<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, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ -------------
Commission File Number 000-21786
----------
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 57-0962375
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7909 Parklane Road, Columbia, SC 29223
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (803)741-3000
----------------
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for each shorter period that the registrant was
required to file reports) and has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
The number of shares of common stock of the Registrant outstanding as of July
31, 1997, was 19,850,103.
Page 1
Exhibit Index on Pages A to D
<PAGE> 2
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-Q for the quarter ended June 30, 1997
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited)
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Changes in Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 24
ITEM 2. Changes in Securities 24
ITEM 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
EXHIBIT INDEX A-D
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,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 2,319 $ 2,492
Receivables 78,904 60,668
Mortgage-backed securities 76,392 123,447
Mortgage loans held for sale 866,310 678,888
Mortgage servicing rights, net 131,227 109,815
Premises and equipment, net 21,854 21,135
Goodwill and other intangibles 5,883
Accrued interest on loans held for sale 5,498 4,491
Other assets 39,233 27,458
----------- -----------
Total assets $ 1,227,620 $ 1,028,394
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 943,752 $ 805,730
Long-term borrowings 6,507
Accrued expenses 13,538 11,386
Other liabilities 90,519 53,977
----------- -----------
Total liabilities 1,054,316 871,093
----------- -----------
Stockholders' equity
Common stock 198 193
Additional paid-in capital 154,825 149,653
Retained earnings 22,611 12,007
Unearned shares of employee stock ownership plan (4,330) (4,552)
----------- -----------
Total stockholders' equity 173,304 157,301
----------- -----------
Total liabilities and stockholders' equity $ 1,227,620 $ 1,028,394
=========== ===========
</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,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Interest income $ 31,688 $ 35,301 $ 18,233 $ 16,856
Interest expense (22,037) (27,021) (12,317) (11,819)
------------ ------------ ------------ ------------
Net interest income 9,651 8,280 5,916 5,037
Net gain on sale of mortgage loans 42,250 40,036 25,223 21,503
Gain on sale of mortgage servicing rights 2,711 189 1,220 123
Loan servicing fees 15,338 13,859 7,803 6,729
Other income 426 298 157 220
------------ ------------ ------------ ------------
Total revenues 70,376 62,662 40,319 33,612
------------ ------------ ------------ ------------
EXPENSES
Salary and employee benefits 27,144 25,515 14,880 12,849
Occupancy expense 3,442 2,640 1,850 1,364
Amortization of mortgage servicing rights 8,833 7,316 4,725 3,646
General and administrative expenses 11,743 9,750 6,868 5,563
------------ ------------ ------------ ------------
Total expenses 51,162 45,221 28,323 23,422
------------ ------------ ------------ ------------
Income before income taxes 19,214 17,441 11,996 10,190
Income tax expense (7,373) (6,714) (4,625) (3,923)
------------ ------------ ------------ ------------
Net income $ 11,841 $ 10,727 $ 7,371 $ 6,267
============ ============ ============ ============
Weighted average shares* 19,831,581 17,534,817 20,108,839 19,058,888
============ ============ ============ ============
Net income per common share $ 0.60 $ 0.61 $ 0.37 $ 0.33
============ ============ ============ ============
</TABLE>
* The provisions of Accounting Principles Board Opinion No. 15, "Earnings per
Share" required that the Company, effective for the first quarter of 1997,
prospectively commence to report net income per common share on a primary
earnings per share basis. Accordingly, the weighted average shares
outstanding for the second quarter of 1997 and the six months ended June
30, 1997 includes common stock equivalents while such equivalents are
excluded for the comparable periods of the prior year.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
(Unaudited)
<TABLE>
<CAPTION>
Unearned
Common Stock Additional Shares of Employee
Six Months Ended ------------------- Paid-in Retained Stock Ownership
June 30, 1996 Shares Amount Capital Earnings Plan Total
- ------------------------------- ---------- ------ ------- -------- ------------------ -----
<S> <C> <C> <C> <C> <C> <C>
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 and Stock Investment 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
========== ==== ======== ======= ======= =========
<CAPTION>
Unearned
Common Stock Additional Shares of Employee
Six Months Ended ------------------- Paid-in Retained Stock Ownership
June 30, 1997 Shares Amount Capital Earnings Plan Total
- ------------------------------- ---------- ------ ------- -------- ------------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 19,285,020 $193 $149,653 $12,007 ($4,552) $157,301
Issuance of restricted stock 23,528 * 328 328
Cash dividends (1,186) (1,186)
Acquisition of Meritage Mortgage
Corporation 537,846 5 4,742 4,747
Shares committed to be
released under ESOP 59 222 281
Shares issued under Dividend
Reinvestment and Stock
Purchase Plan and Stock
Investment Plan 3,709 * 43 (51) (8)
Net income 11,841 11,841
---------- ---- -------- ------- ------- ---------
Balance, June 30, 1997 19,850,103 $198 $154,825 $22,611 ($4,330) $173,304
========== ==== ======== ======= ======= =========
</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,
----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 11,841 $ 10,727
Adjustments to reconcile net
income to cash (used in) provided by operating activities:
Depreciation and amortization 10,453 8,554
Employee Stock Ownership Plan compensation 281 297
Provision for estimated foreclosure losses 1,093 200
(Increase) decrease in receivables (18,236) 1,503
Acquisition of mortgage loans (4,853,760) (5,674,298)
Proceeds from sales of mortgage loans and mortgage-backed securities 4,754,990 6,056,032
Acquisition of mortgage servicing rights (112,051) (114,634)
Sales of mortgage servicing rights 84,077 102,555
Net gain on sales of mortgage loans and servicing rights (44,961) (40,225)
(Increase) decrease in accrued interest on loans (1,007) 1,938
Increase in other assets (10,976) (481)
Increase (decrease) in accrued expenses and other liabilities 38,694 (6,620)
------------ ------------
Net cash (used in) provided by operating activities (139,562) 345,548
------------ ------------
INVESTING ACTIVITIES:
Purchases of premises and equipment, net (2,267) (5,308)
------------ ------------
Net cash used in investing activities (2,267) (5,308)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings 12,814,396 19,805,491
Repayment of borrowings (12,669,867) (20,192,534)
Issuance of restricted stock 328 256
Shares issued under Dividend Reinvestment and Stock Purchase Plan
and Stock Investment Plan (8) 272
Acquisition of Meritage Mortgage Corporation (1,750)
Debt issuance costs (257)
Cash dividends (1,186)
Net proceeds of public offering 47,451
Loans to Employee Stock Ownership Plan (1,000)
------------ ------------
Net cash provided by (used in) financing activities 141,656 (340,064)
------------ ------------
Net increase in cash (173) 176
Cash, beginning of period 2,492 2,161
------------ ------------
Cash, end of period $ 2,319 $ 2,337
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
Note 1 - Basis of Presentation:
The financial information included herein should be read in conjunction
with the consolidated financial statements and related notes of Resource
Bancshares Mortgage Group, Inc. (the Company), included in the Company's
December 31, 1996, Annual Report on Form 10-K. Certain financial
information, which is normally included in financial statements prepared in
accordance with generally accepted accounting principles, is not required
for interim financial statements and has been omitted. The accompanying
interim consolidated financial statements are unaudited. However, in the
opinion of management of the Company, all adjustments, consisting of normal
recurring items, necessary for a fair presentation of operating results
and financial position for the periods shown have been made. Certain
prior period amounts have been reclassified to conform to current period
presentation.
In June 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities,"
which is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. SFAS No.
125 is based upon consistent application of a financial-components approach
that focuses on control. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when
extinguished. The Company adopted SFAS No. 125 effective January 1, 1997,
as required. The requirements of SFAS No. 125 are substantially the same as
those which were previously applicable to the Company pursuant to the
provisions of SFAS No. 122, "Accounting for Mortgage Servicing Rights-An
Amendment of FASB Statement No. 65." Accordingly, adoption of SFAS No. 125
had no material impact on the Company.
As required by Accounting Principles Board Opinion No. 15, "Earnings per
Share," the Company has prospectively implemented a policy of reporting
primary earnings per share effective for the first quarter of 1997. In
February 1997 the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share", which is effective for financial
statements issued for periods ending after December 15, 1997. Early
adoption of SFAS No. 128 is not permitted. Basic and diluted earnings per
share for the second quarter reported pursuant to the provisions of SFAS
No. 128 would be $0.38 and $0.36, respectively. Basic and diluted earnings
per share for the first six months of 1997 reported pursuant to the
provisions of SFAS No. 128 would be $0.62 and $0.59, respectively.
Effective April 1, 1997, the Company completed a merger with Meritage
Mortgage Corporation (Meritage), in which it exchanged approximately
$1.75 million of cash and 537,846 noncontingent shares of RBMG common
stock for all the outstanding stock of Meritage. This transaction was
accounted for under the purchase method of accounting. In addition,
406,053 shares of RBMG common stock were issued contingent upon Meritage
achieving specified increasingly higher levels of subprime mortgage
production during the 31 months following closing. The fair market value
of those contingent shares have been excluded from the purchase price for
purposes of estimating goodwill and from outstanding shares for purposes
of earnings per share computations. As each specified increasingly
higher subprime mortgage production level is achieved, the corresponding
fair market value of the associated contingent shares will be recorded as
additional goodwill and such shares will prospectively be treated as
outstanding for purposes of earnings per share computations.
7
<PAGE> 8
The estimated total purchase price for the Meritage merger has been
allocated to tangible and identifiable assets and liabilities based upon
management's estimate of their respective fair values with the excess of
estimated cost over the fair value of the net assets acquired allocated to
goodwill. The estimated allocations of the purchase price are expected to
be revised as additional information concerning asset and liability
valuation is obtained and as specified increasingly higher production
levels are achieved resulting in recognition of additional goodwill related
to contingent shares of stock issued in the transaction. Management
believes the estimated asset and liability valuations utilized for the
acquisition, insofar as they are related to the noncontingent shares
issued, will not be materially different from the information presented
herein. Goodwill and other intangible assets are being amortized over a
20 year period using the straight line method. Amortization expense for
the second quarter of 1997 was approximately $78. In connection with the
acquisition, the following is a schedule of the allocation of the purchase
price:
Cash paid $ 1,750
Estimated fair market value of noncontingent shares of
RBMG common stock 4,748
Deferred merger cost 463
-------
Total purchase price 6,961
Fair value of net assets acquired 1,000
-------
Goodwill and intangibles $ 5,961
=======
On April 21, the Company announced the signing of separate definitive
merger agreements Resource Bancshares Corporation (RBC) and Walsh Holding
Co., Inc. (Walsh).
RBC, a financial services company, originates and purchases, sells and
services small-ticket equipment leases through its Republic Leasing Company
division and originates and services commercial mortgage loans through its
Laureate subsidiaries. RBC, as of June 30, 1997, owned approximately 37%
of the Company's common stock. Pursuant to the terms of a definitive merger
agreement between RBC and the Company and subject to shareholder and
regulatory approvals, RBC will merge with RBMG in a transaction that will
be accounted for under the purchase method of accounting. The agreement
provides for the Company to issue approximately 2 million additional
shares of common stock (in addition to the 7.4 million shares of Company
stock currently owned by RBC) to the shareholders of RBC. As of June 30,
1997, the Company has deferred approximately $0.9 million of merger costs
related to this transaction.
Walsh is a specialty finance mortgage company that, through its primary
operating subsidiary, Walsh Securities, Inc., specializes in the purchase
and origination of subprime mortgage loans. Walsh has eleven regional sales
offices located in nine states from California to Massachusetts. According
to the February 17, 1997 issue of Inside B&C Lending, Walsh was the
twenty-third largest nationwide B&C originator for 1996. Walsh also sells
and securitizes all originated and purchased loans and servicing rights
associated with such loans, substantially all of which are secured by first
mortgage liens on one-to-four family residences. Pursuant to the terms of a
definitive merger agreement between the Company and Walsh and subject to
shareholder and regulatory approvals, Walsh will merge with the Company in
a transaction that will be accounted for as a pooling-of-interests. The
agreement provides for the Company to issue approximately 21.4 million
shares of common stock to the shareholders of Walsh assuming the RBC merger
is completed first. Were the RBC merger not consummated, the agreement
provides that the shareholders of Walsh would be issued approximately 19.6
million shares of the Company's common stock. As of June 30, 1997, the
Company has deferred approximately $1.3 million of merger costs related to
this transaction. These costs would be expensed upon completion of the
pooling transaction.
During the second quarter of 1997, the Company sold approximately $107
million of subprime loans to Walsh and recognized a gain of approximately
$3.7 million on these sales. In conjunction therewith at June 30, 1997 the
outstanding receivable due from Walsh which arose was approximately $8.3
million. Such receivable is secured by an interest in a residual
certificate recently valued at approximately $28 million.
As of the date of the filing of this 10-Q, these acquisitions have been
delayed. Published news articles have reported that a subsidiary of Walsh
originated or purchased mortgage loans on residential properties in
transactions in which the purchase price may have been inflated. RBMG is
conducting an independent review of this matter to determine the nature and
scope of any irregularities. RBMG will take no action with respect to the
proposed merger with Walsh until RBMG's review has provided it with a more
complete understanding of this matter.
