1995 1996 1995 1996 1995 Variance Rate Volume
- -------- -------- ------ ------ ------- ------- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
---------------
Mortgages Held for Sale and
$933,326 $275,707 7.56% 8.12% Mortgage-Backed Securities $35,301 $11,190 $24,111 $(2,579) $26,690
- -------- -------- ----- ----- ------- ------- ------- ------- -------
INTEREST EXPENSE
----------------
$336,991 $162,673 4.70% 4.56% Warehouse Line $ 7,879 $ 3,679 $ 4,200 $ 258 $ 3,942
566,220 96,600 5.63% 6.36% Gestation Line 15,865 3,049 12,816 (2,007) 14,823
30,841 31,146 8.19% 7.96% Servicing Secured Line 1,256 1,230 26 38 (12)
22,285 5.82% Servicing Receivable Line 645 645 645
15,276 8.49% Other Borrowings 645 645 645
Facility Fees & Other Charges 731 1,010 (279) (279)
- -------- -------- ----- ----- ------- ------- ------- ------- -------
$971,613 $290,420 5.59% 6.23% Total Interest Expense $27,021 $ 8,968 $18,053 $(1,711) $19,764
- -------- -------- ----- ----- ------- ------- ------- ------- -------
1.97% 1.89% Net Interest Income $ 8,280 $ 2,222 $ 6,058 $ (868) $ 6,926
===== ===== ======= ======= ======= ======= =======
</TABLE>
Net interest income increased 273% to $8.3 million for the first six
months of 1996 compared to $2.2 million for the first six months of 1995. The
$6.1 million increase in net interest income is primarily
11
<PAGE> 12
attributable to the 239% increase in the average volume of mortgages held for
sale and mortgage-backed securities for the first six months of 1996 from that
of the first six months of 1995. Net interest income also increased due to an
increase in the interest-rate spread of 8 basis points to 197 basis points for
1996 as compared to 189 basis points for 1995.
NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS
Net gains on sales of mortgage loans and mortgage servicing rights
increased $36.9 million to $40 million for the first six months of 1996 as
compared to $3.1 million for the first six months of 1995. As further
discussed below, this increase is primarily due to higher volumes of mortgage
loans and mortgage servicing rights sold during the first six months of 1996
compared to the first six months of 1995, as well as the effects of increased
profit margins on sales.
Net Gain on Sale of Mortgage Loans
A reconciliation of the effects of SFAS No. 91, SFAS No. 65, and SFAS No.
122 on the gain on sale of mortgage loans for the periods indicated follows:
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
($ in thousands)
----------------------------
(Unaudited) 1996 1995
------------ ----------
<S> <C> <C>
Gross proceeds on sales of mortgage loans $6,056,032 $1,234,738
Initial unadjusted acquisition cost of
mortgage loans sold 6,049,973 1,235,320
----------- -----------
Unadjusted gain (loss) on sale of
mortgage loans 6,059 (582)
Administrative fees collected 18,710 2,975
----------- -----------
Unadjusted aggregate margin 24,769 2,393
Acquisition basis allocated to mortgage
servicing rights (SFAS No. 122) 15,581 1,648
Gains deferred to reduce mortgage
servicing rights (SFAS No. 65) (922)
Net change in deferred administrative
fees (SFAS No. 91) (314) (22)
----------- -----------
Net gain on sale of mortgage loans $ 40,036 $ 3,097
=========== ===========
</TABLE>
The Company sold loans during the first six months of 1996 with an
aggregate unpaid principal balance of $6.0 billion compared to sales of $1.2
billion for the first six months of 1995. The amount of proceeds received on
sales of mortgage loans exceeded the initial unadjusted acquisition cost of the
loans sold by $6.1 million (10 basis points) for the first six months of 1996 as
opposed to a $0.6 million loss (-5 basis points) for the first six months of
1995. The Company received administrative fees of $18.7 million (31 basis
points) on these loans during the first six months of 1996 and $3.0 million (24
basis points) during the first six months of 1995. The Company had allocated
$15.6 million to basis in mortgage servicing rights for loans sold in the first
six months of 1996 as compared to $1.6 million allocated to loans sold in the
first six months of 1995. This is a result of the adoption of SFAS No. 122 for
loans acquired after April 1, 1995. Also, there was no gain deferred against
mortgage servicing rights during the first six months of 1996 due to the
adoption of SFAS No. 122, while $0.9 million was deferred during the comparable
period of 1995. As a result, net gain on sale of mortgage loans increased to $40
million for the first six months of 1996 versus $3.1 million for 1995. This
increase was primarily due to the 390% increase in the volume of mortgage loans
sold, as well as a 22 basis-point increase in the aggregate unadjusted margin
from 19 basis points for the first six months of 1995 to 41 basis points for the
first six months of 1996.
