AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1995
REGISTRATION STATEMENT NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REPUBLIC SECURITY FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
FLORIDA 6120 59-2335075
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
<TABLE>
<S> <C>
RUDY E. SCHUPP
4400 CONGRESS AVENUE 4400 CONGRESS AVENUE
WEST PALM BEACH, FLORIDA 33407 WEST PALM BEACH, FLORIDA 33407
(407) 840-1200 (407) 840-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN S. FLETCHER, ESQ. RAYMOND A. TIERNAN, ESQ.
MORGAN, LEWIS & BOCKIUS ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
5300 FIRST UNION FINANCIAL CENTER 12TH FLOOR
200 SOUTH BISCAYNE BOULEVARD 734 15TH STREET
MIAMI, FLORIDA 33131 WASHINGTON, D.C. 20005
(305) 579-0432 (202) 347-0300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED AMOUNT OF
TITLE OF EACH CLASS MAXIMUM AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share..................... $ 11,126,250 $ 3,837
-------------------------------------------------------------------------------------------------------------------------------
% Cumulative Convertible Preferred Stock, Series C....... $ 10,350,000(2) $ 3,569
-------------------------------------------------------------------------------------------------------------------------------
Total...................................................... $ 21,476,250(2) $ 7,406
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 270,000 shares of Common Stock and 135,000 shares of Series C
Preferred that may be purchased by the Underwriter pursuant to an
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
CROSS-REFERENCE SHEET
pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus............................................ Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................................... Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Information
4. Use of Proceeds............................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............................... Not Applicable
6. Dilution...................................................... Not Applicable
7. Selling Security Holders...................................... Not Applicable
8. Plan of Distribution.......................................... Front Cover Page; Prospectus Summary;
Underwriting
9. Description of Securities to be Registered.................... Description of Securities
10. Interests of Named Experts and Counsel........................ Not Applicable
11. Information with Respect to the Registrant.................... Prospectus Summary; The Company and the Bank;
Market Price and Dividend Data; Selected
Consolidated Financial Information; Pro
Forma Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Consolidated Financial Statements
12. Incorporation of Certain Information by Reference............. Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities.................................... Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION DATED SEPTEMBER 22, 1995
REPUBLIC SECURITY FINANCIAL CORPORATION
(Holding Company for Republic Security Bank, Federal Savings Bank)
SHARES OF COMMON STOCK
SHARES OF % CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C
Republic Security Financial Corporation, a Florida corporation (the
'Company'), is hereby offering shares of its common stock, par value
$.01 per share (the 'Common Stock'), at a price of $ per share, and
shares of its % Cumulative Convertible Preferred Stock, Series C (the
'Series C Preferred'), at a price of $10.00 per share (the 'Offerings'). The
Company has granted Ryan, Beck & Co., Inc. ('Ryan, Beck' or the 'Underwriter')
separate options, exercisable within 30 days of the date of this Prospectus, to
purchase up to additional shares of Common Stock and additional
shares of Series C Preferred to cover overallotments, if any. If the options are
exercised in full, the total number of shares of Common Stock offered hereby
shall increase to and the total number of shares of Series C Preferred
offered hereby shall increase to .
Each share of Series C Preferred, unless previously redeemed, will be
convertible at any time at the option of the holder into shares of Common Stock
at a conversion price of $ per share (the 'Conversion Price') of Common Stock
(equivalent to approximately shares of Common Stock per share of Series C
Preferred), subject to adjustment upon certain events. The Series C Preferred is
not redeemable prior to , 1999 unless the Common Stock has a
closing bid price which is at least 140% of the Conversion Price for 20
consecutive trading days prior to the date of the notice of redemption. Subject
to the foregoing, the Series C Preferred may be redeemed at the Company's option
at a price of $10.00 per share, plus accrued and unpaid dividends, until
, 1999. At any time on or after , 1999, the Series C
Preferred may be redeemed at the Company's option at $ per share and at
prices decreasing annually thereafter to $10.00 per share on and after
, plus in each case accrued and unpaid dividends.
The Common Stock is currently traded on the NASDAQ National Market
('NASDAQ') under the symbol 'RSFC.' On September , 1995, the last sale price
of the Common Stock as reported by the NASDAQ was $ per share. See 'Market
Price and Dividend Data.' The Series C Preferred is a new issue of securities,
therefore, there has been no public market for the Series C Preferred. The
Company has applied to list the Series C Preferred on NASDAQ under the symbol
' '. There can be no assurance that such application will be approved.
Ryan, Beck has indicated its intention to be a market maker in the Series C
Preferred. There can be no assurance that a liquid market for the Series C
Preferred will develop.
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE 'RISK FACTORS' ON PAGE .
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS INSTITUTION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER
GOVERNMENT AGENCY, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, ANY
STATE SECURITIES COMMISSION, OR ANY OTHER GOVERNMENT AGENCY PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================================
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)(3)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock $ $ $
---------------------------------------------------------------------------------------------------------------------------
Per Share of Series C Preferred Stock $ $ $
---------------------------------------------------------------------------------------------------------------------------
Total $ $ $
===========================================================================================================================
</TABLE>
(1) See 'Underwriting' for information concerning discounts and commissions and
indemnification of Ryan, Beck.
(2) Before deducting expenses estimated to be $ payable by the Company.
(3) The Company has granted the Underwriter separate options, exercisable within
30 days of the date of this Prospectus, to purchase up to shares of Common
Stock and shares of Series C Preferred Stock at the respective Price
to Public less the applicable Underwriting Discount, to cover
overallotments, if any. If the overallotments are sold in full and based on
the assumptions stated in footnote (2), the Price to Public will total
$ , the Underwriting Discounts and Commissions will total $
and the Proceeds to the Company will total $ . See 'Underwriting.'
------------------------
The shares of Common Stock and Series C Preferred are being offered by
Ryan, Beck subject to delivery by the Company and acceptance by Ryan, Beck and
subject to prior sale and withdrawal, cancellation or modification of the offer
without notice. Delivery of the shares is expected to be made at the offices of
Ryan, Beck in West Orange, New Jersey on or about , 1995.
RYAN, BECK & CO.
The date of this Prospectus is , 1995.
<PAGE>
REPUBLIC SECURITY BANK
LOCATIONS FROM JUPITER TO HOMESTEAD
[INSERT MAP]
IN CONNECTION WITH THE OFFERINGS, RYAN, BECK MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND SERIES C PREFERRED AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information may be inspected and copied at the Commission's
public reference room located at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the public reference facilities in the Commission's regional
offices at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661 and Room 1228, 75 Park Place, New York, New York 10007.
Copies of such material may also be obtained at prescribed rates by writing the
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Common Stock is listed on NASDAQ and such reports, proxy statements
and other information may be inspected and copied at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement on Form
S-2 (File No. 33- ) (the 'Registration Statement') under the Securities Act
of 1933, as amended ('Securities Act'), with respect to the Common Stock and the
Series C Preferred offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement. For further information
with respect to the Company, the Common Stock and the Series C Preferred offered
hereby, reference is made to the Registration Statement. Statements contained in
this Prospectus concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of the
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. Copies of all or any part of
the Registration Statement, including exhibits thereto, may be obtained, upon
payment of the prescribed fees, at the offices of the Commission as set forth
above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Commission by the Company under the
Exchange Act, are incorporated in this Prospectus and made a part hereof by
reference:
The Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1995.
The Company's Quarterly Report on Form 10-Q for the period ended June 30,
1995.
The Company's Current Report on Form 8-K dated July 26, 1995.
The Company's Current Report on Form 8-K dated September 14, 1995.
All documents and reports filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the conclusion of the Offerings contemplated hereby shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the dates of filing of such documents or reports. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be modified or superseded for the purposes of this Prospectus to the
extent that a statement contained herein which is or is not deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not, except as so modified or
superseded, constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER OF COMMON STOCK AND/OR SERIES C PREFERRED, TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON SUCH PERSON'S WRITTEN OR ORAL REQUEST, A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31,
1995, QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1995, CURRENT
REPORT ON FORM 8-K DATED JULY 26, 1995 AND CURRENT REPORT ON FORM 8-K DATED
SEPTEMBER 14, 1995. WRITTEN OR TELEPHONE REQUESTS FOR COPIES OF SUCH DOCUMENTS
SHOULD BE DIRECTED TO REPUBLIC SECURITY FINANCIAL CORPORATION, 4400 CONGRESS
AVENUE, P.O. BOX 4298, WEST PALM BEACH, FLORIDA 33402-4298, ATTENTION:
SECRETARY, (407) 840-7841.
3
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and incorporated by reference herein. This summary does not purport
to be complete, and is qualified in its entirety by reference to the more
detailed information and consolidated financial statements, including the
consolidated notes thereto, included elsewhere in this Prospectus and in the
documents incorporated by reference herein.
THE COMPANY AND THE BANK
THE COMPANY
Republic Security Financial Corporation (the 'Company'), headquartered in
West Palm Beach, Florida, is a savings bank holding company. Its principal
business is the operation of Republic Security Bank, Federal Savings Bank, a
federal stock savings bank (the 'Bank'). As of June 30, 1995, the Company had
consolidated assets of $276 million, deposits of $225 million and shareholders'
equity of $22.7 million.
THE BANK
The Bank commenced operations on November 19, 1984 as a stock savings bank.
It is a member of the Federal Home Loan Bank (the 'FHLB') System, and its
deposits are insured by the Federal Deposit Insurance Corporation (the 'FDIC')
up to applicable limits. The Bank is subject to examination and comprehensive
regulation by the Office of Thrift Supervision (the 'OTS') and the FDIC.
The Bank has an aggregate of seven full-service branches, six of which are
located in Palm Beach County and one in Dade County, Florida. The Bank's main
business activities are attracting deposits, originating loans, making
investments and servicing loans for the Bank and for others. Earnings depend
primarily upon the difference between interest received on loans and investments
and interest paid on the Bank's deposit base and borrowings.
ACQUISITIONS. On September 7, 1995, the Company entered into a definitive
agreement with Banyan Bank ('Banyan'), a commercial bank headquartered in Boca
Raton, Florida, which provides for the acquisition of all of the outstanding
capital stock of Banyan. As a result of the acquisition, Banyan will be merged
into the Bank, adding a branch in each of Boca Raton and Boynton Beach and
assets of approximately $50 million. See 'Use of Proceeds,' 'Proposed
Acquisition of Banyan Bank' and 'Pro Forma Combined Condensed Financial
Information.'
The Company acquired Governors Bank ('Governors'), a commercial bank
headquartered in West Palm Beach, Florida, on November 30, 1994, in a merger
accounted for as a purchase. As a result of the merger, the Bank's assets
increased by $64 million, deposits increased by $58 million and the banking
center network expanded by two full-service branches. On January 22, 1993, in a
transaction also accounted for as a purchase, the Company acquired Homestead
Federal Savings Bank ('Homestead'), which was merged into the Bank, increasing
the asset base by 36%, or $45.5 million, increasing the deposit base by $41.8
million and adding two branch locations to the banking center network.
CHARTER CONVERSION. On April 17, 1995, the Bank filed an application to
convert its charter from a federal savings bank to a State of Florida commercial
bank, and at the same time the Company applied with the Federal Reserve Board to
become a bank holding company. If approved, the conversion should be completed
prior to December 31, 1995. The charter conversion reflects the Bank's desire to
overcome the limitations on commercial and consumer loan generations imposed
under its thrift charter and is consistent with the Bank's shift in focus from
traditional thrift business activities to commercial banking activities.
As a consequence of the Bank's application for a commercial bank charter,
on July 26, 1995 the Company changed its fiscal year-end from March 31 to
December 31.
4
<PAGE>
OPERATING STRATEGY. Historically, the Bank's operating strategy was to
originate long-term residential mortgage loans and short-term construction loans
on residential properties. Upon completion of the construction phase, many of
the construction loans became residential mortgage loans, most of which were
then sold into the national secondary market through the Bank's mortgage banking
operation with the Bank retaining servicing on the loans sold as a source of
continuing income. Over two years ago, management began to shift the Bank's
business from traditional thrift activities to those more closely related to
commercial banking, with emphasis placed on originating consumer and commercial
loans, which typically provide higher yields and have shorter terms than
residential mortgage loans. In addition, the Bank began to focus on attracting
checking accounts in order to build customer relationships and develop lower
cost sources of funds than certificates of deposit.
In fiscal 1995, management continued these efforts and further
re-engineered the Bank's strategy in response to competitive and market factors,
including strong competition in the construction lending business and the
reduced profitability of the mortgage banking industry. The Bank's income from
mortgage banking was negatively impacted as interest rates increased,
residential loan originations and refinancings decreased and mortgage banking
profit margins narrowed.
The Bank's current business strategy includes (i) concentration on consumer
and commercial lending, (ii) emphasis on transaction accounts, particularly
business and personal checking accounts, (iii) focus on non-interest income from
loan and deposit service fees and new products and services, (iv) achievement of
a higher profile through additional strategically located banking offices, (v)
continued emphasis on residential construction lending, (vi) maintenance of a
presence in the residential mortgage market, and (vii) growth through a
combination of bank and branch acquisitions, as well as de novo expansion of the
branch network.
In fiscal 1995, significant effects of implementing the business strategy
were realized. In furtherance of its objectives, the Bank consummated the
November 1994 acquisition of Governors, which, as a commercial bank, had a
concentration of desired commerical business and consumer loans. In March 1995,
the Bank significantly downsized its mortgage banking operation, reducing staff
and closing outlying loan production offices, in order to reduce overhead and
centralize residential mortgage lending at the Bank's headquarters office.
Management expects to continue to pursue its business strategy while maintaining
asset quality, closely monitoring operating expenses and managing interest rate
risk.
Effects realized by implementation of the Company's business strategy
include the following:
- CAPITAL STRENGTH - At June 30, 1995, the Bank exceeded all applicable
regulatory capital requirements, with tangible and core capital ratios of 6.75%
and risk based capital ratio of 11.75%. The Bank intends to continue to be well
capitalized, striving for a leverage capital ratio in excess of 7% subsequent to
the Bank's conversion to a commercial bank.
- PROFITABILITY - After several years of steady increase, return on
average assets for the year ended March 31, 1995 declined. For fiscal 1995,
return on average assets was .50%, compared to .86% (excluding cumulative effect
of change in accounting for income taxes) for fiscal 1994. The decline was due,
in large part, to the unfavorable mortgage banking environment. Net income for
the quarter ended June 30, 1995 was almost twice that for the corresponding
quarter in 1994, increasing to $527,000, or $.10 per share, from $265,000, or
$.05 per share. The improvement reflected the impact of the acquisition of
Governors and the effects of the re-engineering initiative. For the quarter
ended June 30, 1995, annualized return on average assets was .76%, and
annualized return on average equity was 9.78%, as compared to .51% and 5.37%,
respectively, for the corresponding 1994 quarter.
Net interest income, a primary component of net income, is mainly a
function of the Bank's interest rate spread (the average yield on
interest-earning assets less the average rate paid on interest-bearing
liabilities), which was 4.98%, 3.62%, 3.81% and an annualized 3.66% during the
years ended March 31,
5
<PAGE>
1993, 1994, 1995 and the quarter ended June 30, 1995, respectively. In the event
that market interest rates rise, it is likely that net interest income will
decline. At June 30, 1995, the dollar volume of interest-bearing liabilities,
primarily deposits and borrowings, that will mature or reprice within one year
exceeds the dollar volume of interest-earning assets, primarily loans and
investments, which are similarly expected to mature or reprice.
As a result of the Bank's decreased emphasis on mortgage banking
operations and the growth in commercial business and consumer loans, net income
in the future is expected to be more dependent on the level of net interest
income.
- EFFICIENCY RATIO - One of management's goals is to maintain a reasonable
efficiency ratio. The merger of Governors contributed to a less favorable ratio
in fiscal 1995 of 83% versus the ratio of 77% in the previous year. Another
contributing factor was the decrease in gains on sales of loans that resulted
from the unfavorable mortgage banking environment. The ratio improved to 76% for
the quarter ended June 30, 1995 as a result of an increase in fee-based
products, increased volume of loans serviced and careful monitoring of expenses.
- BUSINESS MIX - The transition from concentrating on residential mortgage
lending to commercial and consumer lending was most evident in fiscal 1995. At
March 31, 1994, 29% of the Bank's loan portfolio was comprised of residential
construction and lot loans, 59% was residential mortgages, 7% was commercial
real estate loans, 4% was consumer loans and 1% was commercial business loans.
At June 30, 1995, the mix had shifted dramatically, with 18% of the loan
portfolio in residential construction and lot loans, 49% in residential
mortgages, 11% in commercial real estate loans, 15% in consumer loans and 7% in
commercial business loans. Loans acquired from Governors accounted for
approximately 66% of the increase in commercial loans and approximately 42% of
the increase in consumer loans. Management is seeking further growth in
commercial and consumer lending, while maintaining a presence in the residential
real estate market and a continued emphasis on residential construction lending.
- ASSET QUALITY - The Bank seeks to maintain quality assets and moderate
credit risk. Despite growth in commercial business and consumer loans, which
generally pose more credit risk than residential loans, non-performing assets
decreased from 1.56% of assets at March 31, 1994 to 1.23% of assets at March 31,
1995, though the level of non-performing assets rose slightly, from $3.2 million
to $3.4 million, as a result of the acquisition of Governors. At June 30, 1995,
non-performing assets increased to $6.3 million, or 2.30% of assets, while the
allowance for loan losses at that date totalled $2.6 million, or 52.5% of
non-performing loans. The increase in non-performing assets from March 31, 1995
to June 30, 1995 was primarily due to two factors: (1) certain loans acquired in
connection with the acquisition of Governors, which had been identified at the
time of acquisition and classified by the Bank but remained performing until the
quarter ended June 30, 1995, and (2) a number of residential mortgage loans that
became delinquent during the period due to personnel vacancies in key loan
collection positions, which vacancies were subsequently filled.
- TRANSACTION ACCOUNTS - At June 30, 1995, 37% of the Bank's deposit base
consisted of core deposits, which includes non-interest-bearing checking
accounts, savings accounts, NOW checking accounts and money market accounts.
These accounts are considered to be more stable and are a lower cost source of
funds than certificates of deposit or outside borrowings. The Bank's efforts to
attract checking accounts met with increased success in fiscal 1995. At June 30,
1995, non-interest-bearing checking accounts and NOW accounts represented 23% of
deposits, as compared to 19% of deposits at March 31, 1994. The Bank will
continue to emphasize retail deposits by maintaining a network of full-service
offices, providing quality customer service, and providing depositors with a
full range of services and accounts. The flow of deposits, however, is
significantly influenced by competition and prevailing market rates.
6
<PAGE>
- REALIGNMENT OF BRANCH NETWORK - In March 1995, in response to the
significant reduction in mortgage banking operations, the outlying residential
loan production offices were closed. With the expansion of the Bank's commercial
and consumer lending businesses, branch personnel are actively involved in the
marketing of commercial and consumer products, such as credit cards and cash
management products and services.
Subsequent to the anticipated relocation of the Bank's Delray Beach
branch, expected to occur in November 1995, and the construction of a new,
expanded office in Jupiter, all of the Bank's branches will be similar to
traditional commercial banking branch facilities. The branches will be
free-standing buildings with drive-up lanes, ATM facilities, night depositories
and safe deposit boxes.
- CONTROLLED GROWTH - Through strategic acquisitions and internal growth,
the Bank's assets increased over 100%, from $135 million at March 31, 1992 to
$276 million at June 30, 1995. Over the same period, the loan portfolio
increased from approximately $96 million to $230 million, while deposits
increased from $117 million to $225 million.
The Company will continue to pursue controlled growth through internal
expansion of products and services, opening of new branches and select
acquisitions of banks or branches. The Company has entered into a definitive
agreement to acquire Banyan, subject to completion of the Offerings and certain
other conditions. See 'Use of Proceeds' and 'Proposed Acquisition of Banyan.'
Any further expansion is also anticipated to be in South Florida, particularly
in Palm Beach, Martin and Broward Counties.
THE OFFERINGS
UNDERWRITING
The Company has entered into an Underwriting Agreement with Ryan, Beck
pursuant to which the shares offered hereby will be purchased by Ryan, Beck for
resale to the public. Ryan, Beck's obligation to purchase the shares of Common
Stock and Series C Preferred will be subject to certain conditions, including,
among others, that Ryan, Beck will not be obligated to purchase any such shares
if certain events occur which could have a material adverse effect upon the
business or financial condition of the Company or the Bank or on the banking -
thrift industry or financial markets generally and/or which, in the sole
judgment of Ryan, Beck, make it impractical or inadvisable to proceed with the
Offerings. See 'Underwriting.'
SECURITIES OFFERED
shares of Common Stock and shares of % Cumulative Convertible
Preferred Stock, Series C.
COMMON STOCK
As of August 31, 1995, 4,377,860 shares of Common Stock were issued and
outstanding. Pursuant to outstanding non-qualified stock options and warrants, a
total of 1,497,155 shares of the Common Stock were issuable at prices ranging
from $2.48 to $8.00 as of August 31, 1995. See 'Description of Securities.'
SERIES C PREFERRED
General. The Series C Preferred ranks senior to the Common Stock with
respect to dividend rights and rights upon liquidation, dissolution or winding
up of the Company. The Series C Preferred is junior to all of the Company's
outstanding indebtedness issued from time to time. The Series C Preferred will
rank equal to the Company's 7.5% Cumulative Convertible Preferred Stock, Series
A (the 'Series A Preferred')
7
<PAGE>
as to liquidation preference and dividends. As of August 31, 1995, there were
402,500 shares of Series A Preferred outstanding. The Company will have the
right, without the consent of the holders of Series C Preferred, to issue
further series of preferred stock which rank equal or junior to the Series C
Preferred as to liquidation preference and dividends. See 'Description of
Securities--Preferred Stock--Series C Preferred.'
Dividends. Dividends on the Series C Preferred are payable at an annual
rate equal to %, or $ per share. Dividends on the Series C Preferred
will be payable when, as and if declared by the Company's Board of Directors,
quarterly in arrears, to holders on the last day of March, June, September and
December, with the first dividend payment, if any, on , 1995,
prorated from the date of issuance. Dividends on the Series C Preferred will
accumulate if not paid. See 'Risk Factors--Ability to Make Dividend Payments.'
Conversion. Each share of Series C Preferred will be convertible at any
time at the option of the holder into shares of Common Stock at a conversion
price of $ per share (the 'Conversion Price') of Common Stock (equivalent
to shares of Common Stock per share of Series C Preferred), subject to
adjustment upon certain events.
Optional Redemption. The Series C Preferred is not redeemable prior to
, 1999 unless the Common Stock shall have a closing bid price
which is at least 140% of the Conversion Price for 20 consecutive trading days
prior to redemption. In the event the Series C Preferred becomes redeemable
prior to , 1999, the Series C Preferred may be redeemed, in
whole or in part, at the Company's option at a price of $10.00 per share, plus
accrued and unpaid dividends (whether or not earned or declared) to the date
fixed for redemption, until , 1999. At any time on or after ,
1999, the Series C Preferred may be redeemed, in whole or in part, at the
Company's option at the following per share prices during the 12-month period
beginning :
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999.................................................. $
2000..................................................
2001..................................................
2002..................................................
2003..................................................
2004..................................................
2005 and thereafter................................... 10.00
</TABLE>
together, in each case, with an amount equal to accrued plus unpaid dividends
(whether or not earned or declared) to the date fixed for redemption.
Liquidation Preference. $10.00 per share plus accumulated unpaid
dividends, but subordinated to all indebtedness of the Company.
REGULATORY LIMITATIONS
To the extent that shares of Common Stock or Series C Preferred are to be
issued to any purchaser who in the sole opinion of the Company could be required
to obtain prior clearance or approval from or submit a notice to any state or
federal bank regulatory authority to acquire or control such shares, the Company
will not be required to issue shares if, at the Closing, such clearance or
approval has not been obtained and/or any required waiting period has not
expired and/or such notice has not been submitted. In such case, the Company
will issue to such purchaser only such number of shares as in the opinion of the
Company would not give rise to any such notice or prior clearance or approval
requirement and may elect not to issue such
8
<PAGE>
number of shares in excess thereof, which excess shares will become available
for purchase in the Offerings.
USE OF PROCEEDS
The Company intends to use approximately $9.5 million of the net proceeds
received by the Company from the sale of the Common Stock and Series C Preferred
in the Offerings, after deduction of commissions, underwriting discounts and
expenses, to fund the purchase of Banyan, in the event such acquisition is
consummated. See 'Proposed Acquisition of Banyan Bank.' Further, the Bank
intends to use approximately $3.3 million of the net proceeds to increase its
leverage capital ratio, subsequent to the Bank's conversion to a commercial
bank, to a target level of at least 7%. The balance of the net proceeds is
expected to be utilized to increase the Bank's regulatory capital in order to
permit growth in the Bank's asset size. The Bank intends to grow in asset size
through additional deposit and lending activities, acquisitions, the opening of
new branches and an increase in size of its existing branches. The Company
intends to consider other acquisitions of existing banks or branches located in
the State of Florida. The Company expects that any new branches would be located
in Palm Beach County and its adjoining counties, including Martin County and
Broward County. See 'Use of Proceeds.'
MARKET AND DIVIDEND FOR THE COMMON STOCK AND SERIES C PREFERRED
The Common Stock is listed for trading on NASDAQ under the symbol 'RSFC.'
The closing price of the Common Stock on September , 1995, as quoted on
NASDAQ, was $ . At August 31, 1995, the approximate number of record
holders of the Common Stock was 1,500. See 'Market Price and Dividend Data.'
The Company commenced the payment of quarterly cash dividends on the Common
Stock in 1993 at the rate of $.01 per share per quarter. With the dividend
declared on April 26, 1995, the amount of the quarterly dividend was increased
to $.02 per share and for the dividend payment declared on July 26, 1995, the
rate was increased to $.025 per share. It is the present intention of the
Company's Board of Directors to continue to pay regular quarterly cash
dividends; however, the declaration and payment of future dividends is at the
sole discretion of the Board of Directors and the amount, if any, depends upon
the earnings, financial condition and capital needs of the Company and the Bank,
as well as other factors, including restrictions arising from Federal banking
laws and regulations to which the Company and the Bank are subject.
Prior to the Offerings, there has been no market for the Series C
Preferred. The Company has applied to list the Series C Preferred on NASDAQ
under the symbol ' .' There can be no assurance that this application
will be approved or that an active or liquid market for the Series C Preferred
will develop. See 'Underwriting.'
RISK FACTORS
Special attention should be given to certain factors discussed under 'Risk
Factors' including change in composition of loan portfolio, ability of the
Company and the Bank to make dividend payments, the effect of interest rates and
market conditions.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30, YEAR ENDED MARCH 31,
----------------- -----------------------------------------------
1995(1) 1994(1) 1995(2) 1994(3) 1993(2) 1992(3) 1991(3)
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS
Interest income............................................ $ 5,320 $ 3,361 $16,288 $12,487 $11,237 $11,366 $12,016
Interest expense........................................... 2,712 1,509 7,397 5,512 4,560 6,950 8,821
-------- -------- ------- ------- ------- ------- -------
Net interest income........................................ 2,608 1,852 8,891 6,975 6,677 4,416 3,195
Provision for loan losses.................................. 25 75 200 214 1,003 704 616
-------- -------- ------- ------- ------- ------- -------
Net interest income after provision for loan losses........ 2,583 1,777 8,691 6,761 5,674 3,712 2,579
Non-interest income........................................ 914 854 2,999 4,389 3,058 3,812 3,335
Operating expenses......................................... 2,679 2,211 9,860 8,739 6,932 6,266 5,274
-------- -------- ------- ------- ------- ------- -------
Income before income tax, extraordinary item
and accounting change..................................... 818 420 1,830 2,411 1,800 1,258 640
Income taxes............................................... 291 155 663 818 582 466 205
-------- -------- ------- ------- ------- ------- -------
Income before extraordinary item and accounting change..... 527 265 1,167 1,593 1,218 792 435
Extraordinary item......................................... 278 205
Change in accounting for income taxes...................... 500
-------- -------- ------- ------- ------- ------- -------
Net income................................................. $ 527 $ 265 $ 1,167 $ 2,093 $ 1,218 $ 1,070 $ 640
======== ======== ======= ======= ======= ======= =======
PER SHARE DATA(4)
Income before extraordinary item and accounting change..... $.10 $.05 $.23 $.42 $.50 $.42 $.27
======== ======== ======= ======= ======= ======= =======
Net income................................................. $.10 $.05 $.23 $.55 $.50 $.55 $.39
======== ======== ======= ======= ======= ======= =======
Average common shares and common stock equivalents
outstanding (in thousands)................................ 4,459 4,480 4,474 3,927 2,895 2,389 1,643
======== ======== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30, YEAR ENDED MARCH 31,
---------------------- --------------------------------------------------------
1995(1) 1994(1) 1995(2) 1994(3) 1993(2) 1992(3) 1991(3)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.......................... $275,980 $204,524 $280,039 $206,637 $169,474 $135,330 $123,786
Investments........................... 11,358 21,333 14,185 24,481 248 248 2,447
Loans receivable - net(5)............. 229,819 165,909 227,940 155,294 126,010 98,970 78,897
Total deposits........................ 225,081 154,608 229,735 156,651 145,911 117,349 109,869
Borrowed money........................ 17,469 21,995 19,733 21,995 2,000 2,000 2,000
Shareholders' equity.................. 22,672 19,811 20,446 19,648 10,793 7,104 5,935
OTHER DATA
Return on average assets.............. .76% .51% .50% 1.13% .91% .81% .50%
Return on average shareholders'
equity............................... 9.78% 5.37% 5.82% 12.63% 14.57% 16.04% 11.41%
Average shareholders' equity to
average total assets................. 7.79% 9.60% 8.60% 8.92% 6.25% 5.03% 4.42%
Allowance for loan losses to
total loans.......................... 1.04% .65% .99% .60% .85% .67% .57%
Net charge-offs to average loans...... N/A(6) .03% .09% .27% .75% .55% .65%
Non-performing assets to total assets
at period end........................ 2.30% 1.35% 1.23% 1.56% 2.43% 3.99% 1.76%
Non-performing loans as a percentage
of total loans....................... 2.13% .77% 1.06% .87% 2.53% 1.64% .25%
Allowances for loan losses to
non-performing loans................. 53% 85% 103% 79% 39% 47% 301%
Net interest margin(7)................ 3.66% 3.65% 3.81% 3.62% 4.98% 3.00% 3.10%
Net yield(7).......................... 4.12% 3.93% 4.25% 4.01% 5.46% 3.10% 2.90%
Efficiency ratio(8)................... 76% 82% 83% 77% 71% 76% 91%
Number of full service offices........ 7 5 7 5 5 3 3
Loan servicing portfolio (in
millions)............................ $325 $220 $323 $189 $267 $402 $409
</TABLE>
(Footnotes on following page)
10
<PAGE>
------------------------
(1) Quarterly data is presented on an annualized basis, where appropriate.
(2) The Bank acquired Governors on November 30, 1994 and acquired Homestead on
January 22, 1993. For further details related to the acquisitions, see the
Company's Note 2 to the Consolidated Financial Statements at March 31, 1995.
(3) Ratios for the year ended March 31, 1994 include $500,000 cumulative effect
of change in accounting for income taxes where appropriate. Ratios for the
years ended March 31, 1992 and 1991 include extraordinary item benefits of
$278,000 and $205,000, respectively, where appropriate.
(4) The Company issued 5% and 10% stock dividends on January 21, 1994 and April
1, 1993, respectively. All references to amounts per common share and to
number of common shares have been restated to give retroactive effect for
these stock dividends.
(5) Amounts reflect reclassification of in-substance foreclosures to other real
estate in accordance with SFAS No. 114.
(6) The Bank had net recoveries of $44,000 during the three months ended June
30, 1995.
(7) Net interest margin is the average yield earned during the year on
interest-earning assets less the average rate incurred on interest-bearing
liabilities. Net yield is the excess of interest on interest-earning assets
over interest on interest-bearing liabilities, expressed as a percentage of
total average interest-earning assets.
(8) The efficiency ratio is calculated by dividing non-interest expense by net
interest income plus non-interest income.
11
<PAGE>
RISK FACTORS
BEFORE INVESTING IN THE COMMON STOCK OR SERIES C PREFERRED OFFERED HEREBY,
HOLDERS AND OTHER PROSPECTIVE PURCHASERS SHOULD CONSULT CAREFULLY THE FACTORS
PRESENTED BELOW.
CHANGE IN COMPOSITION OF LOAN PORTFOLIO
Through the establishment of a commercial and consumer loan department and
the acquisition of a commercial bank, the Bank has changed the composition of
its loan portfolio in recent years. This change is consistent with the Bank's
goal to convert from a thrift to a commercial bank. The residential mortgage
loan portfolio has decreased from approximately 85% of the loan portfolio at
March 31, 1992 to 67% of the loan portfolio at June 30, 1995. At the same time,
the commercial business and consumer loan portfolio increased from 15% at March
31, 1992 to 33% at June 30, 1995. Commercial business and consumer loans are
generally considered to carry different and significantly greater risks than
single family residential mortgage loans. Although the Bank's redistribution of
its loan composition is consistent with the Bank's operating strategy and will
allow the Bank to be comparable to its bank peer group, there are no assurances
that the Bank will be able to generate sufficient loan volume in the commercial
business and consumer loan area to either maintain those portfolios at their
current level or increase the portfolios. See 'Business-- Lending Activities of
the Bank.'
ALLOWANCE FOR LOAN LOSSES
Industry experience indicates that a portion of the Bank's loans will
become delinquent and a portion of the loans will require partial or entire
charge off. Regardless of the underwriting criteria utilized by the Bank, losses
may be experienced as a result of various factors beyond the Bank's control,
including, among others, changes in market conditions affecting the value of
security and problems affecting the credit of the borrower. Due to the
concentration of loans in South Florida, adverse economic conditions in that
area could result in a decrease in the value of a significant portion of the
Bank's collateral. There can be no assurance that the Bank will not experience
significant losses in its loan portfolios which may require significant
additions to the loan loss reserves. See 'Business--Non-Performing Assets and
Allowance for Loan Losses.'
INTENSE COMPETITION IN THE BANK'S MARKET AREA
Vigorous competition exists in all areas where the Bank presently engages
in business. The Bank faces intense competition in its market areas from major
banking and financial institutions, including many which have substantially
greater resources, name recognition and market presence than the Bank.
Particularly intense competition exists for sources of funds, including savings
and time deposits, in the residential mortgage market and in the residential
construction lending business. Other banks, many of which have higher legal
lending limits, actively compete for loans, deposits and other services which
the Bank offers. Competitors of the Bank include commercial banks, savings
banks, savings and loan associations, insurance companies, finance companies,
credit unions and mortgage companies. Trends toward the consolidation of the
banking industry may make it more difficult for smaller banks, such as the Bank,
to compete with large national and regional banking institutions.
EFFECT OF INTEREST RATES
The operations of the Bank, and of savings banks in general, are
significantly influenced by general economic conditions, by the related monetary
and fiscal policies of the federal government and, in particular, the Board of
Governors of the Federal Reserve System (the 'FRB'). Deposit flows and the cost
12
<PAGE>
of funds are influenced by interest rates of competing investments and general
market rates of interest. Lending activities are affected by the demand for
residential mortgage financing and for other types of loans, which in turn is
affected by the interest rates at which such financing may be offered and by
other factors affecting the supply of housing and the availability of funds.
The operations of the Bank are substantially dependent on its net interest
income, which is the difference between the interest income received from its
interest-earning assets and the interest expense incurred in connection with its
interest-bearing liabilities. At June 30, 1995, those liabilities that would
reprice within the next twelve months exceeded those assets that would reprice
within the next twelve months by $8.6 million, or 3.1% of total assets. As a
result of this negative interest sensitivity gap, an increase in market interest
rates is likely to result in a reduction in net interest income for the Bank
because the level of interest paid on interest-bearing liabilities is likely to
increase more quickly than the level of interest received on interest-earning
assets. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset/Liability Management.'
Increases in the level of interest rates may reduce loan demand, and
thereby the amount of loans that can be originated by the Bank and, similarly,
the amount of loan and commitment fees, as well as the value of the Bank's
investment securities and other interest-earning assets. Moreover, volatility in
interest rates can result in disintermediation, which is the flow of funds away
from savings institutions into direct investments, such as corporate securities
and other investment vehicles which, because of the absence of federal deposit
insurance, generally pay higher rates of return than savings institutions or
banks, or the transfer of funds within a bank from a lower yielding savings
accounts to higher yielding certificates of deposit.
DEPOSIT INSURANCE PREMIUMS; RECAPITALIZATION OF SAIF
The Bank, as a federal stock savings bank, pays deposit insurance premiums
primarily to the Savings Association Insurance Fund (the 'SAIF'). As part of the
acquisition of Governors in November 1994, the Bank assumed over $58 million in
deposits insured by the Bank Insurance Fund (the 'BIF') and, therefore, the Bank
also pays insurance premiums on a portion of its deposits at the BIF assessment
rate. As of March 31, 1995, the most recent date of assessment, approximately
70% of the Bank's deposits were treated as SAIF insured deposit for assessment
purposes, with the remaining 30% of deposits being assessed at the BIF rate.
This relative ratio of SAIF-and BIF-assessed deposits is expected to remain
constant in the absence of any further deposit assumption transactions by the
Bank.
Both SAIF and BIF are required to be recapitalized to 1.25% of insured
reserve deposits. While the BIF has reached the required reserve ratio, the SAIF
is not expected to be recapitalized until at least the year 2002. The Resolution
Trust Corporation Completion Act (the 'RTC Completion Act') authorized $8
billion in funding for the SAIF, however, such funds only become available to
the SAIF if the FDIC determines that the funds are needed to cover losses of the
SAIF and several other stringent criteria are met.
BIF members are currently paying premiums based upon a newly reduced
assessment rate schedule of 4 to 31 basis points ($0.04 to $0.31 for every $100
of assessable deposits), which new rate schedule is retroactive to May 1995.
Members of SAIF are currently paying average deposit insurance premiums of
between 24 and 25 basis points ($0.24 to $0.25 for every $100 of assessable
deposits). Under the new assessment rate schedule, approximately 92% of BIF
members will pay the lowest assessment rate of 4 basis points; SAIF members
would retain the existing assessment rate schedule of 23 to 31 basis points. In
announcing this proposed rule, the FDIC noted that the premium differential may
have adverse consequences for SAIF members with regard to pricing of loans and
deposits and could impair the ability to raise funds in capital markets. Deposit
insurance premiums are one of the larger components of a financial institution's
non-interest expense. This disparity in insurance premiums between those
required for financial
13
<PAGE>
institutions with all or primarily SAIF insured deposits and those with all or
primarily BIF deposits (such as commercial banks) will allow BIF members to
attract and retain deposits at a lower effective cost. The resultant competitive
disadvantage could also result in the Bank having to raise its deposit rates to
remain competitive or losing deposits to BIF members who may decide to pay
higher rates of interest on deposits because of the lower deposit insurance
premiums. Although the Bank has other sources of funds, these other sources may
have higher costs than those of deposits.
Several alternatives to mitigate the effect of the BIF/SAIF premium
disparity have been suggested by the Administration, by members of Congress and
by industry groups. In July 1995, the Chairman of the FDIC announced in
testimony before the Congress a proposal to recapitalize the SAIF by a one-time
charge to SAIF members of approximately $6.6 billion, or approximately 85 basis
points ($.85 for every $100) of assessable deposits on March 31, 1995 and an
eventual merger of the SAIF with the BIF. The Company is unable to predict the
likelihood of legislation effecting these changes, although a consensus among
regulators, legislators and bankers appears to be developing in this regard.
If the proposed assessment of $.85 to $.90 per $100 of assessable deposits
was effected based on deposits as of March 31, 1995, as proposed, the Bank's pro
rata share would amount to approximately $960,000 to $990,000 after taxes,
respectively. Such an assessment would have a material adverse effect on the
Company's earnings and results of operations. Accordingly, there can be no
assurance that the reduction in BIF insurance premium rates by the FDIC will not
have an adverse impact on the Bank's operations, earnings, and/or its
competitive position in those markets where it operates, nor can there be any
assurance that action would be taken to address the resulting disparity.
ABILITY TO MAKE DIVIDEND PAYMENTS
The Company is a legal entity separate and distinct from the Bank. Because
the Company's principal business activity is limited to owning the Bank, the
Company's payments of dividends on the Common Stock, Series A Preferred and
Series C Preferred will generally be funded from dividends received by the
Company from the Bank. Federal regulations limit the aggregate amount of cash
dividends that the Bank may pay to the Company, its sole shareholder. The Bank's
ability to make dividend payments to the Company is subject to the Bank's
continuing profitable operations and there can be no assurance that future
earnings of the Bank will support sufficient dividend payments to the Company.
DEPENDENCE ON KEY PERSONNEL
The Bank's success depends to a significant extent upon the performance of
its Chairman of the Board and President and its Executive Vice President and
Chief Financial Officer, the loss of either of whom could have a materially
adverse effect on the Bank. The Bank believes that its future success will
depend in large part upon its ability to retain such personnel. There can be no
assurance that the Bank will be successful in retaining such personnel.
CONTROL BY MANAGEMENT
The executive officers and directors of the Company own approximately 23%
of the Company's outstanding shares of Common Stock, excluding currently
exercisable options and warrants. Such persons would own 38% of the Company's
outstanding shares of Common Stock if all outstanding options, whether or not
currently exercisable, were exercised. After the completion of the Offerings
(assuming no exercise of the over-allotment option), the executive officers and
directors are expected to own approximately % of the Company's outstanding
shares of Common Stock, excluding all options. Therefore, management is
14
<PAGE>
likely, by virtue of this concentration of stock ownership, to significantly
influence the election of the Company's directors and to significantly influence
the outcome of actions requiring shareholder approval.
FINANCIAL INSTITUTIONS LEGISLATION AND OTHER REGULATORY ISSUES
During 1989 and 1991, Congress passed two major pieces of banking
legislation: the Financial Institutions Reform, Recovery and Enforcement Act of
1989 (the 'FIRREA') and the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the 'FDICIA'). The FIRREA and the FDICIA have significantly changed
the thrift and commercial banking industries in order to protect the deposit
insurance funds and depositors through, among other things, revising and
limiting the types and amounts of investment authority, significantly increasing
minimum regulatory capital requirements and broadening the scope and power of
federal bank and thrift regulators over financial institutions and affiliated
persons. These laws, and the resulting implementing regulations, have subjected
the industry to extensive regulation, supervision and examination by the OTS and
the FDIC. This has resulted in increased deposit insurance premiums and
increased administrative, professional and compensation expenses in complying
with an unprecedented number of new regulations and policies. The regulatory
structure created gives the regulatory authorities extensive authority in
connection with their supervisory and enforcement activities and examination
policies. Further, Congress could enact future legislation that could
significantly affect the powers, authority and operations of the Bank and have a
material adverse effect on the Company's business. See 'Regulatory Matters.'
NO PRIOR MARKET FOR THE SERIES C PREFERRED
Unlike the Common Stock, the Series C Preferred is a new issue of
securities, therefore, prior to the Offerings, there has been no market for the
Series C Preferred. Although the Company has applied to list the Series C
Preferred on NASDAQ, there can be no assurance that such application will be
granted. Ryan, Beck has indicated its intention to be a market maker in the
Series C Preferred as long as the volume of trading and other market making
considerations justify such an undertaking. However, a public market having
depth, liquidity and orderliness depends on the presence in the marketplace of a
sufficient number of buyers and sellers at any given time, over which neither
the Company nor its market makers have control. There can be no assurance that a
liquid market for the Series C Preferred will develop. If an active trading
market does develop, there can be no assurance that such trading market will
continue. Additionally, since the prices of securities generally fluctuate,
there can be no assurance that purchasers in the Offerings will be able to sell
securities at or above the purchase price.
15
<PAGE>
THE COMPANY AND THE BANK
Republic Security Financial Corporation (the 'Company'), headquartered in
West Palm Beach, Florida, is a savings bank holding company. Its principal
business is the operation of Republic Security Bank, Federal Savings Bank, a
federal stock savings bank (the 'Bank'). As of June 30, 1995, the Company had
consolidated assets of $276 million, deposits of $225 million and shareholders'
equity of $22.7 million.
The Bank commenced operations on November 19, 1984 as a stock savings bank.
It is a member of the Federal Home Loan Bank (the 'FHLB') System, and its
deposits are insured by the Federal Deposit Insurance Corporation (the 'FDIC')
up to applicable limits. The Bank is subject to examination and comprehensive
regulation by the Office of Thrift Supervision (the 'OTS') and the FDIC.
The Bank has an aggregate of seven full-service branches, six of which are
located in Palm Beach County and one in Dade County, Florida. The Bank's main
business activities are attracting deposits, originating loans, making
investments and servicing loans for the Bank and for others. Earnings depend
primarily upon the difference between interest received on loans and investments
and interest paid on the Bank's deposit base and borrowings.
Historically, the Bank's operating strategy was to originate long-term
residential mortgage loans and short-term construction loans on residential
properties. Recently, management began to shift the Bank's business from
traditional thrift activities to those more closely related to commercial
banking, with emphasis placed on originating consumer and commercial loans. The
Bank's current business strategy includes (i) concentration on consumer and
commercial lending, (ii) emphasis on transaction accounts, particularly business
and personal checking accounts, (iii) focus on non-interest income from loan and
deposit service fees and new products and services, (iv) achievement of a higher
profile through additional strategically located banking offices, (v) continued
emphasis on residential construction lending, (vi) maintenance of a presence in
the residential mortgage market and (vii) growth through a combination of bank
and branch acquisitions, as well as de novo expansion of the branch network.
On April 17, 1995, the Bank filed an application to convert its charter
from a federal savings bank to a State of Florida commercial bank, and at the
same time the Company applied with the Federal Reserve Board to become a bank
holding company. If approved, the conversion should be completed prior to
December 31, 1995. The charter conversion reflects the Bank's desire to overcome
the limitations on commercial and consumer loan generations imposed under its
thrift charter and is consistent with the Bank's shift in focus from traditional
thrift business activities to commercial banking activities. As a consequence of
the Bank's application for a commercial bank charter, on July 26, 1995 the
Company changed its fiscal year-end from March 31 to December 31.
16
<PAGE>
USE OF PROCEEDS
The Company expects to receive, after deduction of commissions and
estimated expenses, net proceeds of approximately $ in the Offerings
(assuming that the Underwriter does not exercise the over-allotment option and
estimated expenses equal $ ).
The Company intends to use approximately $9.5 million of the net proceeds
to fund the purchase of Banyan, in the event such acquisition is consummated.
See 'Proposed Acquisition of Banyan Bank.' Further, the Bank intends to use
approximately $3.3 million of the net proceeds to increase its leverage capital
ratio, subsequent to the Bank's conversion to a commercial bank, to a target
level of at least 7%. The balance of the net proceeds is expected to be utilized
to increase the Bank's regulatory capital in order to permit growth in the
Bank's asset size. The Bank intends to grow in asset size through additional
deposit and lending activities, the opening of new branches and an increase in
size of its existing branches. The Company intends to consider other
acquisitions of existing banks or branches located in the State of Florida.
Other than its agreement to acquire Banyan, the Company has no current agreement
or understanding to make any acquisition and there is no assurance that any
acquisition will be available on terms and conditions acceptable to the Company.
The Company expects that any new branches would be located in Palm Beach County
and its adjoining counties, including Martin and Broward counties.
In order to effect such growth in the Bank's asset size, the Company
intends to invest available net proceeds in the capital of the Bank as needed,
either all in the form of capital contributions or a combination of capital
contributions and the purchase of preferred stock of the Bank. Pending any such
investments in the Bank, the Company intends to invest the net proceeds in
short-term interest-bearing securities and to use the proceeds for general
corporate purposes.
MARKET PRICE AND DIVIDEND DATA
The Common Stock is traded on NASDAQ under the symbol 'RSFC.' As of
September , 1995, the closing price of the Common Stock, as quoted on NASDAQ,
was $ . At August 31, 1995, there were approximately 1,500 record holders of
Common Stock and 4,377,860 shares of Common Stock issued and outstanding. The
Series C Preferred is a new issuance of securities. The Company has applied to
list the Series C Preferred on NASDAQ. There can be no assurance that the
application will be accepted or that an active or liquid market will develop.
Ryan, Beck has been a market maker in the Common Stock and Series A Preferred
and, upon completion of the Offerings, expects to be a market maker in the
Series C Preferred.
Making a market involves maintaining bid and ask quotations and being able,
as principal, to effect transactions in reasonable quantities at those quoted
prices, subject to various securities laws and other regulatory requirements.
The development of a liquid public market depends on the existence of willing
buyers and sellers, the presence of which is not within the control of the
Company, or any market maker. There can be no assurance that an active and
liquid trading market for the Series C Preferred will develop or that, if
developed, it will continue. There is no assurance that persons purchasing
shares in the Offerings will be able to sell them at or above the purchase
price.
It is the present intention of the Company's Board of Directors to continue
to pay regular quarterly cash dividends; however, the declaration and payment of
future dividends is at the sole discretion of the Board of Directors and the
amount, if any, depends upon the earnings, financial condition and capital needs
of the Company and the Bank and other factors, including restrictions arising
from Federal banking laws and regulations to which the Company and the Bank are
subject. In addition, the holders of Series C Preferred will have a right prior
to the holders of Common Stock and on a parity with the holders of the Series A
Preferred to receive the payment of dividends. See 'Description of
Securities--Common Stock' and 'Preferred Stock--Series C Preferred.'
17
<PAGE>
The following table sets forth the range of high and low sales prices of
and cash dividends paid on the Common Stock during the periods indicated, as
reported by NASDAQ.
<TABLE>
<CAPTION>
PRICE DIVIDEND
------------------------ PER SHARE OF
HIGH LOW COMMON STOCK
--------- --------- -------------
<S> <C> <C> <C>
YEAR ENDED MARCH 31, 1994
First Quarter..................................................... $ 4 $ 3 $.0095
Second Quarter.................................................... 3 1/2 2 7/8 $.0095
Third Quarter..................................................... 4 1/4 3 1/2 $.0095
Fourth Quarter.................................................... 4 1/2 3 5/8 $.01
YEAR ENDED MARCH 31, 1995
First Quarter..................................................... 4 1/4 3 3/8 $.01
Second Quarter.................................................... 4 1/2 3 3/4 $.02
Third Quarter..................................................... 4 3/8 3 1/4 $.02
Fourth Quarter.................................................... 4 3/8 3 3/4 $.02
PERIOD ENDED SEPTEMBER , 1995
Quarter ended June 30, 1995....................................... 5 3/8 4 1/8 $.02
Second Quarter through September , 1995......................... $.025
</TABLE>
The Company issued 5% and 10% stock dividends on January 21, 1994 and April
1, 1993, respectively. All references in the consolidated financial statements
and notes thereto, and elsewhere in this Prospectus, to amounts per common share
and to number of common shares have been restated to give retroactive effect for
these stock dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1995, and the pro forma consolidated capitalization of the
Company at such date after giving effect to the Company's receipt of the
estimated net proceeds from the Offerings based on the assumptions set forth in
the notes below.
<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------------
ACTUAL AS ADJUSTED(1)(2)
-------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Deposits........................................................................... $225,081 $
Short-term borrowings.............................................................. 17,469
-------- -----------------
Total deposits and borrowings...................................................... $242,550
======== =================
Shareholders' equity:
Preferred Stock (authorized: 10,000,000 shares, stated value $10.00; issued
and outstanding at June 30, 1995: 402,500 and ,
as adjusted)................................................................ $ 4,025
Common Stock (authorized: 20,000,000 shares, par value $.01;
issued and outstanding at June 30, 1995: 4,313,060 and ,
as adjusted)................................................................ 43
Additional-paid-in-capital......................................................... 16,211
Retained earnings.................................................................. 2,393
-------- -----------------
Total shareholders' equity......................................................... $ 22,672 $
======== =================
</TABLE>
------------------------
(1) Assumes that the Underwriter will not exercise their option to acquire
additional shares of Series C Preferred or additional
shares of Common Stock.
(2) In the event the Underwriter exercises its options the estimated net
proceeds to be received by the Company, less estimated expenses and
underwriting fees of the Offerings of $ , is $ .
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for each of the three years in the
period ended March 31, 1995 and the balance sheet data at March 31, 1995 and
1994 are derived from consolidated financial statements of the Company,
contained elsewhere herein, which have been audited by Ernst & Young LLP,
independent auditors. The selected financial data for the years ended March 31,
1992 and 1991 and the balance sheet data at March 31, 1993, 1992 and 1991 have
been derived from audited consolidated financial statements not contained
herein. The summary of operating results for the three months ended June 30,
1995 and 1994 and the balance sheet data at June 30, 1995 and 1994 are derived
from unaudited interim condensed consolidated financial statements contained
elsewhere herein. The unaudited interim condensed consolidated financial
statements include all adjustments, consisting only of normal recurring
accruals, which the Company considers necessary for a fair presentation of the
information contained therein. The results for the interim periods presented
herein are not necessarily indicative of the results to be expected for any
other period or for the entire fiscal year. The financial data reflects the
results of Governors since November 30, 1994 and Homestead since January 22,
1993, the respective acquisition dates of these companies. Governors and
Homestead were acquired in separate transactions accounted for using the
purchase method of accounting. The data contained below should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto contained elsewhere in this Prospectus. See also 'Pro Forma
Combined Condensed Financial Information.'
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------ ---------------------------------------------------
1995(1) 1994(1) 1995(2) 1994(3) 1993(2) 1992(3) 1991(3)
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS
Interest income................................... $ 5,320 $ 3,361 $16,288 $12,487 $11,237 $11,366 $12,016
Interest expense.................................. 2,712 1,509 7,397 5,512 4,560 6,950 8,821
-------- -------- ------- ------- ------- ------- -------
Net interest income............................... 2,608 1,852 8,891 6,975 6,677 4,416 3,195
Provision for loan losses......................... 25 75 200 214 1,003 704 616
-------- -------- ------- ------- ------- ------- -------
Net interest income after provision for loan
losses........................................... 2,583 1,777 8,691 6,761 5,674 3,712 2,579
Non-interest income............................... 914 854 2,999 4,389 3,058 3,812 3,335
Operating expenses................................ 2,679 2,211 9,860 8,739 6,932 6,266 5,274
-------- -------- ------- ------- ------- ------- -------
Income before income tax, extraordinary item and
accounting change................................ 818 420 1,830 2,411 1,800 1,258 640
Income taxes...................................... 291 155 663 818 582 466 205
-------- -------- ------- ------- ------- ------- -------
Income before extraordinary item and
accounting change................................ 527 265 1,167 1,593 1,218 792 435
Extraordinary item................................ 278 205
Change in accounting for income taxes............. 500
-------- -------- ------- ------- ------- ------- -------
Net income........................................ $ 527 $ 265 $ 1,167 $ 2,093 $ 1,218 $ 1,070 $ 640
======== ======== ======= ======= ======= ======= =======
PER SHARE DATA(4)
Income before extraordinary item and accounting
change $.10 $.05 $.23 $.42 $.50 $.42 $.27
======== ======== ======= ======= ======= ======= =======
Net income........................................ $.10 $.05 $.23 $.55 $.50 $.55 $.39
======== ======== ======= ======= ======= ======= =======
Average common shares and common stock equivalents
outstanding (in thousands)....................... 4,459 4,480 4,474 3,927 2,895 2,389 1,643
======== ======== ======= ======= ======= ======= =======
Dividends per share of common stock............... $.02 $.01 $.07 $.04
======== ======== ======= ======= ======= ======= =======
Book value........................................ $4.33 $4.37 $4.50 $4.33 $5.05 $4.44 $3.78
======== ======== ======= ======= ======= ======= =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30, YEAR ENDED MARCH 31,
-------------------- --------------------------------------------------------
1995(1) 1994(1) 1995(2) 1994(3) 1993(2) 1992(3) 1991(3)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.............................. $275,980 $204,524 $280,039 $206,637 $169,474 $135,330 $123,786
Investments............................... 11,358 21,333 14,185 24,481 248 248 2,447
Loans receivable - net(5)................. 229,819 165,909 227,940 155,294 126,010 98,970 78,897
Total deposits............................ 225,081 154,608 229,735 156,651 145,911 117,349 109,869
Borrowed money............................ 17,469 21,995 19,733 21,995 2,000 2,000 2,000
Shareholders' equity...................... 22,672 19,811 20,446 19,648 10,793 7,104 5,935
OTHER DATA
Return on average assets.................. .76% .51% .50% 1.13% .91% .81% .50%
Return on average shareholders' equity.... 9.78% 5.37% 5.82% 12.63% 14.57% 16.04% 11.41%
Net interest margin(6).................... 3.66% 3.65% 3.81% 3.62% 4.98% 3.00% 3.10%
Net yield(6).............................. 4.12% 3.93% 4.25% 4.01% 5.46% 3.10% 2.90%
Allowance for loan losses to total
loans.................................... 1.04% .65% .99% .60% .85% .67% .57%
Net charge-offs to average loans.......... N/A(7) .03% .09% .27% .75% .55% .65%
Non-performing assets to total assets
at period end............................ 2.30% 1.35% 1.23% 1.56% 2.43% 3.99% 1.76%
Non-performing loans as a percentage
of total loans........................... 2.13% .77% 1.06% .87% 2.53% 1.64% .25%
Allowance for loan losses to
non-performing loans..................... .53% .85% 1.03% .79% .39% .47% 3.01%
Tangible capital ratio.................... 6.8% 6.1% 6.0% 6.0% 6.1% 4.8% 4.5%
Core capital ratio........................ 6.8% 6.1% 6.0% 6.0% 6.1% 4.8% 4.5%
Risk-basked capital ratio................. 11.0% 12.5% 11.0% 13.2% 13.6% 8.6% 8.6%
Earnings to fixed charges:(8)
Excluding interest on deposits.......... 2.53x 1.73x 1.77x 2.83x 5.97x 3.11x 1.71x
Including interest on deposits.......... 1.24x 1.18x 1.17x 1.36x 1.38x 1.18x 1.07x
Efficiency ratio(9)....................... 76% 82% 83% 77% 71% 76% 91%
Number of full service offices............ 7 5 7 5 5 3 3
Loan servicing portfolio (in millions).... $325 $220 $323 $189 $267 $402 $409
</TABLE>
------------------------
(1) Quarterly data is presented on an annualized basis, where appropriate.
(2) The Bank acquired Governors on November 30, 1994 and acquired Homestead on
January 22, 1993. For further details related to the acquisitions, see the
Company's Note 2 to the Consolidated Financial Statements at March 31, 1995.
(3) Ratios for the year ended March 31, 1994 include $500,000 cumulative effect
of change in accounting for income taxes where appropriate. Ratios for the
years ended March 31, 1992 and 1991 include extraordinary item benefits of
$278,000 and $205,000, respectively, where appropriate.
(4) The Company issued 5% and 10% stock dividends on January 21, 1994 and April
1, 1993, respectively. All references to amounts per common share and number
of common shares have been restated to give retroactive effect for these
stock dividends.
(5) Amounts reflect reclassification of in-substance foreclosures to other real
estate in accordance with SFAS No. 114.
(6) Net interest margin is the average yield earned during the year on
interest-earning assets less the average rate incurred on interest-bearing
liabilities. Net yield is the excess of interest on interest-earning assets
over interest on interest-bearing liabilities, expressed as a percentage of
total average interest-earning assets.
(7) The Bank had net recoveries of $44,000 during the three months ended June
30, 1995.
(8) The ratio of earnings to fixed charges is computed by dividing the sum of
income before income tax, extraordinary item and accounting change and fixed
charges by fixed charges. Fixed charges represent interest expense,
amortization of debt issue costs, the interest portion of rental expense and
preferred stock dividend requirements.
(9) The efficiency ratio is calculated by dividing non-interest expense by net
interest income plus non-interest income.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PREPARATION
The following discussion and analysis is intended to provide an
understanding of the significant factors that influenced the Company's financial
condition at June 30, 1995 as compared to March 31, 1995, March 31, 1995 as
compared to March 31, 1994, and March 31, 1994 as compared to March 31, 1993, as
well as the results of operations for the three months ended June 30, 1995 as
compared to the three months ended June 30, 1994, and for the year ended March
31, 1995 as compared to March 31, 1994, and March 31, 1994 as compared to March
31, 1993. The Company's operating results include the results of Governors since
November 30, 1994 and the results of Homestead since January 22, 1993. The
discussion and analysis should be read in conjunction with the Company's
consolidated financial statements and corresponding notes included elsewhere in
this Prospectus.
In fiscal 1995, management continued its efforts in shifting the Bank's
business from traditional thrift activities to those more closely related to
commercial banking. The new business strategy includes concentration on consumer
and commercial lending, maintenance of a residential mortgage banking presence,
continued emphasis on construction lending, emphasis on business and personal
transaction accounts and concentration on non-interest income from loan and
deposit service fees and new product and services. On November 30, 1994 the Bank
acquired Governors, a commercial bank with a concentration of the types of loans
now targeted by the Bank.
In connection with its application for conversion to a commercial bank
charter, on July 26, 1995, the Company changed its fiscal year-end from March 31
to December 31. A transition report on Form 10-K will be filed for the nine
months ending December 31, 1995.
RESULTS OF OPERATIONS
The Company had net income of $527,000 or $.10 per common share for the
three months ended June 30, 1995, compared to net income of $265,000 or $.05 per
common share for the three months ended June 30, 1994. The 99% increase in net
income is primarily due to an increase in net interest income, which is a result
of re-engineering the Bank's operations during fiscal 1995 and the effects of
the acquisition of Governors which took place on November 30, 1994.
The Company's net income decreased by $926,000 from $2.1 million in 1994 to
$1.2 million in 1995. Earnings per share declined to $0.23 in 1995 from $0.42 in
1994 (before the cumulative effect of a change in accounting principle). Net
income for the period ended March 31, 1994 included a $500,000 cumulative effect
of a change in accounting principle related to the adoption of SFAS No. 109. The
decrease in earnings for 1995 of $426,000, excluding the cumulative effect of a
change in accounting principle, is due to increases of $1.92 million in net
interest income and $476,000 in other non-interest income which were more than
offset by a decrease of $1.87 million in mortgage banking income, a $200,000
loss on trading account investments, and an increase of $1.12 million in
operating expenses.
The Company's net income increased $875,000 to $2.1 million in 1994 from
$1.2 million in 1993. The 1994 results included a $500,000 cumulative effect of
a change in accounting principle related to the adoption of SFAS No. 109.
Earnings per share, however, declined to $0.42 in 1994 (excluding the $0.13 gain
from the cumulative effect of a change in accounting principle) from $0.50 in
1993. The decline in net income per share is the result of an increase in shares
outstanding as a result of the Company's offering of 1,150,000 shares of Common
Stock and 402,500 shares of Series A Preferred which was completed in September,
1993.
22
<PAGE>
As a result of the downsizing of the mortgage banking operations, the
Company's future results of operations will depend to a significant extent on
the level of its net interest income, which is the difference between the
interest income it receives on its interest-earning assets and the interest
expense it pays on its interest-bearing liabilities. Net interest income is
determined primarily by interest rate spread and the relative amounts of
interest-earning assets and interest-bearing liabilities. See Note 17 of Notes
to Consolidated Financial Statements.
NET INTEREST INCOME
Net interest income for the quarter ended June 30, 1995 increased $756,000
or 41% from the same period in 1994. The quarter ended June 30, 1995 reflects an
increase in interest-earning assets and interest-bearing liabilities as well as
an increase in net yield on interest-earning assets as compared to the quarter
ended June 30, 1994. The acquisition of Governors is the primary contributor to
the increase in interest-earning assets and interest-bearing liabilities. In
addition, market rates increased and the composition of the Bank's loan
portfolio changed since June 30, 1994 to reflect an increase in consumer,
commercial business and commercial real estate loans which generally are higher
yielding than residential mortgage loans. The Bank's deposit portfolio has
changed since June 30, 1994 to reflect an increase in business and personal
transaction deposit accounts, which generally have a lower cost of funds than
certificates of deposit.
Net interest income increased by 27% to $8.9 million in fiscal 1995
compared to $7.0 million in fiscal 1994. This an increase was primarily due to
an increased interest income on loans of $3.7 million, due to an increase in
loan volume during 1995, partially offset by an increase in interest expenses of
$1.9 million due to an increase in the rate and volume of interest-bearing
liabilities. The increase in loan volume for the period ended March 31, 1995
compared to the year ended March 31, 1994 is attributable to an increase in
commercial and consumer loan originations as well as the Governors acquisition
on November 30, 1994. Net interest income remained relatively flat from 1993 to
1994 as the increase in loan and deposit volumes were offset by the decrease in
interest rates during the period.
Interest Income
The increase in interest income of $1.9 million to $5.3 million for the
quarter ended June 30, 1995 from $3.4 million for the quarter ended June 30,
1994 was primarily related to loan income. The increase in interest income on
loans is attributable to an increase in average loans outstanding to $228.6
million from $164.7 million, which resulted in a $1.20 million increase in
interest income, and an increase in the average rate earned on loans resulted in
a $713,000 increase in interest income. The increase in loan volume is largely
attributable to the acquisition of Governors which accounted for $40.3 million
of the total $63.9 million increase in average loan balances for the period
ended June 30, 1995 compared to the period ending June 30, 1994.
The Bank's loan portfolio yield increased in the quarter ended June 30,
1995, primarily due to an increase in higher yielding loans. Commercial real
estate, commercial and consumer loans comprise 33% of the portfolio at June 30,
1995 compared to 15% at June 30, 1994. These shifts in the loan portfolio are in
line with the Company's strategic objective and a result of the Bank targeting
commercial and non-residential consumer markets as well as the acquisition of
Governors.
Of the $3.8 million increase in interest income from fiscal 1994 to 1995,
$2.9 million was attributable to an increase in interest-earning asset volume,
and the remainder was due to an increase in average yield. The average yield on
interest-earning assets increased from 7.19% in 1994 to 7.79% in 1995 primarily
as a result of a larger portion of interest-earnings assets being in loans
rather than lower yielding investments.
23
<PAGE>
Interest income increased approximately 10% or $1.2 million for the year
ended March 31, 1994 compared to the year ended March 31, 1993. The increase is
attributable to a $52 million increase in average interest-earning assets from
$122 million at March 31, 1993 to $174 million at March 31, 1994. Average
interest-earning assets increased as a result of purchases of loans held for
investment of $26 million and adjustable rate mortgage fund investments of $24
million. The increase in interest income was offset by a decrease in market
interest rates during 1994.
Interest Expense
In line with management's goals, the Bank experienced a significant
increase in the average balance of non-interest-bearing deposits during the
quarter ended June 30, 1995 as compared to the prior year's quarter. The largest
increase in volume, however, was in certificates of deposits. The $1.20 million
increase in interest expense in the 1995 quarter over the 1994 quarter is
largely due to a 58% increase in the average volume of certificates to $143.2
million in the 1995 quarter from $90.8 million in the 1994 quarter and an
increase in the average rate paid on certificates to 5.63% in 1995 from 4.03% in
1994. The increase in certificate volume contributed $524,000 to the total
increase in interest expense, and $578,000 of the total increase was a result of
the increased average rate on certificates of deposit. A significant portion of
the increase in the average balance of deposits was due to the acquisition of
Governors.
Of the $1.89 million increase in interest expense in fiscal 1995, $1.1
million was a result of increased average volume of interest-bearing liabilities
to $185.7 million in 1995 from $154.4 million in 1994 and $757,000 was due to an
increase in the average rate on interest-bearing liabilities to 3.98% in 1995
from 3.57% in 1994. The primary contributor to these rates and volume increases
was certificates of deposit.
Of the $0.9 million increase in interest expense in fiscal 1994, $2.9
million was as a result of increased average volume of interest bearing
liabilities to $154.4 million in 1994 from $108.4 million in 1993 and a negative
$2.0 million was due to a decreased average rate on interest bearing liabilities
to 3.57% in 1994 from 4.21% in 1993. The primary factor in these rates and
volume increases was certificates of deposit.
24
<PAGE>
The following table summarizes net interest income for the three months
ended June 30, 1995 and 1994:
NET INTEREST INCOME, AVERAGE BALANCE AND RATES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------------------------
1995 1994
---------------------------------- ----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-------- -------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans-net................................... $228,597 $ 4,979 8.71% $164,682 $ 3,093 7.51%
Interest-bearing deposits................... 11,348 91 3.21 12,596 120 3.81
Investments................................. 13,408 250 7.46 11,246 148 5.26
-------- -------- ---------- -------- -------- ----------
Total interest-earning assets............... 253,353 5,320 8.40 188,524 3,361 7.13
Other assets................................ 23,000 18,500
-------- --------
Total....................................... $276,353 $207,024
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Savings deposits............................ $ 19,132 $ 144 3.01% $ 17,500 $ 86 1.97%
NOW......................................... 34,907 157 1.80 25,800 101 1.57
Money market................................ 14,427 113 3.13 19,506 143 2.93
Certificate of deposits..................... 143,282 2,018 5.63 90,840 916 4.03
Borrowed money.............................. 17,107 280 6.55 19,903 263 5.29
-------- -------- ---------- -------- -------- ----------
Total interest-bearing liabilities.......... 228,855 2,712 4.74 173,549 1,509 3.48
-------- -------- ---------- -------- -------- ----------
Non-interest-bearing deposits............... 17,432 7,468
Other liabilities........................... 8,507 6,278
Shareholders' equity........................ 21,559 19,729
-------- --------
Total liabilities and
shareholders' equity...................... $276,353 $207,024
======== ========
Net interest/income rate spread............. $ 2,608 3.66% $ 1,852 3.65%
======== ========== ======== ==========
Net average interest-earning
assets/net yield on average
interest-earning assets................... $ 24,498 4.12% $ 14,975 3.93%
======== ========== ======== ==========
Ratio of average interest-earning assets to
average interest-bearing liabilities...... 1.11x 1.09x
========== ==========
</TABLE>
25
<PAGE>
The following table summarizes net interest income for the years ended
March 31, 1995, 1994 and 1993:
NET INTEREST INCOME, AVERAGE BALANCE AND RATES:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------- -------------------------------- -------------------
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
BALANCE RATE YIELD/RATE BALANCE RATE YIELD/RATE BALANCE RATE
-------- -------- ---------- -------- -------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans-net...................... $191,442 $ 15,254 7.97% $144,359 $ 11,525 7.98% $112,854 $ 10,774
Interest-bearing deposits...... 10,743 462 4.30 14,113 300 2.13 8,156 385
Investments.................... 6,809 572 8.40 15,284 662 4.33 1,247 78
-------- --------- ---------- -------- --------- ---------- -------- ---------
Total interest-earning
assets........................ 208,994 16,288 7.79 173,756 12,487 7.19 122,257 11,237
Other assets................... 20,737 12,008 11,497
-------- -------- --------
Total.......................... $229,731 $185,764 $133,754
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
INTEREST-BEARING LIABILITIES:
Savings deposits............... $ 19,393 $ 607 3.13% $ 19,168 $ 545 2.84% $ 13,504 $ 385
NOW............................ 27,794 419 1.51 20,439 326 1.59 12,892 255
Money market................... 14,067 437 3.11 7,825 368 4.70 7,365 234
Certificate of deposits........ 105,659 4,781 4.52 89,494 3,494 3.90 72,572 3,445
Borrowed money................. 18,829 1,153 6.12 17,445 779 4.47 2,024 241
-------- --------- ---------- -------- --------- ---------- -------- ---------
Total interest-bearing
liabilities................... 185,742 7,397 3.98 154,371 5,512 3.57 108,357 4,560
-------- --------- ---------- -------- --------- ---------- -------- ---------
Non-interest-bearing
deposits...................... 10,428 8,243 8,724
Other liabilities.............. 13,115 6,576 8,315
Shareholders' equity........... 20,446 16,574 8,358
-------- -------- --------
Total liabilities and
shareholders' equity.......... $229,731 $185,764 $133,754
======== ======== ========
Net interest/income rate
spread........................ $ 8,891 3.81% $ 6,975 3.62% $ 6,677
========= ========== ========= ========== =========
Net average interest-earning
assets/net yield on average
interest-earning assets....... $ 23,252 4.25% $ 19,385 4.01% $ 13,900
======== ========== ======== ========== ========
Ratio of average
interest-earning assets to
average interest-bearing
liabilities................... 1.13x 1.13x
========== ==========
<CAPTION>
YIELD/RATE
----------
<S> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans-net...................... 9.55%
Interest-bearing deposits...... 4.72
Investments.................... 6.26
----------
Total interest-earning
assets........................ 9.19
Other assets...................
Total..........................
LIABILITIES AND SHAREHOLDERS'
EQUITY
INTEREST-BEARING LIABILITIES:
Savings deposits............... 2.85%
NOW............................ 1.98
Money market................... 3.18
Certificate of deposits........ 4.75
Borrowed money................. 11.91
----------
Total interest-bearing
liabilities................... 4.21
----------
Non-interest-bearing
deposits......................
Other liabilities..............
Shareholders' equity...........
Total liabilities and
shareholders' equity..........
Net interest/income rate
spread........................ 4.98%
==========
Net average interest-earning
assets/net yield on average
interest-earning assets....... 5.46%
==========
Ratio of average
interest-earning assets to
average interest-bearing
liabilities................... 1.13x
==========
</TABLE>
26
<PAGE>
Net interest income before provision for losses can be analyzed in terms of
the impact of changing rates and changing volumes of interest-earning assets and
liabilities. The following table sets forth certain information regarding
changes in net interest income due to changes in the average balance of
interest-earning assets and interest-bearing liabilities and due to changes in
average rates for the periods indicated. For purposes of this table, rate/volume
changes have been allocated solely to rate changes and non-accrual loans are
included in average balances.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED MARCH 31,
---------------------------- ------------------------------------------------------------
JUNE 30, 1995 VERSUS 1994 1995 VERSUS 1994 1994 VERSUS 1993
---------------------------- ---------------------------- ----------------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN: DUE TO CHANGE IN: DUE TO CHANGE IN:
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE NET AVERAGE AVERAGE NET AVERAGE AVERAGE NET
RATE VOLUME CHANGE RATE VOLUME CHANGE RATE VOLUME CHANGE
------- ------- ------ ------- ------- ------ ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans - net..................... $ 713 $ 1,198 $ 1,911 $ (23) $ 3,752 $ 3,729 $ (2,257) $ 3,008 $ 751
Interest-bearing deposits....... (7) (47) (54) 307 (145) 162 (366) 281 (85)
Investments..................... (13) 115 102 622 (712) (90) (294) 878 584
------- -------- ------- ------- -------- ------- -------- -------- -------
693 1,266 1,959 906 2,895 3,801 (2,917) 4,167 1,250
------- -------- ------- ------- -------- ------- -------- -------- -------
INTEREST EXPENSE:
Savings deposits................ 50 8 58 55 7 62 (1) 161 160
NOW accounts.................... 22 34 56 (18) 111 93 (78) 149 71
Money Market.................... 8 (38) (30) (125) 194 69 119 15 134
Certificates of Deposit......... 578 524 1,102 556 731 1,287 (754) 803 49
Borrowed money.................. 52 (35) 17 289 85 374 (1,298) 1,836 538
------- -------- ------- ------- -------- ------- -------- -------- -------
710 493 1,203 757 1,128 1,885 (2,012) 2,964 952
------- -------- ------- ------- -------- ------- -------- -------- -------
Net interest income.............. $ (17) $ 773 $ 756 $ 149 $ 1,767 $ 1,916 $ (905) $ 1,203 $ 298
======= ======== ======= ======= ======== ======= ======== ======== =======
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's assessment of the
adequacy of the allowance for loan losses. The amount of future provisions is a
function of the ongoing evaluation of the allowance for loan losses which
considers the characteristics of the loan portfolio, economic conditions, and
other relevant factors.
The provision for loan losses decreased $50,000 for the three months ended
June 30, 1995 compared to the same period in 1994. However, the allowance for
loan losses as a percent of total loans increased from .65% at June 30, 1994 to
1.04% at June 30, 1995. The provision for loan losses did not significantly
change from 1994 to 1995. The provision for loan losses was significantly higher
in 1993 than in 1994 due to poor economic conditions in South Florida during
1991, 1992, and 1993.
NON-INTEREST INCOME
Gain on sales of loans and servicing rights and loan servicing income and
amortization of loan servicing rights are included in other income for the
quarters ended June 30, 1994 and 1995 and are included in mortgage banking
income for the years ended March 31, 1993, 1994 and 1995.
Gain on Sales of Loans and Servicing Rights
Gain on sales of loans and servicing rights is included in other income for
the three months ending June 30, 1995 and 1994.
27
<PAGE>
Due to a decrease in loan production, volume gain on sales of loans and
servicing rights decreased $2.48 million in 1995 to $1.18 million compared to
$3.66 million in 1994. The decrease in mortgage banking activities is
attributable to the increase in interest rates which decreased the volume of
loan originations and refinancings and an intensely competitive residential
construction loan market. Loan originations and loan purchases related to
mortgage banking activities decreased $107 million or 67% in 1995 compared to
1994. Loan sales decreased 61% in 1995. These decreases are attributable to the
decline in loan refinancings. Similar declines were experienced in the mortgage
banking industry as a whole. In addition, during 1995, the Bank reduced mortgage
banking operations to a level where income from mortgage banking activities is
less significant to the overall earnings of the Bank than in prior years while
increasing non-interest income from 'core' banking operations. Gain on sales of
loans and servicing rights remained relatively flat from 1993 to 1994.
Loan Servicing Income and Amortization of Loan Servicing Rights
Net loan servicing income increased $758,000 in 1995 to $548,000 compared
to $(210,000) in 1994 due to an increase in the amount of loans serviced and a
decrease in the amortization of loan servicing rights. Loan servicing income in
1995 remained relatively flat in comparison to 1994 while the amortization of
loan servicing rights decreased from $1.2 million in 1994 to $505,000 in 1995
due to the decrease in loan prepayments which resulted primarily from a rise in
interest rates. The Bank purchased $2.3 million of loan servicing rights in
1995. The decrease in amortization of loan servicing rights is due to a decrease
in loan prepayment speeds. Net loan servicing loss decreased from $1.40 million
in 1993 to $185,000 in 1994. Amortization of servicing rights was unusually high
during the two year period due to heavy prepayments resulting from falling
interest rates. The Bank experienced prepayment rates of 30% and 44% during 1993
and 1994, respectively.
While there are many factors that affect prepayment rates on loans,
prevailing loan origination rates are the primary factor. Loan prepayments
generally will increase when interest rates decrease and vice versa.
Other Income
Other income includes mortgage banking income for the periods ending June
30, 1995 and 1994.
Total non-interest income remained relatively unchanged for the quarter
ended June 30, 1995 compared to the quarter ended June 30, 1994. However, the
sources of non-interest income changed due to the Company's reduction in
mortgage banking operations in fiscal 1995 and an increase in fee income for the
quarter ended June 30, 1995. Mortgage banking income decreased 53% from $769,000
in the quarter ended June 30, 1994 compared to $358,000 in the quarter ended
June 30, 1995, while fee income increased $261,000 to $557,000 in the 1995
quarter from $296,000 in the 1994 quarter. Fee income doubled due to an increase
in volume of loan and deposit accounts and an increase in the fee for service
charges on deposit accounts.
Other income increased $476,000 in 1995 compared to 1994 for two reasons:
an increase in deposit related fees on transaction accounts and an increase in
the Loan Servicing portfolio. Transaction accounts increased from $63.6 million
in 1994 to $86.8 million in 1995. This increase was due to the acquisition of
Governors as well as the Bank's initiatives to attract transaction type deposit
accounts. The Loan Servicing portfolio increased from $189 million in 1994 to
$323 million in 1995.
Other income increased $303,000 from 1993 to 1994. This increase was
primarily due to management's instituting fees similar to those charged by
commercial banks.
28
<PAGE>
Operating Expenses
Operating expenses increased 21% for the quarter ended June 30, 1995
compared to the same quarter in the prior year primarily as a result of the
acquisition of Governors. This acquisition resulted in an increase in the
banking center network from five to seven full service banking centers.
Operating expenses as a percent of average assets decreased to 3.9% for the
quarter ending June 30, 1995 from 4.3% for the quarter ending June 30, 1994.
Operating expenses increased from $8.74 million in 1994 to $9.86 million in
1995. The increase is primarily due to increases in employee compensation and
benefits, occupancy and equipment, and data processing. These increases are a
result of the Bank's growth in 1995 and employee severance costs associated with
reducing staffing levels in the mortgage banking operations. Growth in 1995
included expansion of the banking center network from five branches in 1994 to
seven branches in 1995 and the addition of item processing and proof-of-deposit
departments as well as growth in the commercial/consumer loan and loan servicing
departments. Other causes of the increase are higher volumes of deposit
transaction accounts and additional expenses associated with operations acquired
as a result of the merger.
Operating expenses increased from $6.93 million in 1993 to $8.74 million in
1994. The majority of the increase was the result of additional loan production
activity during 1994. Occupancy and equipment and data processing expenses also
contributed to the increase. These increases are the result of increased volume
in deposit and loan accounts as well as overall growth. Operating expenses
however, as a percent of average total assets, has remained relatively stable
over the three year period at 4.3%, 4.7%, and 5.2% for the years ended March 31,
1995, 1994, and 1993, respectively.
Change in Accounting for Income Taxes
The change in accounting for income taxes benefit of $500,000 in the fiscal
year ended March 31, 1994 was the result of the Company's adoption of SFAS No.
109. This change is a one time benefit that will not recur in future years.
LIQUIDITY
Liquidity is defined as cash and certain marketable securities which are
not committed or pledged. The liquidity portfolio of the Company totaled
approximately $17.5 million at June 30, 1995 and $22.7 million at March 31,
1995. Regulations of the Office of Thrift Supervision ('OTS') require each
savings institution to maintain for each calendar month an average daily balance
of liquid assets equal to at least 5% of the average daily balance of its net
withdrawable accounts plus short-term borrowings during the preceding calendar
month. OTS regulations also require each savings institution to maintain for
each calendar month an average daily balance of short-term liquid assets
(generally those having maturities of 12 months or less) equal to at least 1% of
the average daily balance of its net withdrawal accounts plus short-term
borrowing during the preceding calendar month. During the month of June 30,
1995, average short-term liquidity ratio of the Bank was 7.6%.
Banking regulations under the supervision of the State of Florida and
Federal Reserve Board ('FRB') require different measurements of liquidity than
OTS regulations. The Bank would be in compliance with liquidity requirements of
the State and FRB at June 30, 1995.
The Company's cash inflows consist primarily of amounts generated from the
sale of loans, the collection of loan principal payments, and increases in
deposits and borrowings. Uses of cash have historically been primarily to
originate and purchase residential mortgage loans. However, currently, uses of
cash consist of originations of commercial business, commercial real estate,
consumer and residential loans.
29
<PAGE>
Sources of borrowings include advances from the FHLB, borrowings under
repurchase agreements, commercial bank lines of credit and, under certain
conditions, direct borrowings from the FRB.
Access to funds from depositors is affected by the rate the Bank pays on
certificates of deposit and convenience and service provided to transaction
based account holders. The rate the Bank pays on certificates of deposits is
dependent on rates paid by other financial institutions within the Bank's area.
The Bank manages the cash inflows and outflows from certificates of deposits by
increasing or decreasing the rates offered in its market area.
The Company's sources of liquidity are impacted by various matters beyond
the control of the Company. Scheduled loan payments are a relatively stable
source of funds while loan prepayments and deposit flows vary widely in reaction
to market conditions, primarily prevailing interest rates. Asset sales are
influenced by the availability of loans for sale, general market demand, and
other unforeseen market conditions. The Company's ability to borrow at
attractive rates is affected by its credit ratings and other market conditions.
In order to manage the uncertainty inherent in its sources of funds, the
Company continually evaluates alternate sources of funds and maintains and
develops diversity and flexibility in the number of such sources. The effect of
a decline in any one source of funds generally can be offset by use of an
alternative source although potentially at a different cost to the Company.
CAPITAL COMPLIANCE
OTS regulations contain a three part capital standard for savings
institutions. The regulations require savings institutions to maintain 'core'
capital of at least 3.0% of adjusted total assets 'tangible capital' of at least
1.5% of adjusted total assets and 'risk-based capital' of at least 8.0% of
risk-weighted assets.
The Bank is in compliance with its regulatory capital requirements. At June
30, 1995, the Bank had core capital of 6.8% of adjusted total assets, tangible
capital of 6.8% of adjusted total assets and risk-based capital of 11% of
risk-weighted assets. See Note 11 to Consolidated Financial Statements. The
Company's goal is to maintain core, tangible and risk-based capital ratios in
excess of 6%, 6% and 10%, respectively.
Upon consummation of the Bank's proposed conversion to a Florida chartered
commercial bank, the Bank and the Company, as a bank holding company, would be
subject to the capital requirements of the FRB. Under FRB guidelines, bank
holding companies such as the Company are required to maintain capital based on
risk-adjusted assets. Under risk based capital guidelines, categories of assets
with potentially higher credit risk require more capital than assets with lower
risk. In addition to balance sheet assets, bank holding companies are required
to maintain capital, on a risk adjusted basis, to support certain off-balance
sheet activities such as loan commitments. The FRB standards classify capital
into two tiers, Tier I and Total. Tier I risk based capital consists of common
stockholder's equity, noncumulative and cumulative (bank holding companies only)
perpetual preferred stock, and minority interests, less goodwill. Total risk
based capital consists of Tier I capital plus a portion of the general allowance
for loan losses, hybrid capital instruments, term subordinated debt and
intermediate preferred stock. In addition to risk-based capital requirement, the
FRB requires bank holding companies to maintain a minimum leverage capital ratio
of Tier I capital to total assets. Total assets for this purpose do not include
goodwill and any other intangible assets and investments that the FRB determines
should be deducted from Tier I capital. The FRB requires banks and bank holding
companies to maintain Tier I and Total risk-based capital ratios of 4.0% and
8.0%, respectively, and a Tier I leverage capital ratio of 4.0%. The FDIC has
promulgated similar regulations and guidelines regarding capital adequacy of
state-chartered banks which are not members of the Federal Reserve System, which
would apply to the Bank. If the Bank converts to a commercial bank, it is
anticipated that the Company and the Bank would exceed all of these capital
requirements and continue to be deemed a well capitalized institution under
applicable regulations.
30
<PAGE>
ASSET/LIABILITY MANAGEMENT
Management of interest rate sensitivity involves matching the maturity and
repricing dates of interest-earning assets with those of interest-bearing
liabilities in an effort to manage the impact of fluctuating interest rates on
net interest margins.
The Company's Asset/Liability Committee (the 'Committee') meets at least
quarterly to establish, communicate, coordinate and control asset/liability
management procedures. The purpose of the Committee is to monitor the volume and
mix of the Company's interest sensitive assets and liabilities consistent with
the Company's overall liquidity, capital, growth, risk and profitability goals.
Interest rate sensitivity is measured as the difference between the
percentage of assets and liabilities in the Company's existing portfolio that
are subject to repricing within specific time periods. These differences, known
as interest sensitivity gaps, are usually calculated cumulatively for blocks of
time.
Companies that are asset-sensitive (a positive gap) have more assets than
liabilities maturing or repricing within specific time periods and these
companies are likely to benefit in periods of rising interest rates, but suffer
as rates decrease. Companies that are liability-sensitive (a negative gap) are
likely to benefit in periods of declining rates, but experience a negative
impact on net interest income as market rates increase. See 'Risk
Factors--Effect of Interest Rates.'
The Bank manages its interest rate risk exposure by limiting the amount of
long-term fixed rate loans it holds for investment, increasing emphasis on
shorter-term, higher yield loans for portfolio, increasing or decreasing the
relative amounts of long-term and short-term borrowings and deposits and/or
purchasing commitments to sell loans. The following table presents the Bank's
exposure to interest rate risk at June 30, 1995:
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------------------------------------------
ONE YEAR 1 TO 3 3 TO 5 OVER 5
OR LESS YEARS YEARS YEARS TOTAL
-------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total interest-earning assets..................... $160,814 $34,078 $33,794 $27,196 $255,882
Total interest-bearing liabilities................ 169,385 34,223 12,852 586 217,046
-------- ------- ------- ------- --------
Interest rate sensitivity gap..................... $ (8,571) $ (145) $20,942 $26,610 $ 38,836
======== ======= ======= ======= ========
Cumulative interest rate sensitivity gap.......... $ (8,571) $(8,716) $12,226 $38,836
======== ======= ======= =======
Cumulative interest rate sensitivity gap as a
percent of total assets......................... (3.1)% (3.2)% 4.4% 14.1%
======== ======= ======= =======
</TABLE>
In preparing the table above, certain assumptions have been made with
regard to prepayments on fixed rate mortgage and consumer loans and withdrawals
of checking, NOW, Money Market and savings account deposits. These assumptions
are that the Company will experience average annual prepayments of 6% on fixed
rate mortgage loans and 10% on consumer loans. The assumptions for checking,
NOW, Money Market and savings account deposit run-offs are as follows: 54% in
one year or less, 31% in 1 to 3 years, 14% in 3 to 5 years and 1% in over 5
years. All other assets and liabilities have been repriced based on the earlier
of repricing or contractual maturity. The above assumptions are annual
percentages based on the latest available OTS assumptions and on remaining
balances and should not be regarded as indicative of the actual prepayment and
withdrawals that may be experienced by the Company. Moreover, certain
shortcomings are inherent in the analysis presented by the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes to market
interest rates. Also, interest rates on certain types of assets and liabilities
may fluctuate
31
<PAGE>
in advance of or lag behind changes in market interest rates. Additionally,
certain assets, such as ARM loans, have features that restrict changes in
interest rates on a short-term basis and over the life of the assets. Moreover,
in the event of a change in interest rates, prepayment and early withdrawal
levels would likely deviate significantly from those assumed in calculating the
table. For information regarding the contractual maturities of the Company's
loans, investments, and deposits, see 'Business--Lending Activities,'
'--Investment Activities,' '--Deposits' and '--Borrowing' and the Notes to
Consolidated Financial Statements.
In addition to the above, the Bank is committed to fund $6.80 million in
new loans and $14.60 million in construction loans-in-process at June 30, 1995.
These loans and commitments are largely protected from interest rate
fluctuations because they are either adjustable rate loans or are fixed rate
loans which the Bank has obtained commitments to sell in the secondary market.
This relationship is not linear or consistent with other interest rate assets
and liabilities on the Bank's balance sheet and management uses computer
modeling in its efforts to reduce the effects that interest rate fluctuations
have on income.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
information presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or same magnitude as the price of
goods and services.
FINANCIAL CONDITION
The Company's consolidated total assets decreased slightly from
approximately $280 million at March 31, 1995 to approximately $276 million at
June 30, 1995 due to funding of deposit run-off. Certificate of deposit balances
decreased approximately $1.9 million from March 31, 1995 to June 30, 1995. The
Company's redeemable subordinated debentures were called for redemption
effective May 31, 1995. As a result of the redemption, 634,476 shares of common
stock were issued, and shareholders' equity increased by approximately $1.7
million. The Company's consolidated total assets increased $73.4 million or
35.5% from $206.6 million at March 31, 1994 to $280.0 million at March 31, 1995.
Assets increased $64.3 million as a result of the acquisition of Governors. The
remaining increase is a direct result of increases in loan and deposit demand.
Net loans increased 46.7% from $155.3 million at March 31, 1994 to $227.9
million at March 31, 1995. Loans acquired in the acquisition of Governors
contributed $40.2 million to the net increase in loans while loan originations
was the primary contributor to the remaining increase during the year ended
March 31, 1995. Cash and cash equivalents increased from $13.1 million to $17.6
million from 1994 to 1995 as a result of the sale of $24 million of trading
investments offset by increased loan and deposit demand. Investments, including
the trading account, decreased $10.3 million from 1994 to 1995 primarily due to
an increase in loan demand and the purchase of Governors for $5.3 million.
Deposits increased $73 million or 46.6% from $156.7 million at March 31, 1994 to
$229.7 million at March 31, 1995 as a result of the merger with Governors and an
increase in deposit demand. Federal Home Loan Bank ('FHLB') advances decreased
from $20 million to $15 million from 1994 to 1995, while securities under
agreements to repurchase increased from nil to $2.7 million at March 31, 1995.
The Company's consolidated assets increased $37.2 million or 21.9% from
1993 to 1994. The increase in assets was a direct result of increases in loan
and deposit demand as well as an increase in borrowings from the FHLB. Net loans
increased by $29.3 million due to an increase in loans purchased for portfolio
and increased customer demand for construction loans during the year ended March
31, 1994. Cash and
32
<PAGE>
cash equivalents decreased $12.6 million from 1993 to 1994 due to the increase
in portfolio loan purchases. FHLB advances increased $20 million during 1994 and
the funds were invested in adjustable rate mortgage funds to increase the Bank's
net interest margin. Deposits increased from $145.9 million to $156.7 million
from 1993 to 1994 due to normal growth in the bank's operations. An offering of
preferred and common stock resulted in net proceeds of approximately $6.9
million in 1994 which increased shareholders' equity.
In line with the Company's strategic objective to penetrate the
non-residential consumer and commercial business markets, the composition of the
Bank's loan portfolio reflects significant increases in consumer, commercial
business, and commercial real estate loans. Consumer loans increased $28.6
million and commercial real estate and commercial business and financial loans
increased $29.0 million during the year ended March 31, 1995. The acquisition of
Governors contributed $13 million in consumer loans and $19 million in
commercial business and commercial real estate loans. The remaining increase of
$15.6 million and $10 million in consumer and commercial loans, respectively,
were achieved through the Bank's commercial lending unit targeting individual
consumers and high quality commercial businesses.
Although the Bank is targeting growth primarily in the consumer, commercial
real estate, and commercial business markets, the Bank is positioned to maintain
its presence in the residential real estate market and residential construction
lending.
New consumer and commercial products such as credit cards and cash
management products and services were introduced by the Bank in 1995 and
additional products are currently being developed for introduction in 1996.
Growth in commercial and consumer business is expected in 1996 with the
anticipation of increasing the Company's net interest margin through increases
in higher interest yielding assets and reduction of higher interest-bearing
liabilities.
33
<PAGE>
BUSINESS
The Company, incorporated in Florida in 1983, is a savings bank holding
company, the principal business of which is the operation of a savings bank
business through the Bank, its wholly owned subsidiary, a federally chartered
savings bank. The Bank commenced operations on November 19, 1984, and is a
member of the FHLB System. Its deposits are insured by the FDIC up to applicable
limits. On April 17, 1995, the Bank filed an application to convert from a
federal savings bank to a State of Florida commercial bank charter and, at the
same time, the Company filed an application to become a bank holding company.
The Company anticipates the conversions, if approved, to be complete prior to
December 31, 1995.
LENDING ACTIVITIES
General. Under applicable regulations, the Bank originates, purchases and
sells loans, or participating interests in loans. See 'Regulatory
Matters--Federal Regulation' for a description of applicable regulations which
limit lending in relation to assets or net worth. The Bank originates, purchases
and participates in loans for its own portfolio and for sale in the secondary
market. Lending activities include the origination and purchase of long-term
adjustable-rate and to a lesser extent fixed-rate residential mortgage loans,
construction loans, commercial business, commercial real estate loans and
consumer loans. During fiscal 1995 the level of commercial business, commercial
real estate, and consumer loan originations increased from prior years.
Approximately 95% of the Bank's mortgage loans are secured by property located
in Florida.
The following table sets forth the composition of the Bank's loan portfolio
by type of loan at the periods indicated:
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, --------------------------------------------------------------------------
1995 1995 1994 1993 1992
----------------- ----------------- ----------------- ----------------- -----------------
TYPE OF LOAN AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------------------------- -------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS:
Residential property.......... $122,184 49% $124,750 49% $105,752 59% $ 79,236 54% $ 61,439 53%
Construction loans............ 41,101 17 45,511 18 49,280 27 43,177 29 31,089 27
Commercial real estate........ 26,827 11 26,910 11 11,996 7 13,498 9 12,727 11
Residential lot............... 3,195 1 2,989 1 2,422 2 3,115 2 4,056 4
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total Real Estate Loans........ 193,307 78 200,160 79 169,450 95 139,026 94 109,311 95
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
CONSUMER LOANS:
Home equity lines
of credit.................... 2,838 1 2,852 1 2,192 1 2,150 2 2,401 2
Personal and Other............ 2,832 1 2,587 1 1,271 1 2,343 2 1,624 1
Automobile.................... 31,733 13 30,134 12 3,763 2 221 * 285 1
Savings accounts.............. 836 * 712 * 415 * 586 * 185 *
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total consumer loans........... 38,239 15 36,285 14 7,641 4 5,300 4 4,495 4
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Commercial business loans:..... 16,276 7 16,484 7 2,356 1 2,528 2 1,423 1
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
TOTAL LOANS.................... 247,822 100% 252,929 100% 179,447 100% 146,854 100% 115,229 100%
Less:
Loans in process.............. 14,553 21,460 22,876 19,290 14,339
Discounts, premiums and
deferred loan fees............ 874 1,022 206 307 1,145
Allowance for losses........... 2,576 2,507 1,071 1,247 775
-------- -------- -------- -------- --------
LOANS, NET..................... $229,819 $227,940 $155,294 $126,010 $ 98,970
======== ======== ======== ======== ========
<CAPTION>
1991
----------------
TYPE OF LOAN AMOUNT PERCENT
------------------------------- ------- -------
<S> <C> <C>
REAL ESTATE LOANS:
Residential property.......... $ 40,043 45%
Construction loans............ 26,127 29
Commercial real estate........ 12,987 14
Residential lot............... 5,436 6
-------- -------
Total Real Estate Loans........ 84,593 94
-------- -------
CONSUMER LOANS:
Home equity lines
of credit.................... 2,032 2
Personal and Other............ 1,497 2
Automobile.................... 141 *
Savings accounts.............. 96 *
-------- -------
Total consumer loans........... 3,766 4
-------- -------
Commercial business loans:..... 1,303 2
-------- -------
TOTAL LOANS.................... 89,662 100%
Less:
Loans in process.............. 8,624
Discounts, premiums and
deferred loan fees............ 1,629
Allowance for losses........... 512
--------
LOANS, NET..................... $ 78,897
========
</TABLE>
------------------------
* Less than one percent
34
<PAGE>
The following table sets forth at June 30, 1995 the principal amounts of
the Bank's loan portfolio with contractual maturities during the periods
indicated.
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------------------------------------------------------
MATURING
-------------------------------------------------------------
AFTER 1 YEAR
WITHIN 1 YEAR THROUGH 5 YEARS AFTER 5 YEARS TOTAL
------------- --------------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate:
Residential and commercial......................... $ 8,440 $ 20,053 $ 120,518 $149,011
Construction and lot(1)............................ 25,050 4,196 497 29,743
Commercial business.................................. 6,082 7,842 2,352 16,276
Consumer............................................. 2,679 31,855 3,705 38,239
------------- --------------- ------------- --------
Total................................................ $ 42,251 $ 63,946 $ 127,072 $233,269
============= =============== ============= ========
Maturing after one year with:
Variable interest rates.............................. $ 29,527 $ 98,922
Fixed interest rates................................. 34,419 28,150
--------------- -------------
Total................................................ $ 63,946 $ 127,072
=============== =============
</TABLE>
------------------------
(1) Net of loans-in-process.
The Bank provides residential real estate construction and mortgage loans,
consumer loans to individuals and commercial business loans. Loans secured by
real estate generally include construction loans, loans to refinance or purchase
existing properties, home equity loans and land acquisition and development
loans.
Real Estate Mortgage Loans. The Bank's real estate mortgage loans consist
of commercial and residential mortgage loans, which are secured by existing
properties. The Bank's residential mortgage loans have terms which do not exceed
30 years and are secured by one-to four-family residences. The majority of
residential mortgages which the Bank holds in its portfolio provide for interest
rate adjustments every year and such adjustments are limited to 5% to 6% over
the term of the loan. Loans made for 80% to 95% of the appraised value of the
financed residences are primarily originated with private mortgage insurance
which essentially insures that portion of the loan which is in excess of 80% of
the appraised value of the financed residences. As of June 30, 1995, the loan
portfolio includes approximately $12.8 million of residential loans which have
loan to value ratios of greater than 80%, when originated, and have no private
mortgage insurance. The Company believes that these loans, which the Company
makes in the normal course of business from time to time, have not resulted in a
significantly greater loss experience than the aggregate residential mortgage
portfolio and these loans have higher yields.
Residential mortgage loans generally are underwritten by the Bank in
accordance with guidelines of the FHLMC. The Bank is an approved seller/servicer
for the FNMA and the FHLMC.
Loans secured by commercial properties generally have terms ranging from
one to five years and interest rate adjustment periods ranging from monthly to
three years. Amortization periods for commercial mortgage loans generally do not
exceed 25 years. Commercial real estate loans originated by the Bank are
primarily secured by income producing properties such as office buildings and
retail space. Generally, in underwriting commercial real estate loans, the Bank
requires the personal guaranty of borrowers, a maximum loan to value ratio of
80%, and a cash flow to debt service ratio of 1.2 to 1.
Construction Loans. Residential real estate construction loans comprised
approximately 17% of the Bank's total loan portfolio as of June 30, 1995. Of the
total construction loan portfolio of $41.1 million as of June 30, 1995, all are
for one-to four-family residential properties.
35
<PAGE>
The Bank originates one-to four-family residential loans to individuals on
a pre-sold basis and through developers on a pre-sold and speculative basis. The
Bank's underwriting guidelines regarding residential construction loans require
an analysis of the financial condition of the developer or the borrower, the
appraised value of the property, and the marketability of the proposed
residence, including location and overall portfolio concentrations. Limitations
are imposed by the Bank on the amount of loans for the purpose of construction
of residences that have not been pre-sold.
Construction loans generally have terms of between six and 12 months and
interest rates which adjust monthly based upon a designated prime rate. Loan
proceeds are advanced as construction progresses and inspections warrant.
Construction loans are structured either to be converted to permanent loans at
the end of the construction phase, or to be paid off upon receipt of financing
from another lender.
The Bank's construction loans are secured by first mortgages on the
underlying real estate and have loan-to-value ratios which generally do not
exceed 80%. All such loans provide for recourse to the borrower or a related
individual in the event of a default. The loan agreements generally require the
Bank to advance funds for fees. The amount of the loan generally provides
borrowers with sufficient funds to pay the interest on the loan during
construction since interest is considered part of the total cost of the
property.
Construction loans afford the Bank the opportunity to increase the interest
rate sensitivity of its loan portfolio and to receive yields higher than those
obtainable on adjustable-rate mortgage loans secured by existing residential
properties. These higher yields correspond to the higher credit risks associated
with construction lending. Historically, the Bank has obtained its construction
loans through its retail loan officer network and also through the wholesale
broker network. These loans are generally made to the homeowner and may or may
not involve an end loan commitment. More recently, because of the reduction in
the Bank's retail residential loan officer network, the Bank has become more
dependent upon the wholesale broker network for its construction loans. In
addition, the Bank has entered into an agreement with another financial
institution to do the construction phase of their borrowers' residential
construction to permanent loan program. The Bank intends to seek similar
relationships with other financial entities.
Construction loans involve additional risks attributable to the fact that
loan funds are advanced upon the security of a project under construction, which
security is of uncertain value prior to its completion. Because of the
uncertainties inherent in estimating construction costs, as well as the market
value of the completed project (which is often beyond the control of the
borrower), and the effects of governmental regulation on real property, it is
relatively difficult to accurately evaluate the total funds required to complete
a project and the related loan-to-value ratio. As a result of the foregoing,
construction lending often involves the disbursement of substantial funds with
repayment dependent, in part, on the success of the ultimate project rather than
the ability of the borrower or guarantor to repay principal and interest. If the
Bank is forced to foreclose on a project prior to or at completion due to a
default, there can be no assurance that the Bank will be able to recover all of
the unpaid balance of, and accrued interest on, the loan as well as the related
foreclosure and holding costs. In addition, the Bank may be required to fund
additional amounts to complete a project and may have to hold the property for
an indeterminable period of time. The Bank has underwriting procedures designed
to identify what it believes to be acceptable levels of risk.
Consumer Loans. Consumer loans are extended for a variety of purposes
including the purchase of automobiles, home improvement, lines of credit,
unsecured personal loans and education. As of June 30, 1995, consumer loans were
$38.2 million or 15% of total loans. Loans secured by automobiles are the
dominant consumer loans and represented $31.7 million or 83% of total consumer
loans as of June 30, 1995. Automobile loans are obtained from both the retail
branch network and indirectly through referrals from automobile dealerships.
Currently, the indirect automobile loans are the dominant portion of the
automobile loan portfolio, accounting for 80% of automobile loans at June 30,
1995. Primarily all of the indirect automobile loans are obtained from
dealerships within the Bank's market area and are underwritten to the same
standards as those automobile loans acquired through a retail banking network.
Although the volume of indirect automobile loans may decrease in the future due
to increased competition, management believes that the quality and risk is
similar for retail and wholesale automobile loans.
36
<PAGE>
Consumer loan underwriting standards include an examination of the
applicant's payment history on other debts and an evaluation of their ability to
meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary importance, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. While consumer loans generally involve a
higher element of credit risk than one-to four-family residential loans,
consumer loans are typically made at higher interest rates and for shorter
terms, or at adjustable rates, and are helpful in maintaining a profitable
spread between the Bank's loan yield and its cost of funds.
Commercial Business Loans. Commercial business loans (excluding SBA loans)
totalled $14.9 million as of June 30, 1995 representing 6% of total loans.
Commercial business loan underwriting practices assess the borrower's
creditworthiness and ability to repay, including an evaluation of the value of
any collateral securing the proposed loan. While commercial business loans
generally are made for shorter terms and at a higher yields than one-to
four-family residential loans, such loans generally involve a higher level of
risk than one-to four-family residential loans. In 1995, the Bank expanded its
commercial business lending activities and expects to continue to pursue the
commercial business loan area.
SBA loans are underwritten in accordance with the guidelines of the SBA.
These loans are made to small businesses and usually require that significant
collateral be assigned to the Bank from the borrower. Typically, the SBA
guarantees 80% to 90% of the loan balance with the remaining portion
unguaranteed. The SBA-guaranteed portion of the loans is then salable in
secondary markets, with the Bank retaining the portion that is not guaranteed.
SBA loans are similar to commercial business loans in yield and credit risk. The
SBA loans shown in the Company's financial statements reflect only the
unguaranteed portion of such loans. The SBA loans totalled $1.4 million or .6%
of the total portfolio at June 30, 1995.
Other Lending Activities. The Bank may also extend loans for other
purposes from time to time, including land, acquisition and development and
residential lot loans.
The following table sets forth total loans and loans held for sale that
were originated, purchased, sold and repaid during the periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30, YEARS ENDED MARCH 31,
------------------ --------------------------------
1995 1994 1995 1994 1993
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate loan originations........................ $18,489 $24,034 $ 90,308 $149,568 $154,213
Consumer and other loan originations................. 14,141 5,280 22,045 8,936 2,216
------- ------- -------- -------- --------
Total loan origination.......................... 32,630 29,314 112,353 158,504 156,429
Loans purchased...................................... 700 6,193 47,209 1,704
Loans acquired in mergers............................ 41,682 28,919
------- ------- -------- -------- --------
Total loan originations and purchases................ 32,630 30,014 160,228 205,713 187,052
------- ------- -------- -------- --------
LESS:
Principal repayment on loans and loans held for
sale........................................ 26,276 3,081 34,624 37,384 36,573
Sale of loans and loans held for sale........... 11,461 18,810 53,927 138,617 129,145
------- ------- -------- -------- --------
Total repayments and sale of loans................... 37,737 21,891 88,551 176,001 165,718
------- ------- -------- -------- --------
Total increase (decrease) in principal
loan balances................................. (5,107) 8,123 71,677 29,712 21,334
Net (increase) decrease in deferred loan fees,
premiums and discounts............................. 148 636 (816) 101 838
Net decrease (increase) in loans in process.......... 6,907 141 1,416 (3,586) (4,951)
Net (increase) decrease in allowance for loss........ (69) (20) (1,436) 176 (472)
------- ------- -------- -------- --------
Net increase in loans and loans held
for sale...................................... $ 1,879 $ 8,880 $ 70,841 $ 26,403 $ 16,749
======= ======= ======== ======== ========
</TABLE>
37
<PAGE>
Lending Procedures. Loan applications may be approved by the Board of
Directors, its Executive Committee or the Management Loan Committee. The review
of each loan application includes the applicant's credit history, income level,
financial condition, and the value of any collateral to secure the loan (which,
in the case of real estate loans, utilizes a review of an appraisal report
prepared by an independent appraiser). In the case of major real estate loans,
the loan underwriting process typically involves an analysis of the economic
feasibility of the proposed project.
The Management Loan Committee is currently comprised of the President,
Executive Vice President-Finance, the Senior Vice President-Lending, the Senior
Vice President-Operations, the Senior Vice President-Commercial Lending and the
Vice President-Loan Administration. The Management Loan Committee is authorized
to approve residential and commercial mortgage/commercial non-mortgage loans up
to $500,000. The committee is also authorized to approve consumer loan
applications up to $100,000. All other loan applications are subject to the
approval of the Board of Directors or its Executive Committee.
With respect to any approved real estate loan, the Bank issues a written
commitment to the applicant, setting forth the terms under which the loan will
be extended. A title insurance commitment for the mortgaged property is obtained
from an approved title company prior to the closing. Fire, casualty, and flood
insurance (where applicable) are obtained, naming the Bank as a mortgagee.
In accordance with the Bank's policies and applicable law, the
documentation of each real estate loan includes: an application signed by the
applicant, disclosing the purpose for which the loan is sought and the identity
of the property; one or more written appraisal reports disclosing the fair
market value of the security offered by the applicant; a signed financial
statement of the applicant or a written credit report prepared by the Bank or by
others at its request; documentation showing the date, amounts, purpose, and
recipient of every disbursement of loan proceeds; an opinion of the Bank's
attorney; a title insurance policy or other documentary evidence customarily
used in the appropriate jurisdiction, affirming the quality and validity of the
Bank's lien on the relevant real estate; documentation covering all
modifications of the original mortgage contract showing appropriate approval for
each such modification; and documentation covering all releases of any portion
of the collateral supporting the loan.
SERVICING OF MORTGAGE LOANS
The Bank services virtually all of its loan portfolio. As of June 30, 1995,
the Bank was also servicing $325 million in loans and loan participations for
other lenders. The Bank services both loans and loan participations it has sold
to others, as well as loans pursuant to the purchase of servicing rights.
The Bank has placed emphasis on the development of a mortgage loan
servicing portfolio to effectively utilize excess servicing capacity to generate
servicing fee income. The Bank has such excess servicing capacity due to its
regular needs for a minimum level of personnel and facilities to service the
Bank's own portfolio. Management believes that it is cost effective to use its
personnel base to servicing loans for others and generate fee income.
During 1995, the Bank purchased rights to service approximately $198
million in loans for $2.3 million. Mortgage loan servicing involves collecting
principal, interest and escrow funds for taxes and insurance from mortgage loan
borrowers, paying principal and interest to mortgage loan investors, paying
property taxes and insurance premiums on mortgaged property, supervising
foreclosures in the event of unremedied defaults, and performing all related
accounting and reporting activities. The Bank sells loans on a non-recourse
basis through its mortgage banking in the secondary market, and generally
continues to service such loans.
38
<PAGE>
With regard to purchased servicing rights, such rights are typically
purchased from other thrift institutions and mortgage banking companies. In
purchasing servicing rights, a valuation of the servicing rights and an
assessment of the portfolio is conducted by the Bank. A computer model is
utilized in the evaluation process which assesses prepayment expectations, costs
to establish servicing files, the on-going costs of servicing, the mortgage loan
coupon range and concentrations, servicing margin, payment remittance cycles and
utilization of escrow funds.
Although the originator or its assignee retains title and reimburses the
servicer for the majority of expenses should foreclosure be required, the
purchase of servicing rights involves risks to the servicer, particularly should
the underlying loans be prepaid faster than that assumed in the servicing rights
valuation process. Should loan prepayments be accelerated, the amortization of
the amount paid for servicing rights (which amount is amortized over the
estimated life of the underlying loan utilizing the interest method) must also
be accelerated thereby reducing income. See Note 8 of Notes to Consolidated
Financial Statements. The Bank seeks to mitigate such risks by diversifying the
servicing portfolio between fixed-rate and adjustable-rate mortgage loans and
among various states, including Florida, California, Iowa and Illinois.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The Bank's non-performing assets consist of real estate acquired through
foreclosures ('real estate owned') and loans which are 60 days or more past due.
Accrued interest on loans which are more than 60 days past due is excluded from
income and any previously accrued and unpaid interest is reversed through
interest income. Non-performing assets as of June 30, 1995 were $6.3 million,
representing 2.3% of the Bank's total assets. The following table details the
Bank's non-performing assets at June 30, 1995 and for the five-year period
ending March 31, 1995:
<TABLE>
<CAPTION>
QUARTER ENDED YEARS ENDED MARCH 31,
JUNE 30, ----------------------------------------------
1995 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LOANS:
Consumer....................................... $ 446 $ 352 $ 61 $ 241 $ 99 $ 60
Commercial business............................ 922 630 377 398 70 140
Residential mortgage........................... 2,580 1,050 591 2,167 908
Residential construction....................... 340 115 84 70
Commercial mortgage............................ 450 162 244 317 550
Repossessed automobiles........................ 162 118
------------- ------ ------ ------ ------ ------
TOTAL NON-PERFORMING LOANS:............... 4,900 2,427 1,357 3,193 1,627 200
------------- ------ ------ ------ ------ ------
REAL ESTATE OWNED:
Residential construction....................... 143 26 468 402
Residential.................................... 294 219 787 306 2,641 1,337
Land for residential use....................... 59 61 330
Land for commercial use........................ 764 764 555 574 280 344
Commercial real estate......................... 185 52 115 292
------------- ------ ------ ------ ------ ------
TOTAL REAL ESTATE OWNED:.................. 1,445 1,009 1,871 932 3,768 1,973
------------- ------ ------ ------ ------ ------
Total non-performing assets.................. $ 6,345 $3,436 $3,228 $4,125 $5,395 $2,173
============= ====== ====== ====== ====== ======
Real estate owned and non-performing loans to
total assets................................. 2.30% 1.23% 1.56% 2.43% 3.99% 1.76%
============= ====== ====== ====== ====== ======
</TABLE>
39
<PAGE>
The increase in non-performing assets from March 31, 1995 to June 30, 1995
was primarily due to two factors: (1) certain loans acquired in connection with
the acquisition of Governors, which had been identified at the time of
acquisition and classified by the Bank but remained performing until the quarter
ended June 30, 1995 and (2) a number of residential mortgage loans that became
delinquent during the period due to personnel vacancies in key loan collection
positions, which vacancies were subsequently filled.
All of the Bank's assets are reviewed at least quarterly by a committee
comprised of five members of the Bank's management (the 'Committee') for the
purpose of determining a loan's classification as substandard, doubtful, or
loss, as appropriate. An asset is considered 'substandard' if it is inadequately
protected by the current net worth and paying capacity of the obligor or the
collateral pledged. 'Substandard' assets include those characterized by the
distinct possibility that the insured institution will sustain some loss if the
deficiencies are not corrected. Assets classified as doubtful have all of the
weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses present make collection or liquidation in
full on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
General allowances represent loss allowances which have been established to
recognize the inherent risk associated with lending activities, unlike specific
allowances that have not been allocated to a particular problem asset. Assets
classified as loss are those considered uncollectible and of such little value
that their continuance as assets is not warranted. The Bank will charge off 100%
of the assets classified as loss. The Bank's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, who can order the establishment of additional
general or specific loss allowances.
Although the Bank uses its best judgment in underwriting each loan,
industry experience indicates that a portion of the Bank's loans will become
delinquent. Regardless of the underwriting criteria utilized by savings and loan
associations, losses may be experienced as a result of many factors beyond their
control including, among other things, changes in market conditions affecting
the value of security and unrelated problems affecting the credit of the
borrower. Due to the concentration of loans in South Florida, adverse economic
conditions in this area could result in a decrease in the value of a significant
portion of the Bank's collateral.
40
<PAGE>
In the normal course of business, the Bank has recognized and will continue
to recognize losses resulting from the inability of certain borrowers to repay
loans and the insufficient realizable value of collateral securing such loans.
Accordingly, management has established an allowance for loan losses, which
totalled approximately $2.58 million at June 30, 1995 and $2.51 million as of
March 31, 1995, which is allocated according to the following table:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
JUNE 30, ------------------------------------------------------------------------------------------
1995 1995 1994 1993 1992
--------------------- -------------------- -------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
FOR TO TOTAL FOR TO TOTAL FOR TO TOTAL FOR TO TOTAL FOR TO TOTAL
LOAN LOSSES LOANS LOAN LOSSES LOANS LOAN LOSSES LOANS LOAN LOSSES LOANS LOAN LOSSES LOANS
----------- -------- ----------- -------- ----------- -------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
construction
and lot........ $ 357 18% $ 281 19% $ 212 29% $ 137 31% $ 174 31%
Real estate
residential and
commercial..... 951 60 535 60 481 66 632 63 440 64
Commercial
business....... 531 7 531 7 114 1 152 2 70 1
Consumer......... 496 15 406 14 163 4 201 4 91 4
Unallocated(1)... 60 754 101 125
----------- -------- ----------- -------- ----------- -------- ----------- -------- ----------- --------
TOTAL............ $ 2,576 100% $ 2,507 100% $ 1,071 100% $ 1,247 100% $ 775 100%
=========== ======== =========== ======== =========== ======== =========== ======== =========== ========
<CAPTION>
1991
---------------------
PERCENT
ALLOWANCE OF LOANS
FOR TO TOTAL
LOAN LOSSES LOANS
----------- --------
<S> <C> <C>
Real estate
construction
and lot........ $ 146 35%
Real estate
residential and
commercial..... 290 59
Commercial
business....... 62 2
Consumer......... 14 4
Unallocated(1)...
----------- --------
TOTAL............ $ 512 100%
=========== ========
</TABLE>
------------------------
(1) The unallocated portion of the allowance for loan losses decreased from
March 31, 1995 to June 30, 1995 primarily due to the Bank increasing its
reserve percentage from 10% to 15% of loans classified substandard. The
unallocated balance at March 31, 1995, assuming a 15% reserve for loans
classified substandard, would decrease to $439,000.
41
<PAGE>
In evaluating the adequacy of the allowance for loan losses, management has
taken into consideration the loan portfolio, past loan loss experience, current
economic conditions, workout arrangements, pending sales, the financial strength
of the borrowers, and the appraised value of the collateral at the time reserves
were established. Although management believes the allowance for losses is
adequate, their evaluation is dependent upon future events. Management's
evaluation of losses is a continuing process which may necessitate adjustments
to the allowance in future periods.
The following table details the charge-offs, recoveries, net charge-offs
and ending balance of the allowance for loan losses for the quarter ended June
30, 1995 and the years ended March 31, 1995, 1994, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
AT OR FOR THE
QUARTER ENDED AT OR FOR THE YEAR ENDED MARCH 31,
JUNE 30, --------------------------------------------
1995 1995 1994 1993 1992 1991
------------- ------ ------ ------ ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Beginning balance................................ $ 2,507 $1,071 $1,247 $ 775 $ 512 $ 504
Reserves acquired in connection
with merger.................................... 1,399 319
CHARGE OFFS:
Real estate mortgage........................... 50 344 274 530 427 618
Real estate construction....................... 10 11 138 43
Consumer....................................... 135 105 8 102 6
Commercial business............................ 23 158 459 226
------------- ------ ------ ------ ----- -----
SUBTOTAL - charge-offs........................... 208 617 752 996 476 618
------------- ------ ------ ------ ----- -----
RECOVERIES:
Real estate mortgage........................... 25 166 235 138 35 10
Consumer....................................... 25 15 8
Commercial business............................ 202 273 127
------------- ------ ------ ------ ----- -----
SUBTOTAL - Recoveries............................ 252 454 362 146 35 10
------------- ------ ------ ------ ----- -----
Net (charge-offs) recovery....................... 44 (163) (390) (850) (441) (608)
Provision for losses............................. 25 200 214 1,003 704 616
------------- ------ ------ ------ ----- -----
Ending balance................................... $ 2,576 $2,507 $1,071 $1,247 $ 775 $ 512
============= ====== ====== ====== ===== =====
Ratio of net charge-offs during the period to
average loans outstanding during the period.... 0% .09% .27% .75% .55% .65%
============= ====== ====== ====== ===== =====
</TABLE>
42
<PAGE>
INVESTMENT ACTIVITIES
The Bank is required by federal regulations to maintain minimum levels of
liquid assets. See 'Regulatory Matters--Federal Regulation' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity.' The Bank considers such factors as liquidity, yields,
interest rate exposure, and general economic conditions in determining the
composition of its investments portfolio. As of June 30, 1995 the Company had
cash and cash equivalents of $15 million and investments of $11 million
representing, in the aggregate, 10% of its total assets. See Note 3 of Notes to
Consolidated Financial Statements.
DEPOSITS
The Bank offers a variety of deposit programs, including NOW accounts,
money market deposit accounts, statement savings accounts, and variable-or
fixed-rate certificates of deposit with maturities ranging from 30 days to five
years. The principal difference among certificate accounts relate to minimum
balance, term, interest rate, and method of compounding. The Bank does not
accept brokered deposits.
As of June 30, 1995, certificate accounts in the amount of $100,000 or more
amounted to approximately $15.4 million representing 6.8% of total deposits.
This amount has slightly increased from $14.7 million at March 31, 1995, and
remained relatively flat as a percent of total deposits.
43
<PAGE>
The following table sets forth the amounts and the weighted-average
interest rate on each category of the Bank's deposit accounts as of the dates
indicated:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
---------------------------- ----------------------------------------------------------------------
1995 1995 1994 1993
---------------------------- ---------------------------- ---------------------------- --------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE PERCENT AVERAGE PERCENT AVERAGE PERCENT
STATED OF TOTAL STATED OF TOTAL STATED OF TOTAL
AMOUNT RATE DEPOSITS AMOUNT RATE DEPOSITS AMOUNT RATE DEPOSITS AMOUNT
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook and Statement
Accounts............... $ 19,052 2.45% 8.46% $ 19,395 2.45% 8.44% $ 19,885 2.40% 12.69% $ 19,945
Commercial Checking
Accounts............... 25,504 11.33 26,149 11.38 6,027 3.85 6,408
Money Market Deposit
Accounts............... 13,179 2.45 5.86 14,581 2.45 6.35 12,217 2.40 7.80 10,052
NOW Accounts............. 26,368 2.00 11.71 26,688 2.00 11.62 25,498 2.00 16.28 19,300
30-90 day Certificates
of Deposit............. 2,216 4.07 .98 2,974 4.13 1.30 3,201 2.85 2.04 3,406
6-9 month Certificates
of Deposit............. 41,047 5.86 18.24 42,011 5.75 18.28 26,041 3.34 16.62 29,571
12-18 month Certificate
of Deposit............. 70,324 5.67 31.24 74,090 5.43 32.25 46,023 3.79 29.38 39,739
2-year Certificates
of Deposit............. 7,086 4.80 3.15 7,464 4.48 3.25 9,482 4.44 6.05 9,890
3-year Certificates
of Deposit............. 2,175 5.01 .97 1,656 4.99 .72 1,309 4.79 .84 1,446
5-year Certificates
of Deposit............. 13,179 5.90 5.86 13,597 5.76 5.92 6,075 6.10 3.88 4,612
Jumbo Certificates
(varying maturities)... 4,951 6.94 2.20 1,130 5.58 .49 893 4.54 .57 1,542
-------- -------- -------- -------- -------- -------- --------
TOTAL DEPOSITS........... $225,081 4.00% 100.00% $229,735 4.00% 100.00% $156,651 3.11% 100.00% $145,911
======== ======== ======== ======== ======== ======== ========
<CAPTION>
WEIGHTED
AVERAGE PERCENT
STATED OF TOTAL
RATE DEPOSITS
-------- --------
<S> <<C> <C>
Passbook and Statement
Accounts............... 2.85% 13.67%
Commercial Checking
Accounts............... 4.39
Money Market Deposit
Accounts............... 3.00 6.89
NOW Accounts............. 2.80 13.23
30-90 day Certificates
of Deposit............. 3.02 2.33
6-9 month Certificates
of Deposit............. 3.36 20.27
12-18 month Certificate
of Deposit............. 3.99 27.23
2-year Certificates
of Deposit............. 5.50 6.78
3-year Certificates
of Deposit............. 7.63 .99
5-year Certificates
of Deposit............. 6.77 3.16
Jumbo Certificates
(varying maturities)... 4.40 1.06
--------
TOTAL DEPOSITS........... 3.51% 100.00%
========
</TABLE>
The following table sets forth the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JUNE 30, YEAR ENDED MARCH 31,
----------------- ----------------------------------------------
1995 1994 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
DEPOSIT ACTIVITY
Net deposits (withdrawals)(1).......................... $(4,987) $(2,171) $68,303 $ 7,097 $24,212 $ 956 $(6,291)
Interest credited(2)................................... 333 128 4,781 3,643 4,350 6,524 7,220
------- ------- ------- ------- ------- ------ -------
Net (decrease) increase in deposits.................... $(4,654) $(2,043) $73,084 $10,740 $28,562 $7,480 $ 929
======= ======= ======= ======= ======= ====== =======
</TABLE>
------------------------
(1) Includes $58.1 million and $41.8 million of deposits acquired in connection
with mergers in 1995 and 1993, respectively.
(2) Excludes interest paid directly to account holders.