8
<PAGE> 9
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Information, the Consolidated Financial Statements of the Company
(and the notes thereto) and the other information included or incorporated by
reference into the Company's 1996 Annual Report on Form 10-K and the interim
Consolidated Financial Statements contained herein. Any statements made below
(or elsewhere in this document) that are not statements of historical fact and
could be considered forward-looking in nature within the meaning of the Private
Securities Litigation Reform Act of 1995 are subject to risks and uncertainties
that could cause actual results to differ materially. Such risks and
uncertainties include, but are not limited to, those related to overall business
conditions in the mortgage markets in which RBMG operates, fiscal and monetary
policy, competitive products and pricing, credit risk management, changes in
regulations affecting financial institutions and other risks and uncertainties
discussed from time to time in the Company's SEC filings, including its 1996
Form 10-K. The Company disclaims any obligation to publicly announce future
events or developments that affect the forward-looking statements herein.
THE COMPANY
The Company was organized under Delaware law in 1992 to acquire and operate
the mortgage banking business of Resource Bancshares Corporation (RBC), which
commenced operations in May 1989. The assets and liabilities of the mortgage
banking business of RBC were transferred to the Company on 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, 1997, RBC owns approximately 37% 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 Fannie Mae, Freddie Mac and Ginnie Mae. The Company sells the
mortgage-backed securities it creates to institutional purchasers with the
rights to service the underlying loans being retained by the Company. The
servicing rights retained are generally sold separately but may be held for
extended periods by the Company.
LOAN PRODUCTION
A summary of loan production by source for the periods indicated is set forth
below:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Quarter Ended June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Loan Production:
Correspondent Division $3,554,180 $4,584,869 $1,948,454 $2,028,118
Wholesale Division 848,169 736,696 459,264 368,056
Retail Division 313,873 310,419 185,973 192,250
Subprime 133,758 87,001
---------- ---------- ---------- ----------
Total Loan Production $4,849,980 $5,631,984 $2,680,692 $2,588,424
========== ========== ========== ==========
</TABLE>
9
<PAGE> 10
A summary of key information relevant to industry loan production activity is
set forth below:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
At or For the Quarter Ended June 30,
------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
U. S. 1-4 Family Mortgage Originations Statistics (1)
U. S. 1-4 Family Mortgage Originations $225,000,000 $195,000,000
Adjustable Rate Mortgage Market Share 26.00% 27.00%
Estimated Fixed Rate Mortgage Originations $167,000,000 $142,000,000
Company Information
Loan Production $ 2,680,692 $ 2,588,424
Estimated Company Market Share 1.19% 1.33%
</TABLE>
(1) Source: Mortgage Bankers Association of America, Economics Department.
Mortgage loan production increased 4% to $2.7 billion for the second quarter
of 1997 from $2.6 billion for the second quarter of 1996. The net increase in
loan production is primarily due to an estimated 17% increase in fixed rate
mortgage origination volume between the comparable periods.
Historically, the Company has been focused on purchasing loans through its
correspondents. In order to diversify its sources of loan volume, the Company
started a wholesale operation that purchased its first loan in May 1994, a
retail operation which originated its first loan in May 1995 and a subprime
division which was started in mid-1996, but did not commence significant
business operations until the first quarter of 1997.
Correspondent Loan Production
Through its correspondents, the Company purchases loans that have been
originated by such correspondents. Correspondents are primarily mortgage
lenders, larger mortgage brokers and smaller savings and loan associations and
commercial banks.
The Company continues to emphasize correspondent loan production as its
primary business focus because of the lower fixed expenses and capital
investment required of the Company. That is, the Company can develop a cost
structure that is more directly variable with loan production because the
correspondent incurs most of the fixed costs of operating and maintaining branch
office networks and of identifying and interacting directly with loan
applicants.
A summary of key information relevant to the Company's correspondent loan
production activities is set forth below:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
At or For the Six Months At or For the Quarter
Ended June 30, Ended June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Correspondent Loan Production $3,554,180 $4,584,869 $1,948,454 $2,028,118
Estimated Correspondent Market Share 0.88% 1.11% 0.87% 1.04%
Approved Correspondents 920 803 920 803
</TABLE>
The 4% decrease in correspondent loan production to $1.9 billion for the
second quarter of 1997 from $2.0 billion for the second quarter of 1996 was
primarily due to the Company's increased concentration on diversification of its
sources of loan production, including the establishment of the new subprime
division. However, the Company is still concentrating efforts on expanding its
correspondent base, as can be
10
<PAGE> 11
evidenced by the 15% increase in the number of approved correspondents from
803 at June 30, 1996 to 920 at June 30, 1997.
Wholesale Loan Production
The Company receives loan applications at its wholesale branches through
brokers, underwrites the loans, funds the loans at closing and prepares all
closing documentation. The wholesale branches also handle shipping and
follow-up procedures on loans. Although the establishment of wholesale branch
offices involves the incurrence of the fixed expenses associated with
maintaining those offices, wholesale operations also provide for higher profit
margins than correspondent loan production. Additionally, each branch office
can serve a relatively sizable geographic area by establishing relationships
with large numbers of independent mortgage loan brokers who bear much of the
cost of identifying and interacting directly with loan applicants.
A summary of key information relevant to the Company's wholesale production
activities is set forth below:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
At or For the Six Months At or For the Quarter
Ended June 30, Ended June 30,
-------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Wholesale Loan Production $848,169 $736,696 $459,264 $368,056
Estimated Wholesale Market Share 0.21% 0.17% 0.20% 0.19%
Wholesale Division Direct
Operating Expenses $ 4,964 $ 4,255 $ 2,730 $ 2,382
Approved Brokers 2,758 1,694 2,758 1,694
Number of Branches 13 11 13 11
Number of Employees 136 118 136 118
</TABLE>
The $91 million increase in wholesale loan production to $459 million for the
second quarter of 1997 from $368 million for the second quarter of 1996 relates
to the Company's addition of two new branches and over 1,000 new brokers between
June 30, 1996 and June 30, 1997. Similarly, the wholesale division's operating
expenses increased and the division's estimated market share rose.
Retail Loan Production
A summary of key information relevant to the Company's retail production
activities is set forth below:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
At or For the Six Months At or For the Quarter
Ended June 30, Ended June 30,
-------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Retail Loan Production $313,873 $310,419 $185,973 $192,250
Estimated Retail Market Share 0.08% 0.07% 0.08% 0.10%
Retail Division Operating Expenses $ 8,263 $ 7,831 $ 4,170 $ 3,753
Number of Branches 6 6 6 6
Number of Employees 206 190 206 190
</TABLE>
The Company's retail loan production and direct operating expenses remained
generally consistent for the quarter and six months ended June 30, 1996 and June
30, 1997.
11
<PAGE> 12
Subprime Loan Production
A summary of key information relevant to the Company's subprime production
activities that were started in mid-1996, but did not commence significant
business operations until the first quarter of 1997 is set forth below:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
At or For the Six Months At or For the Quarter
Ended June 30, Ended June 30,
-------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
U. S. B&C Mortgage Originations
Statistics (2)
U. S. B&C Mortgage Originations $60,000,000 N/A $ 35,250,000 N/A
Company Information
Subprime Loan Production $ 133,758 N/A $ 87,001 N/A
Estimated Subprime Market Share 0.22% N/A 0.25% N/A
Subprime Division Operating Expenses $ 3,607 N/A $ 3,165 N/A
Number of Brokers 522 N/A 522 N/A
Number of Employees 116 N/A 116 N/A
</TABLE>
(2) Source: August 4, 1997 issue of Inside B&C Lending
During the second quarter of 1997, the Company originated/purchased $87.0
million in subprime mortgage loans through retail and wholesale channels. The
subprime division served 522 brokers as of June 30,
1997.
LOAN SERVICING
A summary of key information relevant to the Company's loan servicing
activities is set forth below:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
At or For the Six Months At or For the Quarter
Ended June 30, Ended June 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Underlying Unpaid Principal Balances:
Beginning Balance $ 6,670,267 $ 5,562,930 $ 7,420,783 $ 5,827,271
Loan Production (net of servicing
released production) 4,809,790 5,605,013 2,482,601 2,569,458
Net Change in Work-in-Process (236,395) 66,433 24,765 320,391
Bulk Acquisitions 774,097 60,887 168,336 60,887
Sales of Servicing (4,301,094) (4,965,473) (2,589,818) (2,608,374)
Paid-In-Full Loans (285,580) (246,339) (152,684) (108,007)
Amortization, Curtailments and
Others, net (192,020) (157,252) (114,918) (135,427)
----------- ----------- ----------- -----------
Ending Balance $ 7,239,065 $ 5,926,199 $ 7,239,065 $ 5,926,199
=========== =========== =========== ===========
Subservicing Ending Balance 2,368,709 2,890,396 2,368,709 2,890,709
----------- ----------- ----------- -----------
Total Underlying Unpaid Principal Balances $ 9,607,774 $ 8,816,595 $ 9,607,774 $ 8,816,595
=========== =========== =========== ===========
Loan Servicing Fees $ 15,338 $ 13,859 $ 7,803 $ 6,729
Cash Operating Expenses 42,329 37,905 23,598 19,776
Coverage Ratio 36% 37% 33% 34%
Average Underlying Unpaid Principal
Balances (including subservicing) $ 9,067,404 $ 8,754,039 $ 9,248,663 $ 8,833,350
Weighted Average Note Rate* 7.84% 7.80% 7.84% 7.80%
Weighted Average Servicing Fee* 0.40% 0.41% 0.40% 0.41%
Delinquency (30+ days)* 3.39% 2.84% 3.39% 2.84%
Number of Servicing Division Employees 122 129 122 129
</TABLE>
* These statistics apply to the Company's owned servicing portfolio.
12
<PAGE> 13
The $415.3 million or 5% increase in the average underlying unpaid principal
balance of mortgage loans being serviced for the second quarter of 1997 as
compared to the second quarter of 1996 is primarily related to the Company's
bulk acquisitions of approximately $1.3 billion during the latter half of 1996
and approximately $774 million during the first half of 1997.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO SIX
MONTHS ENDED JUNE 30, 1996
SUMMARY
Total revenues of the Company increased 12% to $70.4 million for the first
six months of 1997 as compared to $62.7 million for the first six months of
1996. The $7.7 million increase in revenues was primarily due to a $1.5 million
increase in loan servicing fees and a $4.7 million increase in gains on sales of
loans and servicing rights, which were partially offset by a $4.4 million
increase in operating expenses (exclusive of amortization and taxes). The
increase in loan servicing fees is primarily due to the overall increase in the
Company's servicing portfolio. The increases in gains on sales of loans and
servicing rights are primarily due to improved production margins and gains
derived from the Company's growing subprime division. The increase in operating
expenses is primarily attributable to increased costs associated with increased
loan servicing volumes and the Company's expansion into subprime operations.
Direct operating costs related to the Company's expansion into subprime
operations account for approximately $3.6 million, or 82%, of the total
increase in operating expenses (exclusive of amortization and taxes) for the
first six months of 1997 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 for the six months ended June 30, 1997 and
June 30, 1996 (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
- ----------------------------------------- -------------------- -------------------
1997 1996 1997 1996 1997 1996 Variance Rate Volume
- ----------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Mortgages Held for Sale
and Mortgage-Backed
$ 810,759 $ 933,326 7.82% 7.56% Securities $ 31,688 $ 35,301 ($3,613) $1,023 ($4,636)
- ----------------------------------------- ----------------------------------------------------
INTEREST EXPENSE
$ 401,637 $ 336,991 4.78% 4.70% Warehouse Line $ 9,524 $ 7,879 $1,645 $ 134 $1,511
380,918 566,220 5.37% 5.63% Gestation Line 10,142 15,865 (5,723) (531) (5,192)
30,841 8.19% Servicing Secured Line 1,256 (1,256) (1,256)
43,722 22,285 6.33% 5.82% Servicing Receivable Line 1,372 645 727 106 621
3,010 15,276 8.22% 8.49% Other Borrowings 124 645 (521) (3) (518)
Facility Fees & Other 875 731 144 144
Charges
- ----------------------------------------- ----------------------------------------------------
$ 829,287 $ 971,613 5.36% 5.59% Total Interest Expense $ 22,037 $ 27,021 ($4,984) ($ 294) ($4,690)
- ----------------------------------------- ----------------------------------------------------
2.46% 1.97% Net Interest Income $ 9,651 $ 8,280 $1,371 $1,317 $ 54
================== ====================================================
</TABLE>
Net interest income increased 17% to $9.7 million for the first six months of
1997 compared to $8.3 million for the first six months of 1996. The $1.4 million
increase in net interest income is primarily attributable to an increase in the
interest-rate spread of 49 basis points to 246 basis points for 1997 as compared
to 197 basis points for 1996. The increased spread is primarily attributed to
inclusion of higher yielding subprime production in the current year's inventory
of mortgages held for sale.
13
<PAGE> 14
NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS
Net gains on sales of mortgage loans and mortgage servicing rights increased
$4.7 million to $45.0 million for the first six months of 1997 as compared to
$40.2 million for the first six months of 1996. As further discussed below, this
increase is primarily due to increased profit margins on sales of mortgage loans
and mortgage servicing rights.