12
<PAGE> 13
Although implementation of SFAS No. 122 accounts for a significant portion
of the increase in the amount reported as net gain on sale of mortgage loans,
implementation also accounts for a significant portion of the decrease in the
amount reported as gain on sale of mortgage servicing rights, as discussed
below.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage servicing rights
for the periods indicated follows:
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
($ in thousands)
---------------------------------
(Unaudited) 1996 1995
---------- --------
<S> <C> <C>
Underlying unpaid principal balances of
mortgage loans on which servicing rights
were sold during the period $4,972,126 $916,322
========== ========
Gross proceeds from sales of mortgage
servicing rights $ 102,555 $ 16,594
Initial acquisition cost, net of amortization 90,036 14,360
---------- --------
Unadjusted gain on sale of mortgage
servicing rights 12,519 2,234
Acquisition basis allocated from mortgage
loans, net of amortization (SFAS No. 122) (12,330)
Previously deferred administrative fees and
gain on sale of mortgage loans recognized
(SFAS No. 65 and No. 91) 3,606
---------- --------
Gain on sale of mortgage servicing rights $ 189 $ 5,840
========== ========
</TABLE>
During the first six months of 1996, the Company completed sixteen sales
of mortgage servicing rights representing $5.0 billion of underlying unpaid
principal mortgage loan balances. This compares to six sales of mortgage
servicing rights representing $0.9 billion of underlying unpaid principal
mortgage loan balances in the first six months of 1995. Unadjusted gain on
sale of mortgage servicing rights was $12.5 million for the first six months of
1996, up from $2.2 million for 1995. The Company reduced this unadjusted gain
by $12.3 million in the first six months of 1996 due to the adoption of SFAS
No. 122 effective April 1, 1995. Similarly, prior to adoption of SFAS No. 122,
the Company recognized $3.6 million in previously deferred administrative fees
and gain on sales of mortgage loans. As discussed above, SFAS No. 122 does not
require that gains on sale of mortgage loans or administrative fees be deferred
as a reduction of basis in mortgage servicing rights. Thus, the $5.7 million
decline in gain on sale of mortgage servicing rights is primarily related to
adoption of SFAS No. 122.
13
<PAGE> 14
NET SERVICING MARGIN
Loan servicing fees were $13.9 million for the first six months of 1996,
compared to $11.1 million for the first six months of 1995, an increase of 25%.
This increase is primarily related to an increase in the average aggregate
underlying unpaid principal balance of mortgage loans serviced to $6.2 billion
during the first six months of 1996 from $4.3 billion during the first six
months of 1995, an increase of 45%. Similarly, amortization of mortgage
servicing rights also increased to $7.3 million during the first six months of
1996 from $4.1 million during the first six months of 1995, an increase of 76%.
The increase in amortization is primarily attributed to the growth in the
average balance of the mortgage loans serviced. As a result, net servicing
margin decreased to $6.5 million during the first six months of 1996, compared
to $6.9 million during the first six months of 1995, a decrease of 6%.
Included in loan servicing fees for the first six months of 1996 and the
first six months of 1995 are subservicing fees received by the Company of
$678,000 and $373,000, respectively. The subservicing fees are associated with
temporary subservicing agreements between the Company and purchasers of mortgage
servicing rights.
The following tables summarizes the net servicing margin for the first six
months of both 1996 and 1995:
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
($ in thousands)
--------------------------------
(Unaudited) 1996 1995
---------- ----------
<S> <C> <C>
Loan servicing fees $ 13,859 $ 11,088
Amortization of mortgage servicing rights 7,316 4,147
---------- ----------
Net servicing margin $ 6,543 $ 6,941
========== ==========
Average underlying unpaid principal balance
of mortgage loans serviced $6,159,870 $4,260,206
========== ==========
</TABLE>
OTHER INCOME
Other income decreased during the first six months of 1996 compared to the
first six months of 1995, primarily due to the prospective recharacterization of
certain loan related gain and loss amounts in connection with the implementation
of SFAS No. 122.
EXPENSES
The $24.2 million increase in operating expenses (excluding amortization of
mortgage servicing rights) was centered in salary and employee benefits; which
increased $16.8 million, or 194%. The Company increased its employee headcount
by 389 from 648 at June 30, 1995, to 1,037 at June 30, 1996. The increased
employee headcount and associated increase in salary and employee benefit costs
was necessitated by the Company's increased loan production and average loan
servicing volume, which were up 217% and 45%, respectively. Employee headcount
attributable to expansion of the wholesale division and establishment of the
retail division accounted for 146 of the total 389 increase and for $11.1
million of the total $27.4 million increase in operating expenses.
INCOME TAX EXPENSE
Income tax expense includes both federal and state income taxes. The
effective tax rates for 1996 and 1995 were 38.5% and 38.3%, respectively.