44
<PAGE>
The following table presents, by stated interest rate ranges, the amount of
certificates of deposits outstanding (in thousands) at June 30, 1995 and the
periods to maturity of the certificates of deposits by the stated interest rate
ranges at June 30, 1995:
<TABLE>
<CAPTION>
JUNE 30, 1995
JUNE 30, MARCH 31, -----------------------------------
-------- ------------------------------------------------ 0-6 7-12 13-18 19-24
1995 1995 1994 1993 1992 1991 MONTHS MONTHS MONTHS MONTHS
-------- -------- ------- ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to 3.00%........... $ 3,124 $ 1,307
3.01 to 4.00%......... $ 1,833 $ 7,768 68,517 60,753 $ 3,188 $ 1,197 $ 633 $ 3
4.01 to 5.00%......... 25,626 37,616 14,415 11,404 30,466 20,909 3,347 541 $ 196
5.01 to 6.00%......... 58,106 48,575 4,180 9,258 22,998 35,695 11,487 1,388 729
6.01 to 7.00%......... 46,958 44,725 1,237 4,382 14,144 $13,243 18,264 23,598 3,045 1,448
Over 7.01%............ 8,455 4,238 1,551 3,102 3,277 73,230 1,133 3,736 3,123 196
-------- -------- ------- ------- ------- ------- -------- -------- ------- -------
TOTAL............... $140,978 $142,922 $93,024 $90,206 $74,073 $86,473 $ 77,198 $ 42,801 $ 8,100 $ 2,569
======== ======== ======= ======= ======= ======= ======== ======== ======= =======
Percent of total...... 55% 30% 6% 2%
======== ======== ======= =======
<CAPTION>
THEREAFTER
----------
<S> <C>
Up to 3.00%...........
3.01 to 4.00%.........
4.01 to 5.00%......... $ 634
5.01 to 6.00%......... 8,809
6.01 to 7.00%......... 600
Over 7.01%............ 267
----------
TOTAL............... $ 10,310
==========
Percent of total...... 7%
==========
</TABLE>
BORROWINGS
The Bank generally may borrow from the FHLB upon the security of the
capital stock of the FHLB owned by the Bank, certain of its home mortgages, and
certain other assets (principally obligations of, or guaranteed by, the United
States Government or a federal agency). Several credit options are made
available to banks from time to time by the FHLB to meet seasonal or other
withdrawals of deposits and to permit the expansion of lending activities. Each
credit option has specified maturity and either a fixed or a variable interest
rate determined by the FHLB. Rates offered for variable interest FHLB borrowings
are set from time to time by the FHLB. FHLB policy prescribes the acceptable use
to which the proceeds of such borrowings may be used. As of June 30, 1995, the
Bank had $15 million in such borrowings outstanding.
FHLB advances are collateralized by FHLB stock and mortgage loans pledged
in accordance with an agreement the Bank entered into with the FHLB. In
accordance with the agreement, the Bank had pledged as collateral loans with an
aggregate principal balance of approximately $44 million, $44 million, $48
million and $21 million at June 30, 1995 and March 31, 1995, 1994 and 1993,
respectively.
From time to time the Bank enters into repurchase agreements with
securities dealers and commercial banks. A repurchase agreement is a form of
securities borrowing which involves the sale and delivery of securities by the
Bank to a securities broker or dealer in an amount equal to a percentage of the
fair market value of the securities, coupled with the Bank's agreement to
repurchase the securities at a later date. The Bank pays the broker or dealer a
fixed-rate of interest for the use of the funds for the period involved which
ranges from overnight to two years. At maturity, the loans are repaid and the
securities are returned to the Bank. The amounts of securities sold under such
agreements vary widely and depend on many factors which include the terms
available for such transactions, the ability of the Bank to apply the proceeds
to investments having higher returns, the demand for such transactions, and
management's perception of trends in short-term interest rates. The Bank, in
each such transaction, requires the broker or dealer to adhere to procedures for
the safekeeping of the Bank's securities. As of June 30 1995, the Bank had
$2,469,000 outstanding in repurchase agreements.
45
<PAGE>
The following table presents selected information on borrowings:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------- ---------------------------------------------------
1995 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SHORT TERM BORROWINGS:
FHLB Advances:
Amounts outstanding at end
of period............................... $ 15,000 $15,000 $20,000
Weighted average rate at end
of period............................... 6.20% 6.15% 3.86%
Maximum amount outstanding at any month
end..................................... $ 15,000 $20,000 $40,000 $13,000 $14,800
Approximate average amount outstanding
during period........................... 13,000 16,000 15,000 3,331 5,045
Approximate weighted average rate for
period.................................. 6.20% 4.71% 3.45% 8.25% 8.60%
OTHER BORROWED MONEY:
Amounts outstanding at end
of period............................... $ 2,469 $ 2,748 $ 37
Weighted average rate at end
of period............................... 5.81% 5.96% 11.00%
Maximum amount outstanding at any month
end..................................... $ 4,251 $ 2,748 $ 37
Approximate average outstanding during
period.................................. 4,154 663 127
Approximate weighted average rate for
period.................................. 5.80% 5.60% 8.42%
</TABLE>
COMPETITION
The Bank experiences strong competition both in attracting deposits and
originating loans in its South Florida market area. Direct competition for
deposits comes from other savings and loan associations, commercial banks,
credit unions, money market funds and other providers of financial services and
is significant largely due to the desire of financial institutions to access the
high proportion of retirees who live in South Florida and have average liquid
assets. The Bank competes with other savings and loan associations, commercial
banks and credit unions for loans. In addition, mortgage banking companies are
competitors for residential real estate loans. Many of these competitors have
greater financial resources, larger branch networks, better name recognition,
greater economies of scale, less regulatory burdens, less capital requirements
and larger employee bases than the Bank. The primary methods used to attract
deposit accounts include interest rates, variety and quality of services,
convenience of branches and advertising and promotions. The Bank competes for
loans through interest rates, loan fees and efficient, quality service provided
to customers.
LEGAL PROCEEDINGS
In the ordinary course of business, the Company or the Bank may be involved
in litigation from time to time. As of the date of this Prospectus, neither the
Company nor the Bank is a party to any pending material legal proceedings, nor
is management aware of any such material actions threatened against the Company
or the Bank.
46
<PAGE>
PROPOSED ACQUISITION OF BANYAN BANK
GENERAL
On September 7, 1995, the Company and the Bank entered into a Stock
Purchase Agreement (the 'Purchase Agreement') with the shareholders of Banyan,
which provides for the acquisition of all of the outstanding capital stock of
Banyan (the 'Acquisition'). Under the terms of the Purchase Agreement, the
Company will purchase the shares of stock and will subsequently merge Banyan
into the Bank, with the Bank being the surviving entity in the merger (the
'Merger').
The Acquisition is subject to receipt of various regulatory approvals and
consents of shareholders and boards of directors, the closing of the Offerings
and certain other conditions, and is not expected to close until early 1996. The
following is a summary of the material terms of the Acquisition. For a more
complete description, reference is made to the Purchase Agreement, which was
filed as an exhibit to the Registration Statement.
BUSINESS OF BANYAN
Banyan was formed in 1984 to operate as a community bank in Boca Raton,
which is located in South Palm Beach County, Florida. Banyan is a closely held
bank with the majority of its common stock held by one family. At June 30, 1995,
Banyan had total assets of $47.9 million, total deposits of $43.2 million and
stockholders' equity of $4.4 million. Banyan is a state commercial bank
chartered in Florida and a member of the Federal Reserve Bank. Currently, Banyan
is operating from two banking centers, one in Boca Raton and one in the
neighboring town of Boynton Beach. Banyan offers a broad range of banking
services, including interest-bearing deposits in the form of NOW, money market,
savings and time accounts, certificates of deposit and real estate,
construction, commercial and consumer loans. Banyan's principal business is
attracting retail deposits from the general public and lending or investing
those deposits, together with borrowed funds, in the loan products described
above, as well as in investment securities.
Banyan was targeted by the Company for two primary strategic reasons: (i)
Banyan's two banking center locations in South Palm Beach County, and (ii)
Banyan's commercial loan portfolio, which when combined with the Bank's
portfolio will increase the percentage of commercial business loans in the
overall portfolio as well as the Bank's customer base in South Palm Beach
County.
PURCHASE PRICE
The purchase price to be paid pursuant to the Purchase Agreement shall be
equal to 207% of the first $4,600,000 of the Tangible Equity (as defined in the
Purchase Agreement) of Banyan, plus 100% of any Tangible Equity in excess of
$4,600,000, as of the calendar month ended immediately prior to the closing of
the transaction.
CONDITIONS TO ACQUISITION
Consummation of the Acquisition by the Bank and the shareholders of Banyan
is subject to the fulfillment of certain conditions, including, but not limited
to, the following: (a) the receipt and effectiveness of all government approvals
required to be received to consummate the Acquisition and the Merger, without
the imposition of conditions that would, in the reasonable determination of the
Bank, (i) have a material adverse effect on the financial condition, properties,
business or operations of the Bank upon completion of the Merger, or (ii)
otherwise impair the value of Banyan to the Bank; and all applicable statutory
waiting or notice periods with respect to such government approvals shall have
expired and all
47
<PAGE>
conditions and requirements prescribed by law or by such government approvals
shall have been satisfied; and (b) no order, judgment or decree shall be
outstanding against any party to the Purchase Agreement or a third party that
would have the effect of preventing consummation of the Acquisition or the
Merger; no suit, action or other proceeding shall be pending or, to the
knowledge of any party, threatened by any governmental body in which it is
sought to restrain or prohibit the Purchase and the Merger; and no suit, action
or other proceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit the Acquisition and the Merger or
obtain other substantial monetary or other relief against one or more of the
parties to the Purchase Agreement and which the parties determine in good faith,
based upon the advice of their respective counsel, makes it inadvisable to
proceed with the Acquisition and the Merger.
In addition to the foregoing conditions, the Bank's obligations under the
Purchase Agreement are conditioned on the following: (a) the obligations of
Banyan and its shareholders pursuant to the terms of the Purchase Agreement
shall have been duly performed and complied with in all material respects and
the representations and warranties contained in the Purchase Agreement shall be
true and correct in all material respects; (b) there shall not have occurred a
material adverse change in Banyan, its business, financial condition or
prospects since December 31, 1994; (c) the interim consolidated balance sheet of
Banyan for the calendar month end immediately prior to the Closing (as defined
below), and as of the Closing, shall reflect total assets of not less than
$45,000,000, classified assets of not more than $900,000, allowance for loan
losses of not less than 1% of total assets and non-performing assets of not more
than 1% of total assets; (d) all, and not less than all, of the shares of Banyan
shall be tendered for purchase by the Bank; (e) the Offerings shall have closed
and net proceeds thereof shall be not less than $10,000,000; and (f) certain
other usual and customary conditions to closing.
CONDUCT OF BANYAN'S BUSINESS PENDING THE ACQUISITION
The Purchase Agreement requires the shareholders of Banyan to cause Banyan
to (i) maintain its existence and good standing under the laws of its
organization, and (ii) conduct its business and engage in transactions only in
the ordinary course and consistent with its past prudent banking practices. In
addition, the shareholders agree to cause Banyan, except as otherwise permitted
or required by the Purchase Agreement, not to take any action that would result
in any of the representations or warranties contained in the Purchase Agreement
not being true and correct in any material respect at the closing.
The shareholders further agree to cause Banyan to confer with the Bank upon
the Bank's request and advise the Bank regarding all material (as defined in the
Purchase Agreement) adverse developments, transactions and proposals relating to
its financial condition, properties, business or operations, and cause its
directors, officers, employees, agents and other representatives to disclose to
the Bank any and all material changes in, or events which materially and
adversely affect, its financial condition, properties, business or operations.
Under the Purchase Agreement, except and only to the extent required by
fiduciary obligations, the shareholders of Banyan shall not, nor shall they
permit any of the directors, officers, employees, representatives, agents or
other persons controlled by Banyan to, directly or indirectly, encourage or
solicit or hold discussions or negotiations with, or provide any information to,
any person, entity or group (other than the Bank) concerning any merger, sale of
substantial assets, sale of shares of capital stock or similar transactions
involving Banyan.
CLOSING
The closing of the transactions (the 'Closing') shall take place on the
date determined by the Bank after January 1, 1996, not more than 30 days after
the calendar month end first occurring after the later of
48
<PAGE>
(a) the date of the letter of preliminary approval of the applicable regulatory
authority approving the Merger, (b) the date of the closing of the Offerings or
(c) such later date on which all conditions precedent to such Closing contained
in the Purchase Agreement are satisfied or duly waived; or at such other date,
time and place as the parties shall agree, but in no event later than February
29, 1996. In the event the Closing fails to take place prior to March 1, 1996
solely because of a failure to obtain regulatory approval of the Merger, the
parties agree that the Purchase Agreement is not terminable until after midnight
April 30, 1996.
TERMINATION
The Purchase Agreement may be terminated at any time prior to the Closing
by mutual written consent of the parties.
In addition, the Purchase Agreement may be terminated on behalf of the
Banyan shareholders at any time prior to the Closing if (a) a material condition
to closing cannot be fulfilled (other than by reason of the shareholders'
failure to comply with their obligations) and nonfulfillment is not waived; or
(b) there shall have been a material default under or a material breach of the
Bank's covenants; or (c) after 12:00 midnight, local time, February 29, 1996
(except as otherwise provided in the Purchase Agreement), if all the conditions
precedent to the shareholders' obligations to effect the Acquisition shall not
have been fulfilled by reason other than their failure to comply with their
obligations and the Closing shall not have been effected on or prior to such
date.
The Bank may also terminate the Purchase Agreement at any time prior to
October 15, 1995, if as a result of the review by the Bank of Banyan's loan
portfolio, assets, liabilities, books, records, business and prospects, the
Bank, in its sole discretion, determines that the Acquisition is not desirable
or in the best interests of the Bank's shareholders. In addition, the Bank may
terminate the Purchase Agreement if (a) any condition to closing which must be
fulfilled before the Bank is obligated to consummate the Closing cannot be
fulfilled (other than by reason of the Bank's failure to comply with its
obligations hereunder) and nonfulfillment is not waived; or (b) there shall have
been a material default under or a material breach of the shareholders'
covenants; or (c) any representation or warranty of the shareholders shall no
longer be true and correct as of any date and remains not true and correct 15
days after notice thereof is given. The Bank may also terminate the Purchase
Agreement at any time after 12:00 midnight, local time, February 29, 1996
(except as otherwise provided in the Purchase Agreement), if all the conditions
precedent to their obligations to effect the Closing shall not have been
fulfilled by reason other than the Bank's failure to comply with its obligations
and the Closing shall not have been effected on or prior to such date.
If the Purchase Agreement is terminated, it shall no longer be of any force
or effect and there shall be no liability on the part of any party or its
directors, officers or shareholders; provided that (a) if such termination
results from breaches by the shareholders of Banyan of any representation,
warranty or covenant hereunder, then certain of the shareholders shall pay the
Bank liquidated damages in the amount of $100,000 and (b) if such termination
results from breaches by the Bank of any representation or warranty or covenant
hereunder, then the Company and/or the Bank shall pay the shareholders, pro
rata, liquidated damages in the amount of $100,000. The parties further agreed
that the failure of the Company to consummate the Offerings shall be deemed
sufficient cause for the shareholders to terminate the Purchase Agreement, but
shall not be deemed a breach resulting in liquidated damages being payable to
them.
At any time prior to the Closing, either of the parties may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of the
other party, or (c) waive compliance with any of the agreements or conditions of
the other parties.
49
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Condensed Statement of Financial
Condition of the Company and Banyan as of June 30, 1995 give effect to the
acquisition of Banyan as if the acquisition had been consummated on that date.
The following Unaudited Combined Condensed Statement of Operations for the year
ended March 31, 1995 and the three months ended June 30, 1995 give effect to the
acquisitions of Banyan and Governors as if the acquisitions were consummated on
April 1, 1994. The acquisition of Governors was consummated on November 30,
1994. Therefore, the effects of the Governors' acquisition are included in the
Company's historical statement of financial condition as of June 30, 1995,
statement of operations for the three months ended June 30, 1995 and four months
of the effects are included in the Company's historical statement of operations
for the year ended March 31, 1995. The unaudited pro forma combined financial
information also gives effect to proceeds from the Offerings.
The unaudited pro forma combined condensed financial information is based
on the historical financial statements of the Company, Banyan and Governors
after giving effect to the transactions under the purchase method of accounting
and the assumptions and adjustments in the accompanying notes to unaudited pro
forma combined condensed financial statements. The unaudited pro forma combined
condensed statement of operations data for the year ended March 31, 1995
includes the operations of Governors for the eight months ended November 30,
1994. Purchase accounting adjustments to estimated fair values have been made
with respect to the assets and liabilities of Banyan and related income and
expense accounts of Banyan based upon preliminary estimates and assumptions as
of June 30, 1995. Such preliminary estimates and assumptions are subject to
change as additional information is obtained. The allocation of the purchase
price is subject to final determination, based upon estimates and other
evaluations of fair value, as of the actual date of consummation. The Company's
management does not expect the final allocation of the purchase price to differ
significantly from the allocation as presented in the unaudited pro forma
combined condensed financial information.
The unaudited pro forma combined condensed financial information has been
prepared by the Company's management based upon the historical unaudited
quarterly financial statements of Banyan and Governors and historical financial
statements and related notes thereto of Banyan, Governors and the Company
included elsewhere in this Prospectus. The unaudited pro forma combined
condensed financial statements should be read in conjunction with such
historical financial statements and notes. The unaudited pro forma combined
condensed financial statements may not be indicative of the results that
actually would have occurred if the transactions had been consummated on the
dates indicated and should not be construed as being representative of future
periods.
50
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF FINANCIAL CONDITION
(AMOUNTS IN THOUSANDS)
AT JUNE 30, 1995
<TABLE>
<CAPTION>
REPUBLIC SECURITY
FINANCIAL CORP. BANYAN BANK PRO FORMA COMBINED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
----------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks............................ $ 3,777 $ 8,278 $ 12,055
Interest-bearing deposits in other financial
institutions.................................... 11,254 (9,100)(a) 10,154
(b)
8,000 (c)
Investments held to maturity....................... 11,358 11,358
Investments available for sale..................... 2,570 2,570
Loans, net......................................... 229,819 35,953 265,772
Property and equipment, net........................ 6,038 274 6,312
Real estate owned.................................. 1,445 491 1,936
Goodwill........................................... 3,173 4,661 (a) 7,834
Other assets....................................... 9,116 361 9,477
----------------- ----------- ----------- ---------
Total assets......................................... $ 275,980 $ 47,927 $ 3,561 $ 327,468
================= =========== =========== =========
LIABILITIES
Deposits........................................... $ 225,081 $ 43,216 $ 268,297
Securities sold under agreements to repurchase..... 2,469 2,469
Federal Home Loan Bank advances.................... 15,000 15,000
Other liabilities.................................. 10,758 272 11,030
----------------- ----------- ----------- ---------
Total liabilities.................................... 253,308 43,488 296,796
----------------- ----------- ----------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock.................................... 4,025 $ 8,000 (c) 12,025
Common stock....................................... 43 2,657 (2,657)(a) 43
(b)
Additional paid in capital......................... 16,211 1,061 (1,061)(a) 16,211
(b)
Retained earnings.................................. 2,393 696 (696)(a) 2,393
Net unrealized gain on available
for sale securities............................. 25 (25)(a)
----------------- ----------- ----------- ---------
Total shareholders' equity........................... 22,672 4,439 3,561 30,672
----------------- ----------- ----------- ---------
Total liabilities and shareholders' equity........... $ 275,980 $ 47,927 $ 3,561 $ 327,468
================= =========== =========== =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
51
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
REPUBLIC SECURITY
FINANCIAL CORP. BANYAN BANK PRO FORMA COMBINED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
----------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans.................................. $ 4,979 $ 944 $ 5,923
Interest on investments............................ 341 143 484
----------------- ----------- ---------
Total interest income................................ 5,320 1,087 6,407
----------------- ----------- ---------
Interest Expense:
Interest on deposits............................... 2,432 458 2,890
Int. on short term borrowings...................... 249 249
Int. on long term borrowings....................... 31 31
----------------- ----------- ---------
Total interest expense............................... 2,712 458 3,170
----------------- ----------- ---------
Net interest income.................................. 2,608 629 3,237
Provision for loan losses............................ 25 0 25
----------------- ----------- ---------
Net interest income after provision for
loan losses..................................... 2,583 629 3,212
----------------- ----------- ---------
Non-interest Income:
Other income....................................... 914 58 972
----------------- ----------- ---------
Total other income................................... 914 58 972
----------------- ----------- ---------
Operating Expenses:
Employee compensation and benefits................. 1,215 237 $ (125)(d) 1,327
Occupancy and equipment............................ 489 80 569
Professional fees.................................. 199 199
Advertising and promotion.......................... 60 60
Outside services................................... 35 35
Communications..................................... 106 106
Data processing.................................... 111 111
Insurance.......................................... 153 153
Real estate owned, net............................. 3 3
Amortization of goodwill........................... 78 (e) 78
Other.............................................. 308 153 (20)(f) 441
----------------- ----------- ----------- ---------
Total operating expenses............................. 2,679 470 (67) 3,082
----------------- ----------- ----------- ---------
Income before income taxes........................... 818 217 1,102
Income taxes......................................... 291 77 117 (g) 485
----------------- ----------- ----------- ---------
Net income........................................... $ 527 $ 140 $ (50) $ 617
================= =========== =========== =========
Earnings per common share............................ $0.10 $
===== =========
Average common shares and common stock equivalents
outstanding........................................ 4,459
===== =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
52
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
REPUBLIC
SECURITY GOVERNORS BANYAN
FINANCIAL (HISTORICAL) (HISTORICAL)
CORP. (4/1/94 TO PRO FORMA COMBINED (4/1/94 TO PRO FORMA COMBINED
(HISTORICAL) 11/30/94 ADJUSTMENTS PRO FORMA 3/31/95) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest on loans............... $ 15,254 $ 3,833 $ 19,087 $ 2,934 $ 22,021
Interest on investments......... 1,034 955 1,989 467 2,456
------------ ------------ --------- ------------ ---------
Total interest income............. 16,288 4,788 21,076 3,401 24,477
------------ ------------ --------- ------------ ---------
Interest on Deposits:
Interest on deposits............ 6,244 1,838 8,082 1,241 9,323
Int. On short term borrowings 935 79 1,014 1,014
Int. On long term borrowings.... 218 218 218
------------ ------------ --------- ------------ ---------
Total interest expense............ 7,397 1,917 9,314 1,241 10,555
------------ ------------ --------- ------------ ---------
Net interest income............... 8,891 2,871 11,762 2,160 13,922
Provision for loan losses......... 200 140 340 86 426
------------ ------------ --------- ------------ ---------
Net interest income
after provision............... 8,691 2,731 11,422 2,074 13,496
------------ ------------ --------- ------------ ---------
Non-interest Income:
Mortgage banking inc............ 1,788 1,788 1,788
Other income.................... 1,211 679 1,890 110 2,000
------------ ------------ --------- ------------ ---------
Total other income................ 2,999 679 3,678 110 3,788
------------ ------------ --------- ------------ ---------
Operating Expenses:
Employee compensation
and benefits.................. 4,595 1,611 $ (870)(d) 5,336 856 $ (500)(d) 5,692
Occupancy and equipment......... 1,488 854 (134)(h) 2,208 289 2,497
Professional fees............... 652 536 (120)(f) 1,068 1,068
Advertising and promotion....... 233 233 233
Outside services................ 232 232 232
Communications.................. 352 352 352
Data processing................. 307 220 (50)(f) 477 477
Insurance....................... 570 290 860 860
Real estate owned, net.......... 70 6 76 76
Amortization of goodwill........ 165 (i) 165 310 (e) 475
Other........................... 1,361 373 (50)(f) 1,684 607 (60)(f) 2,231
------------ ------------ ----------- --------- ------------ ----------- ---------
Total............................. 9,860 3,890 (1,059) 12,691 1,752 (250) 14,193
------------ ------------ ----------- --------- ------------ ----------- ---------
Income (loss) before income
taxes........................... 1,830 (480) 1,059 2,409 432 3,091
Income taxes...................... 663 663 163 534 (g) 1,360
------------ ------------ ----------- --------- ------------ ----------- ---------
Net income (loss)................. $ 1,167 $ (480) $ 1,059 $ 1,746 $ 269 $ (284) $ 1,731
============ ============ =========== ========= ============ =========== =========
Earnings per common share......... $0.23 $
===== =========
Average common shares and
common stock equivalents
outstanding......... 4,474
===== =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
53
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) To reflect the excess purchase price over the estimated fair value of
the net assets acquired and to eliminate Banyan's historical equity accounts.
Purchase price (cash)(1).................................... $9,100
Fair value of net assets(2)................................. 4,439
------
Goodwill as of 6/30/95...................................... $4,661
======
(1) Purchase price is calculated as a multiple of Banyan's equity
balance at June 30, 1995. The actual purchase price will be a
multiple of Banyan's equity balance, limited to a specified amount
as of the last day of the month prior to closing pursuant to the
Definitive Agreement. If the equity balance on such date exceeds
the specified amounts Banyan will receive additional cash equal to
the excess amount.
(2) No significant fair value adjustments are deemed necessary at
June 30, 1995 since book values approximate market values at such
date.
(b) Issuance of additional common shares of the Company pursuant to the
Offerings and issuance costs.
Shares offered..............................................
Per share offering price....................................
Issuance costs..............................................
(c) To record issuance of Series C Preferred shares pursuant to the
Offerings.
Shares offered.............................................. 800
Per share offering price.................................... $10.00
------
$8,000
======
(d) Adjustment for salaries and benefits for officers and employees which
will be redundant to the combined entity and not retained after the
acquisition.
(e) Amortization of goodwill as follows:
Goodwill recorded........................................... $4,661
Annual amortization based on 15 year period................. $ 310
Amortization for 3 months................................... $ 78
(f) Adjustment for operating expenses, such as audit, legal, EDP and
directors fees, that will be redundant to the combined entity and not
incurred on an ongoing basis.
(g) To reflect pro forma tax expense at the effective rate of 44%.
(h) To adjust for leased equipment subsequently purchased and office space
subleased.
Leased equipment, net of depreciation....................... $ 80
Sublease space.............................................. 54
----
$134
====
(i) Amortization of goodwill of $3.3 million related to the Governors
acquisition, less $73,000 already included in the Company's historical
oprating results.
54
<PAGE>
REGULATORY MATTERS
GENERAL
Federally chartered savings banks, such as the Bank, are subject to
extensive regulation by the OTS and the FDIC and must regularly file financial
and other reports with those agencies. Periodic examinations are conducted by
the OTS and the FDIC to test compliance by the Bank with various regulatory
requirements. The Bank is also a member of the FHLB and is subject to certain
limited regulation by the FRB. This supervision and regulation is intended
primarily for the protection of depositors. In addition, the Company is subject
to the various reporting requirements under the Exchange Act.
FEDERAL REGULATION
The Bank is chartered under the Home Owners' Loan Act (the 'HOLA'). The
HOLA imposes certain obligations and restrictions upon, and grants certain
powers to, associations such as the Bank.
Federally chartered savings banks, such as the Bank, have the power to
originate, invest in, sell, purchase, service, participate and otherwise deal
in: (i) loans made on the security of residential and nonresidential real
estate, (ii) commercial business loans and (iii) consumer loans, including
credit card loans. The lending authority of federally chartered associations is
subject to numerous OTS requirements including, as applicable, requirements
governing amortization, term, loan-to-value ratio, percentage-of-assets limits
and loan-to-one borrower limits.
A federally chartered savings bank may invest, without limitation, in the
following assets: (i) obligations of the United States Government or certain
agencies or instrumentalities thereof; (ii) stocks or loans issued by the FHLB's
or the FHLMC; (iii) obligations issued or guaranteed by the FNMA, the Student
Loan Marketing Association, the GNMA or any agency of the United States
Government; (iv) stock issued by a national housing partnership corporation; (v)
demand, time, or savings deposits, shares, or accounts of any insured depository
institution; (vi) certain 'liquidity' investments approved by the OTS to meet
their liquidity requirements; (vii) shares of registered investment companies
whose portfolios are limited to investments that a federal association is
otherwise authorized to make; (viii) mortgage-backed securities; and (ix)
general obligations of any state of the United States or any political
subdivision or municipality thereof, provided not more than 10% of an
association's capital may be invested in the obligations of any one issuer.
Federally chartered associations are authorized by the HOLA to make investments
in business development credit corporations, certain commercial paper and
corporate debt securities, service corporations and small business investment
companies, all of which investments are subject to percentage-of-assets and
various other limitations.
The Federal Deposit Insurance Corporation Improvement Act of 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ('FDICIA'), which
recapitalizes the Bank Insurance Fund ('BIF') of the FDIC and imposes certain
supervisory and regulatory reforms on insured depository institutions, was
enacted on December 19, 1991. In addition to certain matters affected by various
provisions of FDICIA discussed elsewhere herein, the federal banking agencies
prescribed minimum operational standards with respect to asset quality,
earnings, compensation arrangements and minimum ratios of market-to-book value.
Institutions failing to meet the operational standards are required to submit
corrective plans and are subject to sanctions for failure to submit or comply
with a plan. The acceptance and renewal of brokered deposits is limited to
well-capitalized institutions.
In addition, FDICIA and regulations promulgated thereunder: (i) require
annual audits by independent public accountants for all insured institutions
with assets in excess of specified levels; (ii) require the formation of
independent audit committees of the board of directors of certain insured
depository
55
<PAGE>
institutions; and (iii) impose annual on-site examinations on all depository
institutions except those well-capitalized institutions with assets of less than
$100 million. FDICIA also made certain changes to the Qualified Thrift Lender
('QTL') requirements imposed on savings associations. See 'Regulation--
Qualified Thrift Lender Test.' FDICIA also required the establishment of a
risk-based deposit insurance assessment system. See 'Regulation--Insurance of
Accounts and Other Assessments.' Pursuant to FDICIA, the federal banking
agencies adopted final prompt corrective action regulations, effective December
19, 1992, which permit the regulatory agencies to take action against an insured
depository institution when it falls below certain capital levels. See
'Regulation--Capital Requirements--Prompt Corrective Action.'
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
('FIRREA') reorganized and reformed the regulatory structure applicable to
savings associations generally and significantly impacted the thrift industry.
FIRREA, among other things, increased the capital requirements for savings
associations which, subject to certain exceptions, cannot be less stringent than
the capital standards applied by the Office of the Comptroller of the Currency
('OCC') to national banks (See 'Regulation--Capital') and subjects savings
associations to the maximum loans-to-one-borrower limits applicable to national
banks.
FIRREA substantially expanded the enforcement powers available to federal
banking regulators and the Department of Justice. FIRREA made certain provisions
of the Federal Deposit Insurance Act (the 'FDIA') applicable to savings
associations and granted both the OTS and the FDIC expanded enforcement
authority over 'institution-affiliated parties' (i.e., officers, directors,
controlling shareholders, as well as attorneys, appraisers or accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution). Federal banking regulators have greater
flexibility to bring enforcement actions against insured institutions and
institution-affiliated parties, including cease and desist orders, prohibition
orders, civil money penalties, termination of insurance and the imposition of
operating restrictions and capital plan requirements. See
'Regulation--Enforcement Authority.'
Restrictions on Acquisitions and Branching. The Company must obtain
approval from the OTS before acquiring control of any other savings association.
Currently, acquisitions by savings and loan holding companies are generally
prohibited if they result in a savings and loan holding company controlling
savings associations in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing savings association.
Subject to certain statutory restrictions in HOLA and the FDIA, the Bank is
authorized to branch on a nationwide basis. Certain other restrictions that
apply to branching by savings associations, generally, such as the Community
Reinvestment Act ('CRA') and capital compliance, also apply.
In September 1994, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the 'Interstate Act'). Effective September 29,
1995, the Interstate Act will eliminate many existing restrictions on interstate
banking by authorizing interstate acquisitions of banks by bank holding
companies without geographic limitations and without regard to whether such
acquisitions are permissible under state law. In addition, beginning June 1,
1997, the Interstate Act will allow interstate branching in states that have not
passed legislation prohibiting interstate branching. Prior to June 1, 1997,
interstate branching will be possible in states that pass laws affirmatively
authorizing interstate branching.
Florida recently enacted the Florida Reciprocal Banking Act (the 'Florida
Act') which became effective May 1, 1995. The Florida Act only permits
acquisitions of Florida banks in existence two years or more (or their bank
holding companies) by bank holding companies based in states that have
reciprocal legislation. The Interstate Act, however, will supersede this
restriction, unless Florida, prior to June 1, 1997, expressly enacts legislation
opting out of the interstate banking provisions of the Interstate Act.
56
<PAGE>
Florida law has permitted interstate reciprocal acquisitions of and by
Florida savings institutions since 1986. The effect of the Interstate Act and
the Florida Act, which will expand the number of out-of-state bank holding
companies permitted to acquire Florida banks, on the Company cannot be predicted
at this time. It is anticipated that these acts may facilitate further
consolidation in the banking industry and, by permitting out-of-state banks
nationwide to acquire Florida banks, may increase competition in the Company's
market.
Transactions With Affiliates. The authority of the Bank to engage in
transactions with related parties or 'affiliates,' or to make loans to insiders,
is limited by certain provisions of law and regulations. Savings associations,
such as the Bank, are prohibited from making extensions of credit to any
affiliate that engages in an activity not permissible under the regulations of
the Federal Reserve Board for a bank holding company. In addition, savings
associations are subject to restrictions regarding transactions with affiliates
substantially similar to those imposed upon member banks under Sections 23A and
23B of the Federal Reserve Act ('Covered Transactions').
With respect to any covered transaction, the term 'affiliate' includes any
company that controls or is controlled by a company that controls the Bank, a
bank or savings association subsidiary of the Bank, any persons who own, control
or vote more than 25% of any class of stock of the Bank or the Company and any
persons who exercise a controlling influence over the management of the Bank or
the Company. The term 'affiliate' also includes any company controlled by
controlling stockholders of the Bank or the Company and any company sponsored
and advised on a contractual basis by the Bank or any subsidiary or affiliate of
the Bank. Such transactions between the Bank and its respective affiliates are
subject to certain requirements and limitations, including limitations on the
amounts of such Covered Transactions that may be undertaken with any one
affiliate and with all affiliates in the aggregate. The Director of the OTS may
further restrict such transactions with affiliates in the interest of safety and
soundness.
Section 23A of the Federal Reserve Act limits covered transactions with any
one affiliate to 10% of an association's capital stock and surplus and aggregate
affiliate transactions to 20% of the association's capital stock and surplus.
Sections 23A and 23B of the Federal Reserve Act provide that a loan transaction
with an affiliate generally must be collateralized (but may not be
collateralized by a low quality asset or securities issued by an affiliate) and
that all covered transactions, as well as the sale of assets, the payment of
money or the provision of services by a savings association to an affiliate,
must be on terms and conditions that are substantially the same, or at least as
favorable to the savings association, as those prevailing for comparable
non-affiliated transactions. A 'covered transaction' generally is defined as a
loan to an affiliate, the purchase of securities issued by an affiliate, the
purchase of assets from an affiliate, the acceptance of securities issued by an
affiliate as collateral for a loan, or the issuance of a guarantee, acceptance
or letter of credit on behalf of an affiliate. In addition, savings associations
generally may not purchase securities issued or underwritten by an affiliate.
In July 1991, the OTS issued a final regulation to implement the
application of Federal Reserve Act Sections 23A and 23B to savings associations.
The regulation requires savings associations, such as the Bank, to attribute to
an affiliate the amounts of all transactions conducted with subsidiaries of that
affiliate and grants the Director of the OTS the authority to deem certain
subsidiaries of such a savings association as affiliates.
Certain transactions between savings associations and their affiliated
persons are also subject to conflict of interest regulations enforced by the
OTS. For these purposes, affiliated persons include officers, directors and
controlling stockholders. These regulations require regulatory approvals for
transactions by the Bank and its subsidiaries with affiliated persons (as
defined for purposes of the OTS's conflict regulations) involving the sale or
purchase of property. Loans to executive officers, directors or to any person
who directly or indirectly, or acting through or in concert with one or more
persons, owns, controls or has the power to vote more than 10% of any class of
voting securities of such institution ('Principal
57
<PAGE>
Shareholders') and their related interests (i.e., any company controlled by such
executive officer, director, or Principal Shareholders), or to any political or
campaign committee the funds or services of which will benefit such executive
officers, directors, or Principal Shareholders or which is controlled by such
executive officers, directors or Principal Shareholders are subject to Sections
22(g) and 22(h) of the FRA and the regulations promulgated thereunder
(Regulation O).
Among other things, these loans must be made on terms substantially the
same as those prevailing on transactions made to unaffiliated individuals and
certain extensions of credit to such persons must first be approved in advance
by a disinterested majority of the entire board of directors. Section 22(h)
prohibits loans to any such individuals where the aggregate amount exceeds an
amount equal to 15% of an institution's unimpaired capital and surplus plus an
additional 10% of unimpaired capital and surplus in the case of loans that are
fully secured by readily marketable collateral, or when the aggregate amount on
all such extensions of credit outstanding to all such persons would exceed the
Bank's unimpaired capital and unimpaired surplus. Section 22(g) identifies
limited circumstances in which the Bank is permitted to extend credit to
executive officers.
Federal Home Loan Bank System. The Bank is a member of the FHLB System,
which consists of 12 regional FHLBs each subject to supervision and regulation
by the Federal Housing Finance Board ('FHFB'), an agency created by FIRREA. The
FHLBs provide a central credit facility primarily for member thrift institutions
as well as entities involved in home mortgage lending. The Bank, as a member of
the FHLB, is required to purchase and hold shares of the capital stock in that
FHLB in an amount equal to the greater of: 1% of the aggregate principal amount
of its unpaid mortgage loans, home purchase contracts and similar obligations at
the beginning of each year; 0.3% of its assets; or 5% of its advances (i.e.,
borrowings) from the FHLB. The Bank is in compliance with this requirement with
a consolidated investment in FHLB stock at June 30, 1995 of $1.36 million.
Each FHLB bank serves as a reserve or central bank for its home financing
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLBs. It makes loans to
members (i.e., advances) in accordance with policies and procedures, including,
collateral requirements, established by the respective boards of directors of
the FHLBs. These policies and procedures are subject to the regulation and
oversight of the FHFB.
All long-term advances are required to provide funds for residential home
financing. The FHFB has also established standards of community or investment
service that members must meet to maintain access to such long-term advances.
Liquidity. As a member of the FHLB System, the Bank is required to
maintain daily average balances of liquid assets (cash, certain time deposits,
bankers' acceptances, corporate debt securities, and commercial paper,
securities of certain mutual funds, reserves maintained pursuant to Federal
Reserve Board requirements, and specified government, state or federal agency
obligations) equal to a certain percentage of net withdrawable deposit accounts
and borrowings payable in one year or less. The liquidity requirement may vary
from time to time (between 4% and 10%) depending upon economic conditions and
savings flows of all savings associations. Currently, each member institution is
required to maintain liquid assets equal to not less than 5% of its net
withdrawable deposit accounts and borrowings payable in one year or less and
short-term liquid assets of not less than 1%. Penalties may be imposed for
failure to meet the liquidity requirements. Upon conversion to a commercial
bank, the Bank will have increased liquidity requirements. Management does not
anticipate any difficulty in meeting these additional requirements nor any
adverse impact on financial condition or results of operations.
Qualified Thrift Lender Test. Effective January 1, 1988, the Bank, like
all savings associations, was required to meet a qualified thrift lender ('QTL')
test for, among other things, future eligibility for FHLB advances. An
association must have invested at least 65% of its portfolio tangible assets in
qualifying
58
<PAGE>
investments and must maintain this level of qualifying investments for each
subsequent two-year period beginning on July 1, 1991, as measured on a monthly
average basis in nine of every 12 months.
'Portfolio assets' are defined as total assets less intangibles, properties
used to conduct business and liquid assets (up to 20% of total assets). The
following assets may be included as qualifying thrift investments without limit:
domestic residential housing or manufactured housing loans; home equity loans
and mortgage-backed securities backed by residential housing or manufactured
housing loans; a designated percentage of consumer loans; FHLB stock as well as
certain obligations of the FSLIC, the FDIC and certain other related entities.
Other qualifying assets, which may be included up to an aggregate of 15% of
portfolio assets, are: (i) 50% of originated residential mortgage loans sold
within 90 days of origination; (ii) investments in debt or equity of service
corporations that derive 80% of their gross revenues from housing-related
activities; (iii) 200% of certain loans to and investment in low cost one-to
four-family housing; (iv) 200% of loans for residential real property, churches,
nursing homes, schools and small businesses in areas where the credit needs of
low-and moderate-income families are not met; (v) other loans for churches,
schools, nursing homes and hospitals; and (vi) personal, family, household, or
education loans (up to 5% of total portfolio assets).
Any savings association that fails to meet the QTL test must convert to a
commercial bank charter, unless it requalifies as a QTL on an average basis in
at least three out of every four quarters for two out of three years and
thereafter remains a QTL. If an institution that fails the QTL test has not yet
requalified and has not converted to a commercial bank, its new investments and
activities are limited to national bank. In addition, the association is
immediately ineligible to receive any new FHLB advances and is subject to
national bank limits for payment of dividends and may not establish a branch
office at any location at which a national bank located in the savings
association's home state could not establish a branch. If such association has
not requalified or converted to a commercial bank charter three years after the
failure to meet the QTL test, it must divest all investments and cease all
activities not permissible for a national bank. In addition, it must repay
promptly any outstanding FHLB advances. Certain temporary and limited exceptions
from meeting the QTL test may be granted by the OTS. The Bank is in compliance
with all QTL requirements.
Capital Requirements. FIRREA mandated that the OTS establish new capital
standards for all savings associations effective December 7, 1989 and that such
capital standards generally be at least as stringent as those imposed on
national banks by the OCC. As noted below, these new standards generally require
savings associations to maintain higher levels of capital than were previously
required. Effective December 7, 1989, the OTS promulgated capital regulations
having three components: a leverage limit, a tangible capital requirement, and a
risk-based capital requirement.
Leverage Limit. The leverage limit requires that a savings association
maintain 'core capital' of at least 3% of its adjusted total assets. For
purposes of this requirement, total assets are adjusted to exclude intangible
assets and investments in certain subsidiaries, and to include the assets of
certain other subsidiaries, certain intangibles arising from prior period
supervisory transactions, and permissible purchased mortgage servicing rights.
'Core capital' includes (i) common shareholders' equity and retained earnings,
noncumulative perpetual preferred stock and related surplus and minority
interests in consolidated subsidiaries, minus (ii) those intangibles (including
goodwill) and investments in subsidiaries not permitted as capital for national
banks, plus (iii) certain purchased mortgage servicing rights and certain
goodwill arising from prior regulatory accounting practices.