Net Gain on Sale of Mortgage Loans
A reconciliation of the gain on sale of agency-eligible mortgage loans for
the periods indicated follows:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Gross proceeds on sales of mortgage loans $4,589,379 $ 6,056,032
Initial unadjusted acquisition cost of mortgage loans sold,
net of hedge results 4,585,229 6,049,973
---------- -----------
Unadjusted gain on sale of mortgage loans 4,150 6,059
Loan origination and correspondent program administrative fees 14,136 18,710
---------- -----------
Unadjusted aggregate margin 18,286 24,769
Acquisition basis allocated to mortgage servicing rights (SFAS
No. 122 and SFAS No. 125) 18,120 15,581
Net change in deferred administrative fees 1,062 (314)
---------- -----------
Net gain on sale of agency-eligible mortgage loans $ 37,468 $ 40,036
========== ===========
</TABLE>
The Company sold agency-eligible loans during the first six months of 1997
with an aggregate unpaid principal balance of $4.6 billion compared to sales of
$6.0 billion for the first six months of 1996. The amount of proceeds received
on sales of mortgage loans exceeded the initial unadjusted acquisition cost of
the loans sold by $4.2 million (9 basis points) for the first six months of 1997
as compared to $6.1 million (10 basis points) for the first six months of 1996.
The Company received administrative fees of $14.1 million (31 basis points) on
these loans during the first six months of 1997 and $18.7 million (31 basis
points) during the first six months of 1996. The Company allocated $18.1 million
(39 basis points) in the first six months of 1997 to basis in mortgage servicing
rights, versus $15.6 million (26 basis points) during the first six months of
1996, was allocated to basis in mortgage servicing rights, in accordance with
SFAS No. 125 and SFAS No. 122. Net gain on sale of mortgage loans decreased to
$37.5 million for the first six months of 1997 versus $40.0 million for 1996.
This decrease was primarily due to the 24% decrease in the dollar volume of
mortgage loans sold during the first six months of 1997 compared to the first
six months of 1996.
A reconciliation of the gain on sale of subprime mortgage loans for the
periods indicated follows:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
-------- ----
<S> <C>
Gross proceeds on sales of mortgage loans $119,209 N/A
Initial acquisition cost of mortgage loans sold, net of fees 114,427 N/A
-------- ----
Gain on sale of subprime mortgage loans $ 4,782 N/A
======== ====
</TABLE>
The Company sold subprime loans during the first six months of 1997 with an
aggregate unpaid principal balance of $114 million. The amount of proceeds
received on sales of mortgage loans exceeded the initial acquisition cost of the
loans sold, net of fees by $4.8 million (418 basis points) for the first six
months of 1997.
14
<PAGE> 15
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage servicing rights
for the periods indicated follows:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Underlying unpaid principal balances of mortgage loans on which
servicing rights were sold during the period $ 3,784,210 $ 4,972,126
=========== ===========
Gross proceeds from sales of mortgage servicing rights $ 84,077 $ 102,555
Initial acquisition basis, net of amortization and hedge results 65,945 90,036
----------- -----------
Unadjusted gain on sale of mortgage servicing rights 18,132 12,519
Acquisition basis allocated from mortgage loans, net of
amortization (SFAS No. 122 and SFAS No. 125) (15,421) (12,330)
----------- -----------
Gain on sale of mortgage servicing rights $ 2,711 $ 189
=========== ===========
</TABLE>
During the first six months of 1997, the Company completed 18 sales of
mortgage servicing rights representing $3.8 billion of underlying unpaid
principal mortgage loan balances. This compares to 16 sales of mortgage
servicing rights representing $5.0 billion of underlying unpaid principal
mortgage loan balances in the first six months of 1996. Unadjusted gain on sale
of mortgage servicing rights was $18.1 million for the first six months of 1997,
up from $12.5 million for the first six months of 1996. The Company reduced this
unadjusted gain by $15.4 million in the first six months of 1997 versus a $12.3
million reduction in the first six months of 1996, in accordance with SFAS No.
125 and SFAS No. 122. The $2.5 million increase in gain on sale of mortgage
servicing rights is primarily related to the increased margin in gain on sales
of mortgage servicing rights.
NET SERVICING MARGIN
Loan servicing fees were $15.3 million for the first six months of 1997,
compared to $13.9 million for the first six months of 1996, an increase of 11%.
This increase is primarily related to an increase in the average aggregate
underlying unpaid principal balance of mortgage loans serviced to $9.1 billion
during the first six months of 1997 from $8.8 billion during the first six
months of 1996, an increase of 4%. Similarly, amortization of mortgage servicing
rights also increased to $8.8 million during the first six months of 1997 from
$7.3 million during the first six months of 1996, an increase of 21%. The
increase in amortization is primarily attributable to the growth in the average
balance of the mortgage loans serviced. The corresponding increases in loan
servicing fees and amortization of mortgage servicing rights resulted in the net
servicing margin remaining constant at $6.5 million for the first six months of
1997 and 1996.
Included in loan servicing fees for the first six months of 1997 and the
first six months of 1996 are subservicing fees received by the Company of
$227,000 and $678,000, respectively. The subservicing fees are associated with
temporary subservicing agreements between the Company and purchasers of mortgage
servicing rights.
The following table summarizes the net servicing margin for the first six
months of both 1997 and 1996:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Loan servicing fees $ 15,338 $ 13,859
Amortization of mortgage servicing rights 8,833 7,316
---------- ----------
Net servicing margin $ 6,505 $ 6,543
========== ==========
Average underlying unpaid principal balance of
mortgage loans serviced $9,067,404 $8,754,039
---------- ----------
</TABLE>
15
<PAGE> 16
EXPENSES
The $4.4 million increase in operating expenses (excluding amortization of
mortgage servicing rights) was centered in salary and employee benefits; which
increased $1.6 million, or 6%. The Company increased its employee headcount by
104 from 1,037 at June 30, 1996, to 1,141 at June 30, 1997. The increased
employee headcount and associated increase in salary and employee benefit costs
were necessitated by the Company's expansion into subprime operations.
Establishment of the subprime division accounted for 116 new positions and for
$3.6 million of the total $4.4 million increase in operating expenses.
INCOME TAX EXPENSE
Income tax expense includes both federal and state income taxes. The
effective tax rates for the six months ended June 30, 1997 and 1996 were 38.4%
and 38.5%, respectively. Income tax expense increased by 10% to $7.4 million
for the first half of 1997 from $6.7 million for the first half of 1996 due to
the above-described factors that resulted in a 10% or $1.8 million increase in
income before taxes.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1997, COMPARED TO QUARTER
ENDED JUNE 30, 1996
SUMMARY
Total revenues of the Company increased 20% to $40.3 million for the second
quarter of 1997 as compared to $33.6 million for the second quarter of 1996. The
$6.7 million increase in revenues was primarily due to a $1.1 million increase
in loan servicing fees and a $4.8 million increase in gains on sales of loans
and servicing rights, which were partially offset by a $3.8 million increase in
operating expenses (exclusive of amortization and taxes). The increase in loan
servicing fees is primarily due to the increased volume of loans held in the
Company's servicing portfolio. Similarly, the increase in gains on sales of
loans and servicing rights is primarily attributable to the Company's increased
loan production volumes during the second quarter of 1997. The increase in
operating expenses is primarily attributable to increased costs associated with
increased loan servicing volumes and increased costs associated with the
Company's expansion into subprime operations. Direct operating costs related to
the Company's expansion into subprime operations account for approximately $3.2
million, or 83%, of the total increase in operating expenses (exclusive of
amortization and taxes) for the second quarter of 1997.
The following sections discuss the components of the Company's results of
operations in greater detail.
NET INTEREST INCOME
The following table analyzes net interest income in terms of rate and volume
variances of the interest spread for the second quarter of 1997 and 1996 (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.
16
<PAGE> 17
<TABLE>
<CAPTION>
Variance
Average Volume Average Rate Interest Attributable to
- ----------------------------------------- ------------------ --------------------
1997 1996 1997 1996 1997 1996 Variance Rate Volume
- ----------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Mortgages Held for Sale
and Mortgage-Backed
$ 898,274 $ 870,075 8.12% 7.75% Securities $ 18,233 $ 16,856 $1,377 $ 830 $ 547
- ----------------------------------------- ----------------------------------------------------
INTEREST EXPENSE
$ 427,889 $ 318,288 4.94% 4.57% Warehouse Line $ 5,267 $ 3,619 $1,648 $ 402 $1,246
431,384 520,654 5.41% 5.61% Gestation Line 5,817 7,259 (1,442) (198) (1,244)
4,033 7.38% Servicing Secured Line 74 (74) (74)
48,579 16,990 6.47% 5.75% Servicing Receivable Line 784 243 541 89 452
5,987 9,357 8.28% 9.07% Other Borrowings 124 211 (87) (11) (76)
Facility Fees & Other
Charges 325 413 (88) (88)
- ----------------------------------------- ----------------------------------------------------
$ 913,839 $ 869,322 5.41% 5.47% Total Interest Expense $ 12,317 $ 11,819 $ 498 $ 282 $ 216
- ----------------------------------------- ----------------------------------------------------
2.71% 2.28% Net Interest Income $ 5,916 $ 5,037 $ 879 $ 548 $ 331
================== ====================================================
</TABLE>
Net interest income increased 17% to $5.9 million for the second quarter of
1997 compared to $5.0 million for the second quarter of 1996. The $0.9 million
increase in net interest income is partially attributable to the 3% increase in
the average volume of mortgages held for sale and mortgage-backed securities for
the second quarter of 1997 from that of the second quarter of 1996. Another
component of the net interest income increase is the increase in the
interest-rate spread of 43 basis points to 271 basis points for 1997 as compared
to 228 basis points for 1996. The increased spread is primarily attributed to
inclusion of higher yielding subprime production in the current year's inventory
of mortgages held for sale.
NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS
Net gains on sales of mortgage loans and mortgage servicing rights increased
$4.8 million to $26.4 million for the second quarter of 1997 as compared to
$21.6 million for the second quarter of 1996. As further discussed below, this
increase is primarily due to improved profit margins on sales.
Net Gain on Sale of Mortgage Loans
A reconciliation of the gain on sale of agency-eligible mortgage loans for
the periods indicated follows:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Gross proceeds on sales of mortgage loans $2,584,544 $ 2,961,189
Initial unadjusted acquisition cost of
mortgage loans sold, net of hedge results $2,582,193 $ 2,956,794
---------- -----------
Unadjusted gain on sale of mortgage loans 2,351 4,395
Loan origination and correspondent
administrative fees 7,635 9,935
---------- -----------
Unadjusted aggregate margin 9,986 14,330
Acquisition basis allocated to mortgage servicing
rights (SFAS No. 122 and SFAS No. 125) 9,614 7,402
Net change in deferred administrative fees 841 (229)
---------- -----------
Net gain on sale of agency-eligible mortgage loans $ 20,441 $ 21,503
========== ===========
</TABLE>
The Company sold loans during the second quarter of 1997 with an aggregate
unpaid principal balance of $2.6 billion compared to sales of $3.0 billion for
the second quarter of 1996. The amount of proceeds received on sales of mortgage
loans exceeded the initial unadjusted acquisition cost of the loans sold by $2.4
million (9 basis points) for the second quarter of 1997 as compared to $4.4
million (15 basis points) for the second quarter of 1996. The Company received
loan origination and correspondent administrative fees of $7.6 million (30 basis
points) on these loans during the second quarter of 1997 and $9.9 million (34
basis points) during the second quarter of 1996. The Company allocated $9.6
million (37 basis points) in the second quarter of 1997 to basis in mortgage
servicing rights versus $7.4 million (25 basis points) during the second quarter
of 1996 in accordance with SFAS No. 125 and SFAS No. 122.
17
<PAGE> 18
As a result, net gain on sale of mortgage loans decreased to $20.4 million for
the second quarter of 1997 versus $21.5 million for the second quarter of 1996.
A reconciliation of the gain on sale of subprime mortgage loans for the
periods indicated follows:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
------------------------------
1997 1996
----------- ----
<S> <C>
Gross proceeds on sales of mortgage loans $ 119,209 N/A
Initial acquisition cost of mortgage loans, net of fees 114,427 N/A
=========== ====
Gain on sale of subprime mortgage loans $ 4,782 N/A
=========== ====
</TABLE>
The Company sold subprime loans during the second quarter of 1997 with an
aggregate unpaid principal balance of $114 million. The amount of proceeds
received on sales of mortgage loans exceeded the initial acquisition cost of the
loans sold, net of fees by $4.8 million (418 basis points) for the second
quarter of 1997.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage servicing
rights for the periods indicated follows:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Underlying unpaid principal balances
of mortgage loans on which
servicing rights
were sold during
the period $ 2,071,902 $ 2,615,027
=========== ===========
Gross proceeds from sales of
mortgage servicing rights $ 44,918 $ 52,523
Initial acquisition cost,
net of amortization and hedge results 37,200 45,756
----------- -----------
Unadjusted gain on sale of
mortgage servicing rights 7,718 6,767
Acquisition basis allocated from
mortgage loans, net
of amortization (SFAS
No. 122 and SFAS No. 125) (6,498) (6,644)
=========== ===========
Gain on sale of mortgage servicing rights $ 1,220 $ 123
=========== ===========
</TABLE>
During the second quarter of 1997, the Company completed ten sales of
mortgage servicing rights representing $2.1 billion of underlying unpaid
principal mortgage loan balances. This compares to seven sales of mortgage
servicing rights representing $2.6 billion of underlying unpaid principal
mortgage loan balances in the second quarter of 1996. Unadjusted gain on sale of
mortgage servicing rights was $7.7 million for the second quarter of 1997, up
from $6.8 million for the second quarter of 1996. The Company reduced this
unadjusted gain by $6.5 million in the second quarter of 1997 versus a $6.6
million reduction in the second quarter of 1996 in accordance with SFAS No. 125
and SFAS No. 122. The $1.1 million increase in gain on sale of mortgage
servicing rights is primarily related to the increased margin in gain on sales
of mortgage servicing rights.