Income tax expense increased by 209% to $6.7 million for the first half of 1996
from $2.2 million for the first half of 1995 due to the above-described factors
that resulted in a 208% or $11.8 million increase in income before taxes.
14
<PAGE> 15
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1996, COMPARED TO THE QUARTER
ENDED JUNE 30, 1995
SUMMARY
Total revenues of the Company increased 141% to $33.6 million for the
second quarter of 1996 as compared to $14.0 million for the second quarter of
1995. The $19.6 million increase in revenues was primarily due to a $3.6
million increase in net interest income and a $15.1 million increase in gains on
sales of loans and servicing rights, which were partially offset by a $11.9
million increase in operating expenses (exclusive of amortization and taxes).
The increase in net interest income is primarily due to the increased volume of
loans originated and purchased, which resulted in higher average volumes of
mortgages held pending resale. Similarly, the increase in gains on sales of
loans and servicing rights is related to the Company's increased second-quarter
1996 loan production volumes. The increase in operating expenses is primarily
attributable to increased costs associated with increased loan production and
loan servicing volumes and increased costs associated with expansion in the
wholesale and retail operations. Direct costs related to the Company's
expansion in the retail and wholesale operations account for approximately $3.8
million and $1.8 million, or 28% and 13%, respectively, of the total increase in
operating expenses for the second quarter of 1996 compared to the same period of
the prior year.
The following sections discuss the components of the Company's results of
operations in greater detail.
NET INTEREST INCOME
The following table analyzes net interest income in terms of rate and
volume variances of the interest spread (the difference between interest rates
earned on loans and mortgage-backed securities and interest rates paid on
interest-bearing sources of funds). All dollars are in thousands; the
information presented is unaudited.
<TABLE>
<CAPTION>
Variance
Average Volume Average Rate Interest Attributable to
- ---------------------------------- --------------- -----------------------
1996 1995 1996 1995 1996 1995 Variance Rate Volume
- ---------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
---------------
Mortgages Held for Sale and
$870,075 $384,158 7.75% 8.07% Mortgage-Backed Securities $16,856 $7,746 $9,110 $ (688) $9,798
- --------------------------------- -------------------------------------------------------------
INTEREST EXPENSE
----------------
$318,288 $225,051 4.57% 4.80% Warehouse Line $ 3,619 $2,696 $ 923 $ (194) $1,117
520,654 143,200 5.61% 6.38% Gestation Line 7,259 2,278 4,981 (1,023) 6,004
4,033 37,687 7.38% 7.89% Servicing Secured Line 74 741 (667) (5) (662)
16,990 5.75% Servicing Receivable Line 243 243 243
9,357 9.07% Other Borrowings 211 211 211
Facility Fees & Other Charges 413 604 (191) (191)
- --------------------------------- -------------------------------------------------------------
$869,322 $405,938 5.47% 6.24% Total Interest Expense $11,819 $6,319 $5,500 $(1,222) $6,722
- --------------------------------- -------------------------------------------------------------
2.28% 1.83% Net Interest Income $ 5,037 $1,427 $3,610 $ 534 $3,076
============= =============================================================
</TABLE>
15
<PAGE> 16
Net interest income increased 253% to $5.0 million for the second quarter
of 1996 compared to $1.4 million for the second quarter of 1995. The $3.6
million increase in net interest income is primarily attributable to the 127%
increase in the average volume of mortgages held for sale and mortgage-backed
securities for the second quarter of 1996 from that of the second quarter of
1995. Another component of the net interest income increase is the increase in
the interest-rate spread of 45 basis points to 228 basis points for 1996 as
compared to 183 basis points for 1995. The Company's long-term mortgages and
mortgage-backed securities are generally sold and replaced within 30 to 35
days. Accordingly, the Company generally borrows at rates based upon
short-term indices, while its earning asset yields are based upon long-term
rate indices. Thus, the increase in interest-rate spread was primarily the
result of larger spreads between long-term and short-term rates in the second
quarter of 1996 versus the second quarter of 1995.
NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS
Net gains on sales of mortgage loans and mortgage servicing rights
increased $19 million to $21.5 million for the second quarter of 1996 as
compared to $2.5 million for the second quarter of 1995. As further discussed
below, this increase is primarily due to higher volumes of mortgage loans and
mortgage servicing rights sold during the second quarter of 1996 compared to the
second quarter of 1995, the adoption of SFAS No. 122 and the effects of improved
profit margins on sales.
Net Gain on Sale of Mortgage Loans
A reconciliation of the effects of SFAS No. 91, SFAS No. 65, and SFAS No.
122 on the gain on sale of mortgage loans for the periods indicated follows:
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
($ in thousands)
-----------------------------------
(Unaudited) 1996 1995
---------- --------
<S> <C> <C>
Gross proceeds on sales of mortgage loans $2,961,189 $828,780
Initial unadjusted acquisition cost of
mortgage loans sold $2,956,794 830,001
---------- --------
Unadjusted gain (loss) on sale of
mortgage loans 4,395 (1,221)
Administrative fees collected 9,935 2,142
---------- --------
Unadjusted aggregate margin 14,330 921
Acquisition basis allocated to mortgage
servicing rights (SFAS No. 122) 7,402 1,648
Net change in deferred administrative
fees (SFAS No. 91) (229) (22)
---------- --------
Net gain on sale of mortgage loans $ 21,503 $ 2,547
========== ========
</TABLE>
The Company sold loans during the second quarter of 1996 with an aggregate
unpaid principal balance of $3.0 billion compared to sales of $0.8 billion for
the second quarter of 1995. The amount of proceeds received on sales of
mortgage loans exceeded the initial unadjusted acquisition cost of the loans
sold by $4.4 million (15 basis points) for the second quarter of 1996 as
compared to a $1.2 million loss (-15 basis points) for the second quarter of
1995. The Company received administrative fees of $10.0 million (34 basis
points) on these loans during the second quarter of 1996 and $2.1 million (26
basis points) during the second quarter of 1995. The Company had allocated $7.4
million to basis in mortgage servicing rights for loans sold in the second
quarter of 1996 as compared to $1.6 million allocated to loans sold in the
second quarter of 1995. This is a result of the adoption of SFAS No. 122 for
loans acquired after April 1, 1995. As a result, net gain on sale of mortgage
loans increased to $21.5 million for the second quarter of 1996
16
<PAGE> 17
versus $2.5 million for the second quarter of 1995. This increase was primarily
due to the 257% increase in the volume of mortgage loans sold, as well as a 37
basis-point increase in the aggregate unadjusted margin from 11 basis points for
the second quarter of 1995 to 48 basis points for the second quarter of 1996.
Although implementation of SFAS No. 122 accounts for a significant portion
of the increase in the amount reported as net gain on sale of mortgage loans,
implementation also accounts for a significant portion of the decrease in the
amount reported as gain on sale of mortgage servicing rights, as discussed
below.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage servicing rights
for the periods indicated follows:
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
($ in thousands)
------------------------------
(Unaudited) 1996 1995
---------- --------
<S> <C> <C>
Underlying unpaid principal balances of
mortgage loans on which servicing rights
were sold during the period $2,615,027 $543,975
========== ========
Gross proceeds from sales of mortgage
servicing rights $ 52,523 $ 10,472
Initial acquisition cost, net of amortization 45,756 8,480
---------- --------
Unadjusted gain on sale of mortgage
servicing rights 6,767 1,992
Acquisition basis allocated from mortgage
loans, net of amortization (SFAS No. 122) (6,644)
Previously deferred administrative fees and
gain on sale of mortgage loans recognized
(SFAS No. 65 and No. 91) 2,032
---------- --------
Gain on sale of mortgage servicing rights $ 123 $ 4,024
========== ========
</TABLE>
During the second quarter of 1996, the Company completed seven sales of
mortgage servicing rights representing $2.6 billion of underlying unpaid
principal mortgage loan balances. This compares to five sales of mortgage
servicing rights representing $0.5 billion of underlying unpaid principal
mortgage loan balances in the second quarter of 1995. Unadjusted gain on sale
of mortgage servicing rights was $6.8 million for the second quarter of 1996,
up from $2.0 million for 1995. The Company reduced this unadjusted gain by
$6.6 million in the second quarter of 1996 due to the adoption of SFAS No. 122
effective April 1, 1995. Similarly, prior to adoption of SFAS No. 122, the
Company recognized $2.0 million in previously deferred administrative fees and
gain on sales of mortgage loans. As discussed above, SFAS No. 122 does not
require that gains on sale of mortgage loans or administrative fees be deferred
as a reduction of basis in mortgage servicing rights. Thus, the $3.9 million
decline in gain on sale of mortgage servicing rights is primarily related to
adoption of SFAS No. 122.
17
<PAGE> 18
NET SERVICING MARGIN
Loan servicing fees were $6.7 million for the second quarter of 1996,
compared to $5.2 million for the second quarter of 1995, an increase of 28%.
This increase is primarily related to an increase in the average aggregate
underlying unpaid principal balance of mortgage loans serviced to $6.4 billion
during the second quarter of 1996 from $4.4 billion during the second quarter
of 1995, an increase of 48%. Similarly, amortization of mortgage servicing
rights also increased to $3.6 million during the second quarter of 1996 from
$2.1 million during the second quarter of 1995, an increase of 72%. The
increase in amortization is primarily attributed to the growth in the average
balance of the mortgage loans serviced. As a result, net servicing margin
remained constant at $3.1 million during the second quarter of 1996, compared
to $3.1 million during the second quarter of 1995.