Although accounted for under GAAP as an intangible asset, certain purchased
mortgage servicing rights need not be deducted in computing core capital.
Generally, the lower of (i) 90% of the fair market value of readily marketable
purchased mortgage servicing rights, (ii) 90% of the original cost of purchased
mortgage servicing rights, or (iii) the current amortized book value as
determined under GAAP may be included in core capital.
59
<PAGE>
At March 31, 1995, the Bank had an amortized carrying value of purchased
mortgage servicing rights of $2.8 million. This amount approximates its fair
market value.
FIRREA also requires deductions from core capital for savings associations
that own certain service corporations and other subsidiaries. In determining
core capital, all investments in and loans to subsidiaries engaged in activities
not permissible for national banks, which are generally more limited than
activities permissible for savings associations and their subsidiaries
('nonconforming subsidiaries'), generally must be deducted in calculating a
savings association's core capital. Certain exceptions are provided, including
exceptions for mortgage banking subsidiaries and subsidiaries engaged in agency
activities for customers (unless determined otherwise by the FDIC on safety and
soundness grounds). Generally, all subsidiaries engaged in activities
permissible for national banks are required to be consolidated for purposes of
calculating capital compliance by the parent savings association. This
requirement does not have a material impact on the Bank's core capital
requirements.
Tangible Capital Requirements. The tangible capital requirement mandates
that a savings association maintain tangible capital of at least 1.5% of
adjusted total assets. For purposes of this requirement, adjusted total assets
are calculated on the same basis as for the leverage limit. Tangible capital is
defined in the same manner as core capital, except that all goodwill must be
deducted.
Risk-based Capital Requirements. The risk-based requirement promulgated by
the OTS is required by FIRREA to track the standard applicable to national
banks, except as the OTS may determine to reflect interest rate and other risks
not specifically included in that standard. However such deviations from the
national bank standard may not result in a materially lower risk-based
requirement for savings associations than for national banks. The risk-based
standard adopted by the OTS is similar to the OCC standard for national banks.
The risk-based standards of the OTS require, as of January 1, 1993,
maintenance of core capital equal to at least 4% of risk-weighted assets, and
total capital equal to at least 8% of risk-weighted assets. Total capital
includes core capital plus supplementary capital (except that includable
supplementary capital may not exceed core capital). Supplementary capital
includes: cumulative perpetual preferred stock; mutual capital, income capital
and net worth certificates; nonwithdrawable accounts and pledged deposits to the
extent not included in core capital; perpetual and mandatory convertible
subordinated debt and maturing capital instruments meeting specified
requirements; and general loan and lease loss allowances, up to a maximum of
1.25% of risk-weighted assets.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet assets, are multiplied by a risk factor ranging from
0% to 100%, as assigned by the OTS based on the risks it believes inherent in
the type of asset. Comparable weights are assigned to off-balance sheet
activities.
At March 31, 1995, the capital requirements for the Bank were approximately
$4.1 million or 1.5% of adjusted total assets, $8.2 million or 3.0% of adjusted
total assets and $14.7 million or 8.0% of risk-weighted assets. The Bank's
tangible capital of $16.3 million or 6% of adjusted total assets, core capital
of $16.3 million or 6% of adjusted total assets and risk-based capital of $19.3
million or 11% of risk-weighted assets exceeded the requirements by $12.2
million, $8.1 million and $4.6 million, respectively.
Interest Rate Risk Component. The OTS has adopted a final rule
incorporating an interest-rate risk ('IRR') component into the risk-based
capital regulation. Under the rule, an institution with a greater than 'normal'
level of IRR will be subject to a deduction of its IRR component from total
capital for purposes of calculating the risk-based capital requirement. As a
result, such an institution will be required to maintain additional capital in
order to comply with the risk-based capital requirement. An institution with a
greater than 'normal' IRR is defined as an institution that would suffer a loss
of net portfolio value exceeding 2.0% of the estimated market value of its
assets in the event of a 200 basis point increase or decrease (with
60
<PAGE>
certain minor exceptions) in interest rates. The IRR component will be
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured IRR and 2.0%, multiplied by the market value of its
assets. The rule also authorizes the Director of the OTS, or his designee, to
waive or defer an institution's IRR component on a case-by-case basis. The final
rule became effective as of January 1, 1994 subject, however, to a two quarter
'lag' time between the reporting date of the data used to calculate in
institution's IRR and the effective date of each quarter's IRR component.
However, in October 1994, the Director of the OTS indicated that it would waive
the capital deductions for institutions with a greater than 'normal' risk until
the OTS publishes an appeals process. On August 21, 1995, the OTS issued Thrift
Bulletin No. 67 which allows eligible institutions to request an adjustment to
their IRR component, as calculated by the OTS, or to request to use their own
computer models to calculate their IRR component. The OTS also indicated that it
will delay invoking its IRR rule requiring institutions with above normal IRR
exposure to adjust their regulatory capital requirement until the new procedures
are implemented and evaluated. The OTS has not yet established an effective date
for the capital deduction.
Failure to Meet Requirements. Any savings association that fails to meet
its regulatory capital requirement is subject to enforcement actions by the OTS
or the FDIC. In addition, any such savings association is prohibited from
increasing its liabilities during any two consecutive calendar quarters at a
rate in excess of 12.5% or making any capital distributions without regulatory
approval. See 'Regulation-- Federal Regulation--Capital Distributions.' The OTS
must limit the asset growth of any undercapitalized association and issue a
capital directive against the association. Failure to maintain minimum levels of
required regulatory capital requires the association to file a capital plan with
the OTS which indicates how the association will achieve compliance with the
capital rules. If the capital plan is not accepted by the OTS, it may result in
the imposition by the OTS of various operational restrictions.
Prompt Corrective Action. The FDICIA authorizes and, under certain
circumstances, requires the OTS to take certain actions against associations
that fail to meet certain capital-based requirements. Under the FDICIA, the
federal banking agencies, including the OTS, are required to establish five
levels of insured depository institutions based on leverage limit and risk-based
capital requirements established for institutions subject to their jurisdiction,
plus, in their discretion, individual additional capital requirements for such
institutions.
Under the final rules that have been adopted by each of the federal banking
agencies, an institution will be designated well-capitalized if the institution
has a total risk-based capital ratio of 10% or greater, a core risk-based
capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive, or
prompt corrective action directive to meet and maintain a specific capital level
for any capital measure.
An institution will be designated adequately capitalized if the institution
has a total risk-based capital ratio of 8% or greater, a core risk-based capital
ratio of 4% or greater, and a leverage ratio of 4% or greater (or a leverage
ratio of 3% or greater if the institution is rated composite 1 in its most
recent report of examination).
An institution will be designated undercapitalized if the institution has a
total risk-based capital ratio that is less than 8%, a core risk-based capital
ratio that is less than 4%, or a leverage ratio that is less than 4% (or a
leverage ratio that is less than 3% if the institution is rated composite 1 in
its most recent report of examination).
An institution will be designated significantly under-capitalized if the
institution has a total risk-based capital ratio that is less than 6%, a core
risk-based capital ratio that is less than 3%, or a leverage ratio that is less
than 3%.
61
<PAGE>
An institution will be designated critically under-capitalized if the
institution has a ratio of tangible equity to total assets that is equal to or
less than 2%.
Undercapitalized institutions are required to submit capital restoration
plans to the appropriate federal banking agency and are subject to certain
operational restrictions. Moreover, companies controlling an undercapitalized
institution are required to guarantee the subsidiary institution's compliance
with the capital restoration plan subject to an aggregate limitation of the
lesser of 5% of the institution's assets or the amount of the capital deficiency
when the institution first failed to meet the plan.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that did not submit or comply with acceptable
capital restoration plans will be subject to regulatory sanctions. A forced sale
of shares or merger, restriction on affiliate transactions and restrictions on
rates paid on deposits are required to be imposed by the banking agency unless
it is determined that they would not further capital improvement. The FDICIA
generally requires the appointment of a conservator or receiver within 90 days
after an institution became critically undercapitalized.
The federal banking agencies have adopted uniform procedures for the
issuance of directives by the appropriate federal banking agency. Under these
procedures, an institution will generally be provided advance notice when the
appropriate federal banking agency proposes to impose one or more of the
sanctions set forth above. These procedures provide an opportunity for the
institution to respond to the proposed agency action or, where circumstances
warrant immediate agency action, an opportunity for administrative review of the
agency's action.
Inasmuch as the Bank exceeds the fully phased-in capital requirements of
the OTS, management of the Company does not believe that the provisions of the
FDICIA imposing restrictions on undercapitalized institutions will impact the
Bank.
Capital Distributions. Limitations are imposed upon all 'capital
distributions' by savings associations, including cash dividends, payments by an
institution in a cash-out merger and other distributions charged against
capital. The capital distribution regulation establishes a three-tiered system,
with the greatest flexibility afforded to well capitalized institutions.
Under the capital distribution regulation, an association that immediately
prior to a proposed capital distribution, and on a pro forma basis after giving
effect to a proposed capital distribution, has capital that is equal to or
greater than the amount of its fully phased-in capital requirement is a Tier 1
association ('Tier 1 Association'). An association that immediately prior to a
proposed capital distribution, and on a pro forma basis after giving effect to a
proposed capital distribution, has capital that is equal to or in excess of its
minimum capital requirements is a Tier 2 association. An association immediately
prior to a proposed capital distribution, and on a pro forma basis after giving
effect to a proposed capital distribution, has capital that is less than its
minimum regulatory capital requirement is a Tier 3 association. The Bank
currently qualifies as a Tier 1 Association.
A Tier 1 Association may make capital distributions during a calendar year
up to 100% of its net income to date during the calendar year, plus the amount
that would reduce by one-half its surplus capital ratio at the beginning of the
calendar year. A Tier 1 Association may not make capital distributions in excess
of the foregoing limitations except upon notice to the OTS and opportunity for
OTS objection to such capital distribution.
On December 5, 1994, the OTS published a notice of proposed rulemaking to
amend its capital distribution regulation. Under the proposal, institutions
would only be permitted to make capital distributions that would not result in
their capital being reduced below the level required to remain 'adequately
capitalized,' as defined under '--Prompt Corrective Action' above. Because the
Bank is a
62
<PAGE>
subsidiary of a holding company, the proposal would require the Bank to provide
notice to the OTS of its intent to make a capital distribution. The Bank does
[not]believe that the proposal will adversely affect its ability to make capital
distributions if it is adopted substantially as proposed.
Changes in Directors and Senior Executive Officers. Section 914 of FIRREA
requires a depository institution or holding company thereof to give 30 days'
prior written notice to its primary federal regulator of any proposed director
or senior executive officer if the institution: (i) has been chartered less than
two years; (ii) has undergone a change in control within the preceding two
years; or (iii) is not in compliance with the minimum capital requirements or
otherwise is in a 'troubled condition.' The regulator would have the opportunity
to disapprove any such appointment.
The OTS has adopted rules to implement section 914 of FIRREA with respect
to savings associations and savings and loan holding companies. The rule broadly
defines 'senior executive officer' to include the president, chief financial
officer, chief lending officer, chief investment officer, general counsel, or
their functional equivalents, or any individual who exercises significant
influence over, or participates in, major policy making decisions without regard
to title, salary or compensation. The term 'senior executive officer' also
includes any employee of another entity hired to perform the functions of
positions listed above.
The term 'troubled condition' with respect to a savings association means a
savings association: (i) that has received a composite rating of 4 or 5 in its
most recent examination; (ii) that is the subject of a capital directive or
formal enforcement action or proceeding or written agreement entered into with
the OTS relating to safety or soundness or financial viability; or (iii) that is
informed in writing by the OTS that it has been deemed to be in a troubled
condition for purposes of section 914 of FIRREA. A savings and loan holding
company is in troubled condition if it meets condition (ii) or (iii), above, or
if the OTS determines that the holding company has a detrimental or burdensome
effect on its subsidiary savings association or that it requires more than the
normal level of supervision. The rule covers the promotion or change in
responsibilities of a senior executive officer.
The Bank is not subject to the notice requirements of section 914 or its
implementing regulations.
Enforcement Authority. Pursuant to FIRREA, the OTS was granted enhanced,
extensive enforcement authority over all savings associations. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Since the
enactment of FIRREA, the OTS has significantly increased the use of written
agreements to correct compliance deficiencies with respect to applicable laws
and regulations and to ensure safe and sound practices. Violations of such
written agreements are grounds for initiation of cease-and-desist proceedings.
FIRREA significantly increased the amount of, and grounds for, civil money
penalties assessable against savings associations and 'institution-affiliated
parties.' The FDICIA granted the FDIC back-up enforcement authority to recommend
enforcement action to an appropriate federal banking agency and to bring such
enforcement action against a savings association or an institution-affiliated
party if such federal banking agency fails to follow the FDIC's recommendation.
In addition, FIRREA requires, except under certain circumstances, public
disclosure of final enforcement actions by the OTS.
FIRREA also expanded the grounds for appointment of a conservator or
receiver for a savings association. Grounds for such appointment include:
insolvency; substantial dissipation of assets or earnings; existence of an
unsafe or unsound condition to transact business; likelihood that the
association will be unable to pay its obligations in the normal course of
business; and insufficient capital or the incurring or likely incurring of
losses that will deplete substantially all capital with no reasonable prospect
for replenishment.
63
<PAGE>
The FDICIA added additional grounds for the appointment of a conservator or
receiver of a savings association, which include: under-capitalization where the
association (i) has no reasonable prospect of becoming adequately capitalized,
(ii) fails to become adequately capitalized when required to do so, (iii) fails
to timely submit an acceptable capital restoration plan, or (iv) materially
fails to implement a capital restoration plan, or the association is 'critically
undercapitalized' or 'otherwise has substantially insufficient capital.'
The federal banking agencies as well as the Department of Justice were
granted enhanced enforcement power pursuant to the Comprehensive Thrift and Bank
Fraud Prosecution and Taxpayer Recovery Act of 1990, enacted into law on
November 29, 1990. This enactment increased the penalties for certain banking-
related crimes, gave the OTS and the conservators and receivers of savings
associations the right to seek prejudgment attachment of assets of
institution-affiliated parties and other persons in certain circumstances. It
also made changes in the bankruptcy law that will increase the likelihood that
capital commitments made by holding companies will be fulfilled.
Insurance of Accounts and Other Assessments. The Bank, as a federal stock
savings bank, is a member of SAIF. However, with the acquisition of Governor's
in November 1994, the Bank acquired significant deposits insured by BIF. As of
March 31, 1995, 70% of the Bank's deposit accounts are insured by SAIF and 30%
are insured by BIF, each up to a maximum of $100,000 for each insured depositor.
The OTS requires an annual audit by independent accountants and, as noted
earlier, the OTS and the FDIC make their own periodic examinations of the Bank.
The FDIC or the OTS may revalue assets of an insured institution based upon
appraisals, and require establishment of specific reserves in amounts equal to
the difference between such revaluation and the book value of the assets, as
well as require specific charge-offs relating to such assets. The FDIC may
prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order poses a serious threat to the insurance fund.
FIRREA established certain premium assessment rates for SAIF deposit
insurance as well as a designated reserve ratio for the fund of 1.25%, or such
higher rate (not to exceed 1.5%) determined by the FDIC to be justified by
circumstances that raise a significant risk of substantial future losses to the
SAIF. The Omnibus Reconciliation Act of 1990 (the 'Reconciliation Act') removed
the ceiling on the designated reserve ratio, and provided that the assessment
rates set forth in FIRREA established minimum rates which the FDIC could impose.
Provisions in FIRREA limiting the maximum assessment and the percent of increase
in the assessment that would be permissible in any one year were repealed by the
Reconciliation Act.
Through December 31, 1992, all FDIC-insured institutions paid the same
premium (23 cents per $100 of domestic deposits) under a flat-rate system
mandated by law. FDICIA required the FDIC to raise the reserves of the BIF and
the SAIF, implement a risk-related premium system and adopt a long-term schedule
for recapitalizing the BIF. Effective January 1, 1993, the FDIC amended its
regulations regarding insurance premiums to provide that a bank or thrift would
pay an insurance assessment within a range of 23 cents to 31 cents per $100 of
domestic deposits, depending on its risk classification.
Both SAIF and BIF are required to be recapitalized to 1.25% of insured
reserve deposits. In August 1995, the FDIC established a new assessment schedule
for BIF-insured banks to a range of 0.04% to 0.31% per $100 of insured deposits,
such change to be retroactive to May 1995. It is anticipated that approximately
90% of BIF member banks will be paying premiums at or near the 0.04% level. At
the same time, the assessment rate for SAIF-insured institutions will continue
the current range of 0.23% to 0.31% per $100 of insured deposits. In announcing
the decrease in BIF rates, the FDIC noted the potential adverse consequences for
SAIF members from the substantial disparity in the deposit insurance premiums
paid by BIF and SAIF members.
64
<PAGE>
There is no indication at this time whether or when any SAIF
recapitalization proposal might be adopted. The Bank may be required to pay a
higher assessment rate on its SAIF insured deposits for at least some period of
time, therefore, the Bank, by virtue of the significant percentage of its
deposits that are and will continue to be assessed at the SAIF premium rates,
could find itself at a competitive disadvantage vis-a-vis commercial banks in
its market area. As a result of its higher insurance premium cost structure the
Bank's income and its return on assets and equity, and its ability to raise
funds in capital markets, all other things being equal, are likely to be lower
than those of BIF-insured institutions. In addition, the Bank would be at a
competitive disadvantage with respect to the interest rates it is able to pay on
its savings accounts, money market accounts, certificates of deposits, and other
interest-bearing accounts, as well as its ability to achieve lower operating
costs. Accordingly, there can be no assurance that the reduction in BIF
insurance premium rates by the FDIC will not have an adverse impact on the
Bank's operations, earnings, and/or its competitive position in those markets
where it operates, nor can there be any assurance that action would be taken to
address the resulting disparity.
In July 1995, the Chairman of the FDIC announced in testimony before the
U.S. Congress related to the condition of the SAIF and related issues a proposal
to recapitalize the SAIF by a one-time charge of SAIF-insured institutions of
approximately $6.6 billion, or approximately $.85 to $.90 for every $100 of
assessable deposits, and an eventual merger of the SAIF and the BIF. The Company
currently is unable to predict the likelihood of legislation effecting these
changes, although a consensus among regulators, legislators and bankers appears
to be developing in this regard. If the proposed assessment of $.85 to $.90 per
$100 of assessable deposits was effected based on deposits as of March 31, 1995,
as proposed, the Bank's pro rata share would amount to approximately $960,000 to
$990,000 after taxes, respectively. Such an assessment would have a material
adverse effect on the Company's earnings and results of operations.
Under present guidelines, to arrive at a risk-based assessment for each
bank and thrift, the FDIC places it in one of nine risk categories using a
two-step process based first on capital ratios and then on other relevant
information.
Each institution is assigned to one of three groups (well capitalized,
adequately capitalized or undercapitalized) based on its capital ratios. A
well-capitalized institution is one that has at least a 10% 'total risk-based
capital' ratio (the ratio of total capital to risk-weighted assets), a 6% 'Tier
1 risk-based capital' ratio (the ratio of Tier 1 (core) capital to risk-weighted
assets) and a 5% 'leverage capital' ratio (the ratio of core capital to adjusted
total assets). An adequately capitalized institution has at least an 8% total
risk-based capital ratio, a 4% Tier 1 (core) risk-based capital ratio and a 4%
leverage capital ratio. An undercapitalized institution is one that does not
meet either of the above definitions.
The FDIC also assigns each institution to one of three supervisory
subgroups based on an evaluation of the risk posed by the institution. The FDIC
makes this evaluation based on reviews by the institution's primary federal or
state supervisor, statistical analyses of financial statements and other
information relevant to gauging the risk posed by the institution.
The Bank's consolidated insurance assessment for the fiscal year ending
March 31, 1996, is expected to be between $526,000 and $572,000 depending upon
deposit growth.
As part of the funding of the RTC and the resolution of the insolvency of
the FSLIC, Congress created FICO and REFCO. Each of these entities, under
specified conditions, may assess premiums on SAIF-insured associations. Such
premiums may not exceed assessments able to be made by the SAIF, and are payable
in lieu thereof. FIRREA provides that the Treasury Department shall make
contributions to the SAIF if assessments actually paid to it are insufficient to
maintain certain statutorily prescribed capital levels for the SAIF.
65
<PAGE>
In addition, FIRREA empowers the OTS to issue regulations for the
collection of fees in order to recover the expenses of the agency, the cost of
supervision of savings associations, the examination of affiliates of savings
associations, and the processing of applications, filings, notices and other
requests of associations filed with the OTS. The OTS adopted a two-pronged
sliding scale approach in 1990 by which all institutions pay a general
assessment and troubled associations pay an additional premium assessment. The
Bank was subject to only the general assessment in 1994. In addition to the
general (and special assessments), the OTS also collects application fees which
apply to virtually all regulatory and securities applications and filings as
well as to fees to cover the costs of examinations of savings associations,
holding companies, subsidiaries and affiliates. The Bank's consolidated
assessments amounted to approximately $414,000 in the aggregate during the
fiscal year ended March 31, 1995.
Federal Reserve Board. The FRB requires all depository institutions (i.e.,
savings associations) to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
Reserves of 3% must be maintained against total transaction accounts of $51.9
million or less (subject to adjustment by the FRB) and an initial reserve of
$1,557,000 plus 10% (subject to adjustment by the FRB to a level between 8% and
14%) must be maintained against that portion of total transaction accounts in
excess of such amount. The balances maintained to meet the reserve requirements
imposed by the FRB may be used to satisfy liquidity requirements imposed by the
OTS. See 'Regulation--Liquidity.'
Savings association are authorized to borrow from the Federal Reserve Bank
'discount window,' but FRB regulations require associations to exhaust other
reasonable alternative sources of funds, including FHLB advances, before
borrowing from the Federal Reserve Bank.
Community Reinvestment Act. Under the CRA, as implemented by FDIC
regulations, a savings institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in connection
with its examination of a savings institution, to assess the institution's
record of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such institution. As of the
date of its most recent regulatory examination, the Bank was rated outstanding
with respect to its CRA compliance.
In May 1995, the FDIC and other Federal banking agencies promulgated final
revisions to their regulations concerning the CRA. The revised regulations
generally are intended to provide clearer guidance to financial institutions on
the nature and extent of their obligations under the CRA and the methods by
which the obligations will be assessed and enforced. Among other things, the
revised regulations substitute for the current process-based assessment factors
a new evaluation system that would rate institutions bases on their actual
performance in meeting community credit needs. In particular, the revised system
will evaluate the degree to which an institution is performing under tests and
standards judged in the context of information about the institution, its
community, its competitors and its peers with respect to (i) lending, (ii)
service delivery systems and (iii) community development. The revised
regulations also specify that an institution's CRA performance will be
considered in an institution's expansion (e.g., branching) proposals and may be
the basis for approving, denying or conditioning the approval of an application.
Management of the Bank currently is unable to predict the effects of the revised
regulations under the CRA as recently adopted.
66
<PAGE>
REGULATION OF THE COMPANY
Activities Restrictions. The Company presently operates as a unitary
savings and loan holding company. There are generally no restrictions on the
activities of a unitary savings and loan holding company. However, if the
Director of the OTS determines that there is reasonable cause to believe that
the continuation by a savings and loan holding company of an activity
constitutes a serious risk to the financial safety, soundness or stability of
its subsidiary savings institution, the Director of the OTS may impose such
restrictions as deemed necessary to address such risk including limiting: (i)
payment of dividends by the savings institution; (ii) transactions between the
savings institution and its affiliates; and (iii) any activities of the savings
institution that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings institution.
Notwithstanding the above rules as to permissible business activities of unitary
savings and loan holding companies, if the savings institution subsidiary of
such a holding company fails to meet the QTL test, then such unitary holding
company shall also presently become subject to the activities restrictions
applicable to multiple holding companies, and unless the savings institution
requalifies as a QTL within one year thereafter, register as and become subject
to the restrictions applicable to a bank holding company. See 'Regulation of the
Bank--Qualified Thrift Lender Test.'
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, the activities of the Company and any of its subsidiaries (other than the
Bank or other subsidiary savings institutions) would thereafter be subject to
further restrictions. Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings institution shall commence
or continue for a limited period of time after becoming a multiple savings and
loan holding company or subsidiary thereof, any business activity, except upon
prior notice to and no objection by the OTS, other than: (i) furnishing or
performing management services for a subsidiary savings institution; (ii)
conducting an insurance agency or escrow business; (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings institution;
(iv) holding or managing properties used or occupied by a subsidiary savings
institution; (v) acting as trustee under deeds of trust; (vi) those activities
authorized by regulation as of March 5, 1987, to be engaged in by multiple
holding companies; or (vii) unless the Director of the OTS by regulation
prohibits or limits such activities for savings and loan holding companies,
those activities authorized by the FRB as permissible for bank holding
companies. Those activities described in (vii) above and must also be approved
by the Director of the OTS prior to being engaged in by a multiple holding
company.
Legislation has been recently introduced into the U.S. Congress which would
subject all unitary holding companies to the same restrictions on activities as
are currently applied to multiple holding companies. If such legislation is
enacted in its current form, the ability of the Company to engage in certain
activities that are currently permitted to a unitary holding company may be
restricted. Since the Company does not and has no current plans to engage in any
business activity impermissible for a multiple holding company, such legislation
would not require the Company to discontinue any current activity. In addition,
such legislation would preclude companies that are engaged in activities not
permitted to multiple holding companies from acquiring control of the Company.
No prediction can be made at this time as to whether such legislation will be
enacted or whether it will be enacted in its current form.
Restrictions on Acquisitions. Savings and loan holding companies are
prohibited from acquiring, without prior approval of the Director of OTS, (i)
control of any other savings institution or savings and loan holding company or
substantially all the assets thereof; or (ii) more than 5% of the voting shares
of a savings institution or holding company thereof which is not a subsidiary.
Under certain circumstances, a registered savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the voting shares of an under-capitalized savings institution pursuant to a
'qualified
67
<PAGE>
stock issuance' without that savings institution being deemed controlled by the
holding company. In order for the shares acquired to constitute a 'qualified
stock issuance', the shares must consist of previously unissued stock or
treasury shares, the shares must be acquired for cash, the savings and loan
holding company's other subsidiaries must have tangible capital of at least
6 1/2% of total assets there must not be more than one common director or
officer between the savings and loan holding company and the issuing savings
institution, and transactions between the savings institution and the savings
and loan holding company and any of its affiliates must conform to Sections 23A
and 23B of the FRA. Except with the prior approval of the Director of the OTS,
no director or officer of a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock, may
also acquire control of any savings institution, other than a subsidiary savings
institution, or of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the FDIA; or
(iii) the statutes of the state in which the institution to be acquired is
located specifically permit institutions to be acquired by state-chartered
institutions or savings and loan holding companies located in the state where
the acquiring entity is located (or by a holding company that controls such
state-chartered savings institutions).
Under the Bank Holding Company Act of 1956, as amended HCA'), bank holding
companies are specifically authorized to acquire control of any savings
association. Pursuant to rules promulgated by the FRB, owning, controlling or
operating a savings institution is a permissible activity for bank holding
companies, if the savings institution engages only in deposit-taking activities
and lending and other activities that are permissible for bank holding
companies. A bank holding company that controls a savings institution may merge
or consolidate the assets and liabilities of the savings institution with, or
transfer assets and liabilities to, any subsidiary bank which is a member of the
BIF with the approval of the appropriate federal banking agency and the FRB. The
resulting bank will be required to continue to pay assessments to the SAIF at
the rates prescribed for SAIF members on the deposits attributable to the merged
savings institution plus an annual growth increment. In addition, the
transaction must comply with the restrictions on interstate acquisitions of
commercial banks under the BHCA.
PROPOSED CONVERSION TO COMMERCIAL BANK AND BANK HOLDING COMPANY
In April 1995, the Bank filed an application with the Florida Department of
Banking and Finance to convert its charter to that of a commercial bank
organized under the laws of the State of Florida, and filed an application with
the Federal Reserve Bank of Atlanta for membership upon conversion to a
commercial bank. Contemporaneously, the Company filed an application with the
Board of Governors of the Federal Reserve System for approval to become a bank
holding company under the BHCA. The Company anticipates that regulatory approval
of these applications will be received and the conversion of the Bank will occur
in the fourth calendar quarter of 1995.
Upon conversion of the Bank to a commercial bank and the Company becoming a
bank holding company subject to regulation under the BHCA, most of the
regulations to which the Bank is currently subject will remain materially
unchanged, such as capital requirements, transactions with affiliates and
insurance of accounts and other assessments. The Bank will be subject to
regulation by the State of Florida and the FRB and the Company will be subject
to regulation by the FRB. The Bank will continue to be eligible for FHLB bank
advances, which eligibility will vary based on the Bank's asset portfolio and
rating on the QTL test described above. The Bank will be able to originate and
invest in commercial and consumer loans without limitation as to percentage of
assets, and will have increased liquidity requirements.
68
<PAGE>
The Company will be subject to increased regulation and limitations on its
activities as a bank holding company. Under the BHCA, the activities of bank
holding companies are limited to business so closely related to banking,
managing or controlling banks as to be properly incident thereof. Currently, the
Company is not subject to any material restrictions on its activities outside of
those related to banking, although the Company has not engaged nor does it
anticipate engaging in activities not permissible for bank holding companies.
The Company will also be subject to capital requirements applied on a
consolidated basis in a form substantially similar to those currently required
of the Bank and anticipated to be in effect subsequent to its conversion to a
commercial bank. As a savings and loan holding company, the Company is not
currently subject to such consolidated capital requirements.
Because of concerns relating to competitiveness and the safety and
soundness of the industry, Congress is considering a number of wide-ranging
proposals for altering the structure, regulation and competitive relationships
of the nation's financial institutions. Among such bills are proposals to
prohibit banks and bank holding companies from conducting certain types of
activities, to subject banks to increased disclosure and reporting requirements,
to alter the statutory separation of commercial and investment banking and to
further expand the powers of banks, bank holding companies and competitors of
banks. It cannot be predicted whether or in what form any of these proposals
will be adopted or the extent to which the business of the Company may be
affected thereby.
In anticipation of the proposed conversion of the Bank to a commercial
bank, on July 26, 1995, the Company changed its fiscal year-end from March 31 to
December 31.
TAXATION
Federal. The Company, on behalf of itself and its subsidiaries, files a
calendar tax year consolidated federal income tax return and reports income and
expenses using the accrual method of accounting.
Savings associations are generally taxed in the same manner as other
corporations. Unlike other corporations, however, savings associations such as
the Bank that meet certain tests relating to the nature of their supervision,
income, assets and business operations are allowed to establish a reserve for
bad debts and, for each tax year, are permitted to deduct additions to that
reserve on 'qualifying real property loans' using the more favorable of one of
the following two alternative methods: (i) a method based on the association's
actual loss experience (the 'experience method') or (ii) a method based on a
specified percentage of the institution's taxable income (the 'percentage of
taxable income method'). 'Qualifying real property loans' are, in general, loans
secured by interests in improved residential real property. The addition to the
reserve for losses on nonqualifying real property loans must be computed under
the experience method. Upon conversion to a commercial bank, the Bank will no
longer be permitted to deduct additions to such reserve for federal income tax
purposes.
Under the percentage of a taxable income, a qualifying association
generally may deduct 8% of its taxable income, subject to the limitations
discussed below. The net effect of the percentage of taxable income method
deduction is that the maximum effective federal income tax rate on income
computed without regard to actual bad debts for qualifying associations is
31.28%. Under the experience method, a thrift institution is permitted to deduct
an amount based on its average yearly loan losses over the current and the
previous five years. The Bank is eligible for such a deduction, however, to date
no such deductions have been taken.
State Taxation. Under the laws of the State of Florida, the Bank is
subject, generally, to a 5.5% tax on net income. The tax may be reduced by a
credit of up to 65% (40% prior to July 1, 1990) of the tax due as a result of
certain intangible taxes. The tax is deductible by the Bank in determining its
federal income tax liability.
69
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rudy E. Schupp 44 Chairman of the Board and President of the Company and
the Bank and Director
Richard J. Haskins 46 Executive Vice President of the Company and the Bank,
Chief Financial Officer of the Company and Director
Lennart E. Lindahl, Jr. 51 Vice Chairman of the Board of the Company and the Bank
and Director
H. Gearl Gore 47 Director
Richard C. Rathke 63 Director
Victor H. Siegel 48 Director
William F. Spitznagel 68 Director
Bruce E. Wiita 58 Director
William Wolfson 66 Director
</TABLE>
Mr. Schupp has been President and Chief Executive Officer of the Company
since April 8, 1985, and the President and Chief Executive Officer of the Bank
since its inception. From 1980 to 1984, Mr. Schupp was employed by AmeriFirst
Bank, FSB, Miami, Florida, where he held the position of Division Vice President
and, before that, was Senior Vice President and Division Manager of the Orlando
Division of AmeriFirst Bank, FSB. Mr. Schupp was Manager in Consumer Bank
Planning and Marketing with First Union National Bank, Charlotte, North
Carolina, from 1977 to 1980.
Mr. Haskins has been Senior Vice President and Chief Financial Officer of
the Company since April 8, 1985 and a Director of the Company since December
1986. From 1985 to 1989, he was Senior Vice President of the Company and the
Bank. In 1989, he was appointed Executive Vice President of the Company and the
Bank. For the ten years prior to joining the Company he had been an accountant
with the West Palm Beach, Florida office of Deloitte Haskins & Sells, certified
public accountants, where he held the position of Manager.
Mr. Lindahl has been a Director of the Company since its inception. Since
1970, he has been President of Lindahl, Browning, Ferrari & Hellstrom, Inc.,
Consulting Engineers in Jupiter, Florida. Mr. Lindahl is also current Chairman
of the Economic Council of Palm Beach County and Past President of the Palm
Beach County Development Board.
Mr. Gore has been a Director and the Secretary of the Company since its
inception. He has been the President of H. Gearl Gore, Inc., a real estate
appraisal firm in Jupiter, Florida since 1983. Mr. Gore was the President and
Chief Operating Officer of Northco Investment Properties, Inc., a real estate
brokerage firm in Jupiter, Florida, from 1981 to present. He served as a
Councilman for the Town of Jupiter from 1981 to 1983.
Mr. Rathke has been a Director of the Company since its inception. He has
been the President of RCR Enterprises, Inc., a real estate development firm in
Jupiter, Florida, since 1979. From 1966 to 1979 he was the President and owner
of Trans Pacific Trading Co. of Fort Lauderdale, Florida, a firm engaged in
importing and retail sales.
Dr. Siegel is a physician and surgeon specializing in obstetrics and
gynecology and has been practicing in Palm Beach County since January 1978. Dr.
Siegel is a member of the Florida and Palm Beach County
70
<PAGE>
Medical Associations and held the position of Executive Director of the Palm
Beach County Medical Society in 1986 and 1986.
Mr. Spitznagel has been a Director of the Company from its inception
through December 31, 1986 and from February 21, 1987 to present. He was Chairman
and President of Roadway Services, Inc., a motor freight company, from 1978
until his retirement in 1981. He presently serves as a consultant to that
company and has been a director since 1982 of Gen Corp, Inc., Akron, Ohio, a New
York Stock Exchange listed company, a diversified industrial manufacturing firm.
Dr. Wiita has been a Director of the Company since its inception. He is a
surgeon and urologist practicing in Jupiter and Palm Beach Gardens, Florida,
since July 1973.
Mr. Wolfson is a certified public accountant since 1960 and the senior
partner in the accounting firm of Wolfson, Kapit, Melzer, Milowshy, Ettinger and
is presently practicing in New York.
DESCRIPTION OF SECURITIES
Set forth below is a description of the Company's securities which are
currently outstanding or proposed to be issued in the Offerings.
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.01 per share, of which 4,324,684 shares were issued and outstanding as
of July 31, 1995. The remaining shares are available for issuance when and as
the Board of Directors of the Company determines it to be advisable, without
obtaining the prior approval of its shareholders.
Dividend Rights. Holders of the Company's Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. Funds for the payment of dividends of the
Company are primarily obtained from dividends paid by the Bank. See 'Regulatory
Matters--Federal Regulation--Capital Requirements.'
Voting Rights. Holders of the Common Stock are entitled to one vote for
each share held and do not have cumulative voting rights in the election of
directors.
Appraisal Rights. Under Florida law, dissenters' rights of appraisal are
available to shareholders in the case of certain mergers or consolidations.
Shareholders have to follow a detailed set of steps as set forth in the statute,
in order to perfect their dissenters' rights of appraisal.
Liquidation Rights. In the event of liquidation, holders of Common Stock
are entitled to receive, pro rata, all assets available for distribution after
the payment of all obligations of the Company, including any indebtedness of the
Company and the distribution of all preferential amounts due to the holders of
serial preferred stock.
Transfer Agent. The Company's transfer agent is Mellon Chemical
Shareholders Services.
Stock Options. Non-qualified options to purchase an aggregate of 952,496
shares of Common Stock were outstanding at August 31, 1995. All of the options
were issued to Company and Bank officers and directors as part of their
compensation.
71
<PAGE>
WARRANTS
In connection with the merger of Homestead Bank in 1993 the Company issued
warrants to acquire 479,497 shares of Common Stock at an adjusted price of $4.09
per share. The warrants expire on January 21, 1996. As of August 31, 1995,
of the warrants had been exercised.
In addition, warrants to purchase an aggregate of 157,350 shares at $5.25
per share on or prior to November 1, 2000 are outstanding. These warrants were
issued in 1985 to directors in lieu of cash compensation for their services.
PREFERRED STOCK
General. Under the Company's Articles of Incorporation, the Board of
Directors of the Company has the authority to divide the 10,000,000 authorized
shares of preferred stock, $.01 par value, into series and to fix the rights and
preferences of any series so established. Variations between different series
may be created by the Board of Directors with respect to such matters as voting
rights, if any; the rate of dividend, the priority of payment thereof, and the
right to accumulation thereof, if any; redemption terms and conditions; and the
right of conversion, if any. The holders of preferred stock have no preemptive
right to subscribe to any additional securities which may be issued by the
Company.
Series C Preferred. The rights of the holders of shares of Series C
Preferred are subordinate to the rights of general creditors and there is no
sinking fund with respect to the Series C Preferred. The $10.00 liquidation
preference per share is not indicative of the price at which the Series C
Preferred may actually trade.
Rank. The Series C Preferred, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of the Company, rank senior to the
Common Stock and to all other classes and series of equity securities of the
Company, other than the Series A Preferred Stock and Series B Preferred Stock or
any other classes or series of equity securities of the Company subsequently
issued ranking on a parity with the Series C Preferred, as to dividend rights
and rights upon liquidation, dissolution or winding up of the Company. No class
or series of equity securities may rank senior to the Series C Preferred as to
the payment of dividends or upon liquidation. The Series C Preferred is junior
to indebtedness issued from time to time, including debentures.
Dividends. Holders of shares of Series C Preferred are entitled to
receive, if, when and as declared by the Board of Directors of the Company out
of assets of the Company legally available for payment, cumulative cash
dividends, payable quarterly, at the rate of % per annum, or
$ per share per annum, from the date of issuance and for each
quarterly dividend period thereafter. Dividends on the Series C Preferred are
payable quarterly in arrears to holders of record on the last day of March,
June, September and December of each year with the first dividend payment on
, 1995, prorated from the date of issuance. Each such dividend is
payable to holders of record as they appear on the books of the Company on such
record dates, not exceeding 30 days preceding the payment dates thereof, as
shall be fixed by the Board of Directors of the Company or a duly authorized
committee thereof. Dividends on the Series C Preferred are cumulative and accrue
on a daily basis from the date of original issuance of the shares.
The Company shall not declare or pay or set apart for payment any dividends
on any series of its preferred stock, or any other class of capital stock of the
Company, ranking, as to dividends or upon liquidation, on a parity with or
junior to the Series C Preferred for any period (other than dividends payable in
Common Stock or another stock ranking junior to the Series C Preferred as to
dividends and upon liquidation), nor shall the Company make any other
distribution on the Common Stock of the Company or any other stock of the
Company ranking junior to or on a parity with the Series C Preferred as to
dividends
72
<PAGE>
or upon liquidation, unless full cumulative dividends have been paid or declared
and a sum sufficient for payment thereof is set apart for payment for all
dividends on the Series C Preferred. When dividends are not paid in full upon
the Series C Preferred and any other series of preferred stock ranking on a
parity as to dividends with the Series C Preferred, all dividends declared upon
shares of Series C Preferred and any other series of preferred stock ranking on
a parity therewith as to dividends shall be declared pro rata so that the amount
of dividends declared per share on the Series C Preferred and such other series
of preferred stock ranking on a parity therewith shall in all cases bear to each
other the same ratio that the accrued dividends per share of the shares of
Series C Preferred and such other series of preferred stock bear to each other.
No interest shall be payable in respect of any dividend payment on the Series C
Preferred in arrears. Unless full cumulative dividends on the Series C Preferred
have been paid for all past dividend payment periods or declared and set apart
for payment, no Common Stock or any other stock of the Company ranking junior to
or on a parity with the Series C Preferred can be redeemed, purchased or retired
by the Company, except by conversion into or exchange for stock of the Company
or such entity ranking junior to the Series C Preferred as to dividends and upon
liquidation.
The ability of the Company to pay dividends on the Series C Preferred may
be limited by the general corporation law of the State of Florida and may depend
on the Company's ability to obtain funds for such purpose from the Bank and
other direct or indirect subsidiaries of the Company.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of shares of
Series C Preferred are entitled to receive out of assets of the Company
available for distribution to shareholders, before any payment or distribution
of assets is made to holders of Common Stock or any other class or series of
stock ranking junior to the Series C Preferred, upon liquidation, liquidating
distributions in the amount of $10.00 per share plus accrued and unpaid
dividends to the date fixed for such liquidation, dissolution or winding up. If
upon any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the amounts payable with respect to the Series C Preferred and any
other shares of stock of the Company ranking as to any such distribution on a
parity with the Series C Preferred are not paid in full, the holders of the
Series C Preferred and of such other shares will share ratably in any such
distribution of assets of the Company in proportion to the full respective
preferential amounts to which they are entitled, the holders of shares of Series
C Preferred will not be entitled to any further participation in any
distribution of assets by the Company.
Optional Redemption. The Series C Preferred is not redeemable prior to
, 1999 unless the Common Stock shall have a closing bid price
which is at least 140% of the Conversion Price for 20 consecutive trading days
prior to redemption. In the event the Series C Preferred becomes redeemable
prior to , 1999, the Series C Preferred may be redeemed, in whole
or in part, at the Company's option, at a price of $10.00 per share, plus
accrued and unpaid dividends to the date fixed for redemption. The Series C
Preferred will be redeemable, in whole or in part, at the option of the Company,
at any time on or after , 1999, at the following per-share prices
during the 12-month period beginning :
YEAR REDEMPTION PRICE
---- ----------------
1999................................ $
2000................................
2001................................
2002................................
2003................................
2004................................
2005 and thereafter................. 10.00
together, in each case, with an amount equal to accrued plus unpaid dividends
(whether or not earned or declared) to the date fixed for redemption.
73
<PAGE>
From and after the date fixed for redemption, dividends shall cease to
accrue on the shares of the Series C Preferred called for redemption, all rights
of the holders thereof (except the right to receive the redemption price plus
accrued and unpaid dividends) shall cease with respect to such shares and such
shares of Series C Preferred shall no longer be deemed to be outstanding.
In the event that full dividends on the Series C Preferred have not been
paid or declared and set apart for payment for all past dividend periods, the
Series C Preferred may not be redeemed by the Company.
If a notice of redemption is given and any holder of Series C Preferred,
prior to the close of business on the business day prior to the date fixed for
redemption, gives written notice to the Company of the conversion of the Series
C Preferred held by such holder, then the redemption shall not become effective
as to such shares and the conversion shall become effective.
Voting Rights. Except as indicated below, or except as expressly required
by applicable law, the holders of the Series C Preferred will not be entitled to
vote.
So long as any shares of Series C Preferred are outstanding, if the Company
shall have failed to pay full dividends on the Series C Preferred or any other
series of preferred stock ranking on a parity with the Series C Preferred as to
dividends or upon liquidation for six full quarterly dividend payment periods,
whether or not consecutive, the number of directors of the Company shall
automatically be increased by two and the holders of Series C Preferred will be
entitled to elect (at a special meeting of the holders of the Series C
Preferred, called by the Secretary of the Company at the request of the holders
of record of at least 10% of the outstanding shares of Series C Preferred, or at
any annual meeting of shareholders of the Company) two directors. All rights of
the holders of the Series C Preferred to elect such directors shall continue in
effect until the Company is no longer in arrears or in default with respect to
the payment of dividends on the preferred stock, including the Series C
Preferred. At such time as all cumulative dividends have been paid in full, the
voting right of the holders of the Series C Preferred shall, without further
action, terminate, subject to revesting in the event of each and every
subsequent failure of the Company to pay such dividends for the requisite number
of periods described above.
Unless the vote or consent of the holders of a greater number of shares
shall be required by law, the affirmative vote or consent of the holders of at
least two-thirds of the outstanding shares of the Series C Preferred, voting as
a class, will be required for any amendment to the Company's Articles of
Incorporation which will adversely affect the powers, preferences, privileges or
rights of the Series C Preferred, except that the Company may authorize or issue
additional shares of Common Stock or preferred stock ranking junior to the
Series C Preferred without obtaining the approval of holders of the Series C
Preferred. No class or series of equity securities may rank senior to the Series
C Preferred as to the payment of dividends or upon liquidation without such
consent of the Series C Preferred.
Conversion Rights. The Series C Preferred will be convertible at the
option of the holder at any time into a number of shares of Common Stock equal
to the aggregate liquidation preference of the shares surrendered for conversion
divided by the conversion price (with any fractional shares of Common Stock
resulting from such conversion paid in cash).
The initial conversion price set forth on the cover page of this Prospectus
is subject to adjustment upon the occurrence of a dividend or distribution on
the Common Stock or if the Company issues rights or warrants to all holders of
Common Stock entitling them to subscribe for or purchase Common Stock at less
than the current market price. No adjustment in the conversion price will be
required for three years unless the adjustments would require a change of at
least 1% in the conversion price then in effect; provided that any adjustment
that would otherwise be required to be made will be carried forward and taken
into account in any subsequent adjustment.
74
<PAGE>
In case of any reclassification or similar change of outstanding shares of
Common Stock (with certain exceptions) or the Company's consolidation with, or
merger with or into, any other entity that results in a reclassification,
change, exchange, or cancellation of outstanding shares of Common Stock (with
certain exceptions) or any sale or transfer of all or substantially all of the
assets of the Company, all holders of Series C Preferred after the
reclassification, change, consolidation, merger, sale or transfer will have the
right to convert their shares of Series C Preferred into the kind and amount of
securities, cash and other property which the holders would have been entitled
to receive upon the reclassification, change, consolidation, merger, sale or
transfer if the holders had held the number of shares of Common Stock issuable
upon conversion of their shares of Series C Preferred immediately prior to the
reclassification, change, consolidation, merger, sale or transfer.
No fractional shares or securities representing fractional shares of Common
Stock will be issued upon conversion. Any fractional shares resulting from
conversion will be paid in cash based on the current market price of the Common
Stock at the close of business on the business day preceding the date of
conversion.
The holder of record of a share of Series C Preferred on a record date with
respect to the payment of a dividend on the Series C Preferred will be entitled
to receive the dividend on that share of Series C Preferred on the corresponding
dividend due date notwithstanding the conversion of the share after the record
date or any default by the Company in the payment of the dividend payable on
that dividend due date. Notwithstanding the foregoing, a share of Series C
Preferred surrendered for conversion during the period from the close of
business on any record date for the payment of a dividend on the Series C
Preferred to the opening of business on the corresponding dividend due date
(except a share of Series C Preferred called for redemption on a redemption date
during such period) must be accompanied by payment of an amount equal to the
dividend payable on such dividend due date. The dividend with respect to a share
of Series C Preferred called for redemption on a redemption date during the
period from the close of business on a record date with respect to the payment
of a dividend on the Series C Preferred to the opening of business on the
corresponding dividend due date will be payable on that dividend due date, and
the holder converting such share of Series C Preferred need not include a
payment of such dividend amount upon surrender of such shares of Series C
Preferred for conversion. Holders of record of shares of Series C Preferred on a
record date with respect to the payment of a dividend on the Series C Preferred
who convert their shares on or after the corresponding dividend due date will
receive the dividend payable by the Company on that date and need not include
payment in the amount of the dividend upon surrender of such shares of
conversion. Except as described above, no payment or adjustment is to be made on
conversion for dividends accrued on the shares of Series C Preferred or for
dividends on the Common Stock issued on conversion.
Preemptive Rights. The holders of shares of Series C Preferred shall not
have any preemptive right to acquire any unissued shares of any stock of the
Company, now or hereafter authorized, or any other securities of the Company.
Series A Preferred. The rights of the holders of the Series A Preferred
are similar in many respects to the rights of the holders of the Series C
Preferred. The Series A Preferred ranks on a parity with the Series C Preferred
with respect to the payment of dividends and liquidation rights. The following
is a summary of the material differences in the rights of the holders of the
Series A Preferred as compared to the rights of the holders of the Series C
Preferred.
Dividends. Holders of shares of Series A Preferred are entitled to
receive, if, when and as declared by the Board of Directors of the Company out
of assets of the Company legally available for payment, cumulative cash
dividends, payable quarterly, at the rate of 7.5% per annum, or $.75 per share
per annum, from the date of issuance and for each quarterly dividend period
thereafter.
75
<PAGE>
Optional Redemption. The Series A Preferred is not redeemable prior to
June 30, 1998 unless the Common Stock shall have a closing bid price which is at
least 140% of the Conversion Price for 20 consecutive trading days prior to
redemption. In the event the Series A Preferred becomes redeemable prior to June
30, 1998, the Series A Preferred may be redeemed, in whole or in part, at the
Company's option, at a price of $10.00 per share, plus accrued and unpaid
dividends to the date fixed for redemption. The Series A Preferred will be
redeemable, in whole or in part, at the option of the Company, at any time on or
after June 30, 1998 at the following per-share prices during the 12-month period
beginning June 30:
YEAR REDEMPTION PRICE
---- ----------------
1998................................ $ 10.40
1999................................ 10.32
2000................................ 10.24
2001................................ 10.16
2002................................ 10.08
2003 and thereafter................. 10.00
together, in each case, with an amount equal to accrued plus unpaid dividends
(whether or not earned or declared) to the date fixed for redemption.
Rights to Purchase Series B Preferred. See 'Certain Anti-Takeover
Provisions--Rights Plan.'
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Rights Plan and Articles of
Incorporation and of Florida law could have the effect of deterring takeovers.
In addition, federal law provides for OTS approval of changes in control of
savings bank holding companies.
Rights Plan. On March 29, 1995, the Board of Directors of the Company
declared a dividend on the Common Stock of one Right for each outstanding share
of Common Stock of the Company to shareholders of record at the close of
business on April 14, 1995. Each Right entitles the registered holder to
purchase from the Company a unit consisting of one one-hundredth of a share (a
'Unit') of the Company's Series B Junior Participating Preferred Stock (the
'Series B Preferred'), or a combination of securities and assets of equivalent
value, at a purchase price of $18 per Unit, subject to adjustment. Each
fractional share of Series B Preferred is designed to be equivalent in voting
and dividend rights to one share of Common Stock. A full description and terms
of the Rights are set forth in the Rights Agreement (the 'Rights Agreement'),
dated as of April 14, 1995, between the Company and IBJ Schroder Bank & Trust
Company, as Rights Agent.
The Rights Agreement is designed to protect shareholder interests in the
event that the Company is confronted with coercive or unfair takeover tactics,
including offers that do not treat all shareholder interests fairly or do not
maximize the value of the Company. Acquisition offers that reflect the Company's
fair value and that are made to all shareholders would not be affected by the
Rights Agreement.
Initially, ownership of the Rights are evidenced only by the Common Stock
certificates. The Rights will separate from the Common Stock and a Distribution
Date will occur upon the earlier of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an 'Acquiring
Person') has acquired, or obtained the right to acquire, beneficial ownership of
20% or more of the outstanding Common Stock (the 'Stock Acquisition Date'), or
(ii) the close of business on such date as may be fixed by the Board of
Directors, which date shall not be more than 65 days following the commencement
of a tender offer or exchange offer that would result in a person or group
beneficially owning 30% or more of the outstanding Common Stock.
76
<PAGE>
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on April 14, 2005, unless earlier redeemed by the
Company or unless certain events have occurred.
Except in the circumstances described below, after the Distribution Date
each Right will be exercisable into one one-hundredth of a Preferred Share (a
'Preferred Share Fraction'). Each Preferred Share Fraction carries voting and
dividend rights that are intended to produce the equivalent of one Common Stock.
The voting and dividend rights of the Preferred Shares are subject to adjustment
in the event of dividends, subdivisions and combinations with respect to the
Common Stock of the Company.
In the event that at any time following the Stock Acquisition Date, (i) the
Company is the surviving corporation in a merger with an Acquiring Person and
its Common Stock remain outstanding, (ii) a Person becomes the beneficial owner
of more than 25% of the then outstanding Common Stock other than pursuant to a
tender offer that provides fair value to all shareholders, (iii) an Acquiring
Person engages in one or more 'self-dealing' transactions as set forth in the
Rights Agreement, or (iv) during such time as there is an Acquiring Person an
event occurs that results in such Acquiring Person's ownership interest being
increased by more than 1% (e.g., a reverse stock split), each holder of a Right
will thereafter have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of the Company) having
a value equal to two times the exercise price of the Right. Notwithstanding any
of the foregoing, following the occurrence of any of the events set forth in
clauses (i), (ii), (iii) or (iv) of this paragraph, all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person who was involved in the transaction
giving rise to any such event will be null and void. However, Rights are not
exercisable following the occurrence of any of the events set forth above until
such time as the Rights are no longer redeemable by the Company as set forth
below.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger that is
described in, or that follows a tender offer or exchange offer described in, the
second preceding paragraph), or (ii) 50% or more of the Company's assets or
earning power is sold or transferred, each holder of a Right (except Rights that
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, common shares of the acquiring company having a value
equal to two times the exercise price of the Right. The events set forth in this
paragraph and in the second preceding paragraph are referred to as the
'Triggering Events.'
The purchase price payable, and the number of Units of Preferred Shares or
other securities or property issuable upon exercise of the Rights, are subject
to adjustment from time to time under certain circumstances to prevent dilution.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right. That ten day redemption period may be extended by the Board of Directors
so long as the Rights are still redeemable. Under certain circumstances set
forth in the Rights Agreement, the decision to redeem will require the
concurrence of a majority of the Continuing Directors. Immediately upon the
action of the Board of Directors ordering redemption of the Rights, with, where
required, the concurrence of the Continuing Directors, the Rights will terminate
and the only right of the holders of Rights will be to receive the $.01
redemption price.
The term 'Continuing Directors' means any member of the Board of Directors
of the Company who was a member of the Board prior to the date of the Rights
Agreement, and any person who is subsequently elected to the Board if such
person is recommended or approved by a majority of the Continuing Directors, but
shall not include an Acquiring Person, or an affiliate or associate of an
Acquiring Person, or any representative of the foregoing entities.
77
<PAGE>
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board (in certain circumstances, with the concurrence of the Continuing
Directors) in order to cure any ambiguity, to make changes that do not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. The adoption of the Rights Agreement does not
affect the financial strength of the Company or interfere in any way with its
business strategy or plans. The distribution alone of the rights has no dilutive
effect. It will not affect earnings per share or dividends per share, nor change
the method in which shareholders trade the Company's Common Stock.
Articles of Incorporation. The Articles of Incorporation divide the Board
of Directors into three classes, with one class elected annually to serve
three-year terms. Directors may only be removed from office by the affirmative
vote of the holders of 80% of the outstanding shares of Common Stock. In
addition, the Articles of Incorporation prohibit actions by shareholders by
written consent without a meeting.
Florida Law. The Company is subject to the 'Control Share' and 'Fair
Price' provisions of the Florida Business Corporation Act. The Control Share
provisions prohibit a shareholder voting shares of Common Stock acquired in
excess of 20% (and 33% and 50%) of the outstanding voting shares unless the
remaining uninterested shareholders approve voting rights for such shares by
majority vote at a special meeting called for that purpose. The Fair Price
provisions require that, in any merger of the Company with a corporation
affiliated with a 10% or greater shareholder (the 'Interested Shareholder'),
shareholders receive the higher of the highest price paid by the Interested
Shareholder for shares of Common Stock during the preceding two years or the
fair market value of the Common Stock, unless the merger is approved by a
majority of the directors not affiliated with the Interested Shareholder or the
holders of two-thirds of the Common Stock not affiliated with the Interested
Shareholder.
Federal Law. Federal law and regulations require that any person seeking
to acquire control of the Company give the OTS notice at least 60 days in
advance. 'Control' means the power to vote 25% or more of the Common Stock or
otherwise direct the management of the Company. In addition, 'control' is
presumed, subject to rebuttal, if a person acquires 10% of the Common Stock and
is subject to one of eight control factors specified in the regulations. The OTS
has the power to disapprove the acquisition of control if it finds that the
acquisition would substantially lessen competition, the financial condition of
the acquiror is inadequate or the competency, experience or integrity of the
acquiror is inadequate. See 'Regulatory Matters--Federal
Regulation--Restrictions on Acquisitions.'
78
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement between
the Company and Ryan, Beck, all of the shares offered hereby will be purchased
by Ryan, Beck for resale to the public. In addition, the Company has granted to
Ryan, Beck options, exercisable not later than 30 days after the date of this
Prospectus, to purchase an additional shares of Common Stock and
shares of Series C Preferred at the applicable Price to Public set
forth on the cover page of this Prospectus, less the Underwriting Discount.
Ryan, Beck may exercise such options to purchase solely for the purpose of
covering over-allotments, if any, incurred in the sale of the shares offered
hereby.
The Company has been advised by Ryan, Beck that Ryan, Beck proposes to
offer the Common Stock and Series C Preferred to the public at the applicable
Price to Public set forth on the cover page of this Prospectus and at such price
less a concession of not more than $. and $. per share of Common Stock
and Series C Preferred, respectively, to certain dealers. After the initial
offering, the Offerings price and other selling terms may be changed.
The Company, its executive officers and directors, and the affiliates of
each have agreed not to sell, contract to sell or otherwise dispose of any
equity securities of the Company (or any securities exercisable for or
convertible into such equity securities), other than the shares offered hereby,
for a period of days after the consummation of the Offerings without the prior
written consent of Ryan, Beck.
Ryan, Beck currently makes a market in the Common Stock and Series A
Preferred and intends to make a market in the Series C Preferred, as permitted
by applicable laws and regulations. Ryan, Beck, however, is not obligated to
make a market in such shares and any such market making may be discontinued at
any time at the sole discretion of Ryan, Beck. Prior to the Offerings, there has
been no public market for the Series C Preferred. The Offerings price of the
Series C Preferred will be determined by negotiations between the Company and
Ryan, Beck based upon market conditions, the Company's financial performance and
other relevant factors.
Ryan, Beck's obligation to purchase the shares of Common Stock and Series C
Preferred is subject to certain conditions contained in the Underwriting
Agreement. Ryan, Beck may elect to waive any condition and purchase such amounts
of the shares of Common Stock and Series C Preferred as it specifies by notice
to the Company.
The Company has agreed in the Underwriting Agreement to reimburse Ryan,
Beck for its reasonable out-of-pocket expenses and legal fees related to the
sale of Common Stock and Series C Preferred offered hereby; provided, however,
that such expenses and legal fees shall not exceed $ without the
consent of the Company. The Company has also agreed in the Underwriting
Agreement to indemnify Ryan, Beck against liabilities and expenses (including
legal fees) incurred in connection with certain claims or litigation arising out
of or based upon untrue statements or omissions contained in the Offerings
materials for the Common Stock and the Series C Preferred, including but not
limited to liabilities under the Securities Act and under the Exchange Act.
LEGAL MATTERS
The validity of the shares of the Common Stock and Series C Preferred being
offered hereby will be passed upon for the Company by Morgan, Lewis & Bockius,
Miami, Florida. Certain legal matters are being passed upon for Ryan, Beck by
Elias, Matz, Tiernan & Herrick, L.L.P., Washington, D.C., special counsel to
Ryan, Beck.
79
<PAGE>
EXPERTS
The consolidated financial statements of Republic Security Financial
Corporation at March 31, 1995 and 1994 and for each of the three years in the
period ended March 31, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Banyan at December 31, 1994 and
1993 and for each of the two years in the period ended December 31, 1994,
appearing in this Prospectus and Registration Statement have been audited by
McGladrey & Pullen, LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Governors at December 31, 1993 and
1992 and for each of the three years in the period ended December 31, 1993,
appearing in this Prospectus and Registration Statement have been audited by BDO
Seidman, LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein. The report on these consolidated financial
statements contains explanatory paragraphs regarding uncertainties as to
Governors' ability to continue as a going concern and as to the outcome of
certain litigation. These consolidated financial statements are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
80
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPUBLIC SECURITY FINANCIAL CORPORATION
Report of Independent Certified Public Accountants......................................................... F-3
Consolidated Statements of Financial Condition at June 30, 1995 (unaudited), March 31, 1995 and March 31,
1994..................................................................................................... F-4
Consolidated Statements of Income for the three months ended June 30, 1995 and 1994 (unaudited) and for the
years ended March 31, 1995, 1994 and 1993................................................................ F-5
Consolidated Statements of Shareholders' Equity for the three months ended June 30, 1995 (unaudited) and
for the years ended March 31, 1995, 1994 and 1993........................................................ F-6
Consolidated Statements of Cash Flows for the three months ended June 30, 1995 and 1994 (unaudited) and for
the years ended March 31, 1995, 1994 and 1993............................................................ F-7
Notes to Consolidated Financial Statements................................................................. F-8
BANYAN BANK
Independent Auditor's Report............................................................................... F-36
Balance Sheets at June 30, 1995 (unaudited), December 31, 1994 and December 31, 1993....................... F-37
Statements of Income for the six months ended June 30, 1995 (unaudited) and for
the years ended December 31, 1994 and 1993............................................................... F-38
Statements of Stockholders' Equity for the six months ended June 30, 1995 (unaudited) and for the years
ended December 31, 1994 and 1993......................................................................... F-39
Statements of Cash Flows for the six months ended June 30, 1995 (unaudited) and for
the years ended December 31, 1994 and 1993............................................................... F-40
Notes to Financial Statements.............................................................................. F-41
GOVERNORS BANK CORPORATION AND SUBSIDIARY
Report of Independent Certified Public Accountants......................................................... F-54
Consolidated Balance Sheet at September 30, 1994 (unaudited)
December 31, 1993 and 1992............................................................................... F-55
Consolidated Statements of Operations for the nine months ended September 30, 1994 (unaudited) and the
years ended December 31, 1993, 1992 and 1991............................................................. F-56
Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 1994 (unaudited)
and the years ended December 31, 1993, 1992 and 1991..................................................... F-57
Consolidated Statements of Cash Flows for the nine months ended September 30, 1994 (unaudited) and the
years ended December 31, 1993, 1992 and 1991............................................................. F-58
Summary of Significant Accounting Policies................................................................. F-59
Notes to Consolidated Financial Statements................................................................. F-61
</TABLE>
F-1
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
AUDITED FINANCIAL STATEMENTS AS OF MARCH 31, 1995, 1994 AND 1993
AND UNAUDITED AS OF JUNE 30, 1995 AND 1994
TOGETHER WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Republic Security Financial Corporation
We have audited the accompanying consolidated statements of financial
condition of Republic Security Financial Corporation and subsidiaries as of
March 31, 1995 and 1994, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Republic Security Financial Corporation and subsidiaries at March 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended March 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 14 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in the year ended
March 31, 1994.
ERNST & YOUNG LLP
West Palm Beach, Florida
May 10, 1995
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, --------------------
1995 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and amounts due from depository institutions............................ $ 3,777 $ 3,566 $ 3,408
Interest-bearing deposits in other financial institutions.................... 11,254 14,050 9,746
Investments held to maturity (market value of $11,590 at
June 30, 1995 and $14,229 and $257 at March 31, 1995 and
1994, respectively)........................................................ 11,358 14,153 249
Investments - trading........................................................ 24,232
Real estate mortgages-held for sale (market value of $1,819)................. 1,805
Loans receivable - net....................................................... 229,819 227,940 155,294
Property and equipment - net................................................. 6,038 6,103 4,016
Real estate owned............................................................ 1,445 1,009 1,871
Goodwill - net............................................................... 3,173 3,227
Loan servicing rights........................................................ 2,703 2,796 775
Accrued interest receivable.................................................. 1,806 2,041 985
Other assets................................................................. 4,607 5,154 4,256
----------- -------- --------
TOTAL........................................................................ $ 275,980 $280,039 $206,637
=========== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits..................................................................... $ 225,081 $229,735 $156,651
Federal Home Loan Bank advances.............................................. 15,000 15,000 20,000
Securities sold under agreements to repurchase............................... 2,469 2,748
Redeemable subordinated debentures........................................... 1,985 1,995
Advances from borrowers for taxes and insurance.............................. 2,107 1,598 1,445
Bank drafts payable.......................................................... 3,914 4,148 4,425
Other liabilities............................................................ 4,737 4,379 2,473
----------- -------- --------
Total liabilities............................................................ 253,308 259,593 186,989
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 stated value; 10,000,000 shares authorized; 402,500
shares issued and outstanding at June 30, 1995 and March 31, 1995 and
1994....................................................................... 4,025 4,025 4,025
Common stock $.01 par value; 20,000,000 shares authorized; 4,313,060,
3,652,743 and 3,609,979 shares issued and outstanding at June 30, 1995,
March 31, 1995 and 1994, respectively...................................... 43 36 36
Additional paid-in capital................................................... 16,211 14,363 14,213
Retained earnings............................................................ 2,393 2,022 1,374
----------- -------- --------
Total shareholders' equity................................................... 22,672 20,446 19,648
----------- -------- --------
Total........................................................................ $ 275,980 $280,039 $206,637
=========== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
-------------------------- -----------------------------
1995 1994 1995 1994 1993
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans...................................... $ 4,979 $ 3,093 $15,254 $11,525 $10,774
Interest and dividends on investments.................. 341 268 1,034 962 463
----------- ----------- ------- ------- -------
5,320 3,361 16,288 12,487 11,237
----------- ----------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits................................... 2,432 1,246 6,244 4,733 4,319
Interest on short-term borrowings...................... 249 203 935 559 1
Interest on long-term borrowings....................... 31 60 218 220 240
----------- ----------- ------- ------- -------
2,712 1,509 7,397 5,512 4,560
----------- ----------- ------- ------- -------
Net interest income.................................... 2,608 1,852 8,891 6,975 6,677
Provision for loan losses.............................. 25 75 200 214 1,003
----------- ----------- ------- ------- -------
Net interest income after provision for
loan losses.......................................... 2,583 1,777 8,691 6,761 5,674
----------- ----------- ------- ------- -------
NON-INTEREST INCOME:
Mortgage banking income................................ 1,788 3,654 2,626
Other income........................................... 914 854 1,211 735 432
----------- ----------- ------- ------- -------
914 854 2,999 4,389 3,058
----------- ----------- ------- ------- -------
OPERATING EXPENSES:
Employee compensation and benefits..................... 1,215 1,087 4,595 4,109 3,167
Occupancy and equipment................................ 489 289 1,488 1,201 803
Professional fees...................................... 199 148 652 707 653
Advertising and promotion.............................. 60 51 233 268 233
Outside services....................................... 35 36 232 163 177
Communications......................................... 106 78 352 332 285
Data processing........................................ 111 66 307 211 130
Insurance.............................................. 153 136 570 556 413
Real estate owned - net................................ 3 44 70 127 199
Other.................................................. 308 276 1,361 1,065 872
----------- ----------- ------- ------- -------
2,679 2,211 9,860 8,739 6,932
----------- ----------- ------- ------- -------
Income before income taxes and
accounting change.................................... 818 420 1,830 2,411 1,800
Income taxes........................................... 291 155 663 818 582
----------- ----------- ------- ------- -------
Income before accounting change........................ 527 265 1,167 1,593 1,218
Change in accounting for income taxes.................. 500
----------- ----------- ------- ------- -------
NET INCOME............................................. $ 527 $ 265 $ 1,167 $ 2,093 $ 1,218
=========== =========== ======= ======= =======
Income per common share:
Income before accounting change........................ $ .10 $ .05 $ .23 $ .42 $ .50
Change in accounting for income taxes.................. .13
----------- ----------- ------- ------- -------
Net income............................................. $ .10 $ .05 $ .23 $ .55 $ .50
=========== =========== ======= ======= =======
Average common shares and common stock equivalents
outstanding (in thousands)........................... 4,459 4,480 4,474 3,927 2,895
=========== =========== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT)
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1992................................................ $ 15 $ 7,217 $ (128)
401(K) Plan - 12,010 shares............................................ 48
Stock Grants - 17,917 shares........................................... 75
Repurchase of - 15,661 shares.......................................... (70)
Common stock issued in connection with purchase of Homestead Federal
Savings Bank - 575,325 shares........................................ 5 2,413
Net income............................................................. 1,218
------ ---------- --------
BALANCE, MARCH 31, 1993................................................ 20 9,683 1,090
Stock dividends - 377,303 shares....................................... 4 1,525 (1,529)
Stock grants - 6,352 shares............................................ 22
401(K) Plan - 14,582 shares............................................ 50
Cash dividends - common stock.......................................... (116)
Cash dividends - preferred stock....................................... (164)
Exercise of equity contracts - 6,557 shares............................ 21
Issuance of preferred stock - 402,500 shares........................... $ 4,025 (550)
Issuance of common stock - 1,150,000 shares............................ 12 3,462
Net income............................................................. 2,093
--------- ------ ---------- --------
BALANCE, MARCH 31, 1994................................................ 4,025 36 14,213 1,374
Issuance of common stock for fixed asset purchase -
7,701 shares......................................................... 27
Stock grants - 9,196 shares............................................ 38
Exercise of stock options - 4,337 shares............................... 10
Exercise of equity contracts - 13,786 shares........................... 40
401 (K) Plan - 7,744 shares............................................ 35
Cash dividends - common stock.......................................... (217)
Cash dividends - preferred stock....................................... (302)
Net income............................................................. 1,167
--------- ------ ---------- --------
BALANCE, MARCH 31, 1995................................................ 4,025 36 14,363 2,022
Exercise of equity contracts - 634,476 shares (unaudited).............. 7 1,744
Exercise of warrants - 13,344 shares (unaudited)....................... 52
Stock grants - 10,500 shares (unaudited)............................... 44
401(K) plan - 1,997 shares (unaudited)................................. 8
Cash dividends - common stock (unaudited).............................. (81)
Cash dividends - preferred stock (unaudited)........................... (75)
Net income for three months ended June 30, 1995
(unaudited).......................................................... 527
--------- ------ ---------- --------
BALANCE, JUNE 30, 1995 (UNAUDITED)..................................... $ 4,025 $ 43 $ 16,211 $ 2,393
========= ====== ========== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
-------------------------- ----------------------------------
1995 1994 1995 1994 1993
----------- ----------- -------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................. $ 527 $ 265 $ 1,167 $ 2,093 $ 1,218
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan and real estate losses.............. 25 75 291 300 1,194
Provision for depreciation............................. 152 98 459 410 274
Deferred income taxes.................................. 139 100 518
Amortization of loan servicing rights and premium on
sale of loans........................................ 135 116 505 1,218 2,922
Amortization of deferred loan fees and costs........... (126) (40) (215) (439) (764)
Amortization of goodwill............................... 55 73
Gain on sale of loans and servicing.................... (183) (650) (1,175) (3,657) (3,844)
Loan costs deferred.................................... (59) (174) (471) (894) (955)
Loans originated for sale.............................. (11,461) (17,005) (48,157) (139,393) (122,272)
Purchase of loans for sale............................. (700) (5,140) (20,759) (1,704)
Sale of loans and loan participation certificates...... 11,644 17,353 55,102 142,274 132,988
Proceeds from the sale of investments - trading........ 24,000 24,000
Purchase of investments held for trading............... (24,233)
Loss on investments trading............................ 200 200
Other - net............................................ 590 384 1,962 440 103
----------- ----------- -------- --------- ---------
Net cash provided by (used in) operating activities.... 1,299 23,922 28,740 (42,540) 9,678
----------- ----------- -------- --------- ---------
INVESTING ACTIVITIES:
Cash and cash equivalents acquired in mergers-net...... 1,819 12,589
Maturities of investments.............................. 2,850 1,350
Loans purchased for investment......................... (1,053) (26,450)
Loans originated for investment........................ (21,927) (12,309) (67,990) (13,950) (27,671)
Principal collected on loans........................... 19,391 3,081 35,034 37,313 34,933
Purchase of property and equipment..................... 87 (300) (2,295) (1,745) (2,253)
Purchase of loan servicing rights...................... (2,322)
Other - net............................................ 220 (4) 1,408 74 1,333
----------- ----------- -------- --------- ---------
Net cash provided by (used in) investing activities.... (1,379) (9,532) (34,049) (4,758) 18,931
----------- ----------- -------- --------- ---------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposit, NOW
accounts, Money Market accounts and savings
accounts............................................. (2,708) (2,553) (1,414) 7,922 10,425
Proceeds from sales of certificates of deposit......... 11,672 8,485 56,414 39,402 30,838
Payment for maturing certificates of deposits.......... (13,618) (7,975) (40,185) (36,584) (54,467)
Sale of common and preferred stock -net of stock
issuance costs....................................... 6,949
Net increase (decrease) from short-term borrowings..... (279) 233 (35)
(Decrease) increase in FHLB advances................... (5,000) 20,000
Cash dividends......................................... (156) (36) (519) (280)
Other - net............................................ (174) 10 242 (2,776) 216
----------- ----------- -------- --------- ---------
Net cash provided by (used in) financing activities.... (5,263) (2,069) 9,771 34,633 (13,023)
----------- ----------- -------- --------- ---------
Increase (decrease) in cash and cash equivalents....... (2,585) 12,321 4,462 (12,665) 15,586
Cash and cash equivalents at beginning of year......... 17,616 13,154 13,154 25,819 10,233
----------- ----------- -------- --------- ---------
Cash and cash equivalents at end of period............. $ 15,031 $ 25,475 $ 17,616 $ 13,154 $ 25,819
=========== =========== ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Republic Security Financial
Corporation and subsidiaries conform to generally accepted accounting principles
and to general practices within the savings and loan and mortgage banking
industries. The following is a summary of the significant accounting policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Republic
Security Financial Corporation (the 'Company' or 'RSFC') and its wholly-owned
subsidiary, Republic Security Bank, (the 'Bank'). All significant intercompany
balances and transactions have been eliminated in consolidation.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. The Company paid
$125,000 and $75,000 of income tax payments during the three months ended June
30, 1995 and 1994, respectively. The Company paid $512,000, $180,000, and
$630,000 of income tax payments during the years ended March 31, 1995, 1994, and
1993, respectively. During the periods ended June 30, 1995 and 1994, the Company
paid $2,634,000 and $1,546,000, respectively, in interest on deposits and other
borrowings. The Company paid $6,634,000, $5,471,000 and $4,590,000 of interest
on deposits and other borrowings during the years ended March 31, 1995, 1994,
and 1993, respectively. During the three months ended June 30, 1995 and 1994,
$408,000 and $448,000, respectively, of loans were transferred to REO.
Approximately $1,367,000, $2,258,000, and $1,317,000 was transferred from loans
to REO during 1995, 1994, and 1993, respectively. In addition, assets of
$64,307,000 were acquired and $62,310,000 liabilities assumed related to the
merger of Governors Bank during 1995.
TRADING ACCOUNT ASSETS
Trading account assets are held for resale in anticipation of short-term
market movements. Trading account assets, consisting of adjustable rate mortgage
funds are stated at fair value. Realized and unrealized gains and losses on
trading securities are included in other non-interest income. Dividends earned
on trading account assets are included in interest and dividends on investments.
SECURITIES HELD TO MATURITY
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held to maturity when the Company has
the positive intent and ability to hold the securities to maturity. Held to
maturity securities are stated at amortized cost.
REAL ESTATE MORTGAGES - HELD FOR SALE
Real estate mortgages held for sale are valued at the lower of cost or
market considering outstanding forward commitments to sell loans to investors.
All mortgage loans held for sale are committed for sale to secondary market
investors under firm agreements at or prior to closing date on the individual
loan. Fees
F-8
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
and costs associated with originating mortgage loans sold are considered in
determining the gain or loss on sale of loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established by provision for loan losses
charged against earnings. In evaluating the adequacy of the allowance for loan
losses, management considers the loan portfolio, past loan loss experience,
current economic conditions, workout arrangements, fair value of the underlying
collateral, future cash flows expected to be received on impaired loans, and
other relevant factors. While management believes the allowance for loan losses
is adequate for losses in the loan portfolio, additional provisions for
potential loan losses may be necessary in future periods should economic or
other factors change substantially.
In May 1993, the Financial Accounting Standards Board issued Statement No.
114, 'Accounting by Creditors for Impairment of Loans' (SFAS No. 114), which is
effective for fiscal years beginning after December 15, 1994. The new standard
requires impaired loans within the scope of SFAS No.114 be measured based on
discounted cash flows using the loan's effective interest rate or the fair value
of the collateral for collateral dependent loans. Effective April 1, 1995, the
Company adopted Financial Accounting Standards Board Statement No. 114,
'Accounting by Creditors for Impairment of a Loan.' Under the new standard, the
1995 allowance for credit losses related to loans that are identified for
evaluation in accordance with Statement No. 114 is based on discounted cash
flows using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Prior to 1995, the allowance
for credit losses related to these loans was based on undiscounted cash flows or
the fair value of the collateral for collateral dependent loans. The adoption of
this statement did not have a material impact on the operations of the Company.
In accordance with Statement No. 114, a loan is classified as in-substance
foreclosure when the Company has taken possession of the collateral regardless
of whether formal foreclosure proceedings take place. Loans previously
classified as in-substance foreclosure but for which the Company had not taken
possession of the collateral which totalled $1,329,000 and $919,000 at March 31,
1995 and 1994, respectively have been reclassified to loans.
REAL ESTATE OWNED
Property acquired by foreclosure, or deed in lieu of foreclosure, is
recorded at the lower of the loan balance or estimated fair value minus
estimated costs to sell at the time of foreclosure or deemed in-substance
foreclosure. Costs related to the development and improvement of the property
are capitalized, whereas costs related to maintaining the property are charged
to real estate owned expense. In addition, any subsequent reductions in the
valuation of the property is included in real estate owned expense.
LOANS RECEIVABLE
Loans receivable are stated at the principal amount outstanding plus or
minus any purchased premiums or discounts. Interest on loans is accrued as
earned. Amortization of premiums and accretion of discounts are recognized as
adjustments to interest income over the lives of the related loans. Loans
contractually past
F-9
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
due 60 days or more are placed on non-accrual and any previously accrued and
unpaid interest is charged against interest income. Loans remain on non-accrual
status until the obligation is brought current and has performed in accordance
with the terms of the loan for a reasonable period of time. Accrual of interest
on loans is discontinued when, in the opinion of management, reasonable doubt
exists as to the full, timely collection of interest or principal. The Bank
defers substantially all loan fees and direct costs associated with loan
originations. Deferred loan fees and costs are amortized as a yield adjustment
over the life of the loan.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets ranging from five to twelve years for furniture and
equipment and twenty-five years for office buildings. Leasehold improvements are
amortized over the lesser of the lease terms or the assets' estimated useful
lives. Repairs and maintenance is charged to expense and gains or losses on
disposals are credited or charged to earnings.
INCOME PER COMMON SHARE
Income per common share is computed by dividing net income less preferred
stock dividends by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period. Common stock equivalents
consisting of stock options, warrants, and equity contracts are included in the
computation of earnings per share using the treasury stock method.
INCOME TAXES
Effective April 1, 1993, deferred income taxes are accounted for under
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes (SFAS No. 109)'. Under SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities, and their respective tax basis. To the extent current available
evidence raises doubt about the future realization of a deferred tax asset, a
valuation allowance must be established. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enacted rate. Prior to the adoption of SFAS No. 109, income tax expense was
determined using the deferred method, whereby deferred tax expense was based on
items of income and expense that were reported in different years in the
financial statements and tax returns and were measured at the tax rate in effect
in the year the difference originated.
RECLASSIFICATION
Certain amounts presented in the consolidated financial statements for
prior years have been reclassified for comparative purposes.
F-10
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
2. MERGER
On November 30, 1994, the Company acquired Governors Bank Corporation
(Governors) for $5,154,000, plus $153,000 in merger related costs. Governors was
a state chartered commercial bank headquartered in West Palm Beach, Florida. The
acquisition was accounted for as a purchase and approximately $3.3 million in
goodwill was recognized representing the acquisition cost in excess of the fair
value of the net assets acquired. Goodwill is being amortized over 15 years
using the straight-line method.
The following summarizes the fair value of the Governors' assets acquired
and liabilities assumed:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash........................................................ $ 6,973
Investment securities....................................... 15,160
Loans, net.................................................. 40,283
Accrued interest receivable................................. 513
Other assets................................................ 1,378
--------------
Total assets................................................ 64,307
--------------
Deposits.................................................... 58,140
Accrued interest payable.................................... 874
Securities sold under repurchase agreements................. 2,515
Other liabilities........................................... 781
--------------
Total liabilities........................................... 62,310
--------------
Net assets acquired......................................... $ 1,997
==============
</TABLE>
Pro forma financial information for RSFC, as if the merger had taken place
as of April 1, 1994 and 1993, for income and per share data is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Total interest income.......................................................... $19,702 $18,268
======= =======
Net interest income after provision for loan losses............................ $10,625 $ 6,431
======= =======
Income before taxes and cumulative effect of accounting change................. $ 2,357 $ 191
======= =======
Net income..................................................................... $ 1,507 $ 507
======= =======
Net income per common share.................................................... $ .30 $ .14
======= =======
</TABLE>
The year ended March 31, 1994 includes a $3.2 million provision for loan
losses attributable to the Governors' loan portfolio while the year ended March
31, 1995 includes a $102,000 provision related to the Governors' loan portfolio.
On January 22, 1993, RSFC merged with Homestead Federal Savings Bank
('HFSB'). HFSB was a federally chartered savings bank with headquarters in
Homestead, Florida. The merger was accounted for as a purchase under generally
accepted accounting principles where the Company issued 575,325 shares of its
F-11
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
2. MERGER--(CONTINUED)
common stock and 442,558 warrants to acquire the common stock of HFSB. The term
of the warrants is three years from the date of merger and entitles the holder
to purchase one share of RSFC stock, per warrant, at a price of $3.90 per share.
Assets and liabilities acquired included approximately $12.6 million in cash,
$28.9 million in net loans, $2.7 million in investments, and $41.8 million in
deposits. The results of operations of HFSB are included within the results of
the Company since January 23, 1993.
3. INVESTMENTS
The following is a summary of held to maturity securities at June 30, 1995
(unaudited):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE YIELD
------- ---------- ---------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. Government securities........................ $10,733 $ 232 $10,965 7.20%
Foreign Government securities..................... 75 75 7.50
Other debt securities............................. 550 550 5.70
------- ---------- -------
Total Debt Securities............................. $11,358 $ 232 $11,590 7.15%
======= ========== =======
</TABLE>
At June 30, 1995 securities with a book value of $8,912,000 were pledged to
collateralize repurchase agreements, public deposits and other items.
The amortized cost and estimated market value of debt securities at June
30, 1995 by contractual maturity are shown below (unaudited):
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Due in 1 year or less............................................................. $ 5,479 $ 5,509
Due after 1 through 5 years....................................................... 5,754 5,956
Due after 5 years through 10 years................................................ 125 125
--------- -------
$ 11,358 $11,590
========= =======
</TABLE>
F-12
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
3. INVESTMENTS--(CONTINUED)
The following is a summary of held to maturity securities at March 31:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE YIELD
------- ---------- ---------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995
U.S. Government securities........................ $13,528 $ 78 $13,606 7.20%
Foreign Government securities..................... 75 75 7.50
Other debt securities............................. 550 $ 2 548 5.70
------- ---------- ---------- -------
Total Debt Securities............................. $14,153 $ 78 $ 2 $14,229 7.15%
======= ========== ========== =======
1994
U.S. Government securities........................ $ 199 $ 8 $ 207 7.50%
Other............................................. 50 50 2.50
------- ---------- -------
Total Debt Securities............................. $ 249 $ 8 $ 257 6.50%
======= ========== =======
</TABLE>
At March 31, 1995 and 1994, securities with a book value of $5,409,000 and
$199,000, respectively, were pledged to collateralize repurchase agreements,
public deposits and other items.