18
<PAGE> 19
NET SERVICING MARGIN
Loan servicing fees were $7.8 million for the second quarter of 1997,
compared to $6.7 million for the second quarter of 1996, an increase of 16%.
This increase is primarily related to an increase in the average aggregate
underlying unpaid principal balance of mortgage loans serviced to $9.2 billion
during the second quarter of 1997 from $8.8 billion during the second quarter of
1996, an increase of 5%. Similarly, amortization of mortgage servicing rights
also increased to $4.7 million during the second quarter of 1997 from $3.6
million during the second quarter of 1996, an increase of 30%. The increase in
amortization is primarily attributable 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 1997 and the second
quarter of 1996.
Included in loan servicing fees for the second quarter of 1997 and the second
quarter of 1996 are subservicing fees received by the Company of $79,000 and
$360,000, respectively. The subservicing fees are associated with temporary
subservicing agreements between the Company and purchasers of mortgage servicing
rights.
The following table summarizes the net servicing margin for the second
quarters of both 1997 and 1996:
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Loan servicing fees $ 7,803 $ 6,729
Amortization of mortgage servicing rights 4,725 3,646
========== ==========
Net servicing margin $ 3,078 $ 3,083
========== ==========
Average underlying unpaid principal balance
of mortgage loans serviced $9,248,663 $8,833,350
---------- ----------
</TABLE>
EXPENSES
The $3.8 million increase in operating expenses (excluding amortization of
mortgage servicing rights) was centered in salary and employee benefits; which
increased $2.0 million, or 16%. Through the end of the second quarter of 1997,
the Company increased its employee headcount by 104 from 1,037 at June 30, 1996,
to 1,141 at June 30, 1997. The increased employee headcount and associated
increase in salary and employee benefit costs was necessitated by the Company's
expansion into subprime operations. Establishment of the subprime division
accounted for 116 new positions and for $3.2 million of the total $3.8 million
increase in operating expenses.
INCOME TAX EXPENSE
Income tax expense includes both federal and state income taxes. The
effective tax rates for the second quarter of 1997 and 1996 were 38.6% and
38.5%, respectively. Income tax expense increased by 18% to $4.6 million for
the second quarter of 1997 from $3.9 million for the second quarter of 1996 due
to the above-described factors that resulted in an 18% or $1.8 million increase
in income before taxes.
19
<PAGE> 20
FINANCIAL CONDITION
During the second quarter of 1997, the Company experienced a 24% increase in
the volume of mortgage loans originated and acquired compared to the first
quarter of 1997. Mortgage loan production increased to $2.7 billion during the
second quarter of 1997 from $2.2 billion during the previous quarter. The June
30, 1997, mortgage application pipeline (mortgage loans not yet closed but for
which the interest rate has been locked) was approximately $967.4 million.
The Company continued to establish new correspondent relationships during
the second quarter of 1997. The number of correspondents approved to do business
in the Company's correspondent lending program increased to 920 at June 30,
1997, from 897 at March 31, 1997.
The Company continued expansion of the wholesale network between March 31,
1997, and June 30, 1997, with the addition of 335 brokers to the Company's
approved list, increasing the number of approved brokers from 2,423 at March 31,
1997, to 2,758 at June 30, 1997.
The Company continues to face the same challenges as other companies within
the mortgage banking industry and as such is not immune from significant volume
declines precipitated by a rise in interest rates or other factors beyond the
Company's control. Management of the Company recognizes these challenges and
continues to manage the Company accordingly.
Mortgage loans held for sale and mortgage-backed securities totaled $942.7
million at June 30, 1997, versus $983.6 million at March 31, 1997, a decrease of
4%. The Company's servicing portfolio (exclusive of loans under subservicing
agreements) decreased to $7.2 billion at June 30, 1997, from $7.4 billion at
March 31, 1997, a decrease of 2%.
Short-term borrowings, which are the Company's primary source of funds,
totaled $943.8 million at June 30, 1997, compared with $1.0 billion at March 31,
1997, a decrease of 6%. The slight decrease in the balance outstanding at June
30, 1997, resulted from the decreased funding requirements related to the
decrease in the balance of mortgage loans held for sale and mortgage-backed
securities at June 30, 1997, as compared to the balance at March 31, 1997.
Long-term borrowings totaled $6.5 million at June 30, 1997. There were no
long-term borrowings at March 31, 1997.
20
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash-flow requirement involves the funding of loan
production, which is met primarily through external borrowings. The Company has
entered into a 364-day, $570 million warehouse line of credit provided by a
syndicate of unaffiliated banks, which expires in July 1998. The credit
agreement includes covenants requiring the Company to maintain (i) a minimum net
worth of $130 million, plus net income subsequent to July 31, 1996, and capital
contributions and minus permitted dividends, (ii) a ratio of total liabilities
to net worth of not more than 8.0 to 1.0, excluding debt incurred pursuant to
gestation and repurchase financing agreements, (iii) its eligibility as a
servicer of GNMA, FHA, VA, FNMA and FHLMC mortgage loans and (iv) a mortgage
servicing rights portfolio with an underlying unpaid principal balance of at
least $4 billion. The provisions of the agreement also restrict the Company's
ability to (i) pay dividends in any fiscal quarter which exceed 50% of the
Company's net income for the quarter or (ii) engage significantly in any type of
business unrelated to the mortgage banking business and the servicing of
mortgage loans.
Additionally, the Company entered into a $200 million, 364-day term revolving
credit facility with a syndicate of unaffiliated banks. An $80 million portion
of the revolver facility converts on July 31,1998, into a four-year term loan.
The facility is secured by the Company's servicing portfolio designated as
"available-for-sale". A $70 million portion of the revolver facility matures on
July 31, 1998, and is secured by the Company's servicing portfolio designated as
"held-for-sale". A $50 million portion of the revolver facility matures on July
31, 1998, and is secured by a first-priority security interest in receivables on
servicing rights sold. The facility includes covenants identical to those
described above with respect to the warehouse line of credit.
The Company was in compliance with the above-mentioned debt covenants at June
30, 1997. Although management anticipates continued compliance, there can be no
assurance that the Company will be able to comply with the debt covenants
specified for each of these financing agreements. Failure to comply could result
in the loss of the related financing.
The Company has also entered into an uncommitted gestation financing
arrangement. The interest rate on funds borrowed pursuant to the gestation line
is based on a spread over the Federal Funds rate. The gestation line has a
funding limit of $1.2 billion.
The Company entered into a $6.6 million note agreement in May 1997. This debt
is secured by the Company's corporate headquarters. The terms of the agreement
require the Company to make 120 equal monthly principal and interest payments
based upon a fixed interest rate of 8.07%.
The Company has also entered into a $200 million, 364-day term subprime
revolving credit facility, which expires in July 1998. The facility includes
covenants substantially the same as those described above with respect to the
warehouse line of credit.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 2. - Changes in Securities
Effective April 1, 1997, the Company issued 943,899 shares of its
common stock, par value $.01 per share, to those shareholders
of Meritage Mortgage Corporation, an Oregon corporation ("Meritage"),
that qualified as accredited investors within the meaning of
Regulation D under the Securities Act of 1933, as amended (the
"Securities Act"). The stock was issued as part of the consideration
paid by the Company in exchange for all of the common stock of
Meritage in connection with the Company's acquisition of Meritage by
means of a reverse subsidiary merger. The stock was valued at
$14.0375 per share for purposes of determining the number of shares
to be issued in connection with the merger. Of the 943,899 shares
issued in connection with the merger, 406,053 were issued contingent
on Meritage's achieving certain levels of subprime mortgage
production in the 31 months following the merger.
Because the stock was issued only to accredited investors in
connection with the merger, the Company claimed an exemption
from registration under the Securities Act pursuant to Rule 506 of
Regulation D.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
-(A) A LIST OF THE EXHIBITS REQUIRED BY THIS FORM 10-Q, ALONG WITH THE
EXHIBIT INDEX CAN BE FOUND ON PAGES A TO D FOLLOWING THE SIGNATURE
PAGE.
-(B) ON APRIL 21, 1997, THE COMPANY FILED A REPORT ON FORM 8-K
ANNOUNCING PROPOSED MERGERS WITH WALSH HOLDING CO., INC. AND
RESOURCE BANCSHARES CORPORATION.
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
Senior Executive Vice President and
Chief Financial Officer
(signing in the capacity of (i) duly
authorized officer of the registrant and
(ii) principal financial officer of the
registrant)
DATED: August 14, 1997
23
<PAGE> 24
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3.1 Restated Certificate of Incorporation of the Registrant
incorporated by reference to Exhibit 3.3 of the Registrant's
Registration No. 33-53980 *
3.2 Amended and Restated Bylaws of the Registrant incorporated by
reference to Exhibit 3.4 of the Registrant's Registration No.
33-53980 *
4.1 Specimen Certificate of Registrant's Common Stock incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
No. 33-53980 *
4.2 Second Amended and Restated Secured Revolving /Term Credit
Agreement dated as of July 31, 1996, between the Registrant
and the Banks Listed on the Signature Pages Thereof, Bank One,
Texas, National Association, First Bank National Association,
NationsBank of Texas, N.A. and Texas Commerce Bank, National
Association, as Co-agents and the Bank of New York as Agent
and Collateral Agent incorporated by reference to Exhibit 4.2
of the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1996 *
4.3 Second Amended and Restated Revolving/Term Security Collateral
Agency Agreement dated as of July 31, 1996, between the
Registrant and The Bank of New York as Collateral Agent and
Secured Party incorporated by reference to Exhibit 4.3 of the
Registrant's Form 10-Q for the period ended September 30, 1996 *
10.1 Employment Agreement dated June 3, 1993, between the
Registrant and David W. Johnson, Jr. as amended by amendment
dated October 22, 1993 incorporated by reference to Exhibit
10.1 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 *
10.2 Tax Agreement dated May 26, 1993, between Resource Bancshares
Corporation (RBC) and the Registrant incorporated by reference
to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993 *
10.3 Formation Agreement dated May 26, 1993, among Republic
National Bank, the Registrant, RBC and 1st Performance
National Bank incorporated by reference to Exhibit 10.4 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 *
10.4 Office Building Lease dated March 8, 1991, as amended by
Modification of Office * Lease dated October 1, 1991,
incorporated by reference to Exhibit 10.5 of the Registrant's
Registration No. 33-53980 *
10.5 Assignment and Assumption of Office Lease incorporated by
reference to Exhibit 10.6 of the Registrant's Registration No.
33-53980 *
10.6 (A) Stock Option Agreement between the Registrant and David W.
Johnson, Jr. incorporated by reference to Exhibit 10.8 (A) of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 *
(B) Stock Option Agreement between the Registrant and Lee E.
Shelton incorporated by reference to Exhibit 10.8 (B) of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 *
10.7 Termination Agreement dated June 3, 1993, between the
Registrant and David W. Johnson, Jr. incorporated by reference
to Exhibit 10.9 (A) of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 *
A
<PAGE> 25
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.8 (A) Deferred Compensation Agreement dated June 3, 1993,
between the Registrant and David W. Johnson, Jr. incorporated
by reference to Exhibit 10.10 (A) of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993 *
(B) Deferred Compensation Rabbi Trust, for David W. Johnson,
dated January 19, 1994, between RBC and First Union National
Bank of North Carolina incorporated by reference to Exhibit
10.10 (C) of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 *
10.9 Registration Rights Agreement dated May 26, 1993, between RBC
and the Registrant incorporated by reference to Exhibit
10.11 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 *
10.10 Flexible Benefits Plan incorporated by reference to Exhibit
10.16 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 *
10.11 Section 125 Plan incorporated by reference to Exhibit 10.17 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 *
10.12 Pension Plan incorporated by reference to Exhibit 10.18 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 *
10.13 Governmental Real Estate Sub-Lease-Office, between Resource
Bancshares Mortgage Group, Inc. and the South Carolina
Department of Labor, Licensing and Regulation incorporated by
reference to Exhibit 10.19 of the Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1994 *
10.14 First Sub-Lease Amendment to Governmental Real Estate
Sub-Lease-Office, between Resource Bancshares Mortgage Group,
Inc. and the South Carolina Department of Labor, Licensing and
Regulation incorporated by reference to Exhibit 10.20 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1994 *
10.15 Amendment I to Pension Plan incorporated by reference to
Exhibit 10.21 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 *
10.16 Amendment II to Pension Plan incorporated by reference to
Exhibit 10.22 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 *
10.17 Phantom 401(k) Plan incorporated by reference to Exhibit 10.24
of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 *
10.18 Pension Restoration Plan incorporated by reference to Exhibit
10.25 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 *
10.19 Stock Investment Plan incorporated by reference to Exhibit 4.1
of the Registrant's Registration No. 33-87536 *
10.20 Amendment I to Stock Investment Plan incorporated by reference
to Exhibit 10.27 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 *
10.21 Employee Stock Ownership Plan incorporated by reference to
Exhibit 10.29 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 *
10.22 Amended Resource Bancshares Mortgage Group, Inc. Successor
Employee Stock Ownership Trust Agreement dated December 1,
1994, between the Registrant and Marine Midland Bank
incorporated by reference to Exhibit 10.30 of the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994 *
B
<PAGE> 26
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.23 ESOP Loan and Security Agreement dated January 12, 1995,
between the Registrant and The Resource Bancshares Mortgage
Group, Inc. Employee Stock Ownership Trust incorporated by
reference to Exhibit 10.31 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994 *
10.24 Employment Agreement dated June 30, 1995, between the
Registrant and Steven F. Herbert incorporated by reference to
Exhibit 10.34 of the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1995 *
10.25 Formula Stock Option Plan incorporated by reference to Exhibit
10.36 of the Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1995 *
10.26 Omnibus Stock Award Plan incorporated by reference to Exhibit
10.37 of the Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1995 *
10.27 Employment Agreement dated September 25, 1995, between the
Registrant and Richard M. Duncan incorporated by reference
to Exhibit 10.38 of the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1995 *
10.28 Request for Extension of Governmental Real Estate
Sub-Lease-Office, between the Registrant and the South
Carolina Department of Labor, Licensing and Regulation dated
December 12, 1995 incorporated by reference to Exhibit 10.39
of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 *
10.29 First Amendment to Registration Rights Agreement dated March
11, 1996, between the Registrant and RBC incorporated by
reference to Exhibit 10.40 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995 *
10.30 First Amendment to Employee Stock Ownership Plan dated October
31, 1995 incorporated by reference to Exhibit 10.41 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 *
10.31 Amendment to Pension Plan effective January 1, 1995
incorporated by reference to Exhibit 10.42 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 *
10.32 Amendment to Omnibus Stock Award Plan dated March 22, 1996
incorporated by reference to Exhibit 10.44 of the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30,
1996 *
10.33 Second Amendment to Employee Stock Ownership Plan dated August
12, 1996 incorporated by reference to Exhibit 10.45 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996 *
10.34 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock
Option Plan dated September 1, 1996 incorporated by reference
to Exhibit 10.33 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996 *
10.35 Amended and Restated Retirement Savings Plan dated April 1,
1996 incorporated by reference to Exhibit 10.34 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 *
10.36 First Amendment to Amended and Restated Retirement Savings
Plan dated as of November 8, 1996 incorporated by reference to
Exhibit 10.35 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996 *
C
<PAGE> 27
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10.37 ESOP Loan and Security Agreement dated May 3, 1996, between
the Registrant and The Resource Bancshares Mortgage Group,
Inc. Employee Stock Ownership Trust incorporated by reference
to Exhibit 10.36 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996 *
10.38 Second Amendment to Amended and Restated Retirement Savings
Plan dated January 1997, incorporated by reference to Exhibit
10.38 of the Registrant's Quarterly Report on Form 10-Q for
the period ended March 31, 1997 *
10.39 Form of Incentive Stock Option Agreement (Omnibus Stock Award
Plan) incorporated by reference to Exhibit 10.40 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1997 *
10.40 Form of Non-Qualified Stock Option Agreement (Non-Qualified
Stock Option Plan), incorporated by reference to Exhibit
10.41 of the Registrant's Quarterly Report on Form 10-Q for
the period ended March 31, 1997 *
10.41 Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus
Stock Award Plan, Formula Stock Option Plan and Non-Qualified
Stock Option Plan, incorporated by reference to Exhibit 10.42
of the Registrant's Quarterly Report on Form 10-Q for the
period ended March 31, 1997 *
10.42 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 *
10.43 Agreement of Merger dated April 18, 1997 between Resource
Bancshares Mortgage Group, Inc., Carolina Merger Sub, Inc.
and Walsh Holding Co., Inc. incorporated by reference to
Annex B of the Registrant's Registration No. 333-29245 *
10.44 Mutual Release and Settlement Agreement between the
Registrant, Lee E. Shelton and Constance P. Shelton dated
January 31, 1997 _____
10.45 Note Agreement between the Registrant and UNUM Life
Insurance Company of America dated May 16, 1997 _____
11.1 Statement re Computation of Net Income per Share _____
27.1 Financial Data Schedule _____
- ---------------------------------
* Incorporated by reference
D
<PAGE> 1
EXHIBIT 10.44
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
THIS AGREEMENT (this "Agreement"), made and entered into as of January
31, 1997, by and among RESOURCE BANCSHARES MORTGAGE GROUP, INC., a Delaware
corporation ("RBMG"); LEE E. SHELTON, an individual resident of the State of
South Carolina ("Shelton"); and CONSTANCE P. SHELTON, an individual resident of
the State of South Carolina and the wife of Shelton ("Connie Shelton"):
W I T N E S S E T H:
WHEREAS, pursuant to the Term Sheet for RBMG/Shelton Settlement (the
"Term Sheet"), agreed on and as of January 24, 1997, between RBMG and Shelton,
RBMG and Shelton agreed that the parties hereto would take certain actions in
connection with Shelton's resignation of employment from RBMG; and
WHEREAS, in consideration for the direct and indirect benefits to
Connie Shelton to be derived from the payments and other benefits to be provided
to Shelton and his family hereunder, Connie Shelton has agreed to take certain
actions hereunder;
NOW, THEREFORE, in consideration of the premises, the mutual promises
and releases set forth hereinafter, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by all parties
hereto, the parties hereto, intending to be legally bound, hereby agree as
follows:
Section 1. Payment.
RBMG represents and warrants that, on or about January 31, 1997, RBMG
paid to Shelton by wire transfer the following amounts:
(a) The lump sum of $1,206,098, less withholdings for federal
income tax in the amount of $475,858.19, for state income tax
in the amount of $84,116.35, for social security in the amount
of $1,972.52, for Medicare in the amount of $17,488.42 and for
401(k) Plan contributions in the amount of $4,435.10, for a
net payment of $622,227.42. Such lump sum constitutes payment
of the bonus for 1996 pursuant to the Employment Agreement
(the "Employment Agreement"), dated as of June 3, 1993, as
amended by letter agreement dated October 22, 1993, between
RBMG and Shelton.
1
<PAGE> 2
(b) The lump sum of $3,793,902, less withholdings for federal
income tax in the amount of $1,502,385.10 and for state income
tax in the amount of $265,573.14, for a net payment of
$2,025,943.76. Such lump sum constitutes consideration for all
other provisions of this Agreement and will be reported to the
Internal Revenue Service on Form 1099-MISC as other
consideration not subject to social security or
self-employment taxes.
Section 2. Benefits.
2.1 Stock Option Agreement.
(a) Amendments. RBMG and Shelton agree that the Stock Option
Agreement between them (the "Option Agreement") (a copy of
which is attached as Exhibit 1 hereto) is hereby amended as
follows:
(1) Paragraph 3(a) of the Option Agreement is hereby
deleted.
(2) The first sentence of Paragraph 4 of the Option
Agreement is hereby deleted and replaced with the
following: "The Grantee may transfer this Option in
whole or in part to his wife and children for estate
planning purposes to the extent permitted by General
Instruction A(1)(a) to Form S-8."
(3) Paragraph 6 of the Option Agreement is amended to add
the following three sentences at and as the
conclusion thereof: "The Company will cooperate with
a stock broker of Grantee's choice, at Grantee's
expense, with respect to the exercise of this Option
pursuant to a broker-directed cashless
exercise/resale procedure. In particular, and
notwithstanding any other provision of this Option
(including the remainder of this Paragraph 6, which
would otherwise required ten business days' written
notice to the Company, specification of the number of
shares to be purchased and payment of the total
exercise price and withholding by check), the Company
will cooperate with Montgomery Securities
('Montgomery'), at Grantee's expense, to exercise
this Option in whole or from time to time in part
pursuant to Montgomery's 'cashless exercise' program.
In furtherance of its agreement to cooperate with
Montgomery for Grantee's benefit, the Company will
accurately complete, duly execute and deliver to
Montgomery (and will deliver a copy of each document
to Grantee): (1) forthwith, its 'Certificate of
Appointment of Stock Option Coordinator and
Authorized Signatory,' in Montgomery's standard form;
(2) within two trading days of its receipt, from time
to time
2
<PAGE> 3
from Grantee, via facsimile or otherwise, by the
office of the Chief Financial Officer of the Company
or other person performing the duties thereof (with a
copy delivered, via facsimile or otherwise, to the
General Counsel of the Company or other person
performing the duties thereof), a 'Notice of Option
Exercise and Payment Authorization,' also in
Montgomery's standard form, provided that such Notice
has been completed accurately by Grantee as to
historical facts and payment to the Company; and (3)
promptly upon request by either Montgomery or Grantee
(and bearing in mind that time is of the essence in
such matters), any other document reasonably required
by Montgomery in execution of its cashless exercise
program."
(4) The address of Lee Shelton set forth at page 4 of the
Option Agreement is replaced with the following:
109 Shallowbrook Drive
Columbia, South Carolina 29223
As amended herein, the Option Agreement will remain
in full force and effect.
(b) Options. RBMG and Shelton agree that as of January 24, 1997,
the date of execution of the Term Sheet, Shelton was the owner
of record of 257,517 vested options and 171,678 unvested
options (such vested and unvested options are hereinafter
referred to collectively as the "Options") to purchase RBMG
common stock at the adjusted exercise price of $6.12 per
share. Shelton will become vested in the unvested Options
pursuant to the time schedule set forth in Section 2 of the
Option Agreement. The Options will remain exercisable for the
remainder of their original ten-year term and will be subject
to adjustment for future stock dividends and stock splits
notwithstanding Shelton's earlier termination from employment.
RBMG will, at its own expense, register the exercise of such
Options and the resale of the underlying common stock on Form
S-8. RBMG will file such registration statement with the
Securities and Exchange Commission ("SEC") not later than
March 31, 1997, and such registration will remain in effect
until registration is no longer required to permit an
unrestricted resale. At Shelton's request, RBMG and Shelton
will agree to customary indemnification and
cross-indemnification terms and conditions in connection with
such registration.
3
<PAGE> 4
2.2 Restricted Stock. RBMG and Shelton agree that, notwithstanding
anything to the contrary in the Employment Agreement, the 43,286 shares of
Restricted Stock paid to Shelton pursuant to the Employment Agreement will
become 100% vested on the date of execution and delivery of this Agreement. The
Restricted Stock will be subject to adjustment for future stock dividends and
stock splits. RBMG will, at its own expense, register the Restricted Stock for
resale on Form S-8. RBMG will file such registration statement with the SEC not
later than March 31, 1997, and such registration will remain in effect until
registration is no longer required to permit an unrestricted resale. At
Shelton's request, RBMG and Shelton will agree to customary indemnification and
cross-indemnification terms and conditions in connection with such registration.
2.3 Rabbi Trust. RBMG promptly processed (and did not deny) Shelton's
claim for benefits under his Deferred Compensation Rabbi Trust, dated January
19, 1994. Specifically, RBMG paid Shelton on or about January 31, 1997, by wire
transfer, $805,133.63. This amount was determined by deducting from the gross
value of the Rabbi Trust of $1,309,236.98 certain bank fees totaling $1,140.11;
federal income tax (at a 30% rate) of $392,429.06; state income tax (at a 7%
rate) of $91,566.78; and Medicare tax (at a 1.45% rate) of $18,967.40.
2.4 401(k) Plan/Phantom 401(k) Plan. RBMG agrees Shelton will be
eligible to make his own individual contribution in 1997 to RBMG's 401(k) Plan
(the "401(k) Plan"). Shelton has elected to participate in the 401(k) Plan in
1997. Shelton's contribution for 1997 will be paid by Shelton and will be made
through withholding by RBMG of $4,435.10 from the lump sum payment to be made to
Shelton pursuant to Section 1. All 401(k) Plan and Phantom 401(k) Plan benefits
will be paid to Shelton in accordance with the governing plan documents.
2.5 Benefit Plans. RBMG will permit Shelton and his family to
participate in any and all employee benefit plans (including, without
limitation, health insurance plans) through January 31, 1997. Shelton will have
rights under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") after January 31, 1997. RBMG will send Shelton the notices required
under COBRA.
2.6 Life and Disability Insurance. RBMG will continue to pay all
premiums due through January 31, 1997 on the life and disability insurance
policies in effect as of January 24, 1997 for Shelton. RBMG will not be required
to make any payments otherwise due thereon after January 31, 1997.
2.7 Pension Plan/Pension Restoration Plan. RBMG will consider Shelton
an employee for pension plan and pension restoration plan purposes through
January 31, 1997. RBMG will provide Shelton with a written pro forma analysis of
the benefits payable to him under his pension and pension restoration plans
(assuming retirement at either age 55 or 65), as well as a written description
of the alternatives available to him under such plans.
4
<PAGE> 5
2.8 Employment Agreement. RBMG and Shelton hereby mutually rescind the
Employment Agreement. Shelton will not be eligible for, or accrue any interest
in, any bonus from RBMG in 1997 or thereafter. RBMG has paid Shelton $16,883.00
(which, after deductions, was $6,303.03) as his final salary payment for the
time period ending January 31, 1997, and $7,791.85 (which, after deductions, was
$4,046.48) as payment for his accrued but unused vacation.
2.9 Documents; Personal Property. Promptly after January 31, 1997,
Shelton will return to RBMG all documents (including all copies) relating to his
employment (as employee, officer and director) which he created, received, or
obtained in connection with his employment with RBMG and any companies
controlling, controlled by or under common control with, RBMG ("Affiliates"), as
well as all property belonging to RBMG and Affiliates, other than (1) documents
relating to this settlement and the underlying dispute, and (2) documents that
are Shelton's personal property. The Affiliates include, without limitation,
those entities listed in Exhibit 2 hereto. Promptly after January 31, 1997, RBMG
will deliver to Shelton all of his personal property which remains on the
premises of RBMG or Affiliates.
Section 3. References and Announcements.
RBMG and, by their execution of the Intervention to this Agreement, the
directors of RBMG covenant not to expressly or implicitly disparage, slander,
defame, libel, or malign Shelton or Connie Shelton or their attorneys with
respect to the services that they performed in connection with this settlement
and the underlying dispute. For purposes hereof, the "attorneys" of Shelton and
Connie Shelton include Stephen G. Morrison, James C. Gray, Claude S.
Scarborough, David E. Dukes, Kenneth E. Young, Patrick Daugherty and Nelson
Mullins Riley & Scarborough, L.L.P.; Gaston H. Gage, James Y. Preston, William
P. Farthing, Jr., Jonathan M. Crotty and Parker, Poe, Adams & Bernstein, L.L.P.;
Michael F. Pezzulli and Pezzulli & Associates; Professor Dennis R. Nolan; John
F. Olson and John H. Sturc and Gibson, Dunn & Crutcher LLP; Allen W. Groves and
Glass, McCullough, Sherrill & Harrold; and George Hunter McMaster and Tompkins
and McMaster; together with each past or present partner, shareholder or
employee of every such law firm who at any time provided legal services, or
assisted in the provision of legal services, to Shelton or Connie Shelton.
Edward J. Sebastian, as Chairman and Chief Executive Officer of RBMG, will
provide Shelton with a signed letter of reference in the form of Exhibit 3
hereto. Notwithstanding any other provision of this Agreement, RBMG will not
state or imply that Shelton had any undischarged responsibility (legal or
otherwise) at or in connection with Intercounty Mortgage, Inc. Shelton agrees
that the press release attached as Exhibit 4 and the announcement to employees
and others attached as Exhibit 5 are satisfactory and acceptable. All other
similar announcements or statements made to RBMG employees, financiers,
regulators and others will be consistent with Exhibits 4 and 5. Neither Shelton
nor Connie Shelton will expressly or implicitly disparage, slander, defame,
libel, or malign RBMG or the Affiliates or any of their respective officers,
directors, employees, attorneys, or other representatives or the spouses of such
individuals (collectively the "Associates"). The Associates include, without
limitation, those individuals listed in Exhibit 6 hereto. Notwithstanding
5
<PAGE> 6
anything herein to the contrary, it is understood that RBMG and Shelton may each
provide truthful testimony in response to a valid subpoena or governmental
inquiry, but in no event will RBMG state or imply that Shelton had any
undischarged responsibility (legal or otherwise) at or in connection with
Intercounty Mortgage, Inc.
Section 4. Release and Covenant Not To Assert Claims.
4.1 RBMG. RBMG agrees that this Agreement constitutes a complete,
final, and binding settlement, release, and covenant not to sue by RBMG with
respect to all liabilities, claims, allegations, and causes of action
whatsoever, known or unknown, suspected or unsuspected, that RBMG has against
Shelton or Connie Shelton as of the date of execution of this Agreement,
including, but not limited to, all claims arising out of any contracts,
agreements (including, without limitation, the Employment Agreement, any
deferred compensation plans, and all other benefit and insurance agreements,
plans and trusts), or employment relationships or termination thereof, currently
in force or contemplated, between Shelton and RBMG and between Shelton and any
one or all of the Affiliates or Associates. RBMG further releases and covenants
not to sue the attorneys of Shelton and Connie Shelton listed in Section 3,
provided, however, that RBMG does not release any claims of malpractice it may
have against Parker, Poe, Adams & Bernstein; Glass, McCullough, Sherrill &
Harrold; and any past or present partners of those firms who performed or were
expected to perform legal services for RBMG; provided further, however, that
RBMG does release and does covenant not to sue any and all of the foregoing
insofar as any and all such claims of malpractice are based upon fees and
expenses previously paid by RBMG or asserted conflicts of interest. This release
does not apply to any claim for breach of the obligations set forth in this
Agreement.
4.2 Shelton and Connie Shelton. Shelton and Connie Shelton, jointly and
severally, agree that this Agreement constitutes a complete, final, and binding
settlement, release, and covenant not to sue with respect to all liabilities,
claims, allegations, and causes of action whatsoever, known or unknown,
suspected or unsuspected, either of them has against RBMG, Affiliates and
Associates as of the date of execution of this Agreement, including, but not
limited to, (a) all claims arising out of, or amounts payable pursuant to, any
contracts, agreements (including, without limitation, the Employment Agreement,
any deferred compensation plans, and all other benefit and insurance agreements,
plans and trusts), or employment relationships or termination thereof, currently
in force or contemplated, between Shelton and RBMG, and between Shelton and any
one or all of the Affiliates or Associates (including, without limitation, any
claim arising under the Age Discrimination in Employment Act of 1967 ("ADEA"),
29 U.S.C. ss. 621. et seq.; the Fair Labor Standards Act of 1938, as amended, 29
U.S.C. ss. 201, et seq.; the Employee Retirement Income Security Act of 1974, 29
U.S.C. ss. 301, et seq.; any claims which have been or might be filed by either
of them with the Equal Employment Opportunity Commission or with any other
federal, state or local court, agency or commission); (b) all claims with
respect to attorneys' fees, costs, and expenses for or by any and all attorneys
who have represented either of them or with whom either of them has consulted or
who have done anything in connection with the subject matter of this Agreement
or any claims herein released or
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otherwise; (c) all claims for any and all legal and equitable remedies, relief,
and results, including but not limited to salary, bonus, options, benefits,
allowances, back pay, front pay, liquidated damages, punitive damages,
compensatory damages, tort damages, contract damages, loss of consortium,
interest, restitution, expenses, costs, declaratory judgment, injunctive relief,
and hiring, employment, reemployment, recall or reinstatement; excluding,
however, any claim either of them may have against Price Waterhouse relative to
the engagement of Price Waterhouse by either of them to perform tax, accounting
or other personal services. Shelton and Connie Shelton understand and agree,
jointly and severally, that their releases of RBMG, Affiliates and Associates in
this Agreement will be deemed to be a release as to each and all of RBMG,
Affiliates and Associates collectively, separately, and severally. This release
does not apply to any claim for breach of obligations set forth in this
Agreement.
Section 5. Waiver Valid Notwithstanding Discovery of New Facts.
RBMG, Shelton and Connie Shelton each acknowledge that they may
hereafter discover facts different from or in addition to those which they now
know or believe to be true with respect to the potential claims released and
agree that, in such event, this Agreement will nevertheless be and remain
effective in all respects, notwithstanding such different or additional facts or
the discovery thereof.
Section 6. Resignation.
On January 24, 1997, Shelton resigned as an officer and member of the
Board of Directors of RBMG. Shelton will remain on paid administrative leave
until January 31, 1997. Shelton hereby voluntarily resigns as of January 31,
1997 as an employee of RBMG, and, to the extent applicable, as an employee,
officer and director of all Affiliates. Shelton agrees to execute all documents
required by RBMG or Affiliates, government agencies and other entities which are
necessary to effectuate his resignation as an employee, officer and director of
RBMG, and, to the extent applicable, as an employee, officer, and director of
all Affiliates. Shelton hereby covenants and agrees that he will not now or in
the future, at any time or in any place whatsoever, ask RBMG or Affiliates
about, seek, or apply for employment with RBMG or Affiliates, or their
respective successors and assigns.
Section 7. Covenant Not To Assist Others Pursuing Claims.
Shelton covenants and agrees that, except under compulsion of law, he
will not counsel or assist others in pursuing claims, administrative charges or
causes of action against RBMG, Affiliates or Associates, whether those claims
are on behalf of himself or others, except that (a) Shelton may respond to
questions posed to him and otherwise provide information requested of him in any
investigation, whether formal or informal, conducted by a federal or state
criminal law enforcement agency, it being represented and warranted by Shelton
that he has not taken and will not take any action to cause or encourage the
initiation or
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continuation of any such investigation, it being understood that responding
truthfully to questions posed to him or otherwise providing truthful information
requested of him shall not be deemed to constitute encouragement, and (b)
Shelton may counsel and assist his own personal attorney in pursuing his own
individual civil claims and causes of action arising in the future against RBMG,
Affiliates and Associates to the extent that such claims are not released or
discharged by this Agreement. Shelton may provide truthful testimony in response
to a valid subpoena.
Section 8. Mutual Consent, No Liability, and Confidentiality.
RBMG, Shelton and Connie Shelton mutually acknowledge and recognize
that the terms set forth in this Agreement are based on a mutual decision by all
parties to resolve any and all claims, contentions, and causes of action without
the time and expense of contested litigation and that the terms of this
Agreement are in no way an admission or implication of any wrongdoing by RBMG,
Affiliates, Associates, Shelton or Connie Shelton. Accordingly, Shelton and
Connie Shelton agree, jointly and severally, that neither of them nor anyone on
their behalf will publicize, discuss or reveal the existence of this Agreement
or its terms with or to anyone (including, but not limited to, any news media)
other than their immediate family and legal and tax advisors, unless compelled
to do so by law. If either Shelton or Connie Shelton shall determine (upon
advice of counsel) that disclosure of any such information is at any time
compelled by law, then, prior to making such disclosure, Shelton or Connie
Shelton, as the case may be, shall provide written notice to Edward J.
Sebastian, Chief Executive Officer of RBMG, or his successor, in order that RBMG
might seek a protective order safeguarding the confidentiality of such
information to the extent possible.
Section 9. Confidential Business Information.
Shelton acknowledges that he had access to certain information related
to the business, operations, future plans and customers of RBMG and Affiliates,
the disclosure or use of which could cause RBMG and Affiliates substantial
losses and damages. Accordingly, Shelton further represents, covenants and
agrees that he has kept, and that he will keep, confidential all information and
documents furnished to him by or on behalf of RBMG or Affiliates and not use the
same to his advantage, except to the extent such information or documents are or
thereafter become lawfully obtainable from public sources or are in the public
domain through no fault on his part. Shelton further covenants and agrees that
he will not discuss any information, whether confidential or public, concerning
RBMG, Affiliates or Associates with FHLMC, FNMA, GNMA, FHA or VA, except under
compulsion of law.
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Section 10. Nonsolicitation.
Shelton acknowledges that he had extensive contacts with employees of
RBMG and Affiliates. Accordingly, Shelton covenants and agrees that, for two
years following the date of execution of this Agreement, he will not, directly
or indirectly, either for himself or for any other party, (a) recruit or attempt
to recruit any of the employees of RBMG or Affiliates who at that time are
employed by RBMG or Affiliates, or (b) otherwise interfere with the relationship
of RBMG or Affiliates with any such employees. Shelton acknowledges that the
restrictions imposed by this Section are fair and reasonable and are reasonably
required for the protection of RBMG and Affiliates. If any part of this Section
will be held to be unenforceable or invalid, then the remaining parts thereof
will nevertheless continue to be valid and enforceable as though the invalid
portion or portions were not a part hereof. If any of the provisions of this
Section will be deemed to exceed the maximum period of time or coverage which a
court of competent jurisdiction would deem enforceable, then the time or
coverage will, for the purposes of this Section, be deemed to be the maximum
time period and coverage enforceable in the state in which such court of
competent jurisdiction will be convened.
Section 11. Indemnification.
Shelton and Connie Shelton, jointly and severally, agree and covenant
that, in the event of a breach of this Agreement through the filing of any
lawsuit, charge or request for arbitration or mediation in any jurisdiction by
Shelton or Connie Shelton with respect to any claim released by this Agreement,
Shelton and Connie Shelton, jointly and severally, will hold RBMG, Affiliates
and Associates harmless and reimburse all of them for the full amount of any and
all expenses, including costs and attorneys' fees, associated with defending
such action. RBMG agrees that, in the event of a breach of this Agreement
through the filing of any lawsuit, charge, or request for arbitration or
mediation in any jurisdiction by RBMG with respect to any claim released by this
Agreement, RBMG will hold Shelton and Connie Shelton harmless and reimburse them
for the full amount of any and all expenses, including costs and attorneys'
fees, associated with defending such action.
Section 12. No Prior Assignment.
(a) RBMG. RBMG hereby represents and warrants that RBMG has not
heretofore assigned or transferred or purported to assign or
transfer to any person or entity any claim or matter herein
released, disclaimed, discharged or terminated by RBMG. In the
event of such assignment or transfer of any claims or other
matters herein released, disclaimed, discharged or terminated,
RBMG agrees to indemnify and hold harmless Shelton and Connie
Shelton from and against any liability or loss, and for any
cost or expense, including attorneys' fees, or judgment or
settlement arising out of or occasioned by any such assignment
or transfer.
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(b) Shelton and Connie Shelton. Shelton and Connie Shelton,
jointly and severally, hereby represent and warrant that
neither of them has heretofore assigned or transferred or
purported to assign or transfer to any person or entity any
claim or matter herein released, disclaimed, discharged or
terminated by Shelton or Connie Shelton. In the event of such
assignment or transfer of any claims or other matters herein
released, disclaimed, discharged or terminated, Shelton and
Connie Shelton, jointly and severally, agree to indemnify and
hold harmless RBMG, Affiliates and Associates from and against
any liability or loss, and for any cost or expense, including
attorneys' fees, or judgment or settlement arising out of or
occasioned by any such assignment or transfer.
Section 13. ADEA Waiver.
Shelton hereby acknowledges and represents that he has had the
opportunity to take a period of at least 21 days to consider the terms of this
Agreement. RBMG has advised Shelton in writing to consult with an attorney prior
to executing this Agreement. Shelton has had the benefit of the advice of an
attorney of his choosing prior to executing this Agreement. Shelton has received
good and valuable consideration to which he is otherwise not entitled in
exchange for his execution of this Agreement.
Section 14. No Coercion; Understanding; Consultation with Attorney.
Shelton and Connie Shelton acknowledge they have consulted with their
own attorney, and acknowledge and agree, jointly and severally, that executing
this Agreement was done knowingly and voluntarily and was not the result of
duress, coercion, or mistake of law or fact. Shelton and Connie Shelton further
covenant and agree, jointly and severally, that they have read and fully
understand the contents and the effect of this Agreement. Shelton and Connie
Shelton accept each and all of the terms, provisions, and conditions of this
Agreement, and do so voluntarily and with full knowledge and understanding of
the contents, nature, and effect of this Agreement.
Section 15. Miscellaneous.
15.1 Entire Agreement. This Agreement (including the Exhibits referred
hereto herein) constitutes the sole understanding of the parties hereto with
respect to the subject matter hereof. Except as otherwise expressly provided
herein, this Agreement supersedes all prior agreements and understandings
related to the subject matter hereof (including, without limitation, the Term
Sheet and the Employment Agreement). There are no agreements, written or oral,
express or implied, between the parties hereto, concerning the subject matter
hereof, except the agreements referred to in this Agreement. Each of Shelton and
Connie Shelton agrees, jointly and severally, that such party has not relied on
any representations, promises or agreements of any kind made to such party in
connection with this Agreement except those expressly set forth in this
Agreement.
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No amendment of this Agreement shall be binding unless made in writing and duly
executed by the party to be bound thereby.
15.2 Parties Bound by Agreement. The terms, conditions and obligations
of this Agreement shall inure to the benefit of and be binding upon RBMG and its
successors and assigns and Shelton and Connie Shelton and their respective heirs
and assigns. Without the prior written consent of the other parties, no party
hereto may assign such party's rights, duties or obligations hereunder or any
part thereof to any other person or entity; provided, however, that this
Agreement will automatically inure to the benefit of any successor to RBMG and
to the respective heirs of Shelton and Connie Shelton. The parties agree that
the Affiliates and Associates and the attorneys listed in Section 3 are intended
to be third party beneficiaries of this Agreement.
15.3 As of January 24, 1997, the date the Term Sheet for the
RBMG/Shelton Settlement was executed, RBMG represents and warrants to Shelton
that (i) there existed no material nonpublic information concerning RBMG or the
market for its stock (other than (a) the information included in the Term Sheet
and (b) RBMG's financial results for 1996), and (ii), without limiting the
generality of the foregoing, RBMG knew of no material nonpublic information
concerning Intercounty Mortgage.
15.4 Counterparts: This Agreement may be executed in one or more
counterparts, each of which will for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
15.5 Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
15.6 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to or will constitute a waiver of any other provisions hereof.
15.7 Notices. Any notice or other document to be given hereunder by any
party hereto to any other party hereto shall be in writing and delivered by
courier or by telecopy transmission or sent by any express mail service, postage
or fees prepaid,
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If to RBMG, any Affiliate or any Associate:
Resource Bancshares Mortgage Group, Inc.
7909 Parklane Road
Columbia, South Carolina 29223
Attention: Mr. Edward J. Sebastian
Chairman and Chief Executive Officer
Telecopy No.: 803-741-3586
If to Shelton or Connie Shelton:
Lee E. Shelton
109 Shallowbrook Drive
Columbia, South Carolina 29223
With a copy (which shall not constitute notice) to:
Patrick Daugherty, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
NationsBank Corporate Center
Charlotte, North Carolina 28202
or at such other address or number for a party as shall be specified by like
notice. Any notice which is delivered in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or its agent.
15.8 Construction. This Agreement shall be construed in accordance with
and governed by the laws of the State of South Carolina. No provision of this
Agreement shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority or by any
board of arbitrators by reason of such party or its counsel having or being
deemed to have structured or drafted such provision. Unless otherwise expressly
provided herein, all references in this Agreement to Section(s) or Exhibit(s)
will refer to the Section(s) or Exhibit(s) of this Agreement.
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15.9 Attachments. The following Exhibits are attached to this Agreement
and are incorporated in this Agreement by this reference:
Exhibit 1 - Option Agreement
Exhibit 2 - List of Affiliates
Exhibit 3 - Reference Letter
Exhibit 4 - Press Release
Exhibit 5 - Announcement To Employees
Exhibit 6 - List of Associates
15.10 Additional Actions and Documents. Each of the parties hereto
hereby agrees to take or cause to be taken, for no additional consideration,
such further actions, to execute, deliver and file or cause to be executed,
delivered and filed such further documents and instruments, as may be necessary
or as may be reasonably requested in order to effectuate fully the purposes,
terms and conditions of this Agreement.
15.11 Expenses. Except as otherwise provided in this Agreement, the
parties hereto shall each pay their own respective costs and expenses in
connection with this Agreement and the matters contemplated by this Agreement.
It is specifically understood and agreed that RBMG shall not pay (and shall not
be obligated to pay) to the attorneys of Shelton or Connie Shelton (including,
without limitation, the attorneys named in Section 3) any of the respective fees
or expenses of such attorneys, whether or not such attorneys have previously
submitted invoices therefor.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above first written.
RESOURCE BANCSHARES MORTGAGE
GROUP, INC.
Executed before me this By: ____________________________________
____ day of ________, 1997: Edward J. Sebastian,
Chairman and Chief Executive Officer
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
Executed before me this __________________________
____ day of ________, 1997: Lee E. Shelton
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
Executed before me this __________________________
____ day of ________, 1997: Constance P. Shelton
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
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INTERVENTION
The undersigned persons, each in his capacity as a director of Resource
Bancshares Mortgage Group, Inc. ("RBMG"), hereby consent to the Mutual Release
and Settlement Agreement (the "Agreement"), dated as of January 31, 1997, among
RBMG, Lee E. Shelton and Constance P. Shelton.
DIRECTORS OF RESOURCE BANCSHARES
MORTGAGE GROUP, INC.
Executed before me this __________________________
____ day of ________, 1997: John C. Baker
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
Executed before me this __________________________
____ day of ________, 1997: Stuart M. Cable
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
Executed before me this __________________________
____ day of ________, 1997: John W. Currie
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
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Executed before me this __________________________
____ day of ________, 1997: Boyd M. Guttery
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
Executed before me this __________________________
____ day of ________, 1997: David W. Johnson, Jr.(1)
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
(1) This consent by David W. Johnson, Jr. shall also serve as his consent
to the Agreement as contemplated by Section 17 of the Employment
Agreement, dated June 3, 1993, as amended by letter agreement dated
October 22, 1993, between RBMG and David W. Johnson, Jr.
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Executed before me this __________________________
____ day of ________, 1997: Edward J. Sebastian
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
Executed before me this __________________________
____ day of ________, 1997: John O. Wolcott
- ----------------------------
Notary Public
My Commission Expires:
- ----------------------------
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EXHIBIT 1
OPTION AGREEMENT
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EXHIBIT 2
AFFILIATES
Any company controlling, controlled by or under common control with Resource
Bancshares Mortgage Group, Inc. including, without limitation, the following:
Intercounty Mortgage, Inc.
Resource Bancshares Corporation
Laureate Capital Corp.
Laureate Realty Services, Inc.
TPF Funding, Inc.
TPF Funding, Inc. II
Resource Processing Group, Inc.
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EXHIBIT 3
REFERENCE LETTER
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EXHIBIT 4
Resource Bancshares Mortgage Group, Inc.
Steven F. Herbert
(803) 741-3539
Distribution Instructions: Southeast and IRW and Local
Circuit: Southeast
Time of Release: 5:00 PM
COLUMBIA, SC, January 31, 1997/PRNewswire/--(NASDAQ: REMMI)
RESOURCE BANCSHARES MORTGAGE GROUP ANNOUNCES
THE RESIGNATION OF LEE E. SHELTON
Resource Bancshares Mortgage Group, Inc. (the "Company") (NASDAQ:REMI),
today announced the resignation of Lee E. Shelton, Vice Chairman and Managing
Director, to pursue opportunities outside the Company.
Edward J. Sebastian, Chairman of the Board and Chief Executive Officer,
said, "I would like to compliment Lee for his vital participation in growing the
Company from its infancy through an initial public offering and secondary
offering -- both highly successful -- to its present position as one of the top
mortgage companies in the country. The Board of Directors and I are deeply
appreciative of Lee's significant contributions and we wish him the very best in
his future endeavors."
* * * *
Resource Bancshares Mortgage Group, Inc., is engaged in the business of
mortgage banking, which primarily consists of the origination, purchase, sale
and servicing of residential, single-family, first mortgage loans and the
purchase and sale of servicing rights associated with such loans. According to
the January 27, 1997, issue of Inside Mortgage Finance, the Company was the
eleventh largest mortgage originator in the country in 1996. As of December 31,
1996, the Company employed 1,027 people.
CONTACT: Steven F. Herbert, Chief Financial Officer, Resource
Bancshares Mortgage Group, Inc. (803) 741-3539.
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EXHIBIT 5
ANNOUNCEMENT
[SAME AS PRESS RELEASE]
22
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EXHIBIT 6
ASSOCIATES
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Charles E. Williams
Peter Roth
Dwight Galloway
Charles W. Randall, III
Gary Bruce Thomas
H.J. Upchurch, Jr.
Joseph A. Shaffer
Thomas S. Dennard
Angelo R. Palombi
R. Dean Dougherty
L. Dale Savage
Frank Piccolo
John A. Brasher
Price Waterhouse
Barbara G. McQuillan, Cynthia S. Turnipseed, Celeste T. Jones, Elizabeth B.
Anders, Edwin W. Johnson, III, James C. Siokos, Jonathan H. Nason, Richard J.
Morgan, Reginald W. Belcher, Stephen D. Searcy and McNair Law Firm, P.A.,
together with each past or present partner, shareholder, counsel or employee of
such law firm who at any time provided legal services, or assisted in the
provision of legal services, to Resource Bancshares Mortgage Group, Inc.
("RBMG") or the Affiliates (as defined in the Mutual Release and Settlement
Agreement to which this Exhibit is attached); Russell B. Richards, William A.
Clineburg, Jr., Scott G. Blews, and King & Spalding, together with each past or
present partner, counsel, associate, or employee of such law firm who at any
time provided or assisted in providing legal services to RBMG or the Affiliates;
and any other past or present officer, director, employee, attorney or other
representative of RBMG or the Affiliates and the spouses of the individuals
listed on this Exhibit.
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EXHIBIT 10.45
NOTE
US $6,600,000 Columbia, South Carolina
April 17, 1997
1. FOR VALUE RECEIVED, the undersigned, Resource Bancshares Mortgage
Group, Inc., a Delaware corporation, (hereinafter called "Maker"), promises to
pay to the order of UNUM Life Insurance Company of America, a Maine corporation,
(hereinafter called "Holder"), at such place and in such manner as Holder may
designate in writing, the principal sum of Six Million Six Hundred Thousand
Dollars (US $6,600,000), together with interest on the unpaid principal balance
from the date hereof as hereinafter specified.
2. From and after April 17, 1997 (the "Closing Date"), interest,
computed on the basis of a three hundred sixty (360) day year composed of twelve
(12) thirty (30) day months, shall accrue at the rate of eight and seven
hundredths percent (8.07%) per annum. Interest only from the Closing Date
through the last day of the month in which the Closing Date occurs shall be
payable on the first day of the next month following the Closing Date; provided
that if the Closing Date occurs after the fifteenth (15th) day of a month, the
interest which would accrue, based on the actual number of days, through the end
of such month shall be payable in advance on the Closing Date. Thereafter, the
unpaid principal and interest shall be due and payable, computed on the basis of
an amortization period of three hundred (300) months (hereinafter called the
"Amortization Period"), in one hundred and nineteen (119) consecutive monthly
payments of Fifty One Thousand Two Hundred Forty Six and 30/100ths Dollars (US
$51,246.30) each, on the first day of each month beginning on June 1, 1997, (the
first day of the second month following the Closing Date). Such monthly payments
shall continue until all obligations of Maker hereunder have been paid in full;
except that, in any event, all obligations of Maker hereunder shall be fully
paid, and all remaining principal and interest shall be due and payable, on the
first day of May, 2007 (hereinafter called the "Maturity Date").
3. As more fully provided in the Mortgage and Security Agreement
hereinafter referred to, Holder may condition its consent to any sale,
assignment, encumbrance or other disposition of title to the mortgaged property,
upon payment of a transfer fee or upon an increase in the interest rate of this
Note to the "Index Rate", (as hereinafter defined). Upon and after any such
change in interest rate, the amount of each monthly payment hereunder shall be
increased to an amount sufficient to amortize the then unpaid principal balance
of this Note in equal monthly payments over the remainder of the Amortization
Period. Index Rate shall mean one hundred and twenty five percent (125%) of the
average of Moody's corporate bond yield average for an Aa Industrial Bond as
published monthly in "Moody's Bond Record" for the three (3) months prior to the
month of Holder's written consent. The provisions of this paragraph shall be
self-executing without the need for any modification or amendment to this Note;
provided, however, Holder may, at its sole option, require that Maker execute or
provide documents confirming any adjustment in the interest rate, including
without limiting the generality of the foregoing, at the expense of Maker,
endorsements to the title insurance policy and/or opinions of counsel
satisfactory to Holder.
Page 1 of 6
<PAGE> 2
4. Payments due under this Note shall be paid by wire transfer or other
immediately available funds to the bank account and pursuant to instructions to
be designated by Holder. At the option of Holder, payments may be made at the
offices of UNUM Life Insurance Company of America, 2211 Congress Street,
Portland, ME 04122-0590, Attn.: Mortgage Accounting & Administration.
5. Maker acknowledges that late payment to Holder will cause Holder to
incur costs not contemplated by the loan evidenced by this Note (the "Loan"),
the exact amount of such costs being difficult and impracticable to assess. Such
costs include, without limitation, processing and accounting charges and the
potential costs to be incurred as a result of Holder's frustration and inability
to meet its other commitments. Therefore, if any payment under this Note is not
paid on or before the fifth (5th) day of the month during which the payment is
due, then Maker shall pay to Holder a late charge of five percent (5%) of such
payment which shall be immediately due to Holder as liquidated damages for
failure to make prompt payment and to compensate Holder for such costs. If any
payment under this Note is not paid on or before the fifteenth (15th) day of the
month during which the payment is due, or upon the occurrence of any "Event of
Default", as defined in the "Loan Documents" (as hereinafter defined) in the
performance or observance of any of the terms or agreements contained in any of
the Loan Documents, then the entire principal balance of this Note shall bear
interest from the due date of such late payment until such late payment is paid,
or from the date of such Event of Default until such Event of Default, is fully
cured, at a rate of five percent (5%) per annum in excess of the interest rate
then applicable hereunder (the "Default Rate"). The late charge and excess
interest shall be due and payable immediately without demand.
The parties agree that the late charges represent a reasonable sum
considering all of the circumstances existing as of the date of this Note and
represents a fair and reasonable estimate of the costs that Holder will incur by
reason of late payment. The parties further agree that proof of actual damages
would be costly and inconvenient. Acceptance of any late charges and/or excess
interest shall not constitute a waiver of the default with respect to the
overdue amount, and shall not prevent Holder from exercising any of the other
rights and remedies available to Holder. The late charges shall be due and
payable immediately without demand and shall be secured by the "Loan Documents",
as defined in Section 7, below.
6. From and after the date hereof, Maker shall not have any right,
except as otherwise specifically provided, to prepay all or a portion of the
principal balance of this Note until May 1, 1999. From May 1, 1999 to April 30,
2007, Maker shall have the right to prepay all, but not merely a portion of the
principal balance of this Note, on any payment date thereafter and with sixty
(60) days' prior written notice to Holder, and upon payment of the "Prepayment
Premium" (as hereinafter defined). This Note, together with the "Prepayment
Premium", shall be due and payable at the time provided in said notice.
Page 2 of 6
<PAGE> 3
The "Prepayment Premium" is that amount which, if invested
with the outstanding principal balance in U.S. Treasury Securities maturing at
or nearest the Maturity Date, would return to Holder the discounted present
value [utilizing a discount factor equal to the "Reinvestment Rate" (as defined
below)] of the stream of payments under this Note.
The "Reinvestment Rate" shall be the yield on the current
coupon U.S. Treasury Security having a maturity date closest to (before, on or
after) the Maturity Date, as reported in The Wall Street Journal or similar
publication on the 5th business day preceding the date of payoff; provided,
however, that if the period between the maturity date of such U.S. Treasury
Security and the Maturity Date exceeds four (4) months, the average of the
yields on the two (2) current coupon U.S. Treasury Securities having maturity
dates next preceding and following the Maturity Date shall be used to compute
the Reinvestment Rate. If there are two (2) or more such U.S. Treasury
Securities with the same maturity dates, the one whose yield is closest to the
interest rate on this Note shall be used.
Maker acknowledges and agrees that Holder is making the Loan
evidenced by this Note in consideration of the receipt by Holder of all interest
and other benefits intended to be conferred by this Note and the other "Loan
Documents" (as hereinafter defined) and if payments of principal are made to
Holder prior to the regularly scheduled due date of such payments, for whatever
reason (whether voluntarily or involuntarily as a result of (a) Holder's
acceleration of the Loan on account of an Event of Default under this Note or
the Loan Documents, (b) the exercise of Holder's rights under "due-on-sale,"
"due-on-encumbrance" or similar provisions in the Loan Documents, (c) in
connection with any bankruptcy proceeding involving the "Property" (as
hereinafter defined) or (d) in connection with any foreclosure of the Property,
whether judicial or non-judicial), Holder will not receive all such interest and
other benefits and may incur additional costs.
For these reasons, and to induce Holder to make the Loan,
Maker expressly waives any right to prepay this Note except pursuant to this
Section 6 and agrees that except in cases where this Note is prepaid from
casualty insurance proceeds or condemnation awards, all other voluntary and
involuntary prepayments will be accompanied by the premium specified above. Such
premium shall be required whether payment is made by Maker, anyone on behalf of
Maker, or by the purchaser at any judicial or non-judicial foreclosure sale, and
may be included in any bid by Holder at such sale.
By its initials appearing below, Maker acknowledges that: (i)
it is a knowledgeable and sophisticated real estate investor; (ii) it fully
understands the effect of the provisions of this Section 6; (iii) the making of
the Loan by Holder at the interest rate and other terms set forth in this Note
is sufficient consideration for the inclusion of the provisions in this Section
6; and (iv) Holder would not make the Loan on the terms set forth herein without
the inclusion of such provisions. Maker also acknowledges that the provisions of
this Section 6 limiting the right of prepayment and providing for payment of the
premium specified above were independently negotiated and bargained for, and
constitute a specific, material part of the consideration given by Maker to
Holder for the making of the Loan.
---------------------
MAKER'S INITIALS
Page 3 of 6
<PAGE> 4
7. This Note is secured by a Mortgage and Security Agreement of even
date herewith, ("Mortgage") encumbering certain real and personal property
(specifically excluding, however, any personal property owned by Maker and
located at or upon the Property and used by Maker in its day-to-day business
operations and affairs) (the "Property") located in Richland County, State of
South Carolina (the terms and provisions of which are incorporated herein by
this reference), and by any other instruments, now or hereafter executed by
Maker in favor of Holder, which in any manner constitute additional security for
this Note, and Maker has also given to Holder in connection herewith an
Assignment of Rents, Leases, and Other Benefits of even date herewith (all of
which are herein collectively called the "Loan Documents").
8. It is agreed that time is of the essence in the performance of all
obligations hereunder and under the Loan Documents. If Maker shall fail to make
any payment hereunder when due, or upon the occurrence of an Event of Default in
the performance or observance of any of the terms, agreements, covenants or
conditions contained in the Loan Documents, then, or at any time thereafter, the
entire principal balance of this Note, irrespective of the Maturity Date
specified herein, together with the then accrued interest thereon, and to the
extent permitted by law, the Prepayment Premium, shall, at the election of the
Holder hereof, and without notice of such election, become immediately due and
payable and the entire principal balance with accrued interest thereon shall
thereafter until paid bear interest at the Default Rate.
9. All makers, endorsers, guarantors and sureties hereof jointly and
severally waive presentment, notice of protest, protest, demand for payment,
notice of dishonor, notice of intent to accelerate, and notice of acceleration;
and they also jointly and severally hereby consent to any and all renewals,
extensions or modifications of the terms hereof, including the terms or time for
payment; and further agree that any such renewal, extension or modification of
the terms hereof or time for payment or of the terms of any of the Loan
Documents or the release or substitution of any security for the indebtedness
evidenced hereby or any other indulgences shall not otherwise affect the
liability of any of said parties for the indebtedness evidenced by this Note;
and further agree that the Holder hereof shall not be required first to
institute suit or exhaust its remedies hereon against Maker or others liable or
to become liable hereon or to perfect or enforce its rights against them or any
security therefor. Any such renewals, extensions or modifications may be made
without notice to any of said parties.
10. This Note shall be the joint and several obligation of all makers,
endorsers, guarantors, and sureties, and shall be binding upon them and their
successors and assigns and shall inure to the benefit of the successors and
assigns of Holder. All makers, endorsers, guarantors, and sureties hereof agree
jointly and severally to pay all costs of collection incurred by Holder,
including reasonable attorneys' fees and costs: (a) in the exercise of remedies
provided under this Note and the Loan Documents and (b) in any state insolvency,
receivership or federal bankruptcy proceeding to which the Maker is a party,
whether prior to or after confirmation of a plan of reorganization. In addition
to the foregoing entitlement to attorney's fees and costs, Holder shall be
entitled to its attorneys' fees and costs incurred in any post-judgment
proceedings to collect or enforce any judgment or order relating to this Note or
the other Loan Documents. This provision is separate and several and shall
survive the merger of this provision into any judgment.
Page 4 of 6
<PAGE> 5
11. Any forbearance of Holder in exercising any right or remedy
hereunder or under the Loan Documents, or otherwise afforded by applicable law,
shall not be a waiver of or preclude the exercise of any right or remedy. The
acceptance by Holder of payment of any sum payable hereunder after the due date
of such payment shall not be a waiver of Holder's right to either require prompt
payment when due of all other sums payable hereunder or to declare a default for
failure to make prompt payment.
12. This Note shall be governed by the laws of the State of South
Carolina, except to the extent that federal law may apply.
13. All agreements between Maker, and Holder are expressly limited so
that in no event whatsoever shall the amount paid or agreed to be paid to Holder
for the use, forbearance or detention of the money to be advanced hereunder in
accordance with the Loan Documents exceed the highest lawful rate permissible
under applicable law governing the charging of interest which is applicable to
the subject obligation, it being the intent of Holder and Maker in the execution
hereof and of the Loan Documents to contract in strict accordance with
applicable usury laws. If any obligation under this Note or under any Loan
Document shall involve transcending the usury limit prescribed by applicable
law, then ipso facto the obligation to be fulfilled shall be reduced to such
limit, and if from any circumstance Holder shall receive as interest an amount
which would exceed the highest lawful rate allowable under applicable law, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance due hereunder and not to the payment of interest,
or if such excessive interest exceeds the unpaid principal balance, the excess
shall be refunded to Maker and Maker hereby agrees to accept such refund. This
provision shall control every other provision of all agreements between Maker
and Holder.
14. Maker agrees that the "due-on-sale" provisions of Article 1.11 of
the Mortgage and Security Agreement are incorporated herein by reference as if
fully set forth herein.
15. AFTER CONSULTATION WITH COUNSEL, MAKER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHT MAKER MAY HAVE TO A TRIAL BY
JURY WITH RESPECT TO ANY LITIGATION BASED UPON THIS NOTE, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF
HOLDER AND ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER
MAKING THE LOAN.
Page 5 of 6
<PAGE> 6
IN WITNESS WHEREOF, Maker has executed this Note as of the date first
above written.
MAKER
RESOURCE BANCSHARES MORTGAGE GROUP, INC.,
WITNESS: A DELAWARE CORPORATION
BY:
- -------------------------------- -----------------------------------
NAME:
- -------------------------------- -----------------------------------
ITS:
- -------------------------------- -----------------------------------
Page 6 of 6
<PAGE> 1
EXHIBIT 11.1
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
STATEMENT RE: COMPUTATION OF
PRIMARY and FULLY DILUTED EARNINGS PER SHARE
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, 1997 June 30, 1997
------------------- --------------------
<S> <C> <C>
Net income $ 7,371 $ 11,841
Primary earnings per share (1) $ 0.37 $ 0.60
Fully diluted earnings per share (1) $ 0.36 $ 0.59
</TABLE>
1) The number of common shares outstanding used to compute net income per
share was 19,492,050 and 19,214,546 for the quarter and six months
ended June 30, 1997, respectively. The provisions of Accounting
Principles Board Opinion No. 15, Earnings per Share required that the
Company, effective for the first quarter of 1997, prospectively
commence to report net income per common share on a primary earnings
per share basis. Accordingly, the weighted average shares outstanding
for the second quarter of 1997 and the six months ended June 30, 1997,
includes common stock equivalents. Primary and fully diluted earnings per
share for the quarter ended June 30, 1997, were calculated based on
weighted average shares outstanding of 20,108,839 and 20,304,831. Primary
and fully diluted earnings per share for the six months ended June 30, 1997,
were calculated based on weighted average shares outstanding of 19,831,581
and 20,027,327, respectively, which assumes the exercise of options
covering 1,394,587 shares, excludes 406,053 contingent 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,319
<SECURITIES> 0
<RECEIVABLES> 78,904
<ALLOWANCES> 0
<INVENTORY> 1,073,929
<CURRENT-ASSETS> 1,199,883
<PP&E> 29,766
<DEPRECIATION> 7,912
<TOTAL-ASSETS> 1,227,620
<CURRENT-LIABILITIES> 1,047,809
<BONDS> 6,507
0
0
<COMMON> 198
<OTHER-SE> 173,106
<TOTAL-LIABILITY-AND-EQUITY> 1,227,620
<SALES> 31,688
<TOTAL-REVENUES> 70,376
<CGS> 39,419
<TOTAL-COSTS> 51,162
<OTHER-EXPENSES> 11,743
<LOSS-PROVISION> 1,093
<INTEREST-EXPENSE> 22,037
<INCOME-PRETAX> 19,214
<INCOME-TAX> 7,373
<INCOME-CONTINUING> 19,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,841
<EPS-PRIMARY> .60
<EPS-DILUTED> .59
</TABLE>