Included in loan servicing fees for the second quarter of 1996 and 1995 are
subservicing fees received by the Company of $360,000 and $122,000,
respectively. The subservicing fees are associated with temporary subservicing
agreements between the Company and purchasers of mortgage servicing rights.
The following tables summarizes the net servicing margin for the second
quarters of both 1996 and 1995:
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
($ in thousands)
------------------------------------
(Unaudited) 1996 1995
---------- ----------
<S> <C> <C>
Loan servicing fees $ 6,729 $ 5,237
Amortization of mortgage servicing rights 3,646 2,119
---------- ----------
Net servicing margin $ 3,083 $ 3,118
========== ==========
Average underlying unpaid principal balance
of mortgage loans serviced $6,425,960 $4,355,761
========== ==========
</TABLE>
OTHER INCOME
Other income decreased during the second quarter of 1996 compared to the
second quarter of 1995, primarily due to the prospective recharacterization of
certain loan related gain and loss amounts in connection with the implementation
of SFAS No. 122.
EXPENSES
The $11.9 million increase in operating expenses (excluding amortization
of mortgage servicing rights) was centered in salary and employee benefits;
which increased $8.0 million, or 164%. The Company increased its employee
headcount by 389 from 648 at June 30, 1995, to 1,037 at June 30, 1996. The
increased employee headcount and associated increase in salary and employee
benefit costs was necessitated by the Company's increased loan production and
average loan servicing volume, which were up 99% and 48%, respectively.
Employee headcount attributable to expansion of the wholesale division and
establishment of the retail division accounted for 146 of the total 389
increase and for $5.5 million of the total $13.5 million increase in operating
expenses.
INCOME TAX EXPENSE
Income tax expense includes both federal and state income taxes. The
effective tax rates for 1996 and 1995 were 38.5% and 38.3%, respectively.
Income tax expense increased by 157% to $3.9 million for the second quarter of
1996 from $1.5 million for the second quarter of 1995 due to the
above-described factors that resulted in a 155% or $6.2 million increase in
income before taxes.
18
<PAGE> 19
FINANCIAL CONDITION
During the latter part of March 1996, the Company completed a public
offering of 3,842,961 shares of common stock priced at $14.50 per share. The
Company sold 2,530,000 shares in the offering, while certain stockholders sold
the remaining 1,312,961 shares. In a concurrent private placement, the Company
sold an additional 896,552 shares of common stock at the offering price of
$14.50 per share to RBC, which owned approximately 41% of the Company's
outstanding common stock prior to the public offering and private placement and
approximately 38% immediately thereafter. Net proceeds to the Company after
underwriting discounts and offering expenses totaled approximately $47.4
million. Proceeds of the offering were used to repay indebtedness to RBC and
for other general corporate purposes, including the continued growth and general
expansion of the Company's business activities.
During the second quarter of 1996, the Company continued to establish new
correspondent relationships. The number of correspondents approved to do
business in the Company's correspondent lending program increased to 803 at
June 30, 1996 from 787 at March 31, 1996.
The Company continued expanding its wholesale division during the second
quarter of 1996. There were approximately 1,694 wholesale brokers approved to
do business with the Company at June 30, 1996 as compared to approximately 1,393
at March 31, 1996.
The Company's Retail Division, operating under the name of Intercounty
Mortgage, Inc., employed 190 people at June 30, 1996 with offices in New York
(4), New Jersey and Pennsylvania at June 30, 1996.
The Company continues to face the same challenges as other companies
within the mortgage banking industry and as such is not immune from significant
volume declines precipitated by a rise in interest rates or other factors
beyond the Company's control. Management of the Company recognizes these
challenges and continues to manage the Company accordingly.
Mortgage loans held for sale and mortgage-backed securities totaled $693.3
at June 30, 1996 versus $1,096.6 million at March 31, 1996, a decrease of 37%.
The balance of mortgage loans held for sale and mortgage-backed securities at
June 30, 1996, decreased over that held at March 31, 1996, primarily as a
result of a decrease in mortgage loan production in the second quarter of 1996
compared to the first quarter.
The Company's servicing portfolio (exclusive of loans under subservicing
agreements) increased to $5.9 billion at June 30, 1996 from $5.8 billion at
March 31, 1996, an increase of 2%.
19
<PAGE> 20
Short-term borrowings, which are the Company's primary source of funds,
totaled $684.0 million at June 30, 1996, compared to $1,063.5 million at March
31, 1996, a decrease of 36%. The decrease in the balance outstanding at June
30, 1996, resulted from decreased funding requirements related to a decrease in
the balance of mortgage loans held for sale and mortgage-backed securities at
June 30, 1996. At June 30, 1996 there are no long-term borrowings. Long-term
borrowings, which are used primarily to finance the Company's servicing
portfolio, were $24.0 million at March 31, 1996.
Other liabilities totaled $45.3 million as of June 30, 1996, compared to
the March 31, 1996, balance of $62.1 million, a decrease of $16.8 million or
27%. The decrease in other liabilities resulted primarily from an decrease at
month end in the volume of loans acquired through certain correspondent funding
programs of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash flow requirement involves the funding of loan
production, which is met primarily through external borrowings. The Company
has entered into a 364-day, $570 million warehouse line of credit provided by a
syndicate of unaffiliated banks which expires in July 1997. The credit
agreement includes covenants requiring the Company to maintain (i) a minimum
net worth of $130 million, plus net income subsequent to the agreement date and
capital contributions and minus permitted dividends, (ii) a ratio of total
liabilities to net worth of not more than 8.0 to 1.0, excluding debt incurred
pursuant to gestation and repurchase financing agreements, (iii) its
eligibility as a servicer of GNMA, FHA, VA, FNMA and FHLMC mortgage loans and
(iv) a mortgage servicing rights portfolio with an underlying unpaid principal
balance of at least $4 billion. The provisions of the agreement also restrict
the Company's ability (i) to pay dividends in any fiscal quarter which exceed
50% of the Company's net income for the quarter or (ii) to engage significantly
in any type of business unrelated to the mortgage banking business and the
servicing of mortgage loans.
The Company has also entered into an uncommitted gestation financing
arrangement. The interest rate on funds borrowed pursuant to the gestation
line is based on a spread over the Federal Funds rate. The gestation line has
a funding limit of $1 billion.
Additionally, the Company entered into a $200 million, 364-day revolving
term credit facility with a syndicate of unaffiliated banks. An $80 million
portion of the revolver facility converts on July 31,1997, into a four-year term
loan and the facility is secured by the Company's servicing portfolio designated
as "available-for-sale". A $70 million portion of the revolver facility matures
on July 31, 1997 and is secured by the Company's servicing portfolio designated
as "held-for-sale". A $50 million portion of the revolver facility matures on
July 31, 1997 and is secured by a first-priority security interest in
receivables on servicing rights sold. The facility includes covenants identical
to those described above with respect to the warehouse line of credit.
The Company has entered into a $6.6 million, 364-day revolving credit
facility secured by certain real property of the Company. The facility
includes covenants substantially the same as those described above with respect
to the warehouse line of credit and matures in August of 1996.
20
<PAGE> 21
The Company was in compliance with the covenants at June 30, 1996, and
March 31, 1996. Although management anticipates continued compliance, there
can be no assurance that the Company will be able to comply with the debt
covenants specified for each of these financing agreements. Failure to comply
could result in the loss of the related financing.
Beginning in June 1995, the Company has from time to time borrowed up to
$19 million on a short-term unsecured basis from RBC. Interest on these
borrowings is at the prime rate. There was no indebtedness to RBC at June 30,
1996. The Company has no plans in the foreseeable future to borrow from RBC.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 4.- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the period April 1, 1996, through June 30, 1996, the following matters
were submitted to a vote of security holders:
At the annual meeting of the shareholders of the Company on April 25, 1996, the
shareholders elected John W. Currie, Stuart M. Cable and John O. Wolcott to
serve as directors of the Company for three year terms expiring at the 1999
annual meeting of shareholders. Messrs. Cable and Wolcott each received
10,999,083 votes. There were 19,561 abstentions. There were no broker
non-votes, no votes cast against and no votes withheld from Messrs. Cable and
Wolcott. Mr. Currie received 11,018,644 votes with no abstentions, no votes
cast against, no votes withheld and no broker non-votes. In addition to the
directors elected at the meeting, the directors whose terms continued after the
meeting were Edward J. Sebastian, David W. Johnson, Jr., Boyd M. Guttery, John
C. Baker and Lee Shelton.
The shareholders also approved the Company's Omnibus Stock Award Plan for
employees. There were 9,875,984 votes for, with 8,255 abstentions, 1,134,405
votes against, no votes withheld and no broker non-votes.
The shareholders also approved the Company's Formula Stock Option Plan for
non-employee directors. There were 10,755,603 votes for, with 254,647 votes
against, 8,394 abstentions, no votes withheld and no broker non-votes.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
- (A) A LIST OF THE EXHIBITS REQUIRED BY THIS FORM 10-Q, ALONG
WITH THE EXHIBIT INDEX CAN BE FOUND ON PAGES A TO E FOLLOWING THE
SIGNATURE PAGE.
- (B) THERE WERE NO REPORTS ON FORM 8-K FILED DURING THIS REPORTING
PERIOD.
22
<PAGE> 23
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
Executive Vice President and
Chief Financial Officer
(signing in the capacity of (i) duly
authorized officer of the registrant and (ii)
principal financial officer of the registrant)
DATED: August 9, 1996
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to *
Exhibit 3.3 of the Registrant's Registration No. 33-53980
3.2 Amended and Restated Bylaws of the Registrant incorporated by reference to *
Exhibit 3.4 of the Registrant's Registration No. 33-53980
4.1 Specimen Certificate of Registrant's Common Stock incorporated by reference *
to Exhibit 4.1 of the Registrant's Registration No. 33-53980
4.2 Secured Revolving/Term Credit Agreement (the "Revolver") dated September 30, 1994, *
between the Registrant and the Banks Listed on the Signature Pages Thereof and The Bank
of New York as Agent and Collateral Agent incorporated by reference to Exhibit 4.2
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
4.3 Revolving/Term Security and Collateral Agency Agreement dated September 30, 1994, *
between the Registrant and The Bank of New York as Collateral Agent and Secured
Party incorporated by reference to Exhibit 4.3 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994
4.4 Amendment No. 1 dated as of December 27, 1994 to the Revolver between the Registrant *
and the Banks Listed on the Signature Pages Thereof and The Bank of New York as
Agent and Collateral Agent incorporated by reference to Exhibit 4.4 of the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1995
4.5 Amendment to the Revolver effective February 21, 1995, between the Registrant and *
the Banks Listed on the Signature Pages Thereof and The Bank of New York as Agent
and Collateral Agent incorporated by reference to Exhibit 4.5 of the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1995
4.6 Amendment No. 2 dated as of May 18, 1995 to the Revolver between the Registrant and the *
Banks Listed on the Signature Pages Thereof and The Bank of New York as Agent and
Collateral Agent incorporated by reference to Exhibit 4.6 of the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1995
4.7 Amendment No. 3 dated as of July 6, 1995 to the Revolver between the Registrant and the *
Banks Listed on the Signature Pages Thereof and The Bank of New York as Agent and
Collateral Agent incorporated by reference to Exhibit 4.7 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1995
4.8 Amendment No. 4 dated as of July 14, 1995 to the Revolver between the Registrant and the *
Banks Listed on the Signature Pages Thereof and The Bank of New York as Agent and
Collateral Agent incorporated by reference to Exhibit 4.8 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1995
4.9 Amended and Restated Secured Revolving/Term Credit Agreement dated *
September 29, 1995, between the Registrant and the Banks Listed on the Signature
Pages Thereof, Bank One, Texas, National Association, First Bank National Association,
Residential Funding Corporation and Chemical Bank as Co-agents and The Bank of New
York as Agent and Collateral Agent incorporated by reference to Exhibit 4.9 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1995
</TABLE>
A
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
4.10 Amended and Restated Revolving/Term Security and Collateral Agency Agreement *
dated September 29, 1995, between the Registrant and The Bank of New York as
Collateral Agent and Secured Party incorporated by reference to Exhibit 4.10 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1995
4.11 Amendment No. 1 to Amended and Restated Secured Revolving/Term Credit Agreement dated *
March 29, 1996, between the Registrant and the Banks Listed on the Signature
Pages Thereof, Bank One, Texas, National Association, First Bank National Association,
Residential Funding Corporation and Chemical Bank as Co-agents and The Bank of New
York as Agent and Collateral Agent
10.1 Employment Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. as amended by amendment dated October 22, 1993
incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
10.2 Employment Agreement dated June 3, 1993, between the Registrant and *
Lee E. Shelton as amended by amendment dated October 22, 1993 incorporated
by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993
10.3 Tax Agreement dated May 26, 1993, between Resource Bancshares Corporation (RBC) *
and the Registrant incorporated by reference to Exhibit 10.3 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
10.4 Formation Agreement dated May 26, 1993, among Republic National Bank, the *
Registrant, RBC and 1st Performance National Bank incorporated by reference to
Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993
10.5 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
10.6 Assignment and Assumption of Office Lease incorporated by reference to Exhibit 10.6 *
of the Registrant's Registration No. 33-53980
10.8 (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
</TABLE>
B
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
10.9 (A) 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
(B) Termination Agreement dated June 3, 1993, between the Registrant and
Lee E. Shelton incorporated by reference to Exhibit 10.9 (B) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
10.10 (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 Agreement dated June 3, 1993, between the Registrant and
Lee E. Shelton incorporated by reference to Exhibit 10.10 (B) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
(C) Deferred Compensation Rabbi Trust, for David W. Johnson, dated January 19, 1994,
between RBC and First Union National Bank of North Carolina incorporated by reference
to Exhibit 10.10 (C) of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993
(D) Deferred Compensation Rabbi Trust, for Lee E. Shelton dated January 19, 1994,
between RBC and First Union National Bank of North Carolina incorporated by reference to
