<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 March 31, 1999
or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______________ to ______________
Commission File Number 000-21786
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 57-0962375
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7909 Parklane Road, Columbia, SC 29223
- --------------------------------------------------------------------------------
(Address of Principal Executive 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 April
30, 1999, was 21,358,357.
Page 1
Exhibit Index on Pages A to F
<PAGE> 2
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-Q for the quarter ended March 31, 1999
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited)
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Changes in Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 37
PART II. OTHER INFORMATION 38
ITEM 2. Changes in Securities and Use of Proceeds 38
ITEM 6. Exhibits and Reports on Form 8-K 38
SIGNATURES 39
EXHIBIT INDEX A-F
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS (Unaudited)
Cash $ 73,592 $ 18,124
Receivables 70,411 80,248
Trading Securities:
Mortgage-backed securities 333,916 385,055
Residual interests in subprime securitizations 44,624 45,782
Mortgage loans held for sale 794,217 1,056,403
Lease receivables 113,289 102,029
Servicing rights, net 207,993 191,022
Premises and equipment, net 36,064 35,338
Accrued interest receivable 3,736 3,642
Goodwill and other intangibles 16,141 16,363
Other assets 42,368 35,629
----------- -----------
Total assets $ 1,736,351 $ 1,969,635
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 1,324,528 $ 1,566,287
Long-term borrowings 6,339 6,364
Accrued expenses 15,334 30,098
Other liabilities 145,152 114,728
----------- -----------
Total liabilities 1,491,353 1,717,477
----------- -----------
Stockholders' equity
Preferred stock - par value $.01 - 5,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock - par value $.01 - 50,000,000 shares
authorized; 31,637,331 and 31,637,331 shares issued and
outstanding at March 31, 1999 and December 31, 1998,
respectively 316 316
Additional paid-in capital 307,354 307,114
Retained earnings 68,486 59,599
Common stock held by subsidiary at cost - 7,767,099
shares at March 31, 1999 and December 31, 1998 (98,953) (98,953)
Treasury stock - 2,081,997 and 869,378 shares at
March 31, 1999 and December 31 1998, respectively (27,356) (11,499)
Unearned shares of employee stock ownership plan -
370,709 and 353,641 unallocated shares at March 31,
1999 and December 31, 1998, respectively (4,849) (4,419)
----------- -----------
Total stockholders' equity 244,998 252,158
----------- -----------
Commitments and contingencies -- --
Total liabilities and stockholders' equity $ 1,736,351 $ 1,969,635
=========== ===========
</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 Three Months Ended
March 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES
Interest income $ 26,355 $ 22,981
Interest expense (18,881) (18,689)
------------ ------------
Net interest income 7,474 4,292
Net gain on sale of mortgage loans 37,289 39,174
Gain on sale of mortgage servicing rights 2,998 628
Servicing fees 12,998 9,303
Other income 129 974
------------ ------------
Total revenues 60,888 54,371
------------ ------------
EXPENSES
Salary and employee benefits 20,497 20,714
Occupancy expense 3,173 2,780
Amortization and provision for impairment of
mortgage servicing rights 8,897 5,629
General and administrative expenses 10,963 9,792
------------ ------------
Total expenses 43,530 38,915
------------ ------------
Income before income taxes 17,358 15,456
Income tax expense (6,197) (5,875)
------------ ------------
Net income $ 11,161 $ 9,581
============ ============
Weighted average common shares outstanding -- Basic 22,224,610 23,060,458
============ ============
Net income per common share -- Basic $ 0.50 $ 0.42
============ ============
Weighted average common shares outstanding -- Diluted 22,477,224 23,505,793
============ ============
Net income per common share -- Diluted $ 0.50 $ 0.41
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
(Unaudited)
<TABLE>
<CAPTION>
Unearned Shares
Common Stock Additional of Employee Common Total
Three Months Ended -------------------- Paid-in Retained Stock Ownership Stock Held by Treasury Stockholders'
March 31, 1998 Shares Amount Capital Earnings Plan Subsidiary Stock Equity
- ----------------------- ----------- ------- ------- ------- ------------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 31,120,383 $ 311 $ 299,516 $ 17,763 $ (3,498) $ (98,953) $ 215,139
Issuance of restricted stock 20,056 * 328 328
Cash dividends (1,161) (1,161)
Exercise of stock options 60,932 1 403 404
Purchase of 200,000 shares
of treasury stock $ (3,034) (3,034)
Shares committed to be
released under Employee
Stock Ownership Plan 162 288 450
Purchase of shares by Employee
Stock Ownership Plan (500) (500)
Shares issued under Dividend
Reinvestment and Stock
Purchase Plan and Stock
Investment Plan 22,167 * 337 (30) 307
Net income 9,581
Total comprehensive income 9,581
----------- ------- --------- -------- ------------- --------- -------- ---------
Balance, March 31, 1998 31,223,538 $ 312 $ 300,746 $ 26,153 $ (3,710) $ (98,953) $ (3,034) $ 221,514
=========== ======= ========= ======== ============= ========= ======== =========
Unearned Shares
Common Stock Additional of Employee Common Total
Three Months Ended -------------------- Paid-in Retained Stock Ownership Stock Held by Treasury Stockholders'
March 31, 1999 Shares Amount Capital Earnings Plan Subsidiary Stock Equity
- ----------------------- ----------- ------- ------- ------- ------------- ------------- -------- ---------
Balance, December 31, 1998 31,637,331 $ 316 $ 307,114 $ 59,599 $ (4,419) $ (98,953) $ (11,499) $ 252,158
Issuance of restricted stock 116 1,285 1,401
Cash dividends (2,244) (2,244)
Treasury stock purchases (18,501) (18,501)
Exercise of stock options
Shares committed to be released
under Employee Stock Ownership
Plan 180 320 500
Purchase of shares by Employee
Stock Ownership Plan (750) (750)
Shares issued or purchased under
Dividend Reinvestment and
Stock Purchase Plan and Stock
Investment Plan (56) (30) 1,359 1,273
Net income 11,161
Total comprehensive income 11,161
----------- ------- --------- -------- ------------- --------- -------- ---------
Balance, March 31, 1999 31,637,331 $ 316 $ 307,354 $ 68,486 $ (4,849) $ (98,953) $ (27,356) $ 244,998
=========== ======= ========= ======== ============= ========= ======== =========
</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>
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 11,161 $ 9,581
Adjustments to reconcile net income
to cash provided by (used in) operating activities:
Depreciation and amortization 10,538 6,984
Employee Stock Ownership Plan compensation 500 450
Provision for estimated foreclosure losses and repurchased loans 3,055 1,962
Decrease (increase) in receivables 9,837 (773)
Acquisition of mortgage loans (3,474,106) (4,116,642)
Proceeds from sales of mortgage loans and mortgage-backed securities 3,822,113 3,693,418
Acquisition of mortgage servicing rights (100,984) (79,299)
Sales of mortgage servicing rights 78,888 56,367
Net gain on sales of mortgage loans and servicing rights (40,287) (39,802)
Increase in accrued interest on loans (94) (757)
Increase in lease receivables (11,643) (6,697)
Increase in other assets (7,660) (6,329)
Decrease (increase) in residual certificates 1,158 (3,252)
Increase in accrued expenses and other liabilities 15,660 37,976
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 318,136 (446,813)
- -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of premises and equipment, net (2,063) (2,961)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,063) (2,961)
- -------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings 11,266,371 8,523,846
Repayment of borrowings (11,508,155) (8,068,584)
Issuance of restricted stock 1,401 328
Shares issued under Dividend Reinvestment and Stock Purchase Plan
and Stock Investment Plan 1,273 307
Cash dividends (2,244) (1,161)
Acquisition of treasury stock (18,501) (3,034)
Exercise of stock options - 404
Loans to Employee Stock Ownership Plan (750) (500)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (260,605) 451,606
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 55,468 1,832
Cash, beginning of period 18,124 13,546
- -------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 73,592 $ 15,378
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Amounts in Thousands Except Per Share Data)
March 31, 1999
Note 1 - Basis of Presentation:
The financial information included herein should be read in conjunction
with the consolidated financial statements and related notes of Resource
Bancshares Mortgage Group, Inc. (the Company), included in the Company's
December 31, 1998, Annual Report on Form 10-K. Certain financial
information, which is normally included in financial statements prepared
in accordance with generally accepted accounting principles, is not
required for interim financial statements and has been omitted. The
accompanying interim consolidated financial statements are unaudited.
However, in the opinion of management of the Company, all adjustments,
consisting of normal recurring items, necessary for a fair presentation of
operating results for the periods shown have been made. Certain prior
period amounts have been reclassified to conform to current period
presentation.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction or (c) a hedge
of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security
or a foreign-currency denominated forecasted transaction. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999 (January 1, 2000 for the Company). However, early adoption is
permitted. The Company has not yet determined either the impact that the
adoption of SFAS 133 will have on its earnings or statement of financial
position or the period in which the statement will be implemented.
In October 1998, the FASB issued Statement of Financial Accounting
Standards No. 134, "Accounting for Mortgage-Backed Securities Retained
After the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise" (SFAS No. 134). SFAS No. 134 amends SFAS No. 65 to
require that after the securitization of mortgage loans held for sale, an
entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests as
available-for-sale or trading securities based on its ability and intent
to sell or hold those investments in accordance with SFAS No. 115. Prior
to this amendment, entities engaged in mortgage banking activities were
required to classify mortgage-backed securities as trading securities
under SFAS No. 115. This statement is effective for the first fiscal
quarter beginning after December 15, 1998. Management has elected to
continue to classify its mortgage-related securities as trading securities
as permitted pursuant to SFAS No. 134.
7
<PAGE> 8
The following is a reconciliation of basic earnings per share to
diluted earnings per share as calculated under SFAS No. 128 for the
quarter ended March 31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 11,161 $ 9,581
----------- -----------
Average common shares outstanding 22,224,610 23,060,458
----------- -----------
Earnings per share - basic $ 0.50 $ 0.42
----------- -----------
Dilutive stock options 252,614 445,335
Average common and common equivalent shares outstanding 22,477,224 23,505,793
----------- -----------
Earnings per share - diluted $ 0.50 $ 0.41
----------- -----------
</TABLE>
Options to purchase approximately 714,000 shares of common stock at
prices ranging between $14.16 - $17.75 per share were outstanding during
the first quarter of 1999 but were not included in the computation of
diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares.
Options to purchase 6,300 shares of common stock at $16.27 per share
were outstanding during the first quarter of 1998 but were not included in
the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common
shares.
Following is a summary of the allocated revenues and expenses for each
of the Company's operating divisions for the three months ended March 31,
1999 and 1998, respectively:
<TABLE>
<CAPTION>
Residential
---------------------
($ in thousands) Mortgage Production
--------------------- Agency-
Agency- Eligible Commercial
For the Quarter Ended March 31, 1999* Eligible Subprime Servicing Mortgage Leasing Other Consolidated
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 3,589 $3,473 $(1,389) $ 94 $1,645 $ 62 $ 7,474
Net gain on sale of mortgage loans 33,193 2,857 1,239 37,289
Gain on sale of mortgage servicing
rights 2,998 2,998
Servicing fees 11,703 975 161 159 12,998
Other income 734 (932) 161 11 151 4 129
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Total revenues 37,516 5,398 13,473 2,319 1,957 225 60,888
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Salary and employee benefits 13,701 3,301 898 1,738 640 219 20,497
Occupancy expense 2,064 583 107 263 104 52 3,173
Amortization and provision for
impairment of mortgage
servicing rights 8,433 464 8,897
General and administrative expenses 5,854 2,071 1,778 430 753 77 10,963
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Total expenses 21,619 5,955 11,216 2,895 1,497 348 43,530
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Income before income taxes 15,897 (557) 2,257 (576) 460 (123) 17,358
Income tax expense (5,649) 197 (802) 219 (192) 30 (6,197)
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Net income $10,248 $ (360) $ 1,455 $ (357) $ 268 $ (93) $ 11,161
======== =========== ========== ============ ========= ========= ============
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Residential
--------------------------------
($ in thousands) Mortgage Production
-------------------- Agency -
Agency - Eligible Commercial
For the Quarter Ended March 31, 1998* Eligible Subprime Servicing Mortgage Leasing Other Consolidated
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 1,736 $ 1,347 $ 129 $ 946 $ 134 $ 4,292
Net gain on sale of mortgage loans 31,041 6,171 1,962 39,174
Gain on sale of mortgage servicing
rights $ 628 628
Servicing fees 8,120 915 268 9,303
Other income 87 395 93 2 219 178 974
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Total revenues 32,864 7,913 8,841 3,008 1,433 312 54,371
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Salary and employee benefits 14,341 3,299 828 1,521 553 172 20,714
Occupancy expense 1,972 372 120 186 80 50 2,780
Amortization of mortgage servicing
rights 5,302 327 5,629
General and administrative expenses 6,142 952 1,520 416 587 175 9,792
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Total expenses 22,455 4,623 7,770 2,450 1,220 397 38,915
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Income before income taxes 10,409 3,290 1,071 558 213 (85) 15,456
Income tax expense (3,957) (1,251) (407) (212) (81) 33 (5,875)
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Net income $ 6,452 $ 2,039 $ 664 $ 346 $ 132 $ (52) $ 9,581
========= ========== ========== ============ ========= ========= ============
</TABLE>
*Revenues and expenses have been allocated on a direct basis to the extent
possible. Corporate overhead expenses have been allocated to agency-eligible
mortgage production. Management believes that these and all other revenues and
expenses have been allocated to the respective divisions on a reasonable basis.
9
<PAGE> 10
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 Resource
Bancshares Mortgage Group, Inc. (the Company) (and the notes thereto) and the
other information included or incorporated by reference into the Company's 1998
Annual Report on Form 10-K and the interim Consolidated Financial Statements
contained herein. Statements included in this discussion and analysis (or
elsewhere in this document) which are not statements of historical fact are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve a number of risks and
uncertainties, and that actual results could differ materially from those
indicated by such forward-looking statements. Important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements include, but are not limited to, the following which are described in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
in this filing or from time to time in other reports filed by the Company with
the Securities and Exchange Commission: (i) interest rate risks; (ii) changes in
economic conditions; (iii) competition; (iv) possible changes in regulations and
related matters; (v) litigation affecting the mortgage banking business; (vi)
delinquency and default risks; (vii) changes in the market for servicing rights,
mortgage loans and leases, (viii) environmental matters; (ix) changes in the
demand for mortgage loans and leases, (x) changes in the value of residual
interests in subprime securitizations, (xi) prepayment risks, (xii) Year 2000
risks, (xiii) possible changes in accounting estimates, (xiv) availability of
funding sources and (xv) other risks and uncertainties. The Company disclaims
any obligation to update any forward-looking statements.
THE COMPANY
The Company is a diversified financial services company engaged primarily
in the business of mortgage banking, through the purchase (via a nationwide
network of correspondents and brokers), sale and servicing of agency-eligible
and subprime residential, single-family, first-mortgage loans and the purchase
and sale of servicing rights associated with agency-eligible loans. In addition,
the Company originates, sells and services small-ticket commercial equipment
leases and originates, sells, underwrites for investors and services commercial
mortgage loans.
LOAN AND LEASE PRODUCTION
The Company purchases agency-eligible residential mortgage loans from its
correspondents and through its wholesale division and, until the sale of its
retail production platform in May 1998, originated mortgage loans through its
retail division. The Company also purchases and originates subprime mortgage
loans and commercial mortgage loans and leases small-ticket equipment items.
A summary of production by source for the periods indicated is set forth
below:
10
<PAGE> 11
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
Agency-Eligible Loan Production:
Correspondent $2,428,021 $2,895,400
Wholesale 711,822 734,860
Retail - 187,881
----------------- ------------------
Total Agency-Eligible Loan Production 3,139,843 3,818,141
Subprime Loan Production 184,111 105,986
Commercial Mortgage (for Investors and Conduits) Loan
Production 150,152 192,515
Lease Production 20,525 12,840
----------------- ------------------
Total Mortgage Loan and Lease Production $3,494,631 $4,129,482
================= ==================
</TABLE>
Initially, the Company was focused exclusively on purchasing
agency-eligible mortgage loans through its correspondents. In order to diversify
its sources of residential loan volume, the Company started a wholesale
operation in 1994, a retail operation in 1995 and a subprime division in 1997.
Management anticipates that its higher margin wholesale and subprime production
will continue to account for an increasing percentage of total residential
mortgage loan production as those divisions are expanded more rapidly than
correspondent operations. In order to further diversify its sources of
production and revenue, the Company acquired Resource Bancshares Corporation
(RBC) in December 1997. Through RBC, the Company originates small-ticket
commercial equipment leases and commercial mortgage loans. These two new sources
of production accounted for approximately 5% of the Company's total first
quarter production for both 1999 and 1998.
A summary of key information relevant to industry residential mortgage loan
production activity is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
U. S. 1-4 Family Mortgage Originations Statistics (1):
U. S. 1-4 Family Mortgage Originations $ 359,000,000 $ 310,000,000
Adjustable Rate Mortgage Market Share 12.00% 13.00%
Estimated Fixed Rate Mortgage Originations $ 316,000,000 $ 270,000,000
Company Information:
Agency-Eligible Loan Production $ 3,323,954 $ 3,924,127
Estimated Company Market Share 0.93% 1.27%
</TABLE>
(1) Source: Mortgage Bankers Association of America, Economics Department.
The Company's total residential mortgage production decreased by 15% to
$3.3 billion for the first quarter of 1999 from $3.9 billion for the first
quarter of 1998. This decrease is primarily due to the overall level of
competition in the marketplace among residential mortgage originators.
Correspondent Loan Production
The Company purchases closed mortgage loans through its network of approved
correspondent lenders. Correspondents are primarily mortgage lenders, larger
mortgage brokers and smaller savings and loan associations and commercial banks
that have met the Company's approval requirements.
11
<PAGE> 12
The Company continues to emphasize correspondent loan production as its
basic business focus because of the lower fixed expenses and capital investment
required of the Company. That is, the Company has developed a cost structure
that is more directly variable with loan production because the correspondent
incurs most of the fixed costs of operating and maintaining branch offices and
of identifying and interacting directly with loan applicants.
A summary of key information relevant to the Company's correspondent
residential loan production activities is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------------------
1999 1998
---------------------- ----------------------
<S> <C> <C>
Correspondent Loan Production $2,428,021 $ 2,895,400
Estimated Correspondent Market Share (1) 0.68% 0.93%
Approved Correspondents 851 900
Correspondent Division Expenses $ 17,062 $ 14,739
</TABLE>
(1) Source: Mortgage Bankers Association of America, Economics Department.
The Company's correspondent loan production decreased by 16% to $2.4
billion for the first quarter of 1999 from $2.9 billion for the first quarter of
1998. This decrease in production is primarily due to the current level of
competition in the market place. The number of approved correspondent lenders
decreased 5% from quarter to quarter as the Company focused on maintenance of
those correspondent relationships most compatible with the Company's overall
business strategies.