The amortized cost and estimated market value of debt securities at March
31, 1995 by contractual maturity are shown below:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Due in 1 year or less............................................................. $ 7,804 $ 7,781
Due after 1 through 5 years....................................................... 6,224 6,323
Due after 5 years through 10 years................................................ 125 125
--------- -------
$ 14,153 $14,229
========= =======
</TABLE>
Net unrealized holding gains on trading securities amounted to $551,000 for
the year ended March 31, 1994, and is included in interest and dividends on
investments. Realized losses on trading securities for the year ended March 31,
1995, amounted to ($200,000) and is included in other non-interest income.
F-13
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
4. LOANS RECEIVABLE - NET
Loans receivable - net is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, --------------------
1995 1995 1994
----------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C>
Real estate mortgage............................................... $ 149,011 $151,660 $118,442
Real estate construction........................................... 44,296 48,500 51,008
Installment loans to individuals................................... 38,239 36,285 7,641
Commercial and financial........................................... 16,276 16,484 2,356
----------- -------- --------
Total loans................................................... 247,822 252,929 179,447
----------- -------- --------
Deferred loan fees................................................. (778) (921) (740)
Discount on loans purchased........................................ (622) (656) (258)
Premium on loans purchased......................................... 526 555 792
Undisbursed portion of loans-in-process............................ (14,553) (21,460) (22,876)
Allowance for loan losses.......................................... (2,576) (2,507) (1,071)
----------- -------- --------
Loans receivable - net............................................. $ 229,819 $227,940 $155,294
=========== ======== ========
</TABLE>
5. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The Bank's non-performing assets consist of real estate owned ('real estate
owned'), loans which are 60 days or more past due, and repossessed assets. At
June 30, 1995, the Bank had $6,345,000 in non-performing assets of which
$1,445,000 was real estate owned and $4,738,000 was loans 60 days or more past
due. Non-performing assets as of March 31, 1995 and 1994 were $3,436,000 and
$3,228,000, respectively, of which $1,009,000 and $1,871,000, respectively, was
real estate owned and $2,310,000 and $1,357,000, respectively was loans 60 days
or more past due. Interest income not recognized on such loans was $49,000
during the three months ended June 30, 1995 and $35,000 and $20,000 during 1995
and 1994, respectively.
Although management uses its best judgement in underwriting each loan,
industry experience indicates that a portion of the Bank's loans will become
delinquent. Regardless of the underwriting criteria utilized by financial
institutions losses may be experienced as a result of many factors beyond their
control including, among other things, changes in market conditions affecting
the value of security and unrelated problems affecting the credit of the
borrower. Due to the concentration of loans in South Florida, adverse economic
conditions in this area could result in a decrease in the value of a significant
portion of the Bank's collateral.
F-14
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
5. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES--(CONTINUED)
An analysis of changes in the allowance for loan losses is summarized (in
thousands) as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
JUNE 30, MARCH 31,
---------------- --------------------------
1995 1994 1995 1994 1993
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Beginning balance..................................... $2,507 $1,071 $1,071 $1,247 $ 775
Reserves acquired during merger....................... 1,399 319
Provision for losses.................................. 25 75 200 214 1,003
Recoveries............................................ 252 97 454 362 146
Charge-offs........................................... (208) (153) (617) (752) (996)
------ ------ ------ ------ ------
Ending balance........................................ $2,576 $1,090 $2,507 $1,071 $1,247
====== ====== ====== ====== ======
</TABLE>
The Bank follows the practice of reducing the carrying value of individual
properties in real estate owned for any amounts in excess of the fair value of
properties. There were no provisions for real estate losses during the three
months ended June 30, 1995 and $44,000 during the three months ended June 30,
1994. Provision for real estate losses during the years ended March 31, 1995,
1994, and 1993 totaled $91,000, $86,000, and $191,000, respectively, and is
included in real estate owned expense on the consolidated statement of income.
6. CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS
The Bank is required to maintain a non-interest-bearing reserve balance
with the Federal Reserve Bank. The average reserve balance was approximately
$4.5 million in 1995.
7. PROPERTY AND EQUIPMENT
Property and equipment is summarized (in thousands) as follows:
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, ----------------
1995 1995 1994
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Office building......................................................... $ 4,738 $4,707 $2,961
Leasehold improvements.................................................. 437 410 305
Furniture & equipment................................................... 2,635 2,607 1,950
----------- ------ ------
Total................................................................... 7,810 7,724 5,216
Less accumulated depreciation........................................... 1,772 1,621 1,200
----------- ------ ------
Property and equipment-net.............................................. $ 6,038 $6,103 $4,016
=========== ====== ======
</TABLE>
F-15
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
7. PROPERTY AND EQUIPMENT--(CONTINUED)
Rent expense for the three months ended June 30, 1995 and 1994 was $156,000
and $65,000, respectively. Rent expense for the years ended March 31, 1995,
1994, and 1993, was $419,000, $418,000, and $329,000, respectively.
8. MORTGAGE BANKING ACTIVITIES
The Bank purchases and sells whole and participating interests in loans.
Mortgage loans held for sale are reported at the lower of cost or market value
on an aggregate loan basis as of the balance sheet date. When loans are sold, a
gain or loss is recognized to the extent that the sales proceeds exceed or are
less than the carrying value of the loans. Additionally, gain is recorded on the
present value of net servicing fees over the expected life of the loans, which
results in capitalization of the net servicing rights. Capitalized loan
servicing rights are amortized using the interest method over the expected life
of the loan.
The Bank is also engaged in the business of acquiring the rights to service
mortgage loans for others. The costs incurred to acquire such rights are
capitalized and amortized using the interest method in proportion to, and over
the period of, estimated net servicing income (servicing revenue in excess of
servicing costs) and are reflected on the consolidated statements of financial
condition as loan servicing rights.
At June 30, 1995, March 31, 1995, 1994, and 1993, the Bank serviced
mortgage loans for others in the amount of $325 million, $323 million, $189
million, and $267 million, respectively. Accumulated amortization relating to
premiums on sale of loans was $4,817,000 and $4,613,000 for the years ended
March 31, 1995 and 1994, respectively. Accumulated amortization relating to loan
servicing rights was $4,976,000 and $4,675,000 for the years ended March 31,
1995 and 1994, respectively.
The amount amortized relating to premiums on sale of loans and loan
servicing rights for the three months ended June 30, 1995 (in thousands) is as
follows:
<TABLE>
<CAPTION>
PREMIUM LOAN
ON SALE SERVICING
OF LOANS RIGHTS TOTAL
-------- --------- ------
(UNAUDITED)
<S> <C> <C> <C>
Balance March 31, 1995.................................................... $ 485 $ 2,796 $3,281
Amortization.............................................................. (42) (93) (135)
-------- --------- ------
Balance June 30, 1995..................................................... $ 443 $ 2,703 $3,146
======== ========= ======
</TABLE>
F-16
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
8. MORTGAGE BANKING ACTIVITIES--(CONTINUED)
The amount capitalized and amortized relating to premiums on sale of loans
and loan servicing rights for the years ended March 31, 1995, 1994, and 1993 (in
thousands) are included in the table below:
<TABLE>
<CAPTION>
PREMIUM
ON SALE LOAN
OF SERVICING
LOANS RIGHTS TOTAL
------- --------- -------
<S> <C> <C> <C>
Balance March 31, 1992.................................................. $ 2,838 $ 2,695 $ 5,533
Amortization.......................................................... (1,641) (1,281) (2,922)
------- --------- -------
Balance March 31, 1993.................................................. 1,197 1,414 2,611
Amount Capitalized.................................................... 71 71
Amortization.......................................................... (579) (639) (1,218)
------- --------- -------
Balance March 31, 1994.................................................. 689 775 1,464
Amount Capitalized.................................................... 2,322 2,322
Amortization.......................................................... (204) (301) (505)
------- --------- -------
Balance March 31, 1995.................................................. $ 485 $ 2,796 $ 3,281
======= ========= =======
</TABLE>
The amount of aggregate gains on sales of servicing included in operations
in 1995, 1994, and 1993 was $299,000, $708,000 and $749,000, respectively. No
servicing sales were made during the three months ended June 30, 1995.
F-17
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
9. DEPOSITS
The weighted-average nominal rate payable on all deposits at March 31, 1995
and 1994, was 4.0% and 3.1%, respectively. The nominal rates at which the Bank
incurred interest on deposits and related balances of such deposits (in
thousands) are as follows:
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, --------------------
1995 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Non-interest bearing accounts...................................... $ 25,504 $ 26,149 $ 6,027
NOW accounts (2.0%)................................................ 26,368 26,688 25,498
Saving accounts (2.85%)............................................ 19,052 19,395 19,885
Money market deposits account (2.88%).............................. 13,179 14,581 12,217
Certificate accounts:
Up to 3.0%......................................................... 3,124
3.01% to 3.5%...................................................... 537 884 24,666
3.51% to 4.0%...................................................... 1,296 6,884 43,851
4.01% to 4.5%...................................................... 9,730 14,590 11,161
4.51% to 5.0%...................................................... 15,896 23,026 3,254
5.01% to 5.5%...................................................... 21,476 20,988 3,180
5.51% to 6.0%...................................................... 36,630 27,587 1,000
6.01% to 6.5%...................................................... 39,885 38,440 165
6.51% to 7.0%...................................................... 7,073 6,285 1,072
Over 7.0%.......................................................... 8,455 4,238 1,551
----------- -------- --------
Total certificates................................................. 140,978 142,922 93,024
----------- -------- --------
Total.............................................................. $ 225,081 $229,735 $156,651
=========== ======== ========
</TABLE>
The Bank incurred interest on deposits (in thousands) as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Savings account........................................................... $ 144 $ 144
NOW accounts.............................................................. 147 101
Money market deposit accounts............................................. 99 86
Certificate accounts...................................................... 2,042 915
-------- --------
$ 2,432 $ 1,246
======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Savings accounts..................................................... $ 607 $ 545 $ 385
NOW accounts......................................................... 419 326 255
Money market deposit accounts........................................ 437 368 234
Certificate accounts................................................. 4,781 3,494 3,445
------ ------ ------
Total................................................................ $6,244 $4,733 $4,319
====== ====== ======
</TABLE>
F-18
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
9. DEPOSITS--(CONTINUED)
The amounts and maturities of certificate accounts at June 30, 1995 (in
thousands) are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Within 12 months............................................. $ 120,272
12 to 24 months.............................................. 10,399
24 to 36 months.............................................. 5,658
36 to 48 months.............................................. 4,018
Over 48 months............................................... 631
-----------
Total........................................................ $ 140,978
===========
</TABLE>
The amounts and scheduled maturities of certificate accounts in the amount
of $100,000 or more at June 30, 1995 (in thousands) are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Within 3 months.............................................. $ 5,668
3 to 6 months................................................ 2,968
6 to 12 months............................................... 4,087
Over 12 months............................................... 2,685
-----------
Total........................................................ $ 15,408
===========
</TABLE>
The amounts and scheduled maturities of certificate accounts at March 31,
1995 (in thousands) are as follows:
<TABLE>
<S> <C>
Within 12 months............................................. $121,184
12 to 24 months.............................................. 10,835
24 to 36 months.............................................. 4,468
36 to 48 months.............................................. 5,949
Over 48 months............................................... 486
--------
Total........................................................ $142,922
========
</TABLE>
The amounts and scheduled maturities of certificate accounts in the amount
of $100,000 or more at March 31, 1995 (in thousands) are as follows:
<TABLE>
<S> <C>
Within 3 months............................................... $ 2,876
3 to 6 months................................................. 5,067
6 to 12 months................................................ 4,233
Over 12 months................................................ 2,496
-------
Total......................................................... $14,672
=======
</TABLE>
F-19
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
10. BORROWED MONEY
The Bank has entered into an agreement with the Federal Home Loan Bank
('FHLB') which enables the Bank to obtain advances that are collateralized by
FHLB stock and mortgage loans. In accordance with the agreement the Bank has
pledged as collateral loans with principal balances of approximately
$44,000,000, $44,435,000 and $48,000,000 at June 30, 1995, March 31, 1995 and
1994, respectively. Outstanding advances from the Federal Home Loan Bank
consisted of the following:
The book values and approximate market values of investments at March 31,
1993, 1992 and 1991 (in thousands), are as follows:
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, ------------------
MATURE DURING 1995 1995 1994 INTEREST RATE
------------- ----------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
1995............................................. $10,000 3.84%
1996............................................. $ 15,000 $15,000 10,000 6.01% to 6.75%
----------- ------- -------
$ 15,000 $15,000 $20,000
=========== ======= =======
</TABLE>
At March 31, 1995, the Company had outstanding $1,985,000 of redeemable
subordinated debentures (the 'Debentures') due May 1, 1999 bearing interest of
11.5%, and cancelable mandatory stock purchase contracts ('Equity Contracts')
requiring the purchase of $1,985,000 in common stock at a price of $2.90 per
share no later than May 1, 1996.
Interest on the Debentures was payable quarterly on the 15th day of
January, April, July, and October, and commenced on July 15, 1989. Each
Debenture bore interest from the date of issuance. The Debentures are
subordinate and junior in right of payment to certain present and future
indebtedness of the Company. The Debentures were unsecured debt obligations of
the Company, are not obligations of the Bank, and are not insured.
The Equity Contracts are considered common stock equivalents and are
included in income per share calculations for the years ended March 31, 1995 and
1994.
On March 29, 1995, the Company's outstanding redeemable subordinated
debentures and cancelable mandatory stock purchase contracts were called for
redemption. Upon surrender of the Debentures, and at the option of the
Bondholder, the Bondholder received a number of shares of the Company's common
stock equal to the principal amount of the Debenture divided by the adjusted per
share price of $2.90 or cash equal to 104% of the principal amount of the
Debenture. As a result of the redemption, 634,476 shares of common stock were
issued, and shareholders' equity increased by $1,751,000.
The Bank enters into sales of securities under agreements to repurchase.
Variable rate reverse repurchase agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as liabilities in the
consolidated statement of financial condition at June 30, 1995 and March 31,
1995. Securities sold under agreements to repurchase are collateralized by U.S.
Government Treasury notes and U.S. Government agency notes with an aggregate
carrying value of $4,128,000, accrued interest of $40,000, and a market value of
$4,203,000 at June 30, 1995. The aggregate carrying value of securities pledged
at March 31, 1995 was $3,963,000, accrued interest of $51,000 with a market
value of $4,002,000.
F-20
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
10. BORROWED MONEY--(CONTINUED)
All agreements mature daily and have a weighted interest rate of 5.96% at March
31, 1995. All securities underlying agreements are held by an independent
safekeeping agent and all agreements are to repurchase the same securities.
Securities sold under agreements to repurchase averaged $4,154,000 during the
period ended June 30, 1995 and $623,000 during the year ended March 31, 1995.
The maximum amount outstanding at any month-end during the quarter ended June
30, 1995 was $4,250,000. The maximum amount outstanding at any month-end during
fiscal 1995 was $2,748,000. No securities were sold under agreements to
repurchase during 1994.
11. SHAREHOLDERS' EQUITY
Regulations require savings institutions to maintain 'core capital' of at
least 3% of adjusted total assets, 'tangible capital' of at least 1.5% of
adjusted total assets and 'risk-based capital' of at least 8% of risk-weighted
assets. In the event of a capital shortfall, a savings institution could be
precluded from paying dividends and would become subject to certain restrictions
on operations.
The following table shows the capital amounts and ratios of the Bank as
compared to regulatory requirements:
<TABLE>
<CAPTION>
THE BANK
------------------------------------- REGULATORY
CAPITAL REQUIREMENTS AT JUNE 30, 1995 AT MARCH 31, 1995 REQUIREMENT
-------------------- ---------------- ----------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Core................................................ 6.8% 6.0% 3.0%
Tangible............................................ 6.8% 6.0% 1.5%
Risk-based capital.................................. 11.0% 11.0% 8.0%
</TABLE>
The Company's ability to pay cash dividends on its common stock is limited
to the amount of dividends it could receive from the Bank plus its own cash and
cash equivalents. At March 31, 1995, these amounts were $3,587,000 and
$1,018,000, respectively. The amount of dividends the Bank is permitted to pay
to the Company is restricted by regulation to 100% of its calendar year to date
net income plus 50% of the amount in excess of the required regulatory capital
at the beginning of the year.
F-21
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
11. SHAREHOLDERS' EQUITY--(CONTINUED)
The balance, activity, exercise price, and expiration dates of the
Company's options, warrants, and equity contracts for the quarter ended June 30,
1995 the years ended March 31, 1995, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
OPTIONS WARRANTS
------------------------------------------------------------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
March 31, 1992........ 28,014 97,024 80,707 1,334 165,216
Issued.................. 408,924
Expired................. (4,002)
------- ------- ------- ------- -------- --------
Balance
March 31, 1993........ 24,012 97,024 80,707 1,334 165,216 408,924
Issued.................. 42,000 102,229
Expired................. (4,622)
------- ------- ------- ------- ------- -------- --------
Balance
March 31, 1994........ 19,390 97,024 80,707 1,334 42,000 165,216 511,153
Expired................. (3,622)
Exercised............... (1,000) (2,003) (1,334)
------- ------- ------- ------- ------- -------- --------
Balance
March 31, 1995........ 14,768 97,024 78,704 0 42,000 165,216 511,153
Issued (unaudited)...... 75,000 75,000 550,000
Exercised (unaudited)... (13,344)
Cancelled (unaudited)...
------- ------- ------- ------- ------- ------- ------- -------- -------- --------
Balance
June 30, 1995
(unaudited)........... 14,768 97,024 78,704 0 42,000 75,000 75,000 550,000 162,216 497,809
======= ======= ======= ======= ======= ======= ======= ======== ======== ========
Exercise Price.......... $2.50 $2.48 $2.62 $2.08 $3.33 $4.63 $6.25 $8.00 $5.00 $3.90
Expiration Date......... * 9/25/01 2/24/98 2/24/98 6/1/03 5/31/05 5/31/05 5/31/05 11/1/00 1/22/96
<CAPTION>
EQUITY
CONTRACTS
---------
<S> <C>
Balance
March 31, 1992........ 674,754
Issued..................
Expired.................
---------
Balance
March 31, 1993........ 674,754
Issued..................
Expired.................
---------
Balance
March 31, 1994........ 674,754
Expired.................
Exercised............... (13,786)
---------
Balance
March 31, 1995........ 660,968
Issued (unaudited)......
Exercised (unaudited)... (634,476)
Cancelled (unaudited)... (26,492)
---------
Balance
June 30, 1995
(unaudited)........... 0
=========
Exercise Price.......... $2.90
Expiration Date......... 5/1/96
</TABLE>
------------------------
* 4,622 options expire annually.
In December 1994, the Company granted stock options to purchase 20,000
shares of the Company's common stock at various option prices ranging from $4.50
per share to $6.50 per share. The grant was made with certain vesting terms of
which none of the conditions have occurred as of March 31, 1995. The options
expire in December 1997.
The Company issued 5% and 10% stock dividends on January 21, 1994, and
April 1, 1993, respectively. All references in the consolidated financial
statements and notes to amounts per common share and to number of common shares
have been restated to give retroactive effect for these stock dividends.
During the year ended March 31, 1990, the Company adopted a restricted
stock award plan for key executive officers and awarded 9,196, 6,352, and 17,917
shares of common stock under the plan during the years ended March 31, 1995,
1994, and 1993, respectively. The Company has reserved 100,000 shares of common
stock for this plan.
All stock grants by the Company have been at the fair market value of the
stock on the date of grant.
During September, 1993, the Company issued 1,150,000 and 402,500 shares of
common and cumulative and non-voting preferred stock, respectively. Each share
of Series A Preferred can be
F-22
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
11. SHAREHOLDERS' EQUITY--(CONTINUED)
convertible at any time, at the option of the holder, into 2.47 shares of common
stock at a conversion price of $4.05 per common share. The preferred stock bears
a dividend rate of 7.5% on its stated value of $10.00 per share. The preferred
stock can be redeemed at the option of the Company at any time on or after June
30, 1998, at a redemption price ranging from $10.40 per share to $10.00 per
share, subject to certain events.
In 1995, the Company adopted a shareholder rights plan. Under the terms of
the plan, preferred share purchase rights will be distributed as a dividend at
the rate of one right for each share of common stock held as of April 14, 1995.
Each right will entitle the holder to buy 1/100th of a share of Series B Junior
Participating Preferred Share at an exercise price of $18.00 per share. Each
preferred share fraction will have voting and dividend rights equivalent to one
common share. The rights become exercisable upon the occurrence of certain
events as defined in the Shareholder Rights Plan and expire April 4, 2005.
12. COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business t
o meet the financing needs of its customers.
These financial instruments primarily include commitments to extend credit.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments is represented by the
contractual notional amount of those instruments. The Bank uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The total commitment amounts do not
necessarily represent future cash requirements as some commitments expire
without being drawn upon. The Bank evaluates each customer's credit worthiness
on a case by case basis. The amount of collateral obtained if deemed necessary
by the Bank upon extension of credit is based on management's credit evaluation
of the counterparty.
At June 30, 1995, the Bank had adjustable rate commitments to extend credit
of $6,830,000 excluding the undisbursed portion of loans in process. These
commitments are primarily for one-to-four family residential properties.
At March 31, 1995, the Bank had adjustable rate commitments to extend
credit of $18,627,000 excluding the undisbursed portion of loans in process.
These commitments are primarily for commercial lines of credit secured by
commercial real estate or other business assets and one-to-four family
residential properties.
F-23
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company and its subsidiaries have entered into noncancellable operating
leases with future minimum lease payments of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996..................................................... $ 609
1997..................................................... 529
1998..................................................... 480
1999..................................................... 329
2000..................................................... 87
Thereafter............................................... 19
--------------
$ 2,053
==============
</TABLE>
Certain leases contain provisions for renewal and for rents to adjust with
the consumer price index. In addition, the Company subleases portions of the
leased space. Future minimum lease payments to be received by the Company
amounts to $73,000, $74,000, and $54,000 in 1996, 1997, and 1998, respectively.
The Company has a non-qualified unfunded retirement plan for three present
and one former executive of the Company. Pension costs consisting of service
costs and interest costs amounted to $90,000, $129,000, and $131,000 for the
years ended March 31, 1995, 1994, and 1993, respectively. The retirement benefit
to the employee will range between 30% to 70% of his or her average base salary
for the last three years of employment and will commence no earlier than age 55
nor later than age 62. A discount rate of 8% and a rate of compensation increase
of 5% is used to measure the projected benefit obligation. The net pension
liability (all vested) at March 31, 1995 and 1994 was $578,000 and $550,000,
respectively.
In October 1991, the Company established a 401(K) plan covering
substantially all full-time hourly and salary employees. The employer
contribution to the 401(K) plan is determined annually by the Board of
Directors. Expense under the plan for the years ended March 31, 1995, 1994 and
1993 amounted to $95,000, $59,000, and $44,000, respectively.
The Company has employment agreements with two executives which provide for
severance arrangements in the event of involuntary termination from a change in
control (as defined) of the Company.
In addition to the above commitments and contingencies, there are various
matters of litigation pending against the Company that management has reviewed
with legal counsel. Management believes that the aggregate liability or loss, if
any, resulting from such litigation will not be material to the consolidated
financial statements.
13. RELATED PARTY TRANSACTIONS
A Director of the Company and the Bank owns an appraisal firm which
receives fees from the Bank for appraisals of real estate relating to various
residential loan transactions. During the years ended March 31, 1995, 1994, and
1993, such fees aggregated approximately $140,000, $241,000, and $281,000,
respectively.
F-24
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
13. RELATED PARTY TRANSACTIONS--(CONTINUED)
An analysis of the activity of the aggregate loans to officers and
directors is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance March 31, 1993................................... $ 1,051
Additions................................................ 310
Principal Reductions..................................... (600)
--------------
Balance March 31, 1994................................... 761
Additions................................................ 327
Principal Reductions..................................... (95)
--------------
Balance March 31, 1995................................... 993
Additions (unaudited).................................... 45
Principal Reductions (unaudited)......................... (142)
--------------
Balance June 30, 1995 (unaudited)........................ $ 896
==============
</TABLE>
14. INCOME TAXES
Effective April 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, 'Accounting for Income Taxes.'
As permitted by SFAS No. 109, the Company elected not to restate the
financial statements of any prior years. The effect of the change on income from
continuing operations for the year ended March 31, 1994 was not material;
however, the cumulative effect of the change increased net income by $500,000 or
$.13 per share.
F-25
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
14. INCOME TAXES--(CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
as of March 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------- ----
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforward................................................... $ 1,138 $300
Tax credits....................................................................... 178 183
Loan loss provision............................................................... 271 153
Deferred compensation............................................................. 114 122
Depreciation...................................................................... 90 123
Accrued expenses.................................................................. 73
Investment basis.................................................................. 81
Other............................................................................. 43
------- ----
1,945 924
Valuation allowance............................................................... (1,136)
------- ----
Deferred tax assets, net of allowance............................................. 809 924
------- ----
DEFERRED TAX LIABILITIES:
Excess servicing rights........................................................... 171 258
Deferred loan fees................................................................ 217 453
Other............................................................................. 21 20
------- ----
Total............................................................................. 409 731
------- ----
Net deferred tax asset............................................................ $ 400 $193
======= ====
</TABLE>
Significant components of the provision for income tax expenses for the
years ended March 31, 1995, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
LIABILITY DEFERRED
METHOD METHOD
-------------- --------
1995 1994 1993
---- ---- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal.............................................................. $480 $605 $ 64
State................................................................ 44 113
---- ---- --------
$524 $718 $ 64
==== ==== ========
DEFERRED (BENEFIT):
Federal.............................................................. $119 $102 $ 446
State................................................................ 20 (2) 72
---- ---- --------
139 100 518
---- ---- --------
$663 $818 $ 582
==== ==== ========
</TABLE>
F-26
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
14. INCOME TAXES--(CONTINUED)
Timing differences on the recognition of income and expense for tax and
financial reporting purposes for 1993 resulted in deferred income tax benefits
as follows:
<TABLE>
<CAPTION>
1993
--------------
(IN THOUSANDS)
<S> <C>
Book depreciation in excess of tax depreciation............... $ (4)
Deferred compensation......................................... (48)
Deferred leasing activity..................................... (27)
Amortization of premium of sale of loans...................... (600)
Book provision for loan losses................................ 864
Deferred loan fees, net....................................... 265
Other, net.................................................... 68
--------------
Deferred income taxes......................................... $ 518
==============
</TABLE>
A reconciliation of income tax expense with the amount computed by applying
the statutory federal income tax rate of 34% to income before income taxes is as
follows for the year ended March 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at federal rate............................................ $623 $ 820 $ 612
Differences resulting from:
State income taxes, net of federal tax benefit........................ 42 73 48
Amortization of purchase accounting adjustment........................ 10 229 (125)
Reduction in valuation allowance...................................... (297)
Other, net............................................................ (12) (7) 47
---- ----- -----
Income taxes............................................................ $663 $ 818 $ 582
==== ===== =====
</TABLE>
Since the Bank meets certain definition tests and other conditions
prescribed by the Internal Revenue Code, it is allowed to deduct, with
limitations, a bad debt deduction. This deduction can be computed as a
percentage of taxable income before such deduction or based on experience.
As of March 31, 1995, the Company had net operating loss carryforwards,
acquired in connection with the Homestead and Governors mergers, of
approximately $3,162,000 for income tax purposes that expire over various time
periods through the year 2008. As a result of the ownership changes, the
utilization of these net operating loss carryforwards is limited annually to
specified amounts determined in accordance with the Internal Revenue Code. For
financial reporting purposes, a valuation allowance of approximately $1,136,000
has been recognized primarily to offset the deferred tax assets related to the
net operating loss carryforwards resulting from the Governors merger. When
realized, the tax benefit for those items will be applied to reduce goodwill
related to this merger.
An alternative minimum tax ('AMT') carryforward of approximately $150,000
is available for use in future years to offset regular tax in excess of AMT
liability in any given year. This credit has no expiration date.
F-27
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
15. PARENT COMPANY FINANCIAL INFORMATION
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, ------------------
1995 1995 1994
----------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Investments in and advances to subsidiaries......................... $ 21,662 $21,940 $14,500
Cash and cash equivalents........................................... 1,146 1,018 7,954
Other assets........................................................ 137 87 138
----------- ------- -------
Total............................................................... $ 22,945 $23,045 $22,592
=========== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses............................... $ 273 $ 614 $ 949
Redeemable subordinated debentures.................................. 1,985 1,995
----------- ------- -------
Total Liabilities................................................... 273 2,599 2,944
----------- ------- -------
SHAREHOLDERS' EQUITY
Preferred stock..................................................... 4,025 4,025 4,025
Common stock........................................................ 43 36 36
Additional paid-in-capital.......................................... 16,211 14,363 14,213
Retained earnings................................................... 2,393 2,022 1,374
----------- ------- -------
Total shareholders' equity.......................................... 22,672 20,446 19,648
----------- ------- -------
Total............................................................... $ 22,945 $23,045 $22,592
=========== ======= =======
</TABLE>
F-28
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
15. PARENT COMPANY FINANCIAL INFORMATION--(CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
JUNE 30, MARCH 31,
-------------------------- --------------------------
1995 1994 1995 1994 1993
----------- ----------- ------ ------ ------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME:
Interest....................................... $ 42 $ 112 $ 410 $ 285 $ 218
Other.......................................... 24 24 96 96 96
----------- ----------- ------ ------ ------
Total.......................................... 66 136 506 381 314
----------- ----------- ------ ------ ------
EXPENSES:
Interest....................................... 31 60 240 220 240
General and administrative..................... 77 52 278 136 216
----------- ----------- ------ ------ ------
Total.......................................... 108 112 518 356 456
----------- ----------- ------ ------ ------
(Loss) income before undistributed earnings of
subsidiaries and income tax benefit.......... (42) 24 (12) 25 (142)
Income tax (benefit) expense................... (15) 8 (5) 89 (52)
----------- ----------- ------ ------ ------
Loss before undistributed earnings
of subsidiaries.............................. (27) 16 (7) (64) (90)
Equity in undistributed earnings
of subsidiaries.............................. 554 249 1,174 2,157 1,308
----------- ----------- ------ ------ ------
Net income..................................... $ 527 $ 265 $1,167 $2,093 $1,218
=========== =========== ====== ====== ======
</TABLE>
F-29
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
15. PARENT COMPANY FINANCIAL INFORMATION--(CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
JUNE 30, MARCH 31,
-------------------------- -----------------------------
1995 1994 1995 1994 1993
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................... $ 527 $ 265 $ 1,167 $ 2,093 $ 1,218
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities................................. (1,953) (319) (895) (1,907) (1,227)
----------- ----------- ------- ------- -------
Net cash (used in) provided by operating
activities................................. (1,426) (54) 272 186 (9)
----------- ----------- ------- ------- -------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES................................. (6,802) (579) 756
----------- ----------- ------- ------- -------
FINANCING ACTIVITIES:
Sale of common and preferred stock, net of
stock issuances............................ 6,949
Costs........................................ 1,751
Exercise of equity contracts, net............ (145)
Cash dividends............................... (156) (112) (519) (280)
Other, net................................... 104 10 113 835 48
----------- ----------- ------- ------- -------
Net cash provided by (used in) financing
activities................................. 1,554 (102) (406) 7,504 48
----------- ----------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents................................ 128 (156) (6,936) 7,111 795
Cash and cash equivalents at beginning of
year....................................... 1,018 7,954 7,954 843 48
----------- ----------- ------- ------- -------
Cash and cash equivalents at end of year..... $ 1,146 $ 7,798 $ 1,018 $ 7,954 $ 843
=========== =========== ======= ======= =======
</TABLE>
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following is a disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Certain financial instruments and all
non-financial instruments are excluded from its disclosure
F-30
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
16. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
requirements. Accordingly, the aggregate fair value amount presented does not
represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments:
Cash and interest-bearing deposits in other financial institutions: The
carrying amounts reported in the balance sheet for these assets approximate
their fair values.
Investments: Fair value for investments are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for certain fixed rate mortgage loans (e.g., one-to-four
family residential), and other consumer loans are based on quoted market
prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair
values for other loans (e.g., commercial real estate and rental property
mortgage loans) are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The fair values of mortgage-backed
securities are based on quoted market prices.
Premium on sale of loans: The fair value of originated mortgage servicing
rights is based upon the estimated discounted cash flow net of servicing
costs as a market discount rate. Estimated cash flows are based upon
estimated market prepayment speeds for similar loan servicing portfolios.
Accrued interest receivable: The fair value of accrued interest receivable
is assumed to be equal the carrying value due to its short maturity.
Off-balance-sheet instruments: Fair values for the Bank's lending
commitments are based on estimated market prices of comparable instruments
taking into account the remaining terms of the agreements and the
counterparties' credit standing.
Deposit liabilities: The fair value disclosed for demand deposits (e.g.,
interest and non-interest checking, statement savings, and certain types of
money market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (e.g., their carrying amounts). The carrying
amounts for variable-rate, fixed-term money market accounts and
certificates of deposits approximate their fair values at the reporting
date. Fair value for fixed-rate certificates of deposit are estimated using
a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated contractual
monthly maturities on time deposits.
Other borrowings: The fair values of FHLB advances, securities sold under
agreement to repurchase, and redeemable subordinated debentures are
estimated using discounted cash flow analysis, based on the Bank's current
incremental borrowing rates for similar types of borrowing arrangements.
F-31
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
16. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
Bank drafts payable: The fair value of Bank drafts payable is assumed to
equal its carrying value due to its short maturity.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
AT MARCH 31,
AT JUNE 30, --------------------------------------------
1995 1995 1994
-------------------- -------------------- --------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and interest-bearing
deposits........................... $ 15,031 $ 15,031 $ 17,616 $ 17,616 $ 13,154 $ 13,154
Investments.......................... 11,358 11,590 14,185 14,229 24,481 24,491
Loans receivable - net and loans held
for sale........................... 229,819 249,354 227,940 228,537 157,099 157,619
Premium on sale of loans............. 443 500 485 550 689 694
Accrued interest receivable.......... 1,806 1,806 2,041 2,041 985 985
-------- -------- -------- -------- -------- --------
Total financial assets.......... 258,457 $278,281 260,938 $262,973 196,408 $196,943
Non-financial assets................. 17,523 ======== 19,101 ======== 10,229 ========
-------- -------- --------
Total assets......................... $275,980 $280,039 $206,637
======== ======== ========
LIABILITIES
Deposits............................. $225,081 $225,463 $229,735 $229,877 $156,651 $156,991
FHLB advances........................ 15,000 15,000 15,000 14,976 20,000 19,997
Securities sold under agreements to
repurchase......................... 2,469 2,469 2,748 2,748
Redeemable subordinated debentures... 1,985 1,985 1,995 2,205
Bank drafts payable.................. 3,914 3,914 4,148 4,148 4,425 4,425
-------- -------- -------- -------- -------- --------
Total financial liabilities..... 246,464 $246,846 253,616 $253,734 183,071 $183,616
Non-financial liabilities............ 6,844 ======== 5,977 ======== 3,918 ========
-------- -------- --------
Total liabilities.................... $253,308 $259,593 $186,989
======== ======== ========
</TABLE>
The fair value of demand deposits is the amount payable on demand, without
adjusting for any value derived from retaining those deposits for an expected
future period of time. That component, commonly referred to as a deposit base
intangible, is not considered in the above fair value amount nor is it recorded
as an intangible asset in the balance sheet.
The Bank's commitments to extend credit are either extensions to fund
variable rate loans or fixed rate loans. The fair value of commitments to extend
credit is $6,830,000, $18,627,000 and $7,040,000 at June 30, 1995, March 31,
1995 and 1994, respectively.
F-32
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
17. SEGMENT INFORMATION
Currently the majority of mortgage banking related activities are
incidental to the Bank's strategic plan and are performed in order to
accommodate banking customer and market needs and, as such, are included in
non-interest income for the periods ending June 30, 1995 and 1994.
The Company operated in two industry segments (as defined by Statement of
Financial Accounting Standards No. 14, 'Financial Reporting for Segments of a
Business Enterprise'). The two industry segments were banking and mortgage
banking. However, due to the significant decline in the mortgage banking
industry, the Company significantly reduced its operations in mortgage banking
activities. As a result of the Company's reduction in mortgage banking
activities, the Company no longer operates in the mortgage banking industry
segment (as defined by SFAS No. 14). Effective April 1, 1995, all mortgage
banking activities will be included in banking operations.
Revenues in the banking segment consist primarily of interest on mortgage
loans and investment securities. Mortgage banking activities derive revenues
primarily from interest on loans held for sale, sales of loans in the secondary
mortgage market, sale of loan servicing rights, and fees on loans serviced.
Intercompany transactions have been eliminated from the industry segments and
consolidated financial data presented below. The following is a presentation of
the revenues, operating profits (losses), assets, and capital expenditures for
the years ended March 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
BANKING MORTGAGE BANKING CONSOLIDATED
---------------------------- ----------------------- ----------------------
YEAR ENDED MARCH 31, 1995 1994 1993 1995 1994 1993 1995 1994 1993
-------------------- -------- -------- -------- ------- ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income after provision for
loan losses.............................. $ 7,394 $ 5,756 $ 4,395 $ 1,297 $1,005 $1,279 $8,691 $6,761 $5,674
Non-interest income........................ 1,211 735 432 1,211 735 432
Mortgage banking income.................... 1,788 3,654 2,626 1,788 3,654 2,626
Depreciation............................... 280 308 92 179 101 166 459 409 258
Non-interest expense....................... 5,365 4,169 2,718 4,036 4,161 3,956 9,401 8,330 6,674
-------- -------- -------- ------- ------ ------ ------ ------ ------
Income before taxes........................ $ 2,960 $ 2,014 $ 2,017 $(1,130) $ 397 $ (217) $1,830 $2,411 $1,800
======== ======== ======== ======= ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995 1994 1993
--------- -------- -------- --------
<S> <C> <C> <C>
ASSETS
Banking.................................. $275,374 $202,033 $161,393
Mortgage banking......................... 4,665 4,604 8,081
-------- -------- --------
$280,039 $206,637 $169,474
======== ======== ========
CAPITAL EXPENDITURES, NET:
Banking.................................. $ 2,275 $ 1,723 $ 901
Mortgage banking......................... 349 20 1,352
-------- -------- --------
$ 2,624 $ 1,743 $ 2,253
======== ======== ========
</TABLE>
F-33
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994 IS
UNAUDITED)
18. SUBSEQUENT EVENTS
On April 17, 1995, the Bank filed application to convert from a Federal
Savings Bank to a State of Florida, commercial bank charter. At the same time,
Republic Security Financial Corporation filed application with the Federal
Reserve Board to become a bank holding company.
On July 26, 1995, the Company changed its fiscal year-end from March 31, to
December 31. A transition report will be filed on Form 10-K for the nine months
ending December 31, 1995.
F-34
<PAGE>
BANYAN BANK
AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994 AND 1993
AND UNAUDITED AS OF JUNE 30, 1995 AND 1994
TOGETHER WITH INDEPENDENT AUDITOR'S REPORT
F-35
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Banyan Bank
Boca Raton, Florida
We have audited the accompanying balance sheets of Banyan Bank as of
December 31, 1994 and 1993, and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Banyan Bank as of December
31, 1994 and 1993, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
As described in Note 4 to the financial statements, the Bank changed its
method of accounting for investments in debt and marketable equity securities to
adopt FASB Statement No. 115 as of January 1, 1994.