Exhibit 10.10 (D) of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993
10.11 Registration Rights Agreement dated May 26, 1993, between RBC and the Registrant *
incorporated by reference to Exhibit 10.11 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
10.12 Phantom Stock Plan as amended January 26, 1995, incorporated by reference to Exhibit 10.12 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.13 Form of Phantom Stock Agreement incorporated by reference to Exhibit 10.13 of the *
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993
10.14 Retirement Savings Plan incorporated by reference to Exhibit 10.14 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1993
10.15 Retirement Savings Trust dated as of January 10, 1994, by and between the Company *
and First Trust Corporation incorporated by reference to Exhibit 10.15 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
10.16 Flexible Benefits Plan incorporated by reference to Exhibit 10.16 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1993
10.17 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
10.18 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
</TABLE>
C
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
10.19 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
10.20 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
10.21 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
10.22 Amendment II to Pension Plan incorporated by reference to Exhibit 10.22 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.23 Amendment I to Retirement Savings Plan incorporated by reference to Exhibit 10.23 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.24 Phantom 401(k) Plan incorporated by reference to Exhibit 10.24 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.25 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
10.26 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the Registrant's *
Registration No. 33-87536
10.27 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
10.29 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
10.30 Amended Resource Bancshares Mortgage Group, Inc. Successor Employee Stock *
Ownership Trust Agreement dated December 1, 1994, between the Registrant and
Marine Midland Bank incorporated by reference to Exhibit 10.30 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
10.31 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
10.33 Phantom Stock Agreement dated January 26, 1995, between the Registrant and *
Richard M. Duncan incorporated by reference to Exhibit 10.33 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
10.34 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
</TABLE>
D
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
10.35 Phantom Stock Agreement dated July 1, 1995, between the Registrant and Steven F. Herbert *
incorporated by reference to Exhibit 10.35 of the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1995
10.36 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
10.37 Omnibus Stock Award Plan incorporated by reference to Exhibit 10.37 of the Registrant's *
Quarterly Report on Form 10-Q for the period ended September 30, 1995
10.38 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
10.39 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
10.40 First Amendment to Registration Rights Agreement dated March 11, 1996, between *
the Registrant and RBC incorporated by reference to Exhibit 10.40 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
10.41 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
10.42 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
10.43 Second Amendment to Retirement Savings Plan effective January 1, 1994 incorporated by *
reference to Exhibit 10.43 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995
10.44 Amendment to Omnibus Stock Award Plan dated March 22, 1996 *
11.1 Statement re Computation of Net Income per Share _____
27.1 Financial Data Schedule (for SEC use only) _____
</TABLE>
__________________________________
* Incorporated by reference
E
<PAGE> 1
EXHIBIT 11.1
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE,
PRIMARY and FULLY DILUTED EARNINGS PER SHARE
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, 1996 June 30, 1996
------------- ---------------
<S> <C> <C>
Net income $6,267 $10,727
====== =======
Net income per share (1) $ 0.35 $ 0.65
Primary and fully diluted earnings per share(2) $ 0.34 $ 0.64
</TABLE>
1) Net income per share was calculated based on the weighted average shares
outstanding of 16,387,679 and 17,812,045 for the six months and quarter ended
June 30, 1996, respectively.
2) Primary and fully diluted earnings per share for the six months ended June
30, 1996 was calculated based on weighted average shares outstanding of
16,830,550 and 16,828,218, respectively, which assumes the exercise of options
covering 802,234 shares and computes incremental shares using the treasury
stock method.
Primary and fully diluted earnings per share for the quarter ended June
30, 1996 was calculated based on weighted average shares outstanding of
18,224,591 and 18,224,524, respectively, which assumes the exercise of options
covering 802,234 shares and computes incremental shares using the treasury
stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,337
<SECURITIES> 0
<RECEIVABLES> 56,405
<ALLOWANCES> 15
<INVENTORY> 798,195
<CURRENT-ASSETS> 875,053
<PP&E> 25,328
<DEPRECIATION> 4,944
<TOTAL-ASSETS> 895,437
<CURRENT-LIABILITIES> 744,030
<BONDS> 0
0
0
<COMMON> 180
<OTHER-SE> 151,227
<TOTAL-LIABILITY-AND-EQUITY> 895,437
<SALES> 35,301
<TOTAL-REVENUES> 62,662
<CGS> 35,471
<TOTAL-COSTS> 45,221
<OTHER-EXPENSES> 9,750
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 27,021
<INCOME-PRETAX> 17,441
<INCOME-TAX> 6,714
<INCOME-CONTINUING> 17,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,727
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