Wholesale Loan Production
The wholesale division receives loan applications through brokers,
underwrites the loans, funds the loans at closing and prepares all closing
documentation. The wholesale branches handle all shipping and follow-up
procedures on loans. Typically mortgage brokers are responsible for taking
applications and accumulating the information precedent to the Company's
processing of the loans. Although the establishment of wholesale branch offices
involves the incurrence of fixed expenses associated with maintaining those
offices, wholesale operations also provide for higher profit margins than
correspondent loan production. Additionally, each branch office can serve a
relatively sizable geographic area by establishing relationships with large
numbers of independent mortgage loan brokers who bear much of the cost of
identifying and interacting directly with loan applicants. A summary of key
information relevant to the Company's wholesale production activities is set
forth below:
12
<PAGE> 13
<TABLE>
<CAPTION>
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
-------------- ------------
<S> <C> <C>
Wholesale Loan Production $711,822 $734,860
Estimated Wholesale Market Share (1) 0.20% 0.24%
Wholesale Division Direct Operating Expenses $ 4,557 $ 3,797
Approved Brokers 3,401 3,090
Number of Branches 15 15
Number of Employees 174 146
</TABLE>
(1) Source: Mortgage Bankers Association of America, Economics Department.
The wholesale loan production decreased 3% ($23 million) from $734.9
million for the first quarter of 1998 to $711.8 million for the first quarter of
1999 primarily as a result of increased competition in the marketplace.
Wholesale division operating expenses as a percentage of production increased
from 52 basis points in the first quarter of 1998 to 64 basis points in the
first quarter of 1999 primarily as a result of the increase in costs associated
with production. While wholesale production decreased slightly, the increase in
operating expenses for the wholesale division was primarily a result of an
increase in fixed costs associated with wholesale production.
Strategically, management anticipates focusing over the longer term on
continued expansion of its wholesale presence nationwide due to the relatively
higher margins attributable to this channel. Management anticipates that the
wholesale division will continue to account for an increasing percentage of the
Company's total loan production.
Retail Loan Production
Effective May 1, 1998, the Company sold its retail production franchise to
CFS Bank. Retail loan production and retail divisional direct operating expenses
for the quarter ended March 31, 1998 were $87.9 million and $3.9 million,
respectively.
Subprime Loan Production
In 1997, the Company began its initial expansion into subprime lending
activities. The Company does subprime business under the name of its
wholly-owned subsidiary, Meritage Mortgage Corporation. Management anticipates
continuing near term increases in subprime production volumes as the Company
begins to offer select subprime loan products through its existing nationwide
correspondent production channel.
A summary of key information relevant to the Company's subprime production
activities is set forth below:
13
<PAGE> 14
<TABLE>
<CAPTION>
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Subprime Loan Production $ 184,111 $105,986
Estimated Subprime Market Share (1) 0.51% 0.34%
Subprime Division Direct Operating Expenses $ 5,955 $ 4,623
Number of Brokers 1,831 794
Number of Employees 316 173
Number of Branches 19 17
</TABLE>
(1) Source: Mortgage Bankers Association of America, Economics Department.
Subprime loan production increased by 74% to $184.1 million for the first
quarter of 1999 as compared to $106.0 million during the first quarter of 1998
as the Company has expanded its operations. Between March 31, 1998 and March 31,
1999 the Company opened two new subprime branches and increased the number of
its wholesale brokers by 1,037.
Commercial Mortgage Production
The Company's subsidiary, Laureate Capital Corp.(Laureate), originates
commercial mortgage loans for various insurance companies and other investors.
Commercial mortgage loans are generally originated in the name of the investor
and, in most instances, Laureate retains the right to service the loans under a
servicing agreement. A summary of key information relevant to the Company's
commercial mortgage production activities is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Commercial Mortgage Production $150,152 $192,515
Commercial Mortgage Division Direct Operating Expenses $ 2,895 $ 2,450
Number of Branches 13 10
Number of Employees 83 70
</TABLE>
Lease Production
The Company's leasing division, Republic Leasing, originates and services
small-ticket commercial equipment leases. Substantially all of Republic
Leasing's lease receivables are acquired from independent brokers who operate
throughout the continental United States. A summary of key information relevant
to the Company's lease production activities is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
------------- -----------
<S> <C> <C>
Lease Production $ 20,525 $12,840
Lease Division Direct Operating Expenses $ 1,497 $1,220
Number of Brokers 232 207
Number of Employees 65 61
</TABLE>
14
<PAGE> 15
SERVICING
Agency-Eligible Mortgage Servicing
Agency-eligible mortgage servicing includes collecting and remitting
mortgage loan payments, accounting for principal and interest, holding escrow
funds for payment of mortgage-related expenses such as taxes and insurance,
making advances to cover delinquent payments, making inspections as required of
the mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults and
generally administering mortgage loans.
The Company is somewhat unique in that its strategy is to sell
substantially all of its produced agency-eligible mortgage servicing rights to
other approved servicers. In that regard, the Company believes it is the largest
national supplier of agency-eligible servicing rights to the still-consolidating
mega-servicers. Typically, the Company sells its agency-eligible mortgage
servicing rights within 90 to 180 days of purchase or origination. However, for
strategic reasons, the Company also strives to maintain a servicing portfolio
whose size is determined by reference to the Company's cash operating costs
which, in turn, are largely determined by the size of its loan production
platform. By continuing to focus on the low-cost correspondent and wholesale
production channels, the Company is able to minimize the cash operating costs of
its loan production platform and thus the strategically required size of its
agency-eligible loan servicing operation.
A summary of key information relevant to the Company's agency-eligible loan
servicing activities is set forth below:
<TABLE>
<CAPTION>
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Underlying Unpaid Principal Balances:
Beginning Balance * $ 9,865,100 $ 7,125,222
Agency-Eligible Loan Production (net of
servicing-released production) * 3,133,563 4,242,687
Net Change in Work-in-Progress* 190,242 (404,655)
Sales of Servicing* (3,003,253) (2,535,016)
Paid-In-Full Loans* (365,729) (366,636)
Amortization, Curtailments and Other, net* (84,169) (81,421)
------------ ------------
Ending Balance* 9,735,754 7,980,181
Subservicing Ending Balance 3,272,754 2,989,622
------------ ------------
Total Underlying Unpaid Principal Balances $ 13,008,508 $ 10,969,803
============ ============
</TABLE>
* These numbers and statistics apply to the Company's owned agency-eligible
servicing portfolio and therefore exclude the subservicing portfolio.
Of the $9.7 billion and $8.0 billion unpaid principal balance at March 31,
1999 and 1998, approximately $5.8 billion and $4.2 billion, respectively, are
classified as available for sale, while $3.9 billion and $3.8 billion,
respectively, are classified as held for sale.
15
<PAGE> 16
A summary of agency-eligible servicing statistics follows:
<TABLE>
<CAPTION>
($ in thousands) At or For the Quarter Ended March 31,
------------------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Average Underlying Unpaid Principal Balances (including
subservicing) $13,456,746 $10,346,482
Weighted Average Note Rate* 7.21% 7.51%
Weighted Average Servicing Fee* 0.44% 0.40%
Delinquency (30+ days) Including Bankruptcies and
Foreclosures* 1.82% 2.49%
Number of Servicing Division Employees 157 152
</TABLE>
* These numbers and statistics apply to the Company's owned agency-eligible
servicing portfolio and therefore exclude the subservicing portfolio.
The $3.1 billion, or 30%, increase in the average underlying unpaid
principal balance of agency-eligible mortgage loans being serviced and
subserviced for the first quarter of 1999 as compared to the first quarter of
1998 is primarily related to the Company's increased loan production volumes
during the latter part of 1998. Since the Company generally sells servicing
rights related to the agency-eligible loans it produces within 90 to 180 days of
purchase or origination, increased production volumes generally result in a
higher volume of mortgage servicing rights held in inventory pending sale. In
addition during 1998 and the first quarter of 1999, the Company decided to
retain a portion of the servicing rights associated with its production.
Commercial Mortgage Servicing
Laureate originates commercial mortgage loans for investors and in most
cases, Laureate retains the right to service the loans. A summary of key
information relevant to the Company's commercial mortgage servicing activities
is set forth below:
<TABLE>
<CAPTION>
At or for the Quarter Ended March 31,
----------------------------------------------
($ in thousands) 1999 1998
-------------------- --------------------
<S> <C> <C>
Commercial Mortgage Loan Servicing Portfolio $ 3,437,851 $ 2,832,205
Weighted Average Note Rate 8.02% 8.33%
Delinquencies (30+ Days) 0.43% 0.43%
</TABLE>
Lease Servicing
The Company's leasing division services leases that are owned by the
Company and also services leases for investors. A summary of key information
relevant to the Company's lease servicing activity is set forth below:
16
<PAGE> 17
<TABLE>
<CAPTION>
At or for the Quarter Ended March 31,
---------------------------------------------
($ in thousands) 1999 1998
------------------- --------------------
<S> <C> <C>
Owned Lease Servicing Portfolio $ 110,161 $ 56,261
Serviced For Investors Servicing Portfolio 30,366 63,963
------------------- --------------------
Total Managed Lease Servicing Portfolio $ 140,527 $120,224
=================== ====================
Weighted Average Net Yield For Managed
Lease Servicing Portfolio 10.79% 10.70%
Delinquencies (30+ Days) Managed Lease
Servicing Portfolio 1.87% 3.00%
</TABLE>
Consolidated Coverage Ratios
A summary of the Company's consolidated ratios of servicing fees and
interest income for owned leases to cash operating expenses net of amortization
and depreciation follows:
<TABLE>
<CAPTION>
($ in thousands) At or for the Quarter Ended March 31,
-------------------------------------
1999 1998
---------- --------
<S> <C> <C>
Total Company Servicing Fees $ 12,998 $ 9,303
Net Interest Income from Owned Leases 1,645 946
-------- --------
Total Servicing Fees and Interest from Owned Leases $ 14,643 $ 10,249
-------- --------
Total Company Operating Expenses $ 43,530 $ 38,915
Total Company Amortization and Depreciation (10,538) (6,984)
-------- --------
Total Company Operating Expenses, Net of
Amortization and Depreciation $ 32,992 $ 31,931
-------- --------
Coverage Ratio 44% 32%
======== ========
</TABLE>
The Company's coverage ratios for the first quarter of 1999 and 1998,
at 44% and 32%, respectively, were lower than the Company's target level of
between 50% and 80%. Effective May 1, 1998, the Company sold its retail
production franchise, which accounted for $3.9 million of the Company's cash
operating expenses for the first quarter of 1998. Without retail division
operating expenses for the first quarter of 1998, the Company's coverage ratio
would have been 37%. As market conditions permit, management would expect to
bring this ratio back in line with the stated objective.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1998
Summary by Operating Division
Net income per common share on a diluted basis for the first quarter of
1999 was $0.50 as compared to $0.41 for the first quarter of 1998. This 22%
increase in net income per common share exceeded the 17% increase in net income
due primarily to the impact of the Company's stock repurchase program which
reduced the number of weighted average shares outstanding across comparative
periods. Following is a summary of the allocated revenues and expenses for each
of the Company's operating divisions for the three months ended March 31, 1999
and 1998, respectively:
17
<PAGE> 18
<TABLE>
<CAPTION>
Residential
---------------------
($ in thousands) Mortgage Production
--------------------- Agency-
Agency- Eligible Commercial
For the Quarter Ended March 31, 1999* Eligible Subprime Servicing Mortgage Leasing Other Consolidated
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 3,589 $3,473 $(1,389) $ 94 $1,645 $ 62 $ 7,474
Net gain on sale of mortgage loans 33,193 2,857 1,239 37,289
Gain on sale of mortgage servicing
rights 2,998 2,998
Servicing fees 11,703 975 161 159 12,998
Other income 734 (932) 161 11 151 4 129
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Total revenues 37,516 5,398 13,473 2,319 1,957 225 60,888
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Salary and employee benefits 13,701 3,301 898 1,738 640 219 20,497
Occupancy expense 2,064 583 107 263 104 52 3,173
Amortization and provision for
impairment of mortgage
servicing rights 8,433 464 8,897
General and administrative expenses 5,854 2,071 1,778 430 753 77 10,963
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Total expenses 21,619 5,955 11,216 2,895 1,497 348 43,530
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Income before income taxes 15,897 (557) 2,257 (576) 460 (123) 17,358
Income tax expense (5,649) 197 (802) 219 (192) 30 (6,197)
- ------------------------------------- -------- ----------- ---------- ------------ --------- --------- ------------
Net income $10,248 $ (360) $ 1,455 $ (357) $ 268 $ (93) $ 11,161
======== =========== ========== ============ ========= ========= ============
Residential
--------------------------------
($ in thousands) Mortgage Production
-------------------- Agency -
Agency - Eligible Commercial
For the Quarter Ended March 31, 1998* Eligible Subprime Servicing Mortgage Leasing Other Consolidated
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Net interest income $ 1,736 $ 1,347 $ 129 $ 946 $ 134 $ 4,292
Net gain on sale of mortgage loans 31,041 6,171 1,962 39,174
Gain on sale of mortgage servicing
rights $ 628 628
Servicing fees 8,120 915 268 9,303
Other income 87 395 93 2 219 178 974
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Total revenues 32,864 7,913 8,841 3,008 1,433 312 54,371
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Salary and employee benefits 14,341 3,299 828 1,521 553 172 20,714
Occupancy expense 1,972 372 120 186 80 50 2,780
Amortization of mortgage servicing
rights 5,302 327 5,629
General and administrative expenses 6,142 952 1,520 416 587 175 9,792
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Total expenses 22,455 4,623 7,770 2,450 1,220 397 38,915
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Income before income taxes 10,409 3,290 1,071 558 213 (85) 15,456
Income tax expense (3,957) (1,251) (407) (212) (81) 33 (5,875)
- ------------------------------------- --------- ---------- ---------- ------------ --------- --------- ------------
Net income $ 6,452 $ 2,039 $ 664 $ 346 $ 132 (52) $ 9,581
========= ========== ========== ============ ========= ========= ============
</TABLE>
*Revenues and expenses have been allocated on a direct basis to the extent
possible. Corporate overhead expenses have been allocated to agency-eligible
mortgage production. Management believes that these and all other revenues and
expenses have been allocated to the respective divisions on a reasonable basis.
18
<PAGE> 19
Agency-Eligible Mortgage Operations
Following is a comparison of the revenues and expenses allocated to the
Company's agency-eligible mortgage production operations.
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
-------------------------------
($ in thousands) 1999 1998
---------- ----------
<S> <C> <C>
Net interest income $ 3,589 $ 1,736
Net gain on sale of mortgage loans 33,193 31,041
Other income 734 87
---------- ----------
Total production revenue 37,516 32,864
---------- ----------
Salary and employee benefits 13,701 14,341
Occupancy expense 2,064 1,972
General and administrative expenses 5,854 6,142
---------- ----------
Total production expenses 21,619 22,455
---------- ----------
Net pre-tax production margin $ 15,897 $ 10,409
---------- ----------
Production $3,139,843 $3,818,141
Pool delivery 3,418,299 3,319,382
Total production revenue to pool delivery 110 bps 99 bps
Total production expenses to production 69 bps 59 bps
========== ==========
Net pre-tax production margin 41 bps 40 bps
========== ==========
</TABLE>
Summary
The production revenue to pool delivery ratio increased eleven basis
points, or 10%, for the first quarter of 1999 as compared to the first quarter
of 1998. Generally, net gain on sale of mortgage loans (97 basis points for 1999
versus 94 basis points for 1998) improved due to better overall execution into
the secondary markets. Also, net interest income increased from 5 basis points
in 1998 to 10 basis points in 1999 primarily as a result of the generally
steeper yield curve environment. The production expenses to production ratio
increased 10 basis points, or 17%, for the first quarter of 1999 as compared to
the first quarter of 1998. This corresponds with the 18% decrease in production
from quarter to quarter. As a consequence of the foregoing, the Company's net
agency-eligible pre-tax production margin improved 1 basis point, or 2%, to 41
basis points while in absolute dollars it increased $5.5 million, or 53%.
Net Interest Income
The following table analyzes net interest income allocated to the Company's
agency-eligible mortgage production activities in terms of rate and volume
variances of the interest spread (the difference between interest rates earned
on loans and mortgage-backed securities and interest rates paid on
interest-bearing sources of funds) for the quarter ended March 31, 1999 and
1998, respectively.
19
<PAGE> 20
<TABLE>
<CAPTION>
($ in thousands)
Variance
Average Volume Average Rate Interest Attributable to
- ---------------------------------------- ---------------------- -------------------
1999 1998 1999 1998 1999 1998 Variance Rate Volume
- ---------------------------------------- ----------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
Interest Income
---------------
Mortgages Held for Sale
and Mortgage-Backed
$1,052,324 $1,161,423 6.64% 6.59% Securities $17,456 $19,131 $(1,675) $ 122 $(1,797)
- ---------------------------------------- ----------------------------------------------------
Interest Expense
----------------
$ 435,572 $ 475,934 4.16% 4.64% Warehouse Line $ 4,463 $ 5,443 $ (980) $ (518) $ (462)
603,776 624,057 5.16% 5.84% Gestation Line 7,677 8,984 (1,307) (1,014) (293)
127,750 90,422 5.91% 6.69% Servicing Secured Line 1,861 1,491 370 (247) 617
28,233 36,203 5.21% 5.90% Servicing Receivables Line 363 527 (164) (48) (116)
8,436 6,538 8.27% 8.18% Other Borrowings 172 132 40 2 38
Facility Fees & Other
Charges 720 818 (98) (98)
- ---------------------------------------- ----------------------------------------------------
$1,203,767 $1,233,154 5.14% 5.72% Total Interest Expense $15,256 $17,395 $(2,139) $(1,825) $ (314)
- ---------------------------------------- ----------------------------------------------------
Net Interest Income
Before Interdivisional
1.50% 0.87% Allocations $ 2,200 $ 1,736 $ 464 $ 1,947 $(1,483)
================== ----------------------==============================
Allocation to
Agency-Eligible
Servicing Division 1,389 N/A
----------------------
Net Interest Income $ 3,589 $ 1,736
======================
</TABLE>
Net interest income from agency-eligible production increased 27% to $2.2
million for the first quarter of 1999 compared to $1.7 million for the first
quarter of 1998. The 63 basis point increase in the interest-rate spread was
primarily the result of the steeper yield curve environment in the first quarter
of 1999 compared to the first quarter of 1998. The Company's mortgages and
mortgage-backed securities are generally sold and replaced within 30 to 35 days.
Accordingly, the Company generally borrows at rates based upon short-term
indices, while its asset yields are primarily based upon long-term mortgage
rates.
Net Gain on Sale of Agency-eligible Mortgage Loans
A reconciliation of gain on sale of agency-eligible mortgage loans for the
periods indicated follows:
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Gross proceeds on sales of mortgage loans $ 3,429,942 $ 3,363,265
Initial unadjusted acquisition cost of mortgage loans sold, net
of hedge results 3,426,577 3,361,895
----------- -----------
Unadjusted gain on sale of mortgage loans 3,365 1,370
Loan origination and correspondent program administrative fees 8,338 7,822
----------- -----------
Unadjusted aggregate margin 11,703 9,192
Acquisition basis allocated to mortgage servicing rights
(SFAS No. 125) 22,349 20,640
Net change in deferred administrative fees (859) 1,209
----------- -----------
Net gain on sale of agency-eligible mortgage loans $ 33,193 $ 31,041
=========== ===========
</TABLE>
Net gain on sale of agency-eligible mortgage loans increased $2.2 million
(7%) from $31.0 million for the first quarter of 1998 to $33.2 million for the
first quarter of 1999. The increase is primarily due to a 2% or $64.7 million
increase in the volume of loans sold and better overall execution into the
secondary markets.
20
<PAGE> 21
Other Income
In November 1998, the Company formed a captive insurance company, MG
Reinsurance Company (MG Reinsurance). MG Reinsurance is licensed as a property
and casualty insurer and operates as a monoline captive insurance company
assuming reinsurance for agency-eligible mortgage loans initially purchased or
produced by the Company. During the first quarter of 1999, the Company
recognized premium and investment income of approximately $0.7 million that has
been included as other income in the agency-eligible production segment.
Subprime Mortgage Operations
Following is an analysis of the revenues and expenses allocated to the
Company's subprime mortgage production operations.
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
---------------------------
($ in thousands) 1999 1998
--------- ---------
<S> <C> <C>
Net interest income $ 3,473 $ 1,347
Net gain on sale of mortgage loans 2,857 6,171
Other income (932) 395
--------- ---------
Total production revenue 5,398 7,913
--------- ---------
Salary and employee benefits 3,301 3,299
Occupancy expense 583 372
General and administrative expenses 2,071 952
--------- ---------
Total production expenses 5,955 4,623
--------- ---------
Net pre-tax production margin $ (557) $ 3,290
========= =========
Production $ 184,111 $ 105,986
Whole loan sales and securitizations 98,624 86,840
Total production revenue to whole loan sales and securitizations 547 bps 911 bps
Total production expenses to production 323 bps 436 bps
--------- ---------
Net pre-tax production margin 224 bps 475 bps
========= =========
</TABLE>
Summary
During the first quarter of 1999, subprime production volume of $184.1
exceeded whole loan sales of $98.6 million by approximately $85.5 million.
There were no securitization transactions during the quarter. At March 31, 1999,
the Company had unsold subprime mortgage loans of $182.3 million as compared to
$63.5 million at March 31, 1998. Overall, the Company operated during the first
quarter of 1999 at a 2.24% pre-tax subprime production margin.
Net Interest Income
The following table analyzes net interest income allocated to the Company's
subprime mortgage production activities in terms of rate and volume variances of
the interest spread (the difference between interest rates earned on loans and
residual certificates and interest rates paid on interest-bearing sources of
funds) for the quarter ended March 31, 1999 and 1998, respectively.
21
<PAGE> 22
<TABLE>
<CAPTION>
($ in thousands)
Variance
Average Volume Average Rate Interest Attributable to
- ----------------------------------------- --------------------- ---------------------
1999 1998 1999 1998 1999 1998 Variance Rate Volume
- ----------------------------------------- ----------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
Interest Income
---------------
Mortgages Held for Sale
and Residual
$210,424 $ 83,971 10.12% 9.50% Certificates $ 5,326 $ 1,994 $3,332 $ 789 $2,543
- ----------------------------------------- ----------------------------------------------------
Interest Expense
----------------
$147,765 $ 43,967 5.09% 5.97% Total Interest Expense $ 1,853 $ 647 $1,206 $ (35) 1,241
- ----------------------------------------- ----------------------------------------------------
5.03% 3.53% Net Interest Income $ 3,473 $ 1,347 $2,126 $ 824 $1,302
================== ====================================================
</TABLE>
Net interest income from subprime products increased 158% to $3.5 million
for the first quarter of 1999 as compared to $1.3 million for the first quarter
of 1998. This was primarily the result of the increase in subprime loan
production volume and the generally steeper yield curve environment and an
increase in accretion income from $0.7 million for the quarter ended March 31,
1998 to $1.5 million for the quarter ended March 31, 1999.
Net Gain on Securitization and Sale of Subprime Mortgage Loans
A reconciliation of the gain on securitization of subprime mortgage loans
for the periods indicated follows:
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Gross proceeds on securitization of subprime mortgage loans N/A $ 24,867
Initial acquisition cost of subprime mortgage loans securitized, net
of fees N/A 25,376
--------------- ---------------
Unadjusted loss on securitization of subprime mortgage loans N/A (509)
Initial capitalization of residual certificates N/A 2,187
Net change in deferred administrative fees N/A
--------------- ---------------
Net gain on securitization of subprime mortgage loans N/A $ 1,678
=============== ===============
</TABLE>
During the first quarter of 1999, no loans were delivered into securities.
The Company assesses the fair value of residual certificates quarterly,
based on an independent third party valuation and other factors. This valuation
is based on the discounted cash flows expected to be available to the holder of
the residual certificates. Significant assumptions used at March 31, 1999 for
all residual certificates then held by the Company include a discount rate of
13%, a constant default rate of 3% and a loss severity rate of 25%, and ramping
periods are based on prepayment penalty periods and adjustable rate mortgage
first reset dates. Constant prepayment rate assumptions specific to the
individual certificates for purposes of the March 31, 1999 valuations are set
forth below:
<TABLE>
<CAPTION>
1997-1 1997-2 1998-1 1998-2 OTHER
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Prepayment Speeds
Fixed rate mortgages 32% CPR 30% CPR 28% CPR 28% CPR 32% CPR
Adjustable rate mortgages 32% CPR 30% CPR 28% CPR 28% CPR 24% CPR
</TABLE>
The assumptions used in the independent third party valuation above are
estimated based on current conditions for similar instruments that are subject
to prepayment and credit risks. Other factors evaluated in the determination of
fair value include credit and collateral quality of the underlying loans,
current economic conditions and various fees and costs (such as prepayment
penalties) associated with
22
<PAGE> 23
ownership of the residual certificate including actual credit history of the
individual residual certificates. Although the Company believes that the fair
values of its residual certificates are reasonable given current market
conditions, the assumptions used are estimates and actual experience may vary
from these estimates. Differences in the actual prepayment speed and loss
experience from the assumptions used, could have a significant effect on the
fair value of the residual certificates.
As summarized in the following analysis, the recorded residual values imply
that the Company's securitizations are valued at 1.41 times the implied excess
yield at March 31, 1999, as compared to the 1.63 multiple implied at December
31, 1998. The table below represents balances as of February 28, 1999, unless
otherwise noted.
<TABLE>
<CAPTION>
($ in thousands) Securitizations
------------------------------------------------
1997-1 1997-2 1998-1 1998-2 Subtotal Other Total
--------- ----------- ----------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Residual Certificates $ 7,895 $ 9,056 $ 10,663 $ 13,592 $ 41,206 $ 3,418 $ 44,624
Bonds $47,620 * $66,942 * $114,478 * $166,945 * $395,985 $39,437 * $ 435,422
--------- ----------- ----------- ---------- ---------- ----------- -------------
Subtotal $55,515 $75,998 $125,141 $180,537 $437,191 $42,855 $ 480,046
Unpaid Principal Balance $52,478 * $71,796 * $117,689 * $168,000 * $409,963 $42,706 * $ 452,669
--------- ----------- ----------- ---------- ---------- ----------- -------------
Implied Price 105.79 105.85 106.33 107.46 106.64 100.35 106.05
--------- ----------- ----------- ---------- ---------- ----------- -------------
Collateral Yield 10.41 10.63 9.77 9.71 9.98 11.53 10.10
Collateral Equivalent
Securitization Costs (0.72) (0.65) (0.60) (0.47) (0.57) (0.50) (0.57)
Collateral Equivalent
Bond Rate (4.70) (4.87) (4.98) (5.55) (5.16) (6.20) (5.24)
--------- ----------- ----------- ---------- ---------- ----------- -------------
Implied Collateral
Equivalent Excess Yield 4.99 5.11 4.19 3.69 4.25 4.83 4.29
--------- ----------- ----------- ---------- ---------- ----------- -------------
Implied Premium Above Par 5.79 5.85 6.33 7.46 6.64 0.35 6.05
Implied Collateral
Equivalent Excess Yield 4.99 5.11 4.19 3.69 4.25 4.83 4.29
--------- ----------- ----------- ---------- ---------- ----------- -------------
Multiple 1.16 x 1.14 x 1.51 x 2.02 x 1.56 x 0.07 x 1.41 x
--------- ----------- ----------- ---------- ---------- ----------- -------------
</TABLE>
* Amounts were based upon trustee statements dated March 25, 1999 that
covered the period ended February 28, 1999.
The Company sold subprime mortgage loans on a whole loan basis during
the first quarters of 1999 and 1998. Whole loans are generally sold without
recourse to third parties with the gain or loss being calculated based on the
difference between the carrying value of the loans sold and the gross proceeds
received from the purchaser less expenses. Generally, no interest in these loans
is retained by the Company.
A reconciliation of the gain on subprime mortgage whole loan sales for the
periods indicated follows:
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Gross proceeds on whole loan sales of subprime mortgage loans $ 102,050 $ 65,957
Initial acquisition cost of subprime mortgage loans sold, net of fees 98,624 61,464
--------- ---------
Unadjusted gain on whole loan sales of subprime mortgage loans 3,426 4,493
Net change in deferred administrative fees (569) N/A
--------- ---------
Net gain on whole loan sales of subprime mortgage loans $ 2,857 $ 4,493
========= =========
</TABLE>
23
<PAGE> 24
The $1.6 million decrease in the net gain on whole loan sales of subprime
mortgage loans from the first quarter 1998 gain of $4.5 million to $2.9 million
reported for the first quarter of 1999 is primarily due to compressed margins in
the subprime market during the first quarter of 1999. Also, in response to the
growth in the subprime division, management reassessed its application of
estimates related to Statement of Financial Accounting Standard No. 91,
"Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases" in the third quarter of
1998. This resulted in a $0.6 million reduction in the net gain on whole loan
sales of subprime mortgage loans in the first quarter of 1999. Had this
application occurred at March 31, 1998 approximately $0.6 million in
administrative fees also would have been deferred during that quarter.
A summary of key information relevant to the subprime residual assets is
set forth below:
<TABLE>
<CAPTION>
($ in thousands) Securitizations
-------------------------------------------------------
1997-1 1997-2 1998-1 1998-2 Other Total
----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Residual Certificates:
Balance at December 31, 1998 $ 7,997 $ 9,702 $ 10,815 $ 12,569 $ 4,700 $ 45,783
Accretion income 292 318 315 362 179 1,466
Mark to market 27 (109) (467) 661 (1,461) (1,349)
Cash Flow (421) (855) -- -- -- (1,276)
-------- -------- -------- -------- -------- --------
Balance at March 31, 1999 $ 7,895 $ 9,056 $ 10,663 $ 13,592 $ 3,418 $ 44,624
======== ======== ======== ======== ======== ========
</TABLE>
Other Income
The Company generally retains residual certificates in connection with the
securitization of subprime loans. These residual certificates are adjusted to
approximate market value each quarter. For the quarters ended March 31, 1999 and
March 31, 1998, respectively, mark-to-market loss on residuals was approximately
$1.3 million and $0.4 million, respectively. This amount is reflected as other
income (loss) within the subprime division.
Agency-Eligible Mortgage Servicing
Following is a summary of the revenues and expenses allocated to the
Company's agency-eligible mortgage servicing operations for the quarters ended
March 31, 1999 and 1998:
24
<PAGE> 25
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
---------------------------------
($ in thousands) 1999 1998
------------ ------------
<S> <C> <C>
Net interest expense $ (1,389) $ --
Loan servicing fees 11,703 8,120
Other income 161 93
------------ ------------
Servicing revenues 10,475 8,213
------------ ------------
Salary and employee benefits 898 828
Occupancy expense 107 120
Amortization and provision for impairment of mortgage
servicing rights 8,433 5,302
General and administrative expenses 1,778 1,520
------------ ------------
Total loan servicing expenses 11,216 7,770
------------ ------------
Net pre-tax servicing margin (741) 443
Gain on sale of mortgage servicing rights 2,998 628
------------ ------------
Net pre-tax servicing contribution $ 2,257 $ 1,071
============ ============
Average servicing portfolio $ 10,318,105 $ 7,796,911
Servicing sold 3,003,253 2,535,016
Net pre-tax servicing margin to average servicing portfolio (3)bps 2 bps
Gain on sale of servicing to servicing sold 10 bps 2 bps
</TABLE>
Summary
The ratio of net pre-tax servicing margin to the average servicing
portfolio declined five basis points primarily due to the Company beginning
during the first quarter of 1999 to allocate net interest expense to the
agency-eligible servicing division. Had the $1.4 million in interest expense not
been allocated to the agency-eligible servicing division in the first quarter of
1999, the net pre-tax servicing margin to average servicing portfolio would have
been 3 basis points, a slight improvement over the 1998 margin. The 8 basis
point increase in the gain on sale of servicing sold is primarily attributed to
better execution of servicing sales in the marketplace. Loan servicing fees were
$11.7 million for the first quarter of 1999, compared to $8.1 million for the
first quarter of 1998, an increase of 44%. This increase is primarily related to
an increase in the average aggregate underlying unpaid principal balance of
mortgage loans serviced to $10.3 billion during the first quarter of 1999 from
$7.8 billion during the first quarter of 1998, an increase of 32%. Similarly,
amortization and provision for impairment of mortgage servicing rights also
increased to $8.4 million during the first quarter of 1999 from $5.3 million
during the first quarter of 1998, an increase of 59%. The increase in
amortization is primarily attributable to the growth in the average balance of
the mortgage loans serviced.
Given current market conditions, management continually assesses market
prepay trends and adjusts amortization accordingly. Management believes that the
value of mortgage servicing rights are reasonable in light of current market
conditions. However, there can be no guarantee that market conditions will not
change such that mortgage servicing right valuations will require additional
amortization or impairment charges.
25
<PAGE> 26
Net Interest Expense
During the first quarter of 1999, the Company began to allocate interest
expense to the agency-eligible servicing division. The net interest expense is
comprised of benefits from escrow accounts of $2.0 million that is offset by
$3.4 million in interest expense.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage servicing
rights for the periods indicated follows:
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Underlying unpaid principal balances of agency-eligible
mortgage loans on which servicing rights were sold
during the period $ 3,003,253 $ 2,535,016
=========== ===========
Gross proceeds from sales of mortgage servicing rights $ 78,888 $ 56,367
Initial acquisition basis, net of amortization and hedge results 56,942 43,031
----------- -----------
Unadjusted gain on sale of mortgage servicing rights 21,946 13,336
Acquisition basis allocated from mortgage loans, net of
amortization (SFAS No. 125) (18,948) (12,708)
----------- -----------
Gain on sale of mortgage servicing rights $ 2,998 $ 628
=========== ===========
</TABLE>
Gain on sale of mortgage servicing rights increased $2.4 million (377%)
from $0.6 million for the first quarter of 1998 to $3.0 million for the first
quarter of 1999. The increase in the gain on sale of mortgage servicing rights
is primarily attributable to the increase in the volume sold and to rising
rates which benefited the current quarter's execution of servicing sales into
the secondary markets.
26
<PAGE> 27
Commercial Mortgage Operations
Following is a summary of the revenues and expenses allocated to the
Company's commercial mortgage production operations.
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
-------------------------------
($ in thousands) 1999 1998
----------- -----------
<S> <C> <C>
Net interest income $ 94 $ 129
Net gain on sale of mortgage loans 1,239 1,962
Other income 11 2
----------- -----------
Total production revenue 1,344 2,093
----------- -----------
Salary and employee benefits 1,738 1,521
Occupancy expense 263 186
General and administrative expenses 430 416
----------- -----------
Total production expenses 2,431 2,123
----------- -----------
Net pre-tax production margin (1,087) (30)
----------- -----------
Servicing fees 975 915
Amortization of mortgage servicing rights 464 327
----------- -----------
Net pre-tax servicing margin 511 588
----------- -----------
Pre-tax income $ (576) $ 558
----------- -----------
Production $ 150,152 $ 192,515
Whole loan sales 165,262 192,515
Average commercial mortgage servicing portfolio 3,337,253 $ 2,793,242
Total production revenue to whole loan sales 81 bps 109 bps
Total production expenses to production 162 bps 110 bps
----------- -----------
Net pre-tax production margin (81) bps (1)bps
----------- -----------
Servicing fees to average commercial mortgage servicing portfolio 12 bps 13 bps
Amortization of mortgage servicing rights to average
commercial mortgage servicing portfolio 6 bps 5 bps
----------- -----------
Net pre-tax servicing margin 6 bps 8 bps
----------- -----------
</TABLE>
Laureate originates commercial mortgage loans for various insurance
companies and other investors, primarily in Alabama, Florida, Indiana, North
Carolina, Pennsylvania, South Carolina, Tennessee and Virginia. Substantially
all loans originated by Laureate have been originated in the name of the
investor, and in most cases, Laureate has retained the right to service the
loans under a servicing agreement with the investor. Most commercial mortgage
loan servicing agreements are short-term, and retention of the servicing
contract is dependent on maintaining the investor relationship.
27
<PAGE> 28
Net Gain on Sale of Commercial Mortgage Loans
A reconciliation of gain on sale of commercial mortgage loans for the
periods indicated follows:
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
-------- --------
<S> <C> <C>
Gross proceeds on sales of commercial mortgage loans $165,262 $192,515
Initial unadjusted acquisition cost of commercial mortgage
loans sold 165,262 192,515
-------- --------
Unadjusted gain on sale of commercial mortgage loans N/A N/A
Commercial mortgage and origination fees 849 1,665
-------- --------
Unadjusted aggregate margin 849 1,665
Initial acquisition cost allocated to basis in commercial
mortgage servicing rights (SFAS No. 125) 390 297
-------- --------
Net gain on sale of commercial mortgage loans $ 1,239 $ 1,962
======== ========
</TABLE>
The net gain on sale of commercial mortgage loans decreased $0.7 million
(37%) from $2.0 million for the first quarter of 1998 to $1.2 million for the
first quarter of 1999. The decrease is primarily attributable to compressed
margins on sales of commercial mortgage loans. The volume of commercial mortgage
loans sold also decreased 14% due to seasonal trends within market demands.
Leasing Operations
Following is a summary of the revenues and expenses allocated to the
Company's small-ticket equipment leasing operations for the periods indicated:
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
-------------------------------
($ in thousands) 1999 1998
--------- ---------
<S> <C> <C>
Net interest income $ 1,645 $ 946
Other income 151 219
--------- ---------
Leasing production revenue 1,796 1,165
--------- ---------
Salary and employee benefits 640 553
Occupancy expense 104 80
General and administrative expenses 753 587
--------- ---------
Total lease operating expenses 1,497 1,220
--------- ---------
Net pre-tax leasing production margin 299 (55)
--------- ---------
Servicing fees 161 268
--------- ---------
Net pre-tax leasing margin $ 460 $ 213
--------- ---------
Average owned leasing portfolio $ 104,355 $ 52,836
Average serviced leasing portfolio 33,967 68,086
--------- ---------
Average managed leasing portfolio $ 138,322 $ 120,922
========= =========
Leasing production revenue to average owned portfolio 688 bps 882 bps
Leasing operating expenses to average owned portfolio 574 bps 924 bps
--------- ---------
Net pre-tax leasing production margin 114 bps (42)bps
========= =========
Servicing fees to average serviced leasing portfolio 190 bps 157 bps
</TABLE>
28
<PAGE> 29
Substantially all of the Company's lease receivables are acquired from
independent brokers who operate throughout the continental United States and
referrals from independent banks. The Company has made an effort to increase the
owned portfolio. As it has increased its owned portfolio more cost efficiencies
have been achieved thereby increasing the net pre-tax leasing production margin.
Net Interest Income
Net interest income for the first quarter of 1999 was $1.6 million as
compared to $0.9 million for the first quarter of 1998. This is an annualized
net interest margin of 4.44% and 3.89% for the first quarter of 1999 and the
first quarter of 1998, respectively, based upon average lease receivables owned
of $104.4 million and $52.9 million, respectively, and average debt outstanding
of $85.6 and $29.9 million, respectively.
29
<PAGE> 30
FINANCIAL CONDITION
During first quarter 1999, the Company experienced a 21% decrease in the
volume of production originated and acquired compared to fourth quarter 1998.
Production decreased to $3.5 billion during first quarter 1999 from $4.4 billion
during fourth quarter 1998. The March 31, 1999, locked residential mortgage
application pipeline (mortgage loans not yet closed but for which the interest
rate has been locked) was approximately $0.8 billion and the application
pipeline (mortgage loans for which the interest rate has not yet been locked)
was approximately $0.6 billion.
Mortgage loans held-for-sale and mortgage-backed securities totaled $1.1
billion at March 31, 1999, versus $1.4 billion at December 31, 1998, a decrease
of 22%. The Company's servicing portfolio (exclusive of loans under subservicing
agreements) decreased to $9.7 billion at March 31, 1999, from $9.9 billion at
December 31, 1998.
Short-term borrowings, which are the Company's primary source of funds,
totaled $1.3 billion at March 31, 1999, compared to $1.6 billion at December 31,
1998, a decrease of 15%. The decrease in the balance outstanding at March 31,
1999, resulted from decreased funding requirements related to the decrease in
the balance of mortgage loans held-for-sale and mortgage-backed securities.
Other liabilities totaled $145 million as of March 31, 1999, compared to the
December 31, 1998 balance of $115 million, an increase of $30 million, or 27%.
The Company continues to face the same challenges as other companies within
the mortgage banking industry and as such is not immune from significant volume
declines precipitated by a rise in interest rates or other factors beyond the
Company's control.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash-flow requirement involves the funding of loan
production, which is met primarily through external borrowings. The Company has
entered into a 364-day, $670 million warehouse line of credit provided by a
syndicate of unaffiliated banks that expires in July 1999. The credit agreement
includes covenants requiring the Company to maintain (i) a minimum net worth of
$185 million, plus net income subsequent to June 30, 1998, 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 Ginnie Mae, FHA, VA, Fannie Mae and Freddie Mac mortgage loans and
(iv) a mortgage servicing rights portfolio with an underlying unpaid principal
balance of at least $4 billion. The provisions of the agreement also restrict
the Company's ability (i) to pay dividends which exceed 70% of the Company's net
income or (ii) to engage significantly in any type of business unrelated to the
mortgage banking business, the servicing of mortgage loans or equipment leasing.
Additionally, the Company entered into a $230 million, 364-day term
revolving credit facility with a syndicate of unaffiliated banks. An $80 million
portion of the revolver facility converts in July 1999, into a four-year term
loan. The facility is secured by the Company's servicing portfolio designated as
"available-for-sale." A $100 million portion of the revolver facility matures in
July 1999, and is secured by the Company's servicing portfolio designated as
"held-for-sale." A $50 million portion of the revolver facility matures in July
1999, 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.
30
<PAGE> 31
The Company has also entered into a $200 million, 364-day term subprime
revolving credit facility, which expires in July 1999. 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
March 31, 1999. 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.
RBMG Asset Management Company, Inc. (Asset Management Co.), a wholly-owned
subsidiary of the Company, and a bank entered into a master repurchase agreement
dated as of December 11, 1997, pursuant to the terms of which Asset Management
Co. is entitled from time to time to deliver eligible subprime mortgage loans in
an aggregate principal amount of up to $150 million to the bank. The term of
this repurchase agreement is 364 days. The master repurchase agreement has been
extended through May 31, 1999 and is in the process of being renewed.
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 note contains covenants
similar to those previously described.
Resource Bancshares Corporation (RBC), a wholly-owned subsidiary of the
Company, has a 364-day $100 million credit facility to provide financing for its
leasing portfolio. The warehouse credit agreement matures in July 1999 and
contains various covenants regarding characteristics of the collateral and the
performance of the leases originated and serviced by RBC and that require RBC to
maintain a minimum net worth of $40 million and a ratio of total liabilities to
net worth of no more than 10.0 to 1.0.
As of March 31, 1999 the Company's Board of Directors authorized the
repurchase of up to $40 million of the Company's common stock in either open
market transactions or in private or block trades. Decisions regarding the
amount and timing of repurchases will be made by management based upon market
conditions and other factors. The repurchase authority will enable the Company
to repurchase shares to meet the Company's obligations pursuant to existing
bonus, stock option, dividend reinvestment and employee stock purchase and ESOP
plans. The Company's primary objective is to offset the potentially dilutive
effect that option exercises and stock issuances under these plans might
otherwise have. Shares repurchased are maintained in the Company's treasury
account and are not retired. At March 31, 1999, there were 2,081,997 shares held
in the Company's treasury account at an average cost of $13.14 per share.
Divisional Analysis of Pre-Tax Funds Generated From Operations
The analyses which follow are included solely to assist investors in
obtaining a better understanding of the material elements of the Company's funds
generated by operations at a divisional level. It is intended as a supplement,
and not an alternative to, and should be read in conjunction with the
Consolidated Statement of Cash Flows which provides information concerning
elements of the Company's cash flows.
31
<PAGE> 32
Summary
On a combined divisional basis, during the first quarter of 1999 and 1998,
the Company generated approximately $25.4 million and $10.7 million,
respectively, of positive funds from operations.
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
-------- --------
<S> <C> <C>
Agency-eligible production $ 17,358 $ 2,753
Agency-eligible servicing 7,781 5,851
Subprime production 118 1,133
Commercial mortgage (410) 707
Leasing 536 294
-------- --------
$ 25,383 $ 10,738
======== ========
</TABLE>
Except for the commercial mortgage division, each of the Company's
divisions produced positive operating funds during both quarters. The combined
positive operating funds were invested to reduce indebtedness, pay dividends,
repurchase stock and purchase fixed assets.
Agency-eligible production
Generally, the Company purchases agency-eligible mortgage loans which are
resold with the rights to service the loans being retained by the Company. The
Company then separately sells a large percentage of the servicing rights so
produced. At the time loans are sold, current accounting principles require
capitalization of the estimated fair value of the retained mortgage servicing
rights. Accordingly, amounts reported as gains on sale of agency-eligible
mortgage loans may not represent positive funds flow to the extent that the
associated servicing rights are not sold for cash but are instead retained and
capitalized. In this context, the table below reconciles the major elements of
pre-tax operating funds flow allocable to agency-eligible production activities.
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
--------------------------------
1999 1998
-------- --------
<S> <C> <C>
Income before income taxes $ 15,897 $ 10,409
Deduct:
Net gain on sale of mortgage loans, as reported (33,193) (31,041)
Add back:
Cash gains on sale of mortgage loans 11,703 9,192
Cash gains on sale of mortgage servicing rights 21,946 13,336
Depreciation 1,005 857
-------- --------
$ 17,358 $ 2,753
======== ========
</TABLE>
Agency-eligible servicing
The Company's current strategy is to position itself as a national supplier
of agency-eligible servicing rights to the still consolidating mortgage
servicing industry. Accordingly, the Company generally sells a significant
percentage of its produced mortgage servicing rights to other approved servicers
under forward committed bulk purchase agreements. However, the Company maintains
a relatively small mortgage servicing portfolio. As discussed above, mortgage
servicing rights produced or purchased are initially capitalized and
subsequently must be amortized to expense. Much like depreciation, such
32
<PAGE> 33
amortization charges are "non-cash". In this context, the table below reconciles
the major elements of pre-tax operating funds flow allocable to agency-eligible
mortgage servicing activities.
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
------- -------
<S> <C> <C>
Income before income taxes $ 2,257 $ 1,071
Deduct:
Net gain on sale of mortgage servicing
rights, as reported (2,998) (628)
Add back:
Amortization and impairment of
mortgage servicing rights 8,433 5,302
Depreciation 89 106
------- -------
$ 7,781 $ 5,851
======= =======
</TABLE>
Subprime production
Generally, the Company purchases subprime loans through a wholesale broker
network. The Company then separately sells or securitizes the loans so produced.
At the time loans are securitized, existing accounting principles require
capitalization of the estimated fair value of future cash flows to be received
in connection with retention by the Company of a residual interest in the
securitized loans. Accordingly, amounts reported as gains on sale of subprime
mortgage loans may not represent cash gains to the extent that associated
residual interests are retained and capitalized. In this context, the table
below reconciles the major elements of pre-tax operating funds flow allocable to
subprime mortgage production activities.
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
-------- -------
<S> <C> <C>
Income before income taxes $ (557) $ 3,290
Deduct:
Net gain on sale of subprime loans, as reported (2,857) (6,171)
Accretion income on residuals (1,466) (671)
Add back:
Cash gains on sale of whole subprime loans 3,426 4,493
Cash received from investments in residual certificates 1,276 --
Depreciation and amortization
of goodwill and intangibles 296 192
------- -------
$ 118 $ 1,133
======= =======
</TABLE>
Commercial mortgage
Generally, the Company originates commercial mortgage loans for conduits,
insurance companies and other investors. The Company either table funds the
loans or originates the loans pursuant to pre-existing investor commitments to
purchase the loans so originated. Similar to the agency-eligible operation, the
Company generally retains the right to service the loans under various servicing
agreements. At the time loans are sold, current accounting principles require
capitalization of the estimated fair value of mortgage servicing rights
produced. Accordingly, amounts reported as gains on sale of commercial mortgage
loans may not represent cash gains to the extent that the associated
33
<PAGE> 34
servicing rights are not sold for cash but are instead retained and capitalized.
Mortgage servicing rights initially capitalized must be amortized subsequently
to expense. Much like depreciation, such amortization charges are "non-cash". In
this context, the table below reconciles the major elements of pre-tax operating
funds flow allocable to commercial mortgage production and servicing activities.
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
-------------------------------
1999 1998
-------- -------
<S> <C> <C>
Income before income taxes $ (576) $ 558
Deduct:
Net gain on sale of commercial loans,
as reported (1,239) (1,962)
Add back:
Cash gains on sale of whole
commercial loans 849 1,665
Amortization and impairment of
commercial mortgage servicing rights 464 327
Depreciation and amortization of
goodwill and intangibles 92 119
------- -------
$ (410) $ 707
======= =======
</TABLE>
Leasing
Generally, the Company originates small-ticket equipment leases for
commercial customers that are retained as investments by the Company.
Investments in leases originated and retained are financed through a borrowing
facility at draw rates that approximate the net cash investment in the lease.
Accordingly, financing activities related to growth in the balance of leases
held for investment does not significantly impact operating cash flow. In this
context, the table below reconciles the major elements of operating funds flow
allocable to leasing activities.
<TABLE>
<CAPTION>
($ in thousands) For the Quarter Ended March 31,
--------------------------------
1999 1998
------- -------
<S> <C> <C>
Income before income taxes $ 460 $ 213
Add back:
Depreciation and amortization of
goodwill and intangibles 76 81
------- -------
$ 536 $ 294
======= =======
</TABLE>
YEAR 2000
The Company recognizes the need to address the potentially adverse
impact that Year 2000 issues might have on its business operations. The
Company's compliance efforts are ongoing under the guidance of its Director of
Operations and involve employees throughout the Company as well as outside
consultants and contractors. The Company's Year 2000 Project leadership team
meets with the Company's executive management weekly and the Board of Directors
is routinely updated on the status of the Company's efforts.
34
<PAGE> 35
Overview of the Company's State of Readiness
The Company has reviewed its critical information technology and
non-information technology systems and summarizes its state of readiness as
follows:
- The Company uses 20 applications that were developed internally - all
of these have been remediated and are now Year 2000 compliant. The remediated
versions are scheduled to be placed into use during the second quarter of 1999.
- The Company uses various applications that were purchased or are used
in a service bureau relationship with third parties. Compliant versions are
available for all of these applications. Some of these compliant versions have
been installed with the remainder scheduled for installation during the second
quarter of 1999.
- The Company uses desktop software at each PC. Implementation of a
standardized package that delivers Year 2000 compliant desktop software is near
completion with completion scheduled for the second quarter of 1999. Remaining
work consists primarily of installing NT 4 on the desktops.
- The Company uses computer hardware, including servers, desktop PCs
and network infrastructure components. Remediation and upgrade of all data
center hardware and network infrastructure to Year 2000 compliant hardware is
complete. Desktop hardware is 95% complete with the rollout of 1,200 new
desktops with completion scheduled to take place during the second quarter of
1999.
The Company's growth motivated a generalized review of the adequacy of
the existing software environment and technological infrastructure to meet the
Company's long-term operating requirements. Accordingly, during the past 18
months the Company has been working to design and prepare for implementation of
Cybertek's LoanXchange Mortgage Processing System. Implementation of this Year
2000 compliant system is scheduled for the second quarter of 1999. If
implemented on time, this application will replace fourteen existing
applications and is expected to benefit the Company by providing enhanced
functionality, reliability, performance and efficiency. Accordingly, the
Company's Year 2000 compliance program continues to proceed on a dual track: (1)
reaching Year 2000 Compliant status with respect to the existing environment as
outlined above and (2) preparing for Year 2000 compliant status with respect to
the environment which will exist after implementation of the LoanXchange system.
Review of Mission Critical Business Specific Year 2000 Compliance Status
AGENCY-ELIGIBLE MORTGAGE PRODUCTION mission critical applications include the 20
internally developed applications that have been remediated and are Year 2000
compliant. Also, two of the applications provided by third parties are mission
critical. As discussed above, Year 2000 compliant versions of all mission
critical applications are scheduled to be installed by the end of the second
quarter of 1999. In addition, the LoanXchange system may be installed in which
case Year 2000 compliant versions of all mission critical applications also will
be in place.
MORTGAGE SERVICING The primary mission critical system is the Alltel servicing
system which is used by the Company through a third-party service bureau
relationship. Alltel has issued the Company a letter stating that it has
completed modification of all systems used by the Company bringing them to Year
35
<PAGE> 36
2000 compliance. Alltel is the largest vendor of mortgage servicing systems in
the United States. Alltel and the Company participated in an industry sponsored
testing program. All required transactions were successfully transmitted and the
Company has received confirmation of the successful testing.
LAUREATE CAPITAL CORP. - The Company operates its commercial mortgage
origination and servicing business through its subsidiary, Laureate Capital
Corp. Upgrade of Laureate's mission critical McCracken commercial mortgage
servicing system to a Year 2000 compliant version has been completed.
REPUBLIC LEASING - The Company operates its leasing business through its
subsidiary, Resource Bancshares Corporation, doing business as Republic Leasing.
Republic Leasing's mission critical systems are Year 2000 compliant.
MERITAGE MORTGAGE CORP. - The Company operates substantially all of its
sub-prime loan origination business through its subsidiary, Meritage Mortgage
Corp. Upgrade of Meritage's mission critical Contour front-end loan processing
system to a Year 2000 compliant version has been completed.
OTHER The Company and all of its subsidiaries use the same general ledger,
accounts payable and human resources systems. All such systems are Year 2000
compliant.
Third Party Suppliers
Mission critical third party suppliers are Fannie Mae, Freddie Mac and
Alltel. Software supplied to the Company by Fannie Mae and Freddie Mac has been
certified as compliant and the Company has installed the compliant versions. In
addition, Fannie Mae, Freddie Mac and the Company participated in an industry
sponsored testing program. All required transactions were successfully
transmitted and the Company has received confirmation of the successful testing.
As discussed above, Alltel has stated that its software and systems are
compliant and the industry sponsored test program was successfully completed.
Trading Partners
The Company is communicating with suppliers, dealers, financial
institutions and others with whom it does business to coordinate Year 2000
compliance. However, the Company's residential mortgage business is conducted
through relationships with over 6,000 correspondents and brokers. The primary
points of interaction with these customers relate to loan registration, loan
locking and loan closing activities. Approximately 85% of these activities are
initiated via phone and fax. The remaining 15% are provided via a compliant and
proprietary interface that is made available to those customers over the
Internet. The Company is not undertaking a readiness review of these
relationships based on its assessment that the Year 2000 issue is not likely to
have a material impact on the Company's ability to interact with these trading
partners.
Financial Impact
Direct costs associated exclusively with achieving Year 2000 compliance are
expected to be between $0.5 and $1 million dollars and will be paid out of cash
flow. Additional system costs exceeding $8 million are not directly related to
Year 2000 but, as noted above, serve to solve Year 2000 issues. Direct costs
associated with the work performed to date were approximately $500 thousand
through March 31, 1999. The Year 2000 effort is expected to use approximately 5%
of Information Technology's 1999 budget.
36
<PAGE> 37
Risks and Contingency Planning
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer code and unforeseen circumstances causing the
Company to allocate its resources elsewhere.
Failure by either the Company or third parties to achieve Year 2000
compliance could cause short-term operational inconveniences and inefficiencies
for the Company. This may temporarily divert management's time and attention
from ordinary business activities. To the extent reasonably achievable, the
Company will seek to prevent or mitigate the effects of such possible failures
through its contingency planning efforts. The Company's contingency planning led
to development of the dual track compliance program described above. The
LoanXchange software has been delivered and testing continues; therefore, the
Company feels sufficient time exists to execute the contingency plan.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing the Company is interest rate risk. The
Company manages this risk by striving to balance its loan origination and loan
servicing business segments, which are countercyclical in nature. In addition,
the Company utilizes various financial instruments, including derivatives
contracts, to manage the interest rate risk related specifically to its
committed pipeline, mortgage loan inventory, mortgage backed securities held for
sale, servicing rights, leases and residual interests retained in
securitizations. The overall objective of the Company's interest rate risk
management policies is to mitigate potentially significant adverse effects that
changes in the values of these items resulting from changes in interest rates
might have on the Company's consolidated balance sheet. The Company does not
speculate on the direction of interest rates in its management of interest rate
risk.
For purposes of disclosure in the 1998 Annual Report on Form 10 K, the
Company performed various sensitivity analyses that quantify the net financial
impact of hypothetical changes in interest rates on its interest rate-sensitive
assets, liabilities and commitments. These analyses presume an instantaneous
parallel shift of the yield curve. Various techniques are employed to value the
underlying financial instruments which rely upon a number of critical
assumptions. Actual experience may differ materially from the estimated. To the
extent that yield curve shifts are non-parallel and to the extent that actual
variations in significant assumptions differ from those applied for purposes of
the valuations, the resultant valuations can also be expected to vary. Such
variances may prove material. The Company has procedures in place that monitor
whether material changes in market risk are likely to have occurred since
December 31, 1998. The Company does not believe that there have been any
material changes in market risk from those reported in the 1998 Annual Report on
Form 10 K.
37
<PAGE> 38
Part II. OTHER INFORMATION
Item 2. - Changes in Securities and Use of Proceeds
On February 1, 1999, the Company issued 93,520 shares of its common
stock, par value $0.01 per share, to David W. Johnson, Jr. These shares were
issued pursuant to the terms of Mr. Johnson's employment agreement dated as of
June 3, 1993 and represented a portion of his bonus for 1998. The fair market
value of the shares on the date of issuance to Mr. Johnson was $1,391,110 based
on the closing price of $14.875 per share on the NASDAQ Market System on such
date. The Company believes that the issuance of the shares to Mr. Johnson was
exempt from the registration requirements of the Securities Act of 1933, as
amended, under Section 4 (2) by virtue of his position as Vice Chairman and
Managing Director of the Company.
Item 6. - Exhibits and Reports on Form 8-K
- (a) A list of exhibits filed with this Form 10-Q, along with the
exhibit index can be found on pages A to F following the
signature page.
- (b) none
38
<PAGE> 39
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: May 14, 1999
39
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant incorporated by *
reference to Exhibit 3.3 of the Registrant's Registration No. 33-53980
3.2 Certificate of Amendment of Certificate of Incorporation of the *
Registrant incorporated by reference to Exhibit 3.2 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997
3.3 Certificate of Designation of the Preferred Stock of the Registrant *
incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-A
filed on February 8, 1998
3.4 Amended and Restated Bylaws of the Registrant incorporated by reference *
to Exhibit 3.4 of the Registrant's Registration No. 33-53980
3.5 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. dated *
January 28, 1999 incorporated by reference to Exhibit 3.5 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998
4.1 Specimen Certificate of Registrant's Common Stock incorporated by *
reference to Exhibit 4.1 of the Registrant's Registration No. 33-53980
4.2 Rights Plan dated as of February 6, 1998 between the Registrant and *
First Chicago Trust Company of New York incorporated by reference to
Exhibit 4.1 of the Registrant's Form 8-A filed on February 8, 1998
4.3 Third Amended and Restated Secured Revolving/Term Credit Agreement *
dated as of July 28, 1998, 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
4.3 of the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1998.
4.4 Second Amended and Restated Revolving/Term Security and 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
4.5 Amendment No. 1 dated as of July 28, 1998 to Second Amended and *
Restated Revolving/Term Security and Collateral Agency Agreement dated
as of July 31, 1996, among the Registrant, the Banks and Co-Agents
named therein and The Bank of New York as Collateral Agent incorporated
by reference to Exhibit 4.5 of the Registrant's 10-Q for the period
ended September 30, 1998.
4.6 Note Agreement between the Registrant and UNUM Life Insurance Company *
of America dated May 16, 1997 incorporated by reference to Exhibit
10.45 of the Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1997
</TABLE>
A
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.1 Employment Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. as amended by amendment dated October 22, 1993
incorporated by reference to Exhibit 10.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
10.2 (A) Stock Option Agreement between the Registrant and David W. Johnson, *
Jr. incorporated by reference to Exhibit 10.8 (A) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
(B) Stock Option Agreement between the Registrant and Lee E. Shelton *
incorporated by reference to Exhibit 10.8 (B) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
10.3 Termination Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.9 (A) of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1993
10.4 (A) Deferred Compensation Agreement dated June 3, 1993, between the *
Registrant and David W. Johnson, Jr. incorporated by reference to
Exhibit 10.10 (A) of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993
(B) Deferred Compensation Rabbi Trust, for David W. Johnson, dated *
January 19, 1994, between Registrant and First Union National Bank of
North Carolina incorporated by reference to Exhibit 10.10 (C) of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993
10.5 Employment Agreement dated June 30, 1995, between the Registrant and *
Steven F. Herbert incorporated by reference to Exhibit 10.34 of the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1995
10.6 Employment Agreement dated September 25, 1995, between the Registrant *
and Richard M. Duncan incorporated by reference to Exhibit 10.38 of the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1995
10.7 Office Building Lease dated March 8, 1991, as amended by Modification *
of Office Lease dated October 1, 1991, incorporated by reference to
Exhibit 10.5 of the Registrant's Registration No. 33-53980
10.8 Assignment and Assumption of Office Lease incorporated by reference to *
Exhibit 10.6 of the Registrant's Registration No. 33-53980
10.9 Governmental Real Estate Sub-Lease-Office, between Resource Bancshares *
Mortgage Group, Inc. and the South Carolina Department of Labor,
Licensing and Regulation incorporated by reference to Exhibit 10.19 of
the Registrant's Quarterly Report on Form 10-Q for the period ended
March 31, 1994
</TABLE>
B
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.10 First Sub-Lease Amendment to Governmental Real Estate Sub-Lease-Office, *
between Resource Bancshares Mortgage Group, Inc. and the South Carolina
Department of Labor, Licensing and Regulation incorporated by reference
to Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1994
10.11 Request for Extension of Governmental Real Estate Sub-Lease-Office, *
between the Registrant and the South Carolina Department of Labor,
Licensing and Regulation dated December 12, 1995 incorporated by
reference to Exhibit 10.39 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995
10.12 Section 125 Plan incorporated by reference to Exhibit 10.17 of the *
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993
10.13 Pension Plan incorporated by reference to Exhibit 10.18 of the *
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993
10.14 Amendment I to Pension Plan incorporated by reference to Exhibit 10.21 *
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994
10.15 Amendment II to Pension Plan incorporated by reference to Exhibit 10.22 *
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994
10.16 Amendment to Pension Plan effective January 1, 1995 incorporated by *
reference to Exhibit 10.42 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995
10.17 (A) Phantom 401(k) Plan incorporated by reference to exhibit 10.24 of the *
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994
(B) Amendment to Phantom 401(k) Plan _____
10.18 Resource Bancshares Mortgage Group, Inc. Supplemental Executive *
Retirement Plan incorporated by reference to Exhibit 10.14 of the
Registrant's Quarterly Report on Form 10-Q for the period ended June
30, 1998.
10.19 First Amendment to Resource Bancshares Mortgage Group, Inc. *
Supplemental Executive Retirement Plan dated October 28, 1998
incorporated by reference to Exhibit 10.19 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998
10.20 Pension Restoration Plan incorporated by reference to Exhibit 10.25 *
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994
10.21 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the *
Registrant's Registration No. 33-87536
10.22 Amendment I to Stock Investment Plan incorporated by reference to *
Exhibit 10.27 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994
10.23 Amendment II to Stock Investment Plan dated November 30, 1998 *
incorporated by reference To Exhibit 4.1(c) of the Registrant's
Registration Statement No. 333-68909
</TABLE>
C
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.24 Employee Stock Ownership Plan incorporated by reference to Exhibit *
10.29 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994
10.25 First Amendment to Employee Stock Ownership Plan dated October 31, 1995 *
incorporated by reference to Exhibit 10.41 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995
10.26 Second Amendment to Employee Stock Ownership Plan dated August 12, 1996 *
incorporated by reference to Exhibit 10.45 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1996
10.27 Amended Resource Bancshares Mortgage Group, Inc. Successor Employee *
Stock Ownership Trust Agreement dated December 1, 1994, between the
Registrant and Marine Midland Bank incorporated by reference to Exhibit
10.30 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994
10.28 ESOP Loan and Security Agreement dated January 12, 1995, between the *
Registrant and The Resource Bancshares Mortgage Group, Inc. Employee
Stock Ownership Trust incorporated by reference to Exhibit 10.31 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994
10.29 ESOP Loan and Security Agreement dated May 3, 1996, between the *
Registrant and The Resource Bancshares Mortgage Group, Inc. Employee
Stock Ownership Trust incorporated by reference to Exhibit 10.36 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996
10.30 ESOP Loan Agreements dated January 20, 1998, April 1, 1998, July 1, *
1998 and October 1, 1998 between the Registrant and The Resource
Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust
incorporated by reference to Exhibit 10.30 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998
10.31 Formula Stock Option Plan incorporated by reference to Exhibit 10.36 of *
the Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1995
10.32 Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock *
Option Plan and Non-Qualified Stock Option Plan as incorporated by
reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1997
10.33 First Amendment to the Formula Stock Option Plan incorporated by *
reference to Exhibit 99.8 of the Registrant's Registration No.
333-29245 as filed on December 1, 1997
10.34 Second Amendment to Resource Bancshares Mortgage Group, Inc. Formula *
Stock Option Plan dated October 28, 1998 incorporated by reference to
Exhibit 10.34 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998
10.35 Amended and Restated Omnibus Stock Award Plan incorporated by reference *
to Exhibit 99.10 of the Registrant's Registration No. 333-29245 filed
on December 1, 1997
</TABLE>
D
<PAGE> 44
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.36 First Amendment to Omnibus Stock Award Plan and form of Incentive Stock *
Option Agreement and Release to the Omnibus Stock Award Plan
incorporated by reference to Exhibit 10.44 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1998.
10.37 Second Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus *
Stock Award Plan dated October 29, 1998 incorporated by reference to
Exhibit 10.37 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998
10.38 Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) *
incorporated by reference to Exhibit 10.40 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.39 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option *
Plan dated September 1, 1996 incorporated by reference to Exhibit 10.33
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996
10.40 Form of Non-Qualified Stock Option Agreement (Non-Qualified Stock *
Option Plan), incorporated by reference to Exhibit 10.41 of the
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 1997
10.41 First Amendment to Resource Bancshares Mortgage Group, Inc. *
Non-Qualified Stock Option Plan dated January 29, 1997 incorporated
by reference to Exhibit 10.41 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998
10.42 Second Amendment to the Non-Qualified Stock Option Plan dated February *
6, 1998 incorporated by reference to Exhibit 10.40 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1998
10.43 Third Amendment to Resource Bancshares Mortgage Group, Inc. *
Non-Qualified Stock Option Plan dated October 28, 1998 incorporated by
reference to Exhibit 10.43 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998
10.44 Agreement and Release Form of Non-Qualified Stock Option Agreement *
incorporated by reference to Exhibit 10.41 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1998
10.45 Amended and Restated Retirement Savings Plan dated April 1, 1996 *
incorporated by reference to Exhibit 10.34 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996
10.46 First Amendment to Amended and Restated Retirement Savings Plan dated *
as of November 8, 1996 incorporated by reference to Exhibit 10.35 of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996
</TABLE>
E
<PAGE> 45
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.47 Second Amendment to Amended and Restated Retirement Savings Plan dated *
January 1997, incorporated by reference to Exhibit 10.38 of the
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 1997
10.48 (A) Agreement of Merger dated April 18, 1997 between Resource *
Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource
Bancshares Corporation incorporated by reference to Annex A of the
Registrant's Registration No.333-29245
(B) First Amendment to Agreement of Merger dated April 18, 1997 between *
Resource Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and
Resource Bancshares Corporation incorporated by reference to Exhibit
10.42 of the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1997
(C) Second Amendment to Agreement of Merger dated April 18, 1997 *
between Resource Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc.
and Resource Bancshares Corporation incorporated by reference to Annex
A of the Registrant's Registration No. 333-29245
10.49 (A) Mutual Release and Settlement Agreement between the Registrant, Lee *
E. Shelton and Constance P. Shelton dated January 31, 1997 incorporated
by reference to Exhibit 10.44 of the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1997
(B) Amendment to Mutual Release and Settlement Agreement between *
Registrant, Lee E. Shelton and Constance P. Shelton dated January 31,
1997 incorporated by reference to Exhibit 10.44 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1997
10.50 Preferred Provider Organization Plan for Retired Executives *
incorporated by reference to Exhibit 10.43 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1998
10.51 Resource Bancshares Mortgage Group, Inc. Flexible Benefits Plan Amended *
and Restated as of January 1, 1998 incorporated by reference to Exhibit
10.51 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998
10.52 Voluntary Employees' Beneficiary Association Plan for the Employees of _____
Resource Bancshares Mortgage Group, Inc.
11.1 Statement re: Computation of Net Income per Common Share _____
27.1 Financial Data Schedule _____
</TABLE>
- ----------------------------------
* Incorporated by reference
F
<PAGE> 1
EXHIBIT 10.17B
RESOLVED, that the crediting of contribution credits pursuant to Section 3.1 of
the Phantom Plan shall be suspended effective as of April 1, 1999 (with
appropriate pro-ration of the crediting of contribution credits for the 1999
Plan Year (as defined in Section 1.9 of the Phantom Plan)); such suspension of
the crediting of contribution credits shall remain in effect until the Board of
Directors of the Corporation adopts a resolution approving the resumption of the
crediting of contribution credits pursuant to Section 3.1 of the Phantom Plan
and, subject to the Corporation's rights to terminate, suspend, or amend the
Phantom Plan, the remaining sections of the Phantom Plan shall remain in full
force and effect.
<PAGE> 1
VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION PLAN
FOR THE EMPLOYEES OF
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS AND CONSTRUCTION 2
1.1 DEFINITIONS 2
1.2 GENDER AND NUMBER 4
1.3 HEADINGS 4
1.4 UNIFORMITY 4
ARTICLE II - ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 5
2.2 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE
AUTHORITY 5
2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 6
2.4 POWERS, DUTIES AND RESPONSIBILITIES 6
2.5 RECORDS AND REPORTS 7
2.6 APPOINTMENT OF ADVISERS 7
2.7 INFORMATION FROM EMPLOYER 8
2.8 PAYMENT OF EXPENSES 8
2.9 MAJORITY ACTIONS 8
2.10 ACTION BY EMPLOYER 8
2.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 8
2.12 LEGAL ACTION 9
ARTICLE III - ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 10
3.2 EFFECTIVE DATE OF PARTICIPATION 10
3.3 REQUIREMENTS OF HEALTH INSURANCE PORTABILITY
AND ACCOUNTABILITY ACT OF 1996 11
3.4 DETERMINATION OF ELIGIBILITY 12
3.5 OMISSION OF A PARTICIPANT 12
3.6 INCLUSION OF INELIGIBLE PERSON 13
3.7 NONDISCRIMINATION REQUIREMENTS 13
ARTICLE IV - BENEFITS
4.1 SICK AND ACCIDENT BENEFITS 14
4.2 DESIGNATION OF BENEFICIARY 14
i
<PAGE> 3
ARTICLE V - CLAIMS PROCEDURE
5.1 FILING OF CLAIM 15
5.2 DENIAL OF CLAIM 15
5.3 REVIEW OF CLAIM DENIAL 15
5.4 DECISION UPON REVIEW OF CLAIM DENIAL 15
ARTICLE VI - CONTRIBUTIONS AND VALUATION
6.1 EMPLOYER CONTRIBUTIONS 17
6.2 PARTICIPANT CONTRIBUTIONS 17
6.3 VALUATION OF THE TRUST FUND 17
6.4 METHOD OF VALUATION 17
ARTICLE VII - CESSATION OF BENEFITS
7.1 BENEFITS FOR PARTICIPANTS 18
7.2 BENEFITS FOR DEPENDENTS 18
7.3 CONVERSION OF POLICIES 18
7.4 CONTINUATION OF COVERAGE 18
ARTICLE VIII - DISTRIBUTION OF BENEFITS
8.1 DISTRIBUTION OF BENEFITS 20
8.2 DISTRIBUTION FOR MINOR BENEFICIARY 20
8.3 LOCATION OF A PARTICIPANT OR BENEFICIARY UNKNOWN 20
ARTICLE IX - AMENDMENTS AND TERMINATION
9.1 AMENDMENTS 21
9.2 TERMINATION 21
ii
<PAGE> 4
VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION PLAN FOR THE
EMPLOYEES OF RESOURCE BANCSHARES MORTGAGE GROUP, INC.
THIS AGREEMENT, made and entered into this day of December, 1998 by and
between RESOURCE BANCSHARES MORTGAGE GROUP, INC. (herein referred to as the
"Employer") and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, N.A.
(herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer desires to recognize the contribution made to its
successful operation by its employees and to reward such contribution by means
of a Voluntary Employees' Beneficiary Association Plan for those employees who
shall qualify and elect to participate hereunder; and
WHEREAS, the Employer intends that this Plan (and the Trust attached
hereto) shall constitute an employee welfare benefit plan under Title I, Section
3(1), of the Employee Retirement Income Security Act of 1974 (ERISA) and as such
shall be subject to the requirements of Parts 1 and 4 of Subtitle B, Title I of
ERISA; and
WHEREAS, the Employer intends that this Plan (and the Trust attached
hereto) shall constitute a Voluntary Employees' Beneficiary Association and as
such shall be a tax exempt organization pursuant to Sections 501(a) and
501(c)(9) of The Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, effective January 1, 1999 (hereinafter called the
"Effective Date"), the Employer hereby establishes a Voluntary Employees'
Beneficiary Association Plan and creates a separate trust (which plan and trust
are hereinafter called the "Plan"), as a successor plan of the current health
benefit program maintained by the Employer, for the exclusive benefit of the
Participants and their Beneficiaries and the Trustee hereby accepts the Plan on
the following terms;
1
<PAGE> 5
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS
Wherever used in the Plan, unless the content clearly indicates
otherwise, the following terms shall have the following meanings:
(a) "Act" means Parts 1 and 4 of Subtitle B, Title I, of the Employee
Retirement Income Security Act of 1974, as it may be amended from time to time.
(b) "Administrator" means the person or persons designated by the
Employer pursuant to Section 2.2 to administer the Plan on behalf of the
Employer.
(c) "Agreement" or "Plan" means this instrument including all
amendments hereto and any other documents (including the separate trust
agreement) which are incorporated by reference and made a part hereof.
(d) "Beneficiary" or "Beneficiaries" means any person or persons (or a
trust) designated by a Participant in such form as the Administrator may
prescribe to receive any benefit that may be payable hereunder if such person or
persons survive the Participant.
(e) "Benefit Schedules" means the Benefit Schedules or booklets issued
by the Employer describing benefits provided by the Plan. The terms, conditions,
limitations, and exclusions of said Benefit Schedules or Booklets are hereby
incorporated by reference and made a part hereof, except insofar as the Benefit
Schedules or Booklets are in conflict with this Agreement.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Contingent Beneficiary" means the person or persons (or a trust)
duly designated by the Participant to receive any benefit from the Plan in the
event the designated Beneficiary does not survive the Participant.
(h) "Dependent" means the Participant's wife or husband and unmarried
children within the prescribed age limits who are not employed by the Employer.
The term "children" also includes step children, adopted children and any other
children related by blood or marriage who are dependent upon the Participant and
residing with the Participant in regular parent-child relationship. The
prescribed age limit for eligible children is under nineteen years of age, and
with respect to unmarried children who are attending school on a full-time
basis, under twenty-five years of age. If both husband and wife are covered
under the Plan as Employees, either the husband or wife, but not both, may elect
the insurance with respect to children eligible under the definition above.
(i) "Eligible Dependent" means any Dependent who has satisfied the
provisions of Section 3.1.
2
<PAGE> 6
(j) "Eligible Employee" means any Employee who has satisfied the
provisions of Section 3.1
(k) "Employee" means any person who is employed by the Employer.
(l) "Employer" means RESOURCE BANCSHARES MORTGAGE GROUP, INC., its
successors, and any other entity which is related to or affiliated with Resource
Bancshares Mortgage Group, Inc. pursuant to Section 267, 414, 707 or 1563 of the
Code.
(m) "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and the Administrator.
(n) "Investment Manager" means any person, firm or corporation who is a
registered investment adviser under the Investment Advisers Act of 1940, a bank
or an insurance company, and (1) who has the power to manage, acquire, or
dispose of Plan assets, or (2) who acknowledges in writing his fiduciary
responsibility to the Plan.
(o) "Participant" means any Eligible Employee who elects to participate
in the Plan as provided in Section 3.2, and has not for any reason become
ineligible to participate further in the Plan.
(p) "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1 of each year and ending the following December 31.
(q) "Pre-existing Condition" means a physical or mental condition,
regardless of the cause of the condition, for which medical advice, diagnosis,
care or treatment was recommended or received within the six-month period prior
to the Enrollment Date. Genetic information shall not be treated as a
Pre-existing Condition in the absence of a diagnosis of the condition related to
the genetic information. Pregnancy shall not be considered a Pre-existing
Condition hereunder. A newborn child, a child placed for adoption or a
newly-adopted child (under age 18) who begins Dependent Coverage hereunder
within 30 days of birth, placement for adoption or adoption (or who has
creditable coverage from birth, placement for adoption or adoption without a
significant break in coverage) shall not be considered to have any Pre-existing
Conditions.
(r) "Trustee" means the person or persons named as Trustee herein or in
any separate trust forming a part of this Plan, and his, their, or its
successors.
(s) "Trust Fund" means the assets of the Plan and Trust as the same
shall exist from time to time.
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1.2 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
1.3 HEADINGS
The headings and subheadings of this Agreement have been inserted for
convenience or reference and are to be ignored in any construction of the
provisions hereof.
1.4 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner.
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ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
The Employer, by acting through its board of directors, shall be
empowered to appoint and remove the Trustee and the Administrator from time to
time as it deems necessary for the proper administration of the Plan to assure
that the Plan is being operated for the exclusive benefit of the Participants
and their Beneficiaries in accordance with the terms of this Agreement, the
Code, and the Act.
The Employer shall establish a "funding policy and method", i.e., it
shall determine whether the Plan has a short run need for liquidity (e.g., to
pay benefits) or whether liquidity is a long run goal and investment growth (and
stability of same) is a more current need, or shall appoint a qualified person
to do so. The Employer or its delegate shall communicate such needs and goals to
the Trustee, who shall coordinate such plan needs with its investment policy.
The communication of such a "funding policy and method" shall not, however,
constitute a directive to the Trustee as to investment of the Trust Funds. Such
"funding policy and method" shall be considered with the objectives of this Plan
and with the requirements of Title I of the Act.
The Employer may in its discretion appoint an Investment Manager to
manage all or a designated portion of the assets of the Plan. In such event, the
Trustee shall follow the directive of the Investment Manager in investing the
assets of the Plan managed by the Investment Manager.
The Employer shall periodically review the performance of any Fiduciary
or other person to whom duties have been delegated or allocated by it under the
provisions of this Plan or pursuant to procedures established hereunder. This
requirement may be satisfied by formal periodic review by the Employer or by a
qualified person specifically designated by the Employer, through day-to-day
conduct and evaluation, or through other appropriate ways.
The Employer may establish a special account whose assets will be
separate and not commingled with the Employer's other assets (the "Separate
Account"). The Employer shall designate a person to be charged with
administering the Separate Account and shall notify the Administrator of such
designation. In the event benefits are paid on behalf of retired Participants
and their Dependents under the Plan, the Separate Account shall be the sole
source of payment of benefits for retired Participants and their Dependents.
2.2 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person, or
group of persons, including, but not limited to, the directors, shareholders,
officers, and Employees of the Employer, shall be eligible to serve as an
Administrator. Any person so appointed shall signify his acceptance by filing
written acceptance with the Employer. An Administrator may resign by delivering
his written resignation to the Employer or be removed by the Employer by
delivery of written notice of
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removal, to take effect at a date specified therein, or upon delivery to the
Administrator if no date is specified.
The Employer, upon the resignation or removal of an Administrator,
shall promptly designate in writing a successor to this position. If the
Employer does not appoint an Administrator, the Senior Vice President of Human
Resources of the Employer shall function as the Administrator.
2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrator shall notify the Employer and
the Trustee in writing of such action and specify the responsibilities of each
Administrator. The Trustee thereafter shall accept and rely upon any documents
executed by the appropriate Administrator until such time as the Employer or the
Administrators file with the Trustee a written revocation of such designation.
2.4 POWERS, DUTIES AND RESPONSIBILITIES
The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power in its sole
discretion to determine all questions arising in connection with the
administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator may correct any defect, supply any information, or
reconcile any inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of this Agreement; provided
however, that any interpretation or construction shall be done in a
nondiscriminatory manner and shall be consistent with the intent that the Plan
shall continue to be deemed a qualifying plan under the terms of Section
501(c)(9) of the Code as amended from time to time, and shall comply with the
terms of the Act and all regulations issued pursuant thereto. The administrator
shall have all powers necessary or appropriate to accomplish his duties under
this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) to determine all questions relating to the eligibility of
Employees to participate or continue to participate
(b) to compute, certify, and direct the Trustee or, if
applicable, the person charged with administering the Separate
Account (described in Section 2.1 of the Plan) with respect to
the amount and kind of benefits to which any Participant shall
be entitled hereunder;
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(c) to authorize and direct the Trustee or, if applicable, the
person charged with administering, the Separate Account
(described in Section 2.1 of the Plan) with respect to all
nondiscretionary or otherwise directed disbursements for the
Trust or, if applicable, the Separate Account;
(d) to maintain all necessary records for the administration
of the Plan;
(e) to interpret the provisions of the Plan and to make and
publish such rules for regulation of the Plan as are
consistent with the terms hereof;
(f) to determine the size and type of any insurance contract
to be purchased from any insurer, and to designate the insurer
from which such Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee
from time to time the sums of money necessary or desirable to
be contributed to the Trust Fund and to compute and certify to
the Employer and the person charged with administering the
Separate Account (described in Section 2.1) from time to time
the sums of money necessary or desirable to be contributed to
the Separate Account;
(h) to consult with the Employer and the Trustee regarding the
short and long-term liquidity needs of the Plan in order that
the Trustee can exercise any investment discretion in a manner
designed to accomplish specific objectives;
(i) to assist any Participant or Beneficiary regarding his
rights, benefits, or elections available under the Plan; and
(j) to communicate to Employees, Participants and their
Beneficiaries a summary plan description outlining the
provisions of the Plan as required under Title I of the Act.
2.5 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.6 APPOINTMENT OF ADVISORS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists and advisers, and other persons
as the Administrator or the Trustee deems necessary or desirable in connection
with the administration of this Plan.
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2.7 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the retirement, death disability, or termination of employment, of
all Participants and such other pertinent facts as the Administrator may
require; and the Administrator shall advise the Trustee of such of the foregoing
facts as may be pertinent to the Trustee's duties under the Plan. The
Administrator may rely upon such information as is supplied by the Employer and
shall have no duty or responsibility to verify such information.
2.8 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists, and other costs of administering
the Plan. Until paid, the expenses shall constitute a liability of the Trust
Fund. However, the Employer may reimburse the Trust for any administration
expense incurred pursuant to the above. Any administration expense paid to the
Trust as a reimbursement shall not be considered as an Employer contribution.
2.9 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.3, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.10 ACTION BY EMPLOYER
Whenever the Employer under the terms of this Agreement is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by an officer duly authorized by its board of directors.
2.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee and (4) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under this
Agreement.
In general, the Employer, acting through its board of directors, shall
have the sole responsibility for making the contributions provided for under
Section 6.1; and shall have the sole authority to appoint and remove the
Trustee, the Administrator and any Investment Manager which may be provided for
under this Agreement; to formulate the Plan's "funding policy and method"; and
to amend or terminate, in whole or in part, this Agreement.
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<PAGE> 12
The Administrator shall have the sole responsibility for the
Administration of this Agreement, which responsibility is specifically described
in this Agreement.
The Trustee shall have the sole responsibility of management of the
assets held under the Trust, except those assets the management of which has
been assigned to an Investment Manager, who shall be solely responsible for the
management of the assets assigned to it, all as specifically provided in this
Agreement.
Each named Fiduciary may rely upon any such direction, information or
action of another named Fiduciary as being proper under this Agreement, and is
not required under this Agreement to inquire into the propriety of any such
direction, information or action. It is intended under this Agreement that each
named Fiduciary shall be responsible for the proper exercise of its own powers,
duties, responsibilities and obligations under this Agreement. No named
Fiduciary guarantees the Trust Fund in any manner against investment loss or
depreciation in asset value. Any person or group may serve in more than one
Fiduciary capacity.
2.12 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, they shall be entitled to be reimbursed from the
Trust Fund for any and all costs, attorney's fees, and other expenses pertaining
thereto incurred by them for which they shall have become liable.
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ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Employee who is a regular full time Employee of the Employer and
who is regularly scheduled to work at least thirty (30) hours per week for the
Employer and who is a participant of the class or classes of Employees eligible
for coverage under the Benefit Schedules shall be eligible to participate in the
Plan on the later of the effective date of the Plan or after the date the
Employee completes 60 days of service with the Employer (or such other period
contained in the applicable Benefit Schedules).
An Employee is eligible for benefits with respect to Dependents on the
date he becomes eligible for benefits with respect to himself if he has an
eligible Dependent or Dependents, as defined above, on that date; otherwise on
the date the Employee acquires an eligible Dependent or Dependents.
3.2 EFFECTIVE DATE OF PARTICIPATION
With regard to benefits inuring directly to the Employee, participation
will commence on the date Employee becomes eligible as provided above if the
Employee completed the necessary enrollment form prior to such date.
Participation will commence on the date the Employee completes the necessary
enrollment form, if the enrollment form is completed within one month of the
date the Employee becomes eligible. Participation will commence on the first day
of the succeeding Plan Year if the enrollment form is completed more than one
moth after the date the Employee becomes eligible or during an open enrollment
period.
With regard to benefits inuring to Dependents, participation will
commence on the following dates provided that the Eligible Employee has
completed the necessary enrollment form electing coverage for all Eligible
Dependents and provided the Employee is covered on the date the benefits with
respect to Dependents are to become effective:
(a) the date the Employee becomes eligible for benefits with
respect to a Dependent or Dependents if the enrollment form is received by the
Employer on or prior to such date;
(b) the date of marriage, birth of child, or the Participant
becomes responsible for a Dependent, if the Administrator is notified within 31
days of the applicable event;
(c) on the first day of the succeeding Plan Year, if the
Administrator is notified after 31 days of the applicable date of marriage,
birth of child, or the Participant becomes responsible for a Dependent;
(d) in the case of coverage pursuant to a qualified medical
child support order, the date on which the Administrator determines the order is
a qualified medical child support order
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or, if earlier, the date the Administrator determines that coverage should
become effective pursuant to the qualified medical child support order.
If the Employee's coverage is not in effect on the date the coverage
with respect to a Dependent or Dependents would otherwise become effective, the
Employee's coverage with respect to the Dependent or Dependents will become
effective on the date the Employee's coverage becomes effective.
The effective date of the Employee's coverage with respect to a
Dependent who is confined in a hospital on the date such coverage would
otherwise become effective will be deferred until the day following the date the
Dependent is discharged from the hospital. This provision shall not apply to a
newborn child who is hospitalized on the date the child become eligible as a
Dependent provided the child is born while the Employee is insured with respect
to Dependents.
3.3 REQUIREMENTS OF HEALTH INSURANCE PORTABILITY AND
ACCOUNTABILITY ACT OF 1996.
Special Enrollees. Notwithstanding the requirements of Section 3.2, the
following special participation rules shall apply to Special Enrollees (as
hereinafter described in items (a) and (b) below):
(a) If an otherwise eligible Employee or Dependent declined coverage
under the Plan at the time of initial eligibility, and stated in writing at that
time that coverage was declined because of other health coverage but that other
health coverage is subsequently lost, and that person makes application for
coverage hereunder within 30 days of the loss of other health coverage, such
individual shall be a Special Enrollee provided such person: (1) lost the
alternative health coverage as a result of loss of eligibility for the coverage
(including as a result of legal separation, divorce, death, termination of
employment, or reduction in the number of hours of employment, but not including
an increase in cost of the other coverage or reduction in benefits of the other
coverage); (2) employer contributions toward such other coverage were
terminated; or (3) if the eligible Employee or Dependent was covered under a
COBRA continuation provision and the COBRA continuation period has been
exhausted.
(b) An otherwise eligible Employee who is not covered by the Plan, an
otherwise eligible Employee and Dependent who are not covered by the Plan or a
Participant's Dependent who is not otherwise covered by the Plan may apply for
coverage under the Plan as a result of the acquisition of a new Dependent by the
Employee or Participant through marriage, birth, adoption or placement for
adoption and shall be a Special Enrollee provided such person is properly
enrolled as a Participant or Dependent of the Participant within thirty (30)
days of the acquisition of the new Dependent.
Participation Date of Special Enrollees. Coverage for a Special Enrollee who is
a newborn child, a child placed for adoption or an adopted child shall begin as
of the date of the birth, placement for adoption or adoption. Coverage for a
Special Enrollee, other than for a newborn, a child placed for adoption or a
newly adopted child, shall begin as of the first day of the calendar month
following
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<PAGE> 15
the enrollment request.
Pre-existing Conditions. The following rules shall apply to claims incurred with
respect to pre-existing conditions:
(a) Claims resulting from Pre-existing Conditions, as defined in the
Plan, are excluded from coverage under the Plan for a period of twelve (12)
months from the Enrollment Date of the Participant or Dependent where the
Participant or Dependent enrolls for coverage under the Plan when first
eligible. The Plan shall reduce the period of exclusion by those periods of
prior Creditable Coverage which the covered person served under prior qualifying
medical benefit programs when evidence of the prior Creditable Coverage is
submitted and the Plan shall notify the covered person as to the date that the
Pre-existing Condition exclusion period shall end.
(b) For purposes of this Plan, the term "Creditable Coverage" includes
only those coverages required to be included as such under Section 701 of the
Act and shall exclude those coverages that are permitted to be excluded under
Section 701(c) of the Act.
(c) If a claim for benefits under the Plan is denied or reduced by
operation of this provision, the Employee or Dependent shall be entitled to
appeal that decision and may provide additional evidence of prior Creditable
Coverage pursuant to the normal procedure of the Plan for the appeal of any
other coverage decision of the Plan.
Rules of Construction. In the event of a conflict between this section or any
other provision of the Plan and Sections 701 through 733 of the Act or Sections
9801 through 9833 of the Code, Sections 701 through 733 of the Act and Sections
9801 through 9833 of the Code shall control and this section shall be deemed to
contain the controlling provisions from Sections 701 through 733 of the Act and
Sections 9801 through 9833 of the Code.
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine in its sole discretion the
eligibility of each Employee for participation in the Plan based upon
information furnished by the Employer. Such determination shall be conclusive
and binding upon all persons, as long as the same is made in accordance with
this Agreement and the Act.
3.5 OMISSION OF A PARTICIPANT
If, in any Plan Year, any person who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by the Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Participant in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether it is deductible in whole or in part in any taxable year,
under applicable provisions of the Internal Revenue Code by such Employer.
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3.6 INCLUSION OF INELIGIBLE PERSON
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall be used to provide Participants with the benefits
set forth in the Plan.
3.7 NONDISCRIMINATION REQUIREMENTS
All other provisions of this Plan and the Benefit Schedules
notwithstanding, each class of benefits provided hereunder must not be provided
in a discriminatory manner in favor of highly compensated individuals as defined
by Section 505(b)(5) of the Code.
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ARTICLE IV
BENEFITS
4.1 SICK AND ACCIDENT BENEFITS
Participants: In the event of a Participant's illness or personal
injury, such Participant shall be entitled to receive each Plan Year a sick and
accident benefit equal to the amount provided in the Benefit Schedules.
Dependents: In the event of an Eligible Dependent's illness or personal
injury, such Eligible Dependent shall be entitled to receive each Plan Year a
sick and accident benefit equal to the amount provided in the Benefit Schedules.
4.2 DESIGNATION OF BENEFICIARY
If death benefits are provided by this Plan, each Participant may
designate in writing a Beneficiary of his own choosing, and may, in addition,
name a Contingent Beneficiary. Such designation shall be made in a form
satisfactory to the Administrator. Any participant may at any time revoke his
designation of Beneficiary by filing written notice of such revocation or change
with the Administrator. In the event of death of the designated Beneficiary
prior to the death of the Participant, the Contingent Beneficiary shall be
entitled to receive such benefit. In the event no Beneficiary or Contingent
Beneficiary is surviving at the time any payment is to be made, then such
payment shall be made to such Participant's spouse, if living, or if there is no
spouse living, to the Participant's issue, per stirpes, or if neither the
Participant's spouse nor any of his issue are living, then to such Participant's
estate.
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ARTICLE V
CLAIMS PROCEDURE
5.1 FILING OF CLAIM
If the Benefit Schedule contains a procedure for filing for a claim for
benefits provided under the Benefit Schedule, the Participant or Beneficiary
shall submit or have submitted a claim in accordance with the procedure in the
applicable Benefit Schedule.
If the Benefit Schedule does not contain a procedure for filing for a
claim for benefits provided under the Benefit Schedule, the Participant or his
Beneficiary shall submit or have submitted a written notice of claim with 20
days after the date of loss, or as soon as possible, followed by a written proof
of loss within 90 days after the date of loss, or as soon as possible, including
an attached billing of the hospital, physician or other provider of services, to
the Plan Administrator or to such other person designated by the Plan
Administrator to handle such claims.
5.2 DENIAL OF CLAIM
If the Benefit Schedule contains a procedure for filing for a claim for
benefits under the Benefit Schedule and a procedure addressing the denial of
claims filed pursuant to such procedures, the procedure contained in the Benefit
Schedule will apply to the denial of claims for benefits under the Benefit
Schedule.
If the Benefit Schedule does not contain a procedure for filing a claim
for benefits provided under the Benefit Schedule or does not contain a procedure
addressing the denial of claims filed pursuant to such procedures, the
Administrator shall furnish the Participant or Beneficiary with written notice
of the denial of any claim (in whole or part) within ninety (90) days of the
date of the original claim was filed. The notice of denial shall provide (1) the
reason for denial, (2) specific reference to pertinent Plan provisions on which
the denial is based, (3) a description of any additional information needed to
perfect the claim and an explanation of which such information is necessary, and
(4) an explanation of the Plan's claim procedure.
5.3 REVIEW OF CLAIM DENIAL
If the Benefit Schedule contains a procedure for reviewing the denial
of a claim for benefits under the Benefit Schedule, the procedure contained in
the Benefit Schedule will apply to the review of denial claims for benefits
under the Benefit Schedule.
If the Benefit Schedule does not contain a procedure for reviewing the
denial of a claim for benefits under the Benefit Schedule, the Participant or
Beneficiary shall have sixty (60) days from receipt of a denial notice in which
to make written application for review by the Administrator. The Participant or
Beneficiary may request that the review be in the nature of a hearing. The
Participant or Beneficiary shall have the rights (1) to representation, (2) to
review
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pertinent documents, and (3) to submit comments in writing. The Plan
Administrator shall issue a decision on such review within sixty (60) days after
receipt of an application for review as provided in Section 5.3, unless special
circumstances, such as a review of the claim by a Peer Review Board, require an
extension of time, in which case an additional sixty (60) days will be allowed.
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ARTICLE VI
CONTRIBUTIONS AND VALUATIONS
6.1 EMPLOYER CONTRIBUTIONS
The Employer shall pay to the Trustee from time to time such amounts in
cash or property as the Employer shall determine to be necessary to provide the
benefits for Participants and their Dependents under the Plan determined by the
application of accepted actuarial methods and assumptions. In establishing the
liabilities under the Plan and contributions thereto, the actuary will use
methods and assumptions as will reasonably reflect the cost of the benefits The
method of funding should be consistent with Plan objectives.
6.2 PARTICIPANT CONTRIBUTIONS
Each Participant shall pay to the Trustee such amounts as may be
required under the Plan and in accordance with a uniform, non-discriminatory
procedure established by the Employer.
6.3 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each last day of the
Plan Year, and at such other date or dates deemed necessary by the
Administrator, herein called "valuation date", to determine the net worth of the
assets comprising the Trust Fund as it exists on the valuation date prior to
taking into consideration any contribution for that Plan Year. In determining
such net worth, the Trustee shall value the assets comprising the Trust Fund at
their fair market value as of the valuation date and shall deduct all expenses
for which the Trustee has not yet obtained reimbursement from the Employer or
the Trust Fund
6.4 METHOD OF VALUATION
The Plan assets are to be valued on the basis of any reasonable method
of valuation that takes into account fair market value pursuant to regulations
prescribed by the Secretary of Treasury. In determining the fair market value of
securities held in the Trust Fund which are listed on a registered stock
exchange, the Administrator shall direct the Trustee to value the same at the
prices they were last traded on such exchange preceding the close of business on
the valuation date. If such securities were not traded on the valuation date, or
if the exchange on which they are traded was not open for business on the
valuation date then the securities shall be valued at the prices at which they
were last traded prior to the valuation date. Any unlisted security held in the
Trust Fund shall be valued at its bid price next preceding the close of business
on the valuation date, which bid price shall be obtained from a registered
broker or an investment banker. In determining the fair market value of assets
other than securities for which trading or bid prices can be obtained, the
Trustee may appraise such assets itself, or in its discretion, employ one or
more appraisers for that purpose and rely on the values established by such
appraiser or appraisers.
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ARTICLE VII
CESSATION OF BENEFITS
7.1 BENEFITS FOR PARTICIPANTS
A Participant shall cease to be eligible for benefits under the Plan
upon the occurrence of the earliest of the following events:
(a) the Participant no longer meets the eligibility requirements set
forth in Section 3.1;
(b) the Participant voluntarily elects to discontinue his Participation
in the Plan;
(c) insurance with respect to the Participant terminates pursuant to
the terms of the Policy;
(d) the date the Plan ceases or the date the Plan ceases for the class
of Employees to which the Participant belongs;
(e) the first Sunday following the date active employment with the
Employer ceases, except as provided in the Benefit Schedules.
7.2 BENEFITS FOR DEPENDENTS
A Dependent shall cease to be eligible for benefits under the Plan as
of the earlier of the date on which he loses his status as a Dependent or on the
date benefits with respect to such dependent terminates under the terms of the
Plan.
7.3 CONVERSION OF POLICIES
Any policies in effect pursuant to this Plan may contain a provision
which shall permit, upon payment of an additional conversion premium, the
conversion (without medical examination) of the policy to provide individual
coverage upon termination of eligibility for coverage under this Plan.
7.4 CONTINUATION OF COVERAGE
If coverage has ended due to the occurrence of a qualifying event
within the meaning of Section 603 of the Act, each Participant or qualified
beneficiary is eligible for Continued Coverage.
Continued Coverage is conditioned on timely election to the
Administrator for such coverage and timely payment of continuation coverage
premium. The Administrator shall mail the first payment date notice and any
notice announcing a change in the continuation coverage premium to a Participant
or qualified beneficiary. No other premium notices will be sent. Each
Participant or qualified beneficiary is responsible for timely payment of
premiums.
(A) As soon as practical after receipt of the election, the
Administrator shall send a
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<PAGE> 22
premium notice for the continuation coverage premium for the
first payment date. The notice shall notify the Participant or
qualified beneficiary (1) of the continuation coverage premium
due on the first payment date; (2) the monthly continuation
coverage premium due on the first day of each succeeding
month; (3) that no other premium notices will be sent; (4)
that each participant is responsible for timely payment of
premiums; and (5) that failure to make timely premium payments
will result in termination of Continued Coverage.
(B) In no event will the first continuation coverage premium be
due prior to 45 days after the day on which the Participant or
qualified beneficiary makes the initial election for
continuation coverage. However, at the election of the former
Employee or qualified beneficiary, continuation coverage
premiums may be made prior to the first payment date.
(C) All continuation coverage premiums which have accumulated
between the time the Participant loses coverage and the first
payment date plus the continuation coverage premium for the
succeeding month must be paid on the first payment date.
If a Participant ceases to be an Eligible Employee and fails to elect
Continued Coverage within 60 days of his termination or reduction in hours, or
if a Participant becomes ineligible to receive Continued Coverage by reason of a
Disqualifying Event, participation in the Plan shall terminate. In the event of
a conflict between this section and Sections 601 through 609 of the Act or
Section 4980B of the Code, Section 601 through 609 of the Act and Section 4980B
of the Code shall control and this section shall be deemed to contain the
controlling provisions from Sections 601 through 609 of the Act and Section
4980B of the Code.
19
<PAGE> 23
ARTICLE VIII
DISTRIBUTION OF BENEFITS
8.1 DISTRIBUTION OF BENEFITS
The Administrator in his sole discretion shall direct the Trustee or,
if applicable, the person charged with administering the Separate Account
(described in Section 2.1 of the Plan) to distribute to a Participant or his
Beneficiaries any amount to which he is entitled under the Plan pursuant to the
method of payment provided in the Benefit Schedules of, if no method of payment
is provided in the Benefit Schedules, as determined by the Administrator.
8.2 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, the Administrator
may, in the Administrator's sole discretion, direct that such distribution be
paid to the legal guardian, or if none, to a parent of such Beneficiary or a
responsible adult with whom the Beneficiary maintains his residence, or to the
custodian for such Beneficiary under the Uniform Gift to Minors Act if such is
permitted by the laws of the state in which said Beneficiary resides. Such a
payment to the legal guardian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
8.3 LOCATION OF A PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the expiration of five (5)
years after it shall become payable, remain unpaid solely by reason of the
inability of the Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further diligent effort,
to ascertain the whereabouts of such Participant or his Beneficiary, the amount
so distributable shall remain in the Trust, or, if applicable, the Separate
Account (described in Section 2.1 of the Plan), to be used as part of the
general Trust Fund or Separate Account.
20
<PAGE> 24
ARTICLE X
AMENDMENTS AND TERMINATION
9.1 AMENDMENTS
The Employer shall have the right at any time and from time to time
amend, in whole or in part, any or all of the provisions of this Agreement.
However, no such amendment shall authorize or permit any part of the Trust Fund
(other than such part as is required to pay taxes and administration expenses)
to be used for or diverted to purposes other than for the exclusive benefit or
the Participants or their Beneficiaries or estates; no such amendment shall
cause or permit any portion of the Trust Fund to revert to or become the
property of the Employer; and no such amendment which affects the rights, duties
or responsibilities of the Trustee and Administrator may be made without the
Trustee's and Administrator's written consent. Any such amendment shall become
effective upon delivery of a duly executed instrument to the Trustee, provided
that the Trustee shall in writing consent to the term of such amendment if the
trust provisions contained herein are a part of this Agreement.
9.2 TERMINATION
The Employer shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such termination.
Upon such termination of the Plan, the Employer, by written notice to the
Trustee and Administrator, may direct either:
(a) complete distribution of the assets in the Trust Fund to the
Participants or their Beneficiaries as soon as the Trustee deems it to be in the
best interest of the Participants or their Beneficiaries, except however, such
distribution shall only be made (1) pursuant to the terms of a collective
bargaining agreement or (2) on the basis of objective and reasonable standards
which do not result in unequal payment to similarly situated Participants or
their Beneficiaries or in disproportionate payment to officers, shareholders, or
highly compensated Employees of an Employer contributing to or otherwise funding
this Plan; or
(b) that any assets remaining in the Plan, after the satisfaction of
all liabilities to existing Participants or their Beneficiaries, be applied to
provide such Participants or their Beneficiaries with the benefits set forth in
the Plan, provided, however, that such benefits shall not be provided in
disproportionate amounts to officers, shareholders, or highly compensated
Employees of the Employer.
21
<PAGE> 25
IN WITNESS WHEREOF, this Agreement has been executed the day and year
first above written.
EMPLOYER:
RESOURCE BANCSHARES MORTGAGE
GROUP, INC.
WITNESS: By: ______________________________________
- ------------------------------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, N.A.
WITNESS: By: ______________________________________
- ------------------------------
22
<PAGE> 26
VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION TRUST
FOR THE EMPLOYEES OF
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
<PAGE> 27
TABLE OF CONTENTS
Page
----
ARTICLE I
TRUSTEE AND TRUST FUND
1.1 NAME OF TRUST 2
1.2 TRUST FUND 2
1.3 QUALIFIED TRUST 2
ARTICLE II
PLAN
2.1 DELIVERY OF PLAN TO TRUSTEE 3
2.2 MEMBER'S RIGHTS 3
ARTICLE III
ADMINISTRATOR
3.1 NOTIFICATION OF NAME OF ADMINISTRATOR 4
3.2 PLAN ADMINISTRATOR DIRECTIONS 4
ARTICLE IV
CONTRIBUTIONS
4.1 RECEIPT OF CONTRIBUTION 5
ARTICLE V
TRUSTEE
5.1 BASIC RESPONSIBILITIES OF THE TRUSTEE 6
5.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE 6
5.3 OTHER POWERS OF THE TRUSTEE 7
5.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS 10
5.5 POST-RETIREMENT BENEFITS TO KEY EMPLOYEES 10
5.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES 10
5.7 ANNUAL REPORT OF THE TRUSTEE 10
5.8 AUDIT 11
5.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE 12
i
<PAGE> 28
ARTICLE VI
AMENDMENT, TERMINATION, AND MERGERS
6.1 AMENDMENT 14
6.2 TERMINATION 14
6.3 MERGER OR CONSOLIDATION 15
ARTICLE VII
MISCELLANEOUS
7.1 ALIENATION 16
7.2 CONSTRUCTION OF AGREEMENT 16
7.3 GENDER AND NUMBER 16
7.4 LEGAL ACTION 17
7.5 PROHIBITION AGAINST DIVERSION OF FUNDS 17
7.6 BONDING 17
7.7 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 17
7.8 INSURER'S PROTECTIVE CLAUSE 17
7.9 RECEIPT AND RELEASE FOR PAYMENTS 18
7.10 HEADINGS 18
ii
<PAGE> 29
VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION TRUST
FOR THE EMPLOYEES OF RESOURCE BANCSHARES MORTGAGE GROUP, INC.
THIS AGREEMENT, made and entered into this day of December, 1998, by
and between RESOURCE BANCSHARES MORTGAGE GROUP, INC. (herein referred to as the
"Employer") and FIRST UNION NATIONAL BANK of NORTH CAROLINA, N.A. (herein
referred to as the "Trustee").
W I T N E S S E T H :
WHEREAS, the Employer has concurrently herewith adopted a 501(c)(9)
plan known as the VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION PLAN FOR THE
EMPLOYEES OF RESOURCE BANCSHARES MORTGAGE GROUP, INC. (herein referred to as the
"Plan"); and
WHEREAS, under the terms of the Plan, funds will from time to time be
contributed to the Trust which funds as and when received by the Trustee, will
constitute a trust fund to be held by said Trustee under the Plan for the
benefit of the Members of their Beneficiaries; and
WHEREAS, the Employer desires the Trustee to hold and administer such
funds and the Trustee is willing to hold and administer such funds pursuant to
the terms of this Agreement; and
WHEREAS, the Employer intends that this Trust (and the Plan attached
hereto) shall constitute an employee welfare benefit plan under Section 3(1) of
the Employee Retirement Income Security Act of 1974 (ERISA) and as such shall be
subject to the requirements of Parts 1 and 4 of Subtitle B, Title I of ERISA;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants herein contained, the Employer and the Trustee do hereby
covenant and agree as follows:
1
<PAGE> 30
ARTICLE I
TRUSTEE AND TRUST FUND
1.1 NAME OF TRUST
This trust shall be entitled the "VOLUNTARY EMPLOYEES' BENEFICIARY
ASSOCIATION TRUST FOR THE EMPLOYEES OF RESOURCE BANCSHARES MORTGAGE GROUP, INC."
(hereinafter referred to as the "Trust"), and shall carry into effect the
provisions of the Plan created prior to, or concurrently herewith and forming a
part hereof. All of the definitions in such Plan are hereby incorporated herein
by reference. The Trustee hereby agrees to act as Trustee of the Trust, and to
take, hold, invest, administer and distribute in accordance with the following
provisions, any and all contributions and assets paid or delivered to the
Trustee pursuant to the Plan.
1.2 TRUST FUND
All of the assets at any time held hereunder by the Trustee are
hereinafter referred to collectively as the "Trust Fund". All right, title and
interest in and to the assets of the Trust Fund shall be at all times, vested
exclusively in the Trustee. The Trustee shall receive, take and hold any
contributions paid to the Trustee in cash or in other property acceptable to the
Trustee. All contributions so received together with the income therefrom and
any other increment thereon shall be held, managed and administered by the
Trustee pursuant to the terms of this Agreement without distinction between
principal and income and without liability for the payment of interest thereon.
The Trustee shall not be responsible for collection of any contributions to the
Plan.
1.3 QUALIFIED TRUST
The Trust is hereby designated as constituting a part of the Plan which
is intended to continue to qualify and to be tax exempt under Section 501(c)(9)
of the Code, as amended from time to time. Until advised otherwise, the Trustee
may conclusively presume that this Trust is qualified under Section 501(c)(9) of
the Code as amended from time to time, and that this Trust is exempt from
federal income taxes.
2
<PAGE> 31
ARTICLE II
PLAN
2.1 DELIVERY OF PLAN TO TRUSTEE
The Employer shall deliver to the Trustee a copy of the Plan and of any
amendments thereto for convenience of reference, but rights, powers, titles,
duties, discretion and immunities of the Trustee shall be governed solely by
this instrument without reference to the Plan.
2.2 MEMBER'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Member or to be a consideration or an inducement for the
employment of any Member or Employee. Nothing contained in this Plan shall be
deemed to give any Member or Employee the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge any
Member of Employee at any time regardless of the effect which such discharge
shall have upon him as a Member of this Plan.
3
<PAGE> 32
ARTICLE III
ADMINISTRATOR
3.1 NOTIFICATION OF NAME OF ADMINISTRATOR
The Plan provides for the appointment of an Administrator or
Administrators (herein referred to as the "Administrator"), to administer the
Plan. The Employer shall notify the Trustee in writing of the name of the
Administrator, and of any change in the identity of such Administrator. Until
notified of the change, the Trustee shall be fully protected in acting upon the
assumption that the identity of the Administrator has not been changed.
3.2 PLAN ADMINISTRATOR DIRECTIONS
The Administrator shall have sole responsibility for determining the
existence, non-existence, nature and amount of the rights and interests of all
persons in the Trust Fund. All directions by the Administrator to the Trustee
shall be in writing signed by such Administrator. The Employer shall furnish to
the Trustee a specimen signature of the Administrator or Administrators at the
time he or they are appointed.
4
<PAGE> 33
ARTICLE IV
CONTRIBUTIONS
4.1 RECEIPT OF CONTRIBUTIONS
The Trustee shall receive all contributions paid in cash or other
property and all contributions so received together with the income therefrom
and any increment thereon shall be held, managed and administered by the Trustee
pursuant to this Agreement without distinction between principal and income. The
Trustee shall have no duty to require any contributions to be made to the Trust
by the Employer or to determine that the amounts received comply with the Plan,
or to determine that the Trust Fund is adequate to provide the benefits payable
pursuant to the Plan.
5
<PAGE> 34
ARTICLE V
TRUSTEE
5.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined by the
Employer to invest, manage, and control the Plan assets subject, however, to the
direction of an Investment Manager if the Employer should appoint such manager
as to all or a portion of the assets of the Plan in accordance with the
provisions of the Plan;
(b) At the direction of the Administrator, to pay benefits required
under the Plan to be paid to Members or, in the event of their death, if
applicable, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish to
the Employer and/or Administrator for each Plan Year a written annual report per
Section 5.7.
If there shall be more than one Trustee, they shall act by a majority
of their number, but may authorize one or more of them to sign papers on their
behalf.
5.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to keep the
Trust Fund invested without distinction between principal and income and in such
securities or property, real or personal, wherever situated, as the Trustee
shall deem advisable, including, but not limited to, stocks, common or
preferred, bonds and other evidences of indebtedness or ownership, and real
estate or any interest therein. The Trustee shall at all times in making
investments of the Trust Fund consider, among other factors, the short and
long-term financial needs of the Plan on the basis of information furnished by
the Employer. In making such investments, the Trustee shall not be restricted to
securities or other property of the character expressly authorized by the
applicable law for trust investments; however, the Trustee shall give due regard
to any limitations imposed by the Code or the Act so that at all times this Plan
may qualify as both an employee welfare benefit plan and a voluntary employees'
beneficiary association.
(b) The Trustee may, from time to time with the consent of the
Employer, transfer to a common, collective, or pooled trust fund maintained by
any corporate Trustee hereunder, all or such part of the Trust Fund as the
Trustee may deem advisable, and such part or all of the Trust Fund so
transferred shall be subject to all the terms and provisions of the common,
collective, or pooled trust fund which contemplate the commingling for
investment purposes of such Trust assets with trust assets of other trusts. The
Trustee may, from time to time with the consent of the Employer, withdraw from
such common, collective, or pooled trust fund all or such part of the Trust Fund
as the Trustee may deem advisable.
6
<PAGE> 35
(c) If life insurance policies have been issued under the Plan, the
Trustee, at the direction of the Administrator, shall apply for, own, and pay
premiums on such life insurance policies.
5.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common
law, statutory authority, including the Act, and other provisions of this
Agreement, shall have the following powers and authorities, to be exercised in
the Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or their property and
to retain the same. In conjunction with the purchase of securities, margin
accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or their property held by the Trustee, by
private contract or at public auction. No person dealing with the Trustee shall
be bound to see to the application of the purchase money or to inquire into the
validity, expediency, or propriety of any such sale or other disposition, with
or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription rights or
other options, and to make any payments incidental thereto; to oppose, or to
consent to, or otherwise participate in, corporate reorganizations or other
changes affecting corporate securities, and to delegate discretionary powers,
and to pay any assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property;
(d) To cause any securities or other property to be registered in the
Trustee's own name or in the name of one or more of the Trustee's nominees, and
to hold any investments in bearer form, but the books and records of the Trustee
shall at all times show that all such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such
amount, and upon such terms and conditions, as the Trustee shall deem advisable;
and for any sum so borrowed, to issue a promissory note as Trustee, and to
secure the repayment thereof by pledging all, or any part, of the Trust Fund;
and no person lending money to the Trustee shall be bound to see to the
application of the money lent or to inquire into the validity, expediency, or
propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash balances as
the Trustee may, from time to time, deem to be in the best interests of the
Plan, without liability for interest thereon;
(g) To accept and retain, for such time as it may deem advisable, any
securities or other property received or acquired by it as Trustee hereunder,
whether or not such securities or other
7
<PAGE> 36
property would normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted.
(i) To settle, compromise, or submit to arbitration any claims, debts
or damages due or owing to or from the Plan, to commence or defend suits or
legal or administrative proceedings, and to represent the Plan in all suits and
legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation, and such agent or counsel may or may not be agent or
counsel for the Employer;
(k) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem necessary to
carry out the purposes of the Plan;
(l) To apply for and procure from responsible insurance companies, to
be selected by the Administrator, such endowment or other insurance contracts on
the life of any Member or their Contracts as required to insure or protect the
benefits under the Plan as the Administrator shall deem proper; to exercise, at
any time or from time to time, whatever rights and privileges may be granted
under such endowment or other insurance contracts; to collect, receive, and
settle for the proceeds of all such endowment or other insurance contracts as
and when entitled to do so under the provisions thereof;
(m) To invest funds of the Trust in time deposits or savings accounts
bearing a reasonable rate of interest in the Trustee's bank;
(n) To invest in Treasury Bills and other forms of United States
government obligations;
(o) Except as hereinafter expressly authorized, the Trustee is
prohibited from selling or purchasing stock options. The Trustee is expressly
authorized to write and sell call options under which the holder of the option
has the right to purchase shares of stock held by the Trustee as a part of the
assets of this Trust, if such options are traded on and sold through a national
securities exchange registered under the Securities Exchange Act of 1934, as
amended, which exchange has been authorized to provide a market for option
contracts pursuant to Rule 9B-1 promulgated under such Act, and so long as the
Trustee at all times up to and including the time of exercise or expiration of
any such option holds sufficient stock in the assets of this Trust to meet the
obligations under such option of exercised. In addition, the Trustee is
expressly authorized to purchase and acquire call options for the purchase of
shares of stock covered by such options if the options are traded on and
purchased through a national securities exchange as described in the immediately
preceding sentence, and so long as any such option is purchased solely in a
closing purchase transaction, meaning the purchase of exchange traded call
option the effect of which is to reduce or eliminate the obligations of the
Trustee with respect to a stock option contract or contracts which it
8
<PAGE> 37
has previously written and sold in a transaction authorized under the
immediately preceding sentence.
(p) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(q) To pool all or any of the Trust Fund, from time to time, with
assets belonging to any other qualified employee benefit trust or created by the
Employer, and to commingle such assets and make joint or common investments and
carry joint accounts on behalf of this Plan and such other trust or trusts,
allocating undivided shares or interests in such investments or accounts or any
pooled assets of the two or more trusts in accordance with their respective
interests.
(r) To acquire by lease, purchase or rent, property, real or personal,
at public or private sale, with or without security, in such manner, at such
time or times, for such purposes, for such prices and upon such terms, credits
and conditions as the Trustee may deem advisable.
(s) To retain such real or personal property for any period, whether or
not the same be of the character permissible for investments by fiduciaries
under any applicable law, and without regard to any effect the retention may
have upon the diversification of the investments.
(t) To sell, transfer, exchange, convert or otherwise dispose of, or
grant options with respect to any property, real or personal, held in the trust
fund, at public or private sale, with or without security, in such manner, at
such time or times, for such purposes, for such prices and upon such terms,
credits and conditions as the Trustee may deem advisable.
(u) To possess, manage, insure against loss by fire or other
casualties, develop, subdivide, control, partition, mortgage, lease (to Members
or their Beneficiaries) or otherwise deal with any and all real property; to
satisfy and discharge or extend the term of any mortgage thereon; to execute the
necessary instruments and covenants to effectuate the foregoing powers,
including the giving or granting of options in connection therewith; to make
improvements, structural or otherwise, or abandon the same if deemed to be
worthless or not of sufficient value to warrant keeping or protecting; to
abstain from the payment of taxes, water rents, assessments, repairs,
maintenance and upkeep of the same; to permit to be lost by tax sale or other
proceeding or to convey the same for a nominal consideration or without
consideration; to set up appropriate reserves out of income for repairs,
modernization and upkeep of buildings, including reserves for depreciation and
obsolescence, and to add such reserves to principal, and, if the income from the
property itself should not suffice for such purposes, to advance out of the
other income any sums needed therefor, and, to advance any income of the Trust
for the amortization of any mortgage on property held in the Trust.
5.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to
time, in accordance
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<PAGE> 38
with the terms of the Plan, make payments out of the Trust Fund. The Trustee
shall not be responsible in any way for the application of such payments.
5.5 POST-RETIREMENT BENEFITS TO KEY EMPLOYEES
The Trustee shall establish separate accounts for each key employee (as
defined in Section 416(i) of the Code) for any medical benefits or life
insurance to be provided to such key employee after retirement. The key
employee's post-retirement medical and life insurance benefits may only be paid
from such separate account.
5.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall from
time to time be agreed upon in writing by the Employer and the Trustee. An
individual serving as Trustee who already receives full-time pay from the
Employer shall not receive compensation from this Plan. In addition, the Trustee
shall be reimbursed for any reasonable expenses, including reasonable counsel
fees incurred by it as Trustee. Such compensation and expenses shall be paid
from the Trust Fund unless paid or advanced by the Employer. All taxes of any
kind and all kinds whatsoever that may be levied or assessed under existing or
future laws upon, or in respect of, the Trust Fund or the income thereof, shall
be paid from the Trust Fund.
5.7 ANNUAL REPORT OF THE TRUSTEE
Within ninety (90) days after the later of the Anniversary Date or
receipt of the Employer's contribution for each Plan Year, the Trustee shall
furnish to the Employer and Administrator a written statement of the account
with respect to the Fiscal Year for which such contribution was made setting
forth:
(1) the net income, or loss, of the Trust Fund;
(2) the gains, or losses, realized by the Trust Fund upon
sales or other disposition of the assets;
(3) the increase, or decrease, in the value of the Trust
Fund;
(4) all payments and distributions made from the Trust
Fund; and
(5) such further information as the Trustee and/or
Administrator deems appropriate. The Employer,
forthwith upon its receipt of each such statement of
account, shall acknowledge receipt thereof in writing
and advise the Trustee and/or Administrator of its
approval or disapproval thereof. Failure by the
Employer to disapprove any such statement of account
within sixty (60) days after its receipt thereof
shall be deemed an approval thereof.
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<PAGE> 39
The approval by the Employer of any statement of
account shall be binding as to all matters embraced
therein as between the Employer and the Trustee to
the same extent as if the account of the Trustee had
been settled by judgment or decree in an action for a
judicial settlement of its account in a court of
competent jurisdiction in which the Trustee, the
Employer and all persons having or claiming an
interest in the Plan were parties; provided, however,
that nothing herein contained shall deprive the
Trustee of its right to have its accounts judicially
settled if the Trustee so desires.
5.8 AUDIT
(a) If an audit of the Plan's records shall be required by the Act and
the regulations thereunder for any Plan Year, the Administrator shall direct the
Trustee to engage on behalf of all Participants an independent certified public
accountant for that purpose. Such accountant shall, after an audit of the books
and records of the Plan in accordance with generally accepted auditing
standards, within a reasonable period after the close of the Plan Year, furnish
to the Administrator and the Trustee a report of his audit setting forth his
opinion as to whether each of the following statements, schedules, or lists, or
any others that are required by Section 103 of the Act or the Secretary of Labor
to be filed with the Plan's annual report, are presented fairly in conformity
with generally accepted accounting principles applied consistently:
(1) statement of the assets and liabilities of the Plan;
(2) statement of changes in net assets available to the
Plan;
(3) statement of receipts and disbursements, a schedule
of all assets held for investment purposes, a
schedule of all loans or fixed income obligations in
default at the close of the Plan Year;
(4) a list of all leases in default or uncollectible
during the Plan Year;
(5) the most recent annual statement of assets and
liabilities of any bank common or collective trust
fund in which Plan assets are invested or such
information regarding separate accounts or trusts
with a bank or insurance company as the Trustee, and
(6) a schedule of each transaction or series of
transactions involving an amount in excess of three
percent (3%) of Plan assets.
All auditing and accounting fees shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to enable the
Administrator to comply
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<PAGE> 40
with Section 103 of the Act is maintained by a bank, insurance company, or
similar institution, regulated and supervised and subject to periodic
examination by a state or federal agency, it shall transmit and certify the
accuracy of that information to the Administrator as provided in Section 103(b)
of the Act within one hundred twenty (120) days after the end of the Plan Year
or such other date as may be prescribed under regulations of the Secretary of
Labor.
5.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer,
at least thirty (30) days before its effective date, a written notice of his
resignation.
(b) The board of directors of the Employer may remove the Trustee by
mailing by registered or certified mail, addressed to such Trustee at his last
known address, at least thirty (30) days before its effective date, a written
notice of his removal and a copy, certified by the Secretary of the Employer, of
the resolution adopted by such board of directors effecting his removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee,
a successor may be appointed by resolution of the board of directors of the
Employer; and such successor, upon accepting such appointment in writing and
delivering same to the Employer, shall, without further act, become vested with
all the estate, rights, powers, discretions, and duties of his predecessor with
like respect as if he were originally named as Trustee herein. Until such a
successor is appointed, the remaining Trustee or Trustees shall have full
authority to act under the terms of this Agreement.
(d) The board of directors may designate one or more successors prior
to the death, resignation, incapacity, or removal of a Trustee. In the event a
successor is so designated by the board of directors of the Employer and accepts
such designation, the successor shall, without further act, become vested with
all the estate, rights, powers, discretions, and duties of his predecessor with
the like effect as if he were originally named as Trustee herein immediately
upon the death, resignation, incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall
furnish to the Employer and Administrator a written statement of account with
respect to the portion of the Fiscal Year during which he served as Trustee.
This statement shall be either (i) included as part of the annual statement of
account for the Fiscal Year required under Section 5.7 or (ii) set forth in a
special statement. Any such special statement of account should be rendered to
the Employer no later than the due date of the annual statement of account for
the Fiscal Year. The procedures set forth in Section 5.7 for the approval by the
Employer of annual statements of account shall apply to any special statement of
account rendered hereunder and approval by the Employer of any such special
statement in the manner provided in Section 5.7 shall have the same effect upon
the statement as the Employer's approval of an annual statement of account. No
successor to the Trustee shall have any duty or responsibility to investigate
the acts or transactions of any predecessor who has rendered all statements of
account required by Section 5.7 and this subparagraph.
12
<PAGE> 41
ARTICLE VI
AMENDMENT, TERMINATION AND MERGERS
6.1 AMENDMENT
The Employer shall have the right at any time and from time to time to
amend, in whole or in part, any or all of the provisions of this Agreement.
However, no such amendment shall authorize or permit any part of the Trust Fund
(other than such part as is required to pay taxes and administration expenses)
to be used for or diverted to purposes other than for the exclusive benefit of
the Members or their Beneficiaries or estates; no such amendment shall cause or
permit any portion of the Trust Fund to revert to or become the property of the
Employer; and no such amendment which affects the rights, duties or
responsibilities of the Trustee and Administrator may be made without the
Trustee's and Administrator's written consent. Any such amendment shall become
effective upon delivery of a duly executed instrument to the Trustee, provided
that the Trustee shall in writing consent to the terms of such amendment if the
trust provisions contained herein are a part of this Agreement.
6.2 TERMINATION
The Employer shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such termination.
Upon such termination of the Plan, the Employer, by written notice to the
Trustee and Administrator, may direct either:
(a) complete distribution of the assets in the Trust Fund
to the Members or their Beneficiaries as soon as the
Trustee deems it to be in the best interests of the
Members or their Beneficiaries, except however, such
distribution shall only be made (1) pursuant to the
terms of a collective bargaining agreement or (2) on
the basis of objective and reasonable standards which
do not result in unequal payments to similarly
situated Members or their Beneficiaries or in
disproportionate payments to officers, shareholders,
or highly compensated Employees of an Employer
contributing to or otherwise funding this Plan; or
(b) that any assets remaining in the Plan, after the
satisfaction of all liabilities to existing Members
or their Beneficiaries, be applied to provide such
Members or their Beneficiaries with the benefits set
forth in the Plan, provided, however, that such
benefits shall not be provided in disproportionate
amounts to officers, shareholders, or highly
compensated Employees of the Employer.
13
<PAGE> 42
6.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other Plan and Trust only if the
benefits which would be received by a Member or his Beneficiary of this Plan, in
the event of a termination of the Plan immediately after such transfer, merger
or consolidation, are at least equal to the benefits the Member or his
Beneficiary would have received if the Plan had terminated immediately before
the transfer, merger or consolidation.
14
<PAGE> 43
ARTICLE VII
MISCELLANEOUS
7.1 ALIENATION
No benefit which shall be payable out of the Trust Fund to any person
(including a Member or Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge,
encumber, or charge the same shall be void; and no such benefit shall in any
manner be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any such person, nor shall it be subject to attachment
or legal process for or against such person, and the same shall not be
recognized by the Trustee, except to such extent as may be required by law.
Except, however, this provision shall not apply to the extent a Member or
Beneficiary is indebted to the Plan, for any reason, under any provision of this
Agreement and at the time a distribution is to be made or for his benefit, such
proportion of the amount distributed as shall equal such indebtedness shall be
paid by the Trustee to the Trustee or the Administrator, at the direction of the
Administrator, to apply against or discharge such indebtedness. Prior to making
a payment, however, the Member or Beneficiary must be given written notice by
the Administrator that such indebtedness is to be deducted in whole or part from
his benefits. If the Member or Beneficiary does not agree that the indebtedness
is a valid claim against his benefits, he shall be entitled to a review of the
validity of the claim by the Administrator.
In the event a Member's benefits are garnished or attached by order of
any court, the Administrator may bring an action for a declaratory judgment in a
court of competent jurisdiction to determine the proper recipient of the
benefits to be paid by the Plan. During the pendency of said action, any
benefits that become payable shall be paid into the court as they become
payable, to be distributed by the court to the recipient it deems proper at the
close of said action.
7.2 CONSTRUCTION OF AGREEMENT
This Plan shall be construed and enforced according to the Act and the
laws of the State of South Carolina to the extent not preempted by the Act.
7.3 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
7.4 LEGAL ACTION
15
<PAGE> 44
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, not arising out of any willful action of such
Trustee or Administrator they shall be entitled to be reimbursed from the Trust
Fund for any and all costs, attorney's fees, and other expenses pertaining
thereto incurred by them for which they shall have become liable.
7.5 PROHIBITION AGAINST DIVERSION OF FUNDS
It shall be impossible by operation of the Plan or of the Trust, by
termination of either, by power of revocation or amendment, by the happening of
any contingency, by collateral arrangement or by any other means, for any part
of the corpus or income of any trust fund maintained pursuant to the Plan or any
funds contributed thereto to be used for, or diverted to, purposes other than
the exclusive benefit of Members or their Beneficiaries.
7.6 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted
by the Act and regulations thereunder, shall be bonded in an amount not less
than 10% of the amount of the funds such Fiduciary handles; provided, however,
that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount
of funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Section 412(a)(2) of the Act), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in this Agreement
to the contrary, the cost of such bonds shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund or by the Employer.
7.7 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any contract of insurance issued hereunder or
for the failure on the part of the insurer to make payments provided by any such
contract, or for the action of any person which may delay payment or render a
contract null and void or unenforceable in whole or in part.
7.8 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue contracts of insurance hereunder shall not
have any responsibility for the validity of this Plan or for the tax or legal
aspects of this Plan. The insurer shall be protected and held harmless in acting
in accordance with any written direction of the Trustee, and shall have no duty
to see to the application of any funds paid to the Trustee, nor be
16
<PAGE> 45
required to question any actions directed by the Trustee. Regardless of any
provision of this Plan, the insurer shall not be required to take or permit any
action or allow any benefit or privilege contrary to the terms of any Contract
which it issues hereunder, or the rules of the insurer.
7.9 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Member, his legal representative, Beneficiary, or to
any guardian or committee appointed for such Member or Beneficiary in accordance
with the provisions of this Agreement, shall, to the extent thereof, be in full
satisfaction of all claims hereunder against the Trustee and the Employer,
either of whom may require such Member, legal representative, Beneficiary,
guardian or committee, as a condition precedent to such payment, to execute a
receipt and release thereof in such form as shall be determined by the Trustee
or Employer.
7.10 HEADINGS
The headings and subheadings of this Agreement have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
17
<PAGE> 46
IN WITNESS WHEREOF, this Agreement has been executed the day and year
first above written.
RESOURCE BANCSHARES MORTGAGE
GROUP, INC.
WITNESS: By:_______________________________
- -------------------------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, N.A.
----------------------------------
WITNESS: By:________________________________
- -------------------------
18
<PAGE> 1
EXHIBIT 11.1
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE,
BASIC AND DILUTED EARNINGS PER SHARE
($ in thousands, except per share amounts)
For the Quarter
Ended March 31, 1999
---------------------------
Net income $ 11,161
Net income per common share - basic (1) $ 0.50
Net income per common share - diluted (2) $ 0.50
1) The number of common shares outstanding used to compute net income per
share-basic was 22,224,610 for the quarter ended March 31, 1999.
2) Diluted earnings per common share for the quarter ended March 31, 1999, was
calculated based on weighted average common shares outstanding of 22,477,224,
which assumes the exercise of options covering 1,100,705 shares and computes
incremental shares using the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 73,592
<SECURITIES> 44,624
<RECEIVABLES> 183,700
<ALLOWANCES> 0
<INVENTORY> 1,002,210
<CURRENT-ASSETS> 1,684,146
<PP&E> 53,343
<DEPRECIATION> 17,279
<TOTAL-ASSETS> 1,736,351
<CURRENT-LIABILITIES> 1,485,014
<BONDS> 6,339
0
0
<COMMON> 316
<OTHER-SE> 244,682
<TOTAL-LIABILITY-AND-EQUITY> 1,736,351
<SALES> 26,355
<TOTAL-REVENUES> 60,888
<CGS> 32,567
<TOTAL-COSTS> 43,530
<OTHER-EXPENSES> 10,963
<LOSS-PROVISION> 3,055
<INTEREST-EXPENSE> 18,881
<INCOME-PRETAX> 17,358
<INCOME-TAX> 6,197
<INCOME-CONTINUING> 11,161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,161
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