McGladrey & Pullen, LLP
St. Paul, Minnesota
March 3, 1995
F-36
<PAGE>
BANYAN BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (Note 2).................................. $ 8,278,000 $ 3,726,008 $ 1,287,701
Available-for-sale securities (Note 3).............................. 2,570,000 5,479,537 --
Securities held for investment (Note 4)............................. -- -- 8,486,888
Federal funds sold.................................................. -- 5,000 4,673,000
Loans, net (Notes 5, 10 and 11)..................................... 35,953,000 31,191,333 27,893,618
Loans held for sale (Note 6)........................................ -- 255,700 246,800
Premises and equipment, net (Note 7)................................ 274,000 287,348 217,507
Other real estate owned............................................. 491,000 1,035,578 928,299
Accrued interest receivable and other assets (Note 9)............... 351,000 331,368 397,922
----------- ----------- -----------
$47,917,000 $42,311,872 $44,131,735
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (Notes 8 and 11):
Noninterest-bearing............................................ $ 4,629,000 $ 4,698,739 $ 5,475,805
Interest-bearing............................................... 38,587,000 33,393,125 34,555,094
----------- ----------- -----------
Total deposits............................................ 43,216,000 38,091,864 40,030,899
Accrued interest payable and other liabilities.................... 272,000 171,474 215,460
----------- ----------- -----------
Total liabilities......................................... 43,488,000 38,263,338 40,246,359
----------- ----------- -----------
Commitments, Contingencies and Credit Risk (Note 10)
Stockholders' Equity (Note 12)
Common stock, par value $6 per share; authorized 600,000 shares;
issued and outstanding 442,883 shares.......................... 2,657,000 2,657,298 2,657,298
Additional paid-in capital........................................ 1,061,000 1,061,032 1,061,032
Retained earnings................................................. 696,000 474,228 221,296
Net unrealized loss on marketable equity securities held for
investment (Note 3)............................................ -- -- (54,250)
Net unrealized gain (loss) on available-for-sale securities (Note
3)............................................................. 15,000 (144,024) --
----------- ----------- -----------
Total stockholders' equity................................ 4,429,000 4,048,534 3,885,376
----------- ----------- -----------
$47,917,000 $42,311,872 $44,131,735
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-37
<PAGE>
BANYAN BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------ ------------------------
1995 1994 1994 1993
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest Income
Loans................................................... $1,745,000 $1,241,000 $2,702,791 $2,372,553
Securities.............................................. 270,000 182,000 398,336 354,476
Federal funds sold and cash equivalents................. -- 41,000 61,426 165,970
---------- ---------- ---------- ----------
2,015,000 1,464,000 3,162,553 2,892,999
Interest Expense on Deposits.............................. 838,000 535,000 1,123,648 1,148,233
---------- ---------- ---------- ----------
Net interest income............................. 1,177,000 929,000 2,038,905 1,744,766
Provision for Loan Losses (Note 6)........................ 59,654 56,000 93,750 76,800
---------- ---------- ---------- ----------
Net interest income after provision for loan
losses....................................... 1,117,346 873,000 1,945,155 1,667,966
---------- ---------- ---------- ----------
Other Income
Service charges and other fees.......................... 43,000 29,000 51,075 51,085
Securities gains (losses), net (Notes 3 and 4).......... 12,000 -- 375 65,288
Gain on sale of other real estate owned................. 59,654 -- -- --
Other income............................................ 51,000 11,000 32,670 9,781
---------- ---------- ---------- ----------
165,654 40,000 84,120 125,154
---------- ---------- ---------- ----------
Other Expenses
Salaries and employee benefits.......................... 482,000 321,000 760,757 526,889
Occupancy expenses...................................... 158,000 131,000 276,454 217,980
Other expenses.......................................... 295,000 250,000 586,853 665,323
---------- ---------- ---------- ----------
935,000 702,000 1,624,064 1,410,192
---------- ---------- ---------- ----------
Income before income taxes and cumulative effect
of change in accounting principle.......... 348,000 211,000 405,211 382,928
Income Tax Expense (Note 9)............................... 126,000 80,000 152,279 155,659
---------- ---------- ---------- ----------
Income before cumulative effect
of change in accounting principle.......... 222,000 131,000 252,932 227,269
Cumulative Effect of Change in Accounting
for Income Taxes........................................ -- -- -- 227,453
---------- ---------- ---------- ----------
Net income...................................... $ 222,000 $ 131,000 $ 252,932 $ 454,722
========== ========== ========== ==========
Income per common share:
Income before cumulative effect of change in accounting
principal............................................ $ .46 $ .28 $ .53 $ .48
Cumulative effect of change in accounting for income
taxes................................................ -- -- -- .48
---------- ---------- ---------- ----------
Net income.............................................. $ .46 $ .28 $ .53 $ .96
========== ========== ========== ==========
Weighted average common and
common equivalent shares outstanding.................... 442,883 442,883 442,883 442,883
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-38
<PAGE>
BANYAN BANK
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1994 AND 1993 (DEFICIT)
-------------------------------------- --------------------- UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL LOSS ON
------------------- --------------------- ADDITIONAL PAID-IN RETAINED MARKETABLE
PAR PAR PAID-IN CAPITAL EARNINGS EQUITY
SHARES VALUE SHARES VALUE CAPITAL ALLOCATED (DEFICIT) SECURITIES
------- -------- ------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1992......... 90,000 $ 90,000 314,645 $1,887,870 $ 1,740,460 $ 2,000 $(235,426) $ (66,500)
Net income................ -- -- -- -- -- -- 454,722 --
Recovery of unrealized
loss on marketable
equity securities held
for investment.......... -- -- -- -- -- -- -- 12,250
Conversion of preferred
stock to common stock
(Note 12)...............(90,000) (90,000) 128,238 769,428 (679,428) -- -- --
Transfer.................. -- -- -- -- -- (2,000) 2,000 --
------- -------- ------- ---------- ----------- --------- --------- ----------
BALANCE,
DECEMBER 31, 1993......... -- -- 442,883 2,657,298 1,061,032 -- 221,296 (54,250)
Net income................ -- -- -- -- -- -- 252,932 --
Net change in unrealized
gain (loss) on
available-for-sale
securities (Note 3)..... -- -- -- -- -- -- -- 54,250
------- -------- ------- ---------- ----------- --------- --------- ----------
BALANCE,
DECEMBER 31, 1994......... -- -- 442,883 2,657,298 1,061,032 -- 474,228 --
Net income (unaudited).... -- -- -- -- -- -- 222,000 --
Net change in unrealized
gain (loss) on
available-for-sale
securities (Note 3)
(unaudited)............. -- -- -- -- -- -- -- --
Other (unaudited)......... -- -- -- (298) (32) -- (228) --
------- -------- ------- ---------- ----------- --------- --------- ----------
BALANCE, JUNE 30, 1995
(unaudited)............... -- -- 442,883 $2,657,000 $ 1,061,000 -- $ 696,000 $ --
======= ======== ======= ========== =========== ========= ========= ==========
<CAPTION>
YEARS ENDED DECEMBER 31, 1994 AND 1993 UNREALIZED
-------------------------------------- GAIN (LOSS)
ON AVAILABLE-
FOR-SALE
SECURITIES TOTAL
------------- ----------
<S> <C> <C>
BALANCE,
DECEMBER 31, 1992....................... $ -- $3,418,404
Net income.............................. -- 454,722
Recovery of unrealized
loss on marketable
equity securities held
for investment........................ -- 12,250
Conversion of preferred
stock to common stock
(Note 12)............................. -- --
Transfer................................ -- --
------------- ----------
BALANCE,
DECEMBER 31, 1993....................... -- 3,885,376
Net income.............................. -- 252,932
Net change in unrealized
gain (loss) on
available-for-sale
securities (Note 3)................... (144,024) (89,774)
------------- ----------
BALANCE,
DECEMBER 31, 1994....................... (144,024) 4,048,534
Net income (unaudited).................. -- 222,000
Net change in unrealized
gain (loss) on
available-for-sale
securities (Note 3)
(unaudited)........................... 159,024 159,024
Other (unaudited)....................... -- (558)
------------- ----------
BALANCE, JUNE 30, 1995
(unaudited).............................. $ 15,000 $4,429,000
============= ==========
</TABLE>
See notes to financial statements.
F-39
<PAGE>
BANYAN BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------------- --------------------------
1995 1994 1994 1993
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income......................................... $ 222,000 $ 131,000 $ 252,932 $ 454,722
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Securities (gains) losses....................... (12,000) -- (375) (65,288)
Gain on sale of other real estate owned......... (59,654) -- -- --
Net amortization and accretion of premiums and
discounts..................................... 32,000 131,000 221,077 124,756
Provision for loan losses....................... 59,654 56,000 93,750 76,800
Loans held for sale (Note 6).................... 256,000 247,000 (8,900) 411,413
Depreciation.................................... 25,000 20,000 48,834 22,285
Other........................................... (51,000) (20,000) 109,463 (64,806)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities.............................. 472,000 565,000 716,781 959,882
----------- ----------- ----------- -----------
Cash Flows From Investing Activities
Cash flows from securities (Note 13)............... 3,133,000 805,000 2,609,981 (1,816,697)
Net decrease in federal funds sold................. 5,000 4,673,000 4,668,000 2,667,000
Net increase in loans.............................. (4,762,000) (3,693,000) (3,774,881) (3,416,584)
Purchases of premises and equipment................ (12,000) (9,000) (118,675) (98,843)
Proceeds from sales of other
real estate owned............................... 592,000 -- 276,136 298,345
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities............................ (1,044,000) 1,776,000 3,660,561 (2,366,779)
----------- ----------- ----------- -----------
Cash Flows From Financing Activities
Net increase (decrease) in deposits................ 5,124,000 (1,288,000) (1,939,035) 897,625
Other, net......................................... -- (365,000) -- --
----------- ----------- ----------- -----------
Net cash provided by (used) in
financing activities.......................... 5,124,000 (1,653,000) (1,939,035) 897,625
----------- ----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents........................ 4,552,000 688,000 2,438,307 (509,272)
Cash and Cash Equivalents
Beginning.......................................... 3,726,000 1,288,000 1,287,701 1,796,973
----------- ----------- ----------- -----------
Ending............................................. $ 8,278,000 $ 1,976,000 $ 3,726,008 $ 1,287,701
=========== =========== =========== ===========
</TABLE>
See notes to financial statements (additional cash flow information - Note 13).
F-40
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and
cash equivalents includes cash on hand and amounts due from banks. Cash flows
from loans, loans held for sale, federal funds sold, and deposits are reported
net.
The Bank maintains amounts due from banks which, at times, may exceed
federally insured limits. The Bank has not experienced any losses in such
accounts.
INVESTMENT IN DEBT AND MARKETABLE EQUITY SECURITIES: The Bank accounts for
debt and equity securities in accordance with FASB Statement No. 115. This
statement requires that management determine the appropriate classification of
securities at the date of adoption and thereafter as each individual security is
acquired. In addition, the appropriateness of such classification is reassessed
at each balance sheet date. The classifications and related accounting policies
under FASB Statement No. 115 are as follows:
HELD-TO-MATURITY SECURITIES: Securities classified as held-to-maturity are
those debt securities the Bank has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity needs or changes
in general economic conditions. These securities are carried at cost adjusted
for amortization of premium and accretion of discount, computed by the interest
method over their contractual lives.
The sale of a security within three months of its maturity date or after at
least 85 percent of the principal outstanding has been collected is considered a
maturity for purposes of classification and disclosure.
AVAILABLE-FOR-SALE SECURITIES: Securities classified as available-for-sale
are those debt securities that the Bank intends to hold for an indefinite period
of time but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Bank's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains or losses, net of the related deferred
tax effect are reported as increases or decreases in stockholders' equity.
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings.
TRADING SECURITIES: Trading securities, which are generally held for the
short term in anticipation of market gains, are carried at fair value. Realized
and unrealized gains and losses on trading account assets are included in
interest income on trading account securities.
TRANSFERS: Transfers of debt securities into the held-to-maturity
classification from the available-for-sale classification are made at fair value
on the date of transfer. The unrealized holding gain or loss on the date of
transfer is retained as a separate component of stockholders' equity and in the
carrying value of the held-to-maturity securities. Such amounts are amortized
over the remaining contractual lives of the securities by the interest method.
Prior to the accounting change discussed in Note 4, the classification of
securities and the related accounting policies were as follows:
F-41
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INVESTMENT SECURITIES: Securities held for investment were those debt
securities that the Bank had both the ability to hold to maturity and the intent
to hold for the foreseeable future. Debt securities were stated at cost,
adjusted for amortization of premiums and accretion of discounts. Other
investments were stated at cost, which approximated market value. Gains or
losses on disposition were based on the net proceeds and the carrying amount of
the securities sold, using the specific-identification method.
LOANS AND ALLOWANCES FOR LOAN LOSSES: Loans are stated at the amount of
unpaid principal, reduced by an allowance for loan losses.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loan loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions. Interest on loans is recognized over the terms of the loans and is
calculated using the simple-interest method on principal amounts outstanding.
Accrual of interest is generally stopped when a loan is greater than three
months past due. Interest on these loans is recognized only when actually paid
by the borrower if collection of the principal is likely to occur. Accrual of
interest is generally resumed when the customer is current on all principal and
interest payments and has been paying on a timely basis for a period of time.
LOANS HELD FOR SALE: Loans held for sale are carried at the lower of
aggregate cost or market value. The market value calculation includes
consideration of all open positions. The Bank generally locks into an interest
rate when these loans are originated, thus no gains or losses are recognized on
sales. All sales are made without recourse.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally by the
straight-line method over the estimated useful lives of the assets.
OTHER REAL ESTATE OWNED: Other real estate owned (OREO) represents
properties acquired through foreclosure or other proceedings. OREO is recorded
at the lower of the carrying amounts of the related loans or fair value of the
properties less cost to sell. Any write-down to fair value less cost to sell at
the time of transfer to OREO is charged to the allowance for loan and lease
losses. Subsequent write-downs are charged to other expense. Property is
evaluated regularly to ensure that the recorded amount is supported by its
current fair market.
INCOME TAXES: Deferred taxes are provided using an asset and liability
method whereby deferred tax assets are recognized for deductible temporary
differences, and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities recorded for
income tax and financial reporting purposes. Deferred tax assets are reduced by
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
INCOME PER COMMON SHARE: Income per common share is computed by dividing
net income by the weighted average number of shares of common and common
equivalent shares outstanding during the
F-42
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
period. Common equivalent shares include the stock options discussed in Note 12.
There is no difference between primary and fully diluted income per share.
EMERGING ACCOUNTING STANDARDS:
FAIR VALUE OF FINANCIAL INSTRUMENTS: Financial Accounting Standards Board
(FSAB) Statement No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized on the balance sheet, for which it is practicable to
estimate that value. Statement No. 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements. This
statement is effective for the Bank's year ending December 31, 1995.
IMPAIRMENT OF LOANS: The FASB has issued Statement No. 114, Accounting by
Creditors for Impairment of a Loan. Statement No. 114 requires that impaired
loans that are within the scope of this statement be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent. A
loan is impaired when it is probable the creditor will be unable to collect all
contractual principal and interest payments due in accordance with the terms of
the loan agreement. This statement was effective January 1, 1995. The
application of the statement has no significant impact to the financial
statements.
NOTE 2. RESTRICTIONS ON CASH AND CASH EQUIVALENTS
The Bank is required to maintain reserve balances, in cash or on deposit
with the Federal Reserve Bank, based upon a percentage of deposits. The total
required reserve balances as of December 31, 1994 and 1993 and June 30, 1995,
were approximately $276,000, $206,000 and $125,000, respectively.
NOTE 3. AVAILABLE-FOR-SALE SECURITIES
SUMMARY OF SECURITIES:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
JUNE 30, 1995 (UNAUDITED)
U.S. Government corporations
and agencies..................................... $1,541,000 $ 3,000 $ 8,000 $1,536,000
Mortgage-backed securities......................... 732,000 30,000 762,000
Other.............................................. 272,000 -- -- 272,000
---------- ---------- ---------- ----------
$2,545,000 $ 33,000 $ 8,000 $2,570,000
========== ========== ========== ==========
DECEMBER 31, 1994
U.S. Government corporations
and agencies..................................... $4,492,855 $ -- $ 177,641 $4,315,214
Marketable equity securities....................... 167,250 -- 20,250 147,000
Mortgage-backed securities......................... 757,700 -- 33,027 724,673
Other.............................................. 292,650 -- -- 292,650
---------- ---------- ---------- ----------
$5,710,455 $ -- $ 230,918 $5,479,537
========== ========== ========== ==========
</TABLE>
F-43
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 3. AVAILABLE-FOR-SALE SECURITIES--(CONTINUED)
CONTRACTUAL MATURITIES:
U.S. Government corporations and agency securities have maturities ranging
between one and five years. The anticipated maturities for mortgage-backed
securities are not readily determinable since they may be prepaid without
penalty. Marketable equity and other securities have no specified maturity date.
REALIZED GAINS AND LOSSES: Gross gains of $12,000 and $375 were realized
on sales of securities available-for-sale during the six months ended June 30,
1995 and the year ended December 31, 1994, respectively.
CHANGES IN THE UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES:
<TABLE>
<S> <C>
Balance, January 1, 1994.................................................................... $ --
Initial unrealized gain (loss) on date of adoption of Statement No. 115, net of related
deferred tax effect.................................................................... 26,197
Transfer of unrealized loss on marketable equity securities on date of adoption of
Statement No. 115...................................................................... (54,250)
Unrealized gain (loss) during the year.................................................... (220,331)
Deferred tax effect on unrealized loss.................................................... 104,360
---------
Balance, December 31, 1994.................................................................. (144,024)
Unrealized gain during six months (unaudited)............................................. 254,474
Deferred tax effect (unaudited)........................................................... (95,450)
---------
BALANCE, JUNE 30, 1995 (UNAUDITED).......................................................... $ 15,000
=========
</TABLE>
NOTE 4. SECURITIES HELD FOR INVESTMENT AND ACCOUNTING CHANGE
As of January 1, 1994, the Bank changed its method of accounting for debt
and equity securities in accordance with FASB Statement No. 115. As provided by
this Statement, the 1993 comparative financial statements have not been restated
for the change in accounting principle. The January 1, 1994, balance of
stockholders' equity was increased by $26,197, net of the $17,465 related
deferred tax effect, to recognize the net unrealized holding gain on securities
at that date.
F-44
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 4. SECURITIES HELD FOR INVESTMENT AND ACCOUNTING CHANGE--(CONTINUED)
The disclosures related to securities classified as investment securities
are as follows:
SUMMARY OF SECURITIES HELD FOR INVESTMENT:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies..................................... $7,394,263 $ 2,538 $ 16,801 $7,380,000
Marketable equity securities....................... 113,000 -- -- 113,000
Mortgage-backed securities......................... 868,075 57,925 -- 926,000
Other.............................................. 111,550 -- -- 111,550
---------- ---------- ---------- ----------
$8,486,888 $ 60,463 $ 16,801 $8,530,550
========== ========== ========== ==========
</TABLE>
The amortized cost of marketable equity securities above is net of an
allowance of $54,250 at December 31, 1993. This allowance reduces the carrying
amount from original cost of $167,250, to approximate market value and was
reflected as a reduction of stockholders' equity since the Bank considered the
decline in market value to be temporary.
REALIZED GAINS AND LOSSES: Gross gains of $65,288 were realized on sales
of securities held for investment in 1993.
NOTE 5. LOANS
COMPOSITION OF LOANS:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Residential real estate.................................. $13,778,000 $11,315,436 $10,004,214
Commercial real estate................................... 8,907,000 7,504,285 7,734,801
Commercial............................................... 6,613,000 7,533,359 7,469,947
Construction and land development........................ 6,424,000 4,677,731 2,336,389
Consumer................................................. 662,000 544,466 700,461
----------- ----------- -----------
36,384,000 31,575,277 28,245,812
Less allowance for loan losses........................... 431,000 383,944 352,194
----------- ----------- -----------
Loans, net............................................... $35,953,000 $31,191,333 $27,893,618
=========== =========== ===========
</TABLE>
F-45
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 5. LOANS--(CONTINUED)
ALLOWANCE FOR LOAN LOSSES:
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, ---------------------
1995 1994 1993
---------------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning.......................................... $ 383,944 $352,194 $ 345,701
Provision charged to operations........................... 59,654 93,750 76,800
Loans charged-off......................................... (13,000) (82,000) (103,199)
Recoveries................................................ 402 20,000 32,892
---------------- -------- ---------
Balance, ending............................................. $ 431,000 $383,944 $ 352,194
================ ======== =========
</TABLE>
NONACCRUAL LOANS: Nonaccrual loans totaled $18,000, $28,334 and $217,959
at June 30, 1995, December 31, 1994 and 1993, respectively. If income on these
loans had been accrued, interest income would have increased by approximately
$1,700 for the six months ended June 30, 1995, and $11,100 and $8,400 during
1994 and 1993, respectively. Interest actually received on these loans and
recognized as income during the first six months ended June 30, 1995 and years
ended 1994 and 1993, was not significant to the results of operations.
NOTE 6. LOANS HELD FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------
1995 1994 1993
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning......................................... $ 255,700 $ 246,800 $ 658,213
Loans originated......................................... -- 3,837,700 15,087,587
Loans sold............................................... (255,700) (3,828,800) (15,499,000)
----------- ----------- ------------
Balance, ending............................................ $ -- $ 255,700 $ 246,800
=========== =========== ============
</TABLE>
NOTE 7. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1995 1994 1993
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............................................. $ 192,553 $192,553 $165,910
Equipment.......................................................... 274,189 262,436 173,537
----------- -------- --------
466,742 454,989 339,447
Less accumulated depreciation...................................... 192,742 167,641 121,940
----------- -------- --------
$ 274,000 $287,348 $217,507
=========== ======== ========
</TABLE>
F-46
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 8. DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Demand deposits.......................................... $ 4,629,000 $ 4,698,739 $ 5,475,805
NOW and money market accounts............................ 9,609,000 13,998,705 18,370,999
Savings deposits......................................... 857,000 1,024,544 902,525
Time certificates, $100,000 or more...................... 4,604,000 3,585,846 3,982,416
Other time deposits...................................... 23,517,000 14,784,030 11,299,154
----------- ----------- -----------
Total............................................... $43,216,000 $38,091,864 $40,030,899
=========== =========== ===========
</TABLE>
NOTE 9. INCOME TAXES
The provision for income taxes charged to operations consists of the
following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Current tax expense............................................................. $ 99,364 $ 3,206
Deferred tax expense............................................................ 52,915 152,453
-------- --------
Total expense.............................................................. $152,279 $155,659
======== ========
</TABLE>
The cumulative tax effects of the primary temporary differences are shown
in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- -------
<S> <C> <C>
Deferred tax assets:
Loan loss allowances........................................................... $ 62,120 $61,160
Net operating loss carryover................................................... -- 22,080
Unrealized loss on securities available-for-sale............................... 86,895 --
Other............................................................................ 13,964 9,395
-------- -------
Total deferred tax assets........................................................ 162,979 92,635
-------- -------
Deferred tax liabilities:
Cash basis adjustments......................................................... 51,754 17,635
Other.......................................................................... 2,245 --
-------- -------
Total deferred tax liabilities................................................... 53,999 17,635
-------- -------
Net deferred tax assets.......................................................... $108,980 $75,000
======== =======
</TABLE>
F-47
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 9. INCOME TAXES--(CONTINUED)
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Computed 'expected' federal tax expense......................................... $141,824 $130,195
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit................................ 14,709 13,900
Other......................................................................... (4,254) 11,564
-------- --------
Tax expense..................................................................... $152,279 $155,659
======== ========
</TABLE>
Effective January 1, 1993, the Bank adopted FASB Statement No. 109,
Accounting for Income Taxes. The effect of adopting Statement No. 109 was to
increase the net deferred tax assets on the January 1, 1993 balance sheet by
$227,453. This amount is reported as the effect of a change in accounting
principle on the accompanying 1993 income statement.
NOTE 10. COMMITMENTS, CONTINGENCIES AND CREDIT RISK
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK: The Bank is party to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit risk in excess
of the amounts recognized on the balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other parties to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on balance sheet instruments. The
commitments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1995 1994 1993
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Commitments to extend credit................................ $10,868,000 $6,706,976 $6,854,102
Standby letters of credit................................... 441,000 508,882 560,014
----------- ---------- ----------
$11,309,000 $7,215,858 $7,414,116
=========== ========== ==========
</TABLE>
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. If deemed necessary upon extension of
credit, the amount of collateral obtained is based on management's credit
evaluation of the party. Collateral held varies, but may include accounts
receivable, inventory, property and equipment, and income-producing commercial
properties.
F-48
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 10. COMMITMENTS, CONTINGENCIES AND CREDIT RISK--(CONTINUED)
STANDBY LETTERS OF CREDIT: Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Collateral held varies as specified above and is required in instances which the
Bank deems necessary. The average amount of these commitments that are
collateralized is approximately 58 percent.
LEASE COMMITMENTS: The Bank leases bank premises and equipment. These
agreements extend through 2001, whereby the Bank is to pay a specified base
rent. The following is a schedule of future minimum lease payments under these
leases.
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1995............................................................... $116,726
1996............................................................... 54,320
1997............................................................... 34,200
1998............................................................... 35,077
1999............................................................... 35,989
After.............................................................. 37,152
--------
$313,464
========
</TABLE>
Total rent expense under these leases for the years ended December 31, 1994
and 1993 and the six months ended June 30, 1995 and 1994, was approximately
$156,000, $146,000, $66,000 and $46,000, respectively.
CONTINGENCIES: In the normal course of business, the Bank is involved in
various legal proceedings. In the opinion of management, any liability resulting
from such proceedings would not have a material adverse effect on the Bank's
financial statements.
FINANCIAL INSTRUMENTS WITH CONCENTRATION ON CREDIT RISK:
CONCENTRATION BY GEOGRAPHIC LOCATION: The Bank makes commercial, real
estate and consumer loans to customers principally in Palm Beach County,
Florida. Although the Bank has a diversified portfolio, a substantial portion of
its customers' abilities to honor their contracts is dependent upon the local
economy.
CONCENTRATION BY INDUSTRY: Included in the Bank's loan portfolio are
concentrations of loans related to real estate, primarily loans for real estate
developments, and commercial building operations.
NOTE 11. LOANS AND OTHER TRANSACTIONS WITH RELATED PARTIES
Shareholders of the Bank, and officers and directors, including their
families and companies of which they are principal owners, are considered to be
related parties. These related parties were loan customers of, and had other
transactions with the Bank in the ordinary course of business. In management's
opinion, these loans and transactions are on the same terms as those for
comparable loans and transactions with nonrelated parties.
F-49
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 11. LOANS AND OTHER TRANSACTIONS WITH RELATED PARTIES--(CONTINUED)
At June 30, 1995, December 31, 1994 and 1993, the approximate balances of
loans to and deposits from related parties were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1995 1994 1993
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Loans........................................................ $ 1,592,000 $2,179,533 $1,776,349
Deposits..................................................... 7,464,000 3,435,938 9,391,968
</TABLE>
NOTE 12. STOCKHOLDERS' EQUITY
REGULATORY CAPITAL REQUIREMENTS: The Federal Reserve Board and other bank
regulatory agencies have adopted risk-based capital guidelines for banks and
bank holding companies. The main objectives of the risk-based capital framework
are to provide a more consistent system for comparing capital positions of
banking organizations and to take into account the different risks among banking
organizations' assets and off-balance sheet items. Bank regulatory agencies have
supplemented the risk-based capital standard with a leverage ratio for Tier 1
capital to total reported assets. The minimum leverage ratio standard is 3
percent. Depending upon the judgment of the various regulatory agencies, a
greater leverage ratio may be required based upon the relative risk of the
organization.
Below is a comparison of the Bank's June 30, 1995 (unaudited) and December
31, 1994 actual and the minimum requirements for a well-capitalized and
adequately capitalized banks, as defined by the Federal regulatory agencies'
Prompt Corrective Action Rules:
<TABLE>
<CAPTION>
MINIMUM REQUIREMENTS
JUNE 30, DECEMBER --------------------------
1995 1994 WELL ADEQUATELY
ACTUAL ACTUAL CAPITALIZED CAPITALIZED
----------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tier 1 risk-based capital.............................. 9.1% 10.1% 6% 4%
Total risk-based capital............................... 10.0% 11.0% 10% 8%
Leverage ratio......................................... 7.4% 8.1% 5% 4%
</TABLE>
PREFERRED STOCK: During 1993, all 90,000 shares of the Series A preferred
stock were converted into common stock. The Bank has also authorized 60,000
shares of Series B nonvoting, $1 par value, cumulative, convertible preferred
stock, of which no shares have been issued.
DIVIDEND RESTRICTIONS: Banking regulations restrict the amount of
dividends that may be paid by the Bank without prior approval of Bank
supervisory authorities.
STOCK OPTIONS: The Bank has reserved shares of common stock for grants of
nonqualified stock options to certain key officers and directors. The options
may be exercised within five years from the date of grant. During 1994 and 1993,
no options were exercised or terminated. During 1994, 3,500 options were granted
at $10.00 per share. During 1993, 8,500 options were granted at $8.75 per share.
F-50
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 12. STOCKHOLDERS' EQUITY--(CONTINUED)
At December 31, 1994 and June 30, 1995, the following stock options were
outstanding and exercisable:
<TABLE>
<CAPTION>
STOCK YEAR OF EXERCISE PRICE
OPTIONS EXPIRATION PER SHARE
------- ---------- --------------
<S> <C> <C>
10,000 1995 $ 10.50
7,000 1996 10.00
6,446 1997 6.00
8,500 1998 8.75
3,500 1999 10.00
</TABLE>
NOTE 13. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
------------------------- --------------------------
1995 1994 1994 1993
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM SECURITIES
Available-for-sale securities:
Maturities............................. $2,946,000 $ -- $ 3,811,323 $ --
Sales.................................. 167,000 -- 800,375 --
Purchases.............................. -- (1,821,000) (2,001,717) --
Securities held for investment:
Maturities............................. -- 2,626,000 -- 1,821,276
Sales.................................. -- -- -- 5,080,000
Purchases.............................. -- -- -- (8,717,973)
---------- ----------- ----------- -----------
$3,133,000 $ 805,000 $ 2,609,981 $(1,816,697)
========== =========== =========== ===========
</TABLE>
F-51
<PAGE>
BANYAN BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 13. ADDITIONAL CASH FLOW INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
JUNE 30, DECEMBER 31,
---------------------- ------------------------
1995 1994 1994 1993
-------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash payments for interest.................... $811,000 $ 539,000 $1,112,399 $1,172,100
Cash payments for income taxes................ -- -- 27,376 25,833
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Securities held for investment reclassified to
available-for-sale securities............... $ -- $8,487,000 $8,486,888 $ --
Other real estate acquired in settlement of
loans.................................... -- 152,000 383,416 152,810
Net change in unrealized gain (loss) on
securities available-for-sale (Note 3)..... 159,024 (168,000) (144,024) --
Change in unrealized loss on marketable equity
securities (Note 3)...................... -- -- 54,250 12,250
</TABLE>
NOTE 14. SUBSEQUENT EVENT TO AUDITOR'S REPORT (UNAUDITED)
On September 7, 1995, the shareholders of the Bank agreed to sell all of
their shares to Republic Security Financial Corporation (RSFC). This sale is
contingent on several conditions including obtaining all regulatory approvals
and RSFC obtaining not less than $10,000,000 in net proceeds from a public
offering.
F-52
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993, 1992 AND 1991
AND UNAUDITED AS OF SEPTEMBER 30, 1994
TOGETHER WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
F-53
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Governors Bank Corporation and Subsidiary
West Palm Beach, Florida
We have audited the accompanying consolidated balance sheets of Governors
Bank Corporation and Subsidiary (the 'Company') as of December 31, 1993 and
1992, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1993. These consolidated financial statements are the responsibility of
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Governors
Bank Corporation and Subsidiary as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Governors Bank Corporation and Subsidiary will continue as a going
concern. As discussed in Note 11 to the consolidated financial statements, the
Bank subsidiary did not meet minimum regulatory capital requirements as of
December 31, 1993. Failure to comply with these requirements could result in
further regulatory intervention including seizure of the Bank. The Bank also
suffered a significant loss from operations in 1993. These matters raise
substantial doubt about the ability of the Company to continue as a going
concern. The ability of the Company to continue as a going concern is dependent
on many factors including regulatory action and raising sufficient additional
equity capital. Management's plans in regard to these matters are described in
Note 12 to the consolidated financial statements. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 9(a) to the consolidated financial statements, the
Company is a party to a class action lawsuit that seeks to enjoin the pending
merger of the Company and Republic Security Financial Corporation and to recover
money damages of unspecified amounts against certain members of the Board of
Directors. The Company has a Director and Officer Liability Insurance Policy
('Policy') in the amount of $2,000,000. The Policy calls for the Company to pay
the related legal costs until the settlement of this matter at which time the
Company will be reimbursed for its legal expenses. At December 31, 1993 the
Company does not have sufficient cash reserves or available lines of credit to
fund its necessary legal defense. Further the insurer has raised questions as to
whether potential losses caused by the lawsuit are covered by the Policy. The
Company has indemnified all of its officers and directors from any losses that
they may incur as a result of their good faith actions in fulfilling their
responsibilities as officers and directors. Finally, as discussed in Note 9(c)
to the consolidated financial statements, a former officer of the Bank has filed
a lawsuit for wrongful termination. The effect of insufficient funds for a legal
defense and the ultimate outcome of the lawsuits cannot be presently determined.
Accordingly, no provision for any liability that may result upon adjudication or
from any loss resulting from any shortfall in insurance coverage has been made
in the accompanying consolidated financial statements.
BDO Seidman, LLP
West Palm Beach, Florida
April 12, 1994, except for
Note 8(b) which is as of June 23, 1994,
Note 9(a)(ii) which is as of May 3, 1994
and Note 9(c) which is as of June 17, 1994
F-54
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1994 1993 1992
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks........................................... $ 5,123,000 $ 3,901,777 $ 6,021,660
Federal funds sold................................................ 3,659,000 6,036,000 3,480,000
------------- ----------- -----------
Total cash and cash equivalents..................................... 8,782,000 9,937,777 9,501,660
------------- ----------- -----------
Investment securities: (Note 1)
Held-to-maturity.................................................. 10,319,000 12,949,998 17,301,571
Available-for-sale................................................ 6,052,000 6,224,319 --
------------- ----------- -----------
Total investment securities......................................... 16,371,000 19,174,317 17,301,571
Loans, net (Notes 2, 7 and 13)...................................... 43,073,000 51,160,154 61,252,716
Bank premises and equipment, net (Note 3)........................... 333,000 458,198 493,811
Accrued interest receivable and other assets........................ 1,586,000 2,060,612 1,317,825
------------- ----------- -----------
$ 70,145,000 $82,791,058 $89,867,583
============= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand......................................................... $ 12,322,000 $13,906,953 $15,530,030
Savings, NOW and money market.................................. 21,295,000 26,510,381 30,100,950
Time, $100,000 and over (Note 4)............................... 552,000 533,404 2,475,734
Time, under $100,000........................................... 29,264,000 35,871,512 34,013,769
------------- ----------- -----------
Total deposits.................................................... 63,433,000 76,822,250 82,120,483
Securities sold under agreements to repurchase
(Notes 1 and 5)................................................ 3,123,000 2,358,825 896,170
Accrued interest payable and other liabilities.................... 1,241,000 1,188,100 894,873
------------- ----------- -----------
Total liabilities................................................... 67,797,000 80,369,175 83,911,526
------------- ----------- -----------
Commitments and contingencies (Notes 7,8,9,11 and 12)
Stockholders' Equity (Note 10)
Common stock, $5 par value - 7,500,000 shares
authorized; 736,242, 735,686 and 725,408 outstanding........... 3,681,000 3,678,430 3,627,040
Additional paid-in capital........................................ 2,503,000 2,501,030 2,467,421
Deficit........................................................... (3,816,000) (3,834,566) (138,404)
Unrealized (loss) gain on securities available for sale, net of
income taxes (Note 1).......................................... (20,000) 76,989 --
------------- ----------- -----------
Total stockholders' equity.......................................... 2,348,000 2,421,883 5,956,057
------------- ----------- -----------
$ 70,145,000 $82,791,058 $89,867,583
============= =========== ===========
</TABLE>
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-55
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED ---------------------------------------
SEPTEMBER 30, 1994 1993 1992 1991
------------------ ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees........................... $ 3,196,000 $ 5,190,368 $5,913,945 $5,759,253
Federal funds sold.............................. 81,000 93,437 128,642 255,960
Investment securities........................... 699,000 713,189 765,517 549,917
Other........................................... 9,000 60,052 83,167 10,332
----------------- ----------- ---------- ----------
Total interest income............................. 3,985,000 6,057,046 6,891,271 6,575,462
----------------- ----------- ---------- ----------
INTEREST EXPENSE:
Deposits........................................ 1,594,000 2,437,466 2,875,041 2,911,386
Securities sold under agreements to
repurchase................................... -- 33,509 35,065 82,660
----------------- ----------- ---------- ----------
Total interest expense............................ 1,594,000 2,470,975 2,910,106 2,994,046
----------------- ----------- ---------- ----------
Net Interest Income............................... 2,391,000 3,586,071 3,981,165 3,581,416
Provision for Loan Losses (Note 2)................ 14,000 3,889,297 776,338 1,029,185
----------------- ----------- ---------- ----------
Net interest income (expense) after provision for
loan losses.................................. 2,377,000 (303,226) 3,204,827 2,552,231
----------------- ----------- ---------- ----------
Service Fees and Other Income..................... 558,000 907,511 1,016,788 655,726
----------------- ----------- ---------- ----------
Non-interest Expense: (Note 7)
Salaries and employee benefits.................. 1,271,000 1,821,928 1,661,087 1,263,851
Occupancy and equipment......................... 702,000 924,961 922,355 913,458
Other operating................................. 943,000 1,553,558 1,591,937 1,262,384
----------------- ----------- ---------- ----------
Total non-interest expense........................ 2,916,000 4,300,447 4,175,379 3,439,693
----------------- ----------- ---------- ----------
Income (Loss) Before Income Taxes................. 19,000 (3,696,162) 46,236 (231,736)
Income taxes (benefit) (Note 6)................... -- -- 20,000 (26,000)
----------------- ----------- ---------- ----------
Net Income (Loss) Before Cumulative Effect of a
Change in Accounting Principle.................. 19,000 (3,696,162) 26,236 (205,736)
Cumulative Effect of a Change in Accounting for
Income Taxes (Note 6)........................... -- -- 14,000 --
----------------- ----------- ---------- ----------
Net Income (Loss)................................. $ 19,000 $(3,696,162) $ 12,236 $ (205,736)
================= =========== ========== ==========
</TABLE>
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-56
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
COMMON STOCK ADDITIONAL RETAINED SECURITIES TOTAL
-------------------- PAID-IN EARNINGS AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) FOR SALE EQUITY
------- ---------- ---------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990.................... 600,000 $3,000,000 $2,100,000 $ 110,841 $ -- $ 5,210,841
Net loss...................................... -- -- -- (205,736) -- (205,736)
Sale of common stock (Note 10)................ 37,500 187,500 79,837 -- -- 267,337
------- ---------- ---------- ----------- ---------- ------------------
Balance, December 31, 1991, as previously
reported.................................... 637,500 3,187,500 2,179,837 (94,895) -- 5,272,442
Prior period adjustment (Note 15)............. -- -- -- (55,745) -- (55,745)
------- ---------- ---------- ----------- ---------- ------------------
Balance, December 31, 1991, as restated....... 637,500 3,187,500 2,179,837 (150,640) -- 5,216,697
Sale of common stock (Note 10)................ 87,908 439,540 287,584 -- -- 727,124
Net income.................................... -- -- -- 12,236 -- 12,236
------- ---------- ---------- ----------- ---------- ------------------
Balance, December 31, 1992.................... 725,408 3,627,040 2,467,421 (138,404) -- 5,956,057
Sale of common stock (Note 10)................ 10,278 51,390 33,609 -- -- 84,999
Unrealized gains on securities available for
sale, net of income taxes (Note 1).......... -- -- -- -- 76,989 76,989
Net loss...................................... -- -- -- (3,696,162) -- (3,696,162)
------- ---------- ---------- ----------- ---------- ------------------
Balance, December 31, 1993.................... 735,686 3,678,430 2,501,030 (3,834,566) 76,989 2,421,883
Sale of common stock (unaudited).............. 556 3,000 2,000 -- -- 5,000
Change in unrealized gains (losses) on
securities available for sale (unaudited)... -- -- -- -- (97,000) (97,000)
Net income (unaudited)........................ -- -- -- 19,000 -- 19,000
Other (unaudited)............................. -- (430) (30) (434) 11 (883)
------- ---------- ---------- ----------- ---------- ------------------
Balance, September 30, 1994 (unaudited)....... 736,242 $3,681,000 $2,503,000 $(3,816,000) $ (20,000) $ 2,348,000
======= ========== ========== =========== ========== ==================
</TABLE>
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-57
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 14)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED ------------------------------------------
SEPTEMBER 30, 1994 1993 1992 1991
----------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 19,000 $ (3,696,162) $ 12,236 $ (205,736)
Adjustments to reconcile net income (loss) to
net cash (required) provided by
operating activities:
Depreciation and amortization........... 125,000 146,800 163,980 198,171
Provision for loan losses............... 14,000 3,889,297 776,338 1,029,185
Net investment securities gains......... -- (155,505) (220,478) (42,468)
Net premium amortization and discount
accretion............................ -- (70,775) (40,617) --
Common stock issued for legal
services............................. -- -- 67,764 --
Decrease (increase) in accrued interest
receivable and other assets........ 475,000 (742,787) 539,842 (1,015,284)
Increase (decrease) in accrued interest
payable and other liabilities...... 53,000 293,227 (78,026) 318,333
----------------- ------------ ------------ ------------
Net cash provided (required) by
operating activities......................... 686,000 (335,905) 1,221,039 282,201
----------------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
Proceeds from sales, maturities and
principal repayments.................... 6,708,000 14,663,382 15,366,771 5,652,982
Purchases................................. (4,002,777) (16,232,859) (19,427,960) (12,704,305)
Net loan (originations) repayments........... 8,073,000 6,203,265 (5,749,316) (17,718,099)
Purchase of equipment, net................... -- (111,187) (80,700) (135,716)
----------------- ------------ ------------ ------------
Net cash provided (required) by
investing activities......................... 10,778,223 4,522,601 (9,891,205) (24,905,138)
----------------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in transaction and
savings deposits........................ (6,800,000) (5,213,646) 7,776,604 10,515,117
Increase (decrease) in time deposits......... (6,589,000) (84,587) 2,657,831 14,111,335
Increase (decrease) in securities sold under
repurchase agreements................... 764,000 1,462,655 (731,134) 731
Proceeds from sale of common stock........... 5,000 84,999 659,360 267,337
----------------- ------------ ------------ ------------
Net cash provided (required) by
financing activities......................... (12,620,000) (3,750,579) 10,362,661 24,894,520
----------------- ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents............................. (1,155,777) 436,117 1,692,495 271,583
Cash and cash equivalents,
beginning of period.......................... 9,937,777 9,501,660 7,809,165 7,537,582
----------------- ------------ ------------ ------------
Cash and cash equivalents,
end of period................................ $ 8,782,000 $ 9,937,777 $ 9,501,660 $ 7,809,165
================= ============ ============ ============
</TABLE>
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-58
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
GENERAL
Governors Bank Corporation (the 'Company') is a bank holding company
incorporated in the state of Florida. The consolidated financial statements
include the accounts of Governors Bank Corporation and its wholly-owned
subsidiary, Governors Bank, a state chartered independent community bank,
collectively (the 'Bank'). All significant intercompany balances and
transactions have been eliminated in consolidation.
The interim financial statements as of and for the nine months ended
September 30, 1994 are unaudited. In the opinion of management, such statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair representation of the results of the interim period. The
results of operations for the nine months ended September 30, 1994 are not
necessarily indicative of the results that can be expected for the entire year.
INVESTMENT SECURITIES
In May, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 ('SFAS 115') 'Accounting for Certain
Investments in Debt and Equity Securities'. The Bank has elected to adopt SFAS
115 at December 31, 1993.
Investment securities held-to-maturity are carried at cost, adjusted for
amortization of premiums and accretