Resource Bancshares Mortgage Group continued to struggle in the fourth quarter, hurt by a rise in the wholesale cost of loans and a one-time charge for staff reductions.

The Columbia, S.C., company reported a net loss of $6.9 million, or 36 cents a share, versus net earnings of $12.7 million, or 55 cents a share, in the year-earlier quarter.

The total for the 1999 quarter includes an operating loss of $4.1 million, or 22 cents a share, and charges of $3.8 million for reducing staff and $600,000 related to the hiring of Douglas K. Freeman as chief executive officer.

The company also said it had a $1.9 million noncash expense related to the impact of rising 30-day Libor rates on its retained residual interests.

Full-year operating income dropped to $8.7 million, or 42 cents per share, from $48.7 million, or $2.07 a share, in 1998.

"There is excess capacity in the marketplace," said Michael P. McMahon, a Walnut Creek, Calif., analyst for Sandler O'Neill & Partners. Mr. McMahon said he was expecting a 4 cent operating loss. "They had higher volume, but it came at a cost," he said.

Resource, which buys most of its loans, must "pay considerably more for those loans than a year ago, and certainly more than two years ago," Mr. McMahon said.

Pricing has become so competitive, he said, that the company does not cover its overhead when selling its loans. "Production came back, but it appears to have increased the operating loss," he said.

The company's subprime, commercial, leasing, and servicing divisions remain "small relative to the size of the agency operations," which deal in loans that meet Fannie Mae and Freddie Mac criteria, Mr. McMahon noted.

Chief financial officer Steven F. Herbert said Resource managed to stabilize loan volumes and costs in the fourth quarter but its margin was only 50 basis points, half the year-earlier figure.

The company said it fired 208 people from its main "agency-eligible" operation and 30 people from its subprime group in the quarter.

In the agency-eligible division, staff reductions helped reduce operating expenses by 47% from a year earlier, to $13 million, Mr. Herbert said.

Resource's balance sheet reflected the industry's lower volume in the quarter.

The company said that at yearend it was holding $485 million of loans for sale, down from the $1.1 billion at the end of 1998.

The present quarter is expected to bring a "highly competitive environment with irrational pricing," Mr. Herbert said.

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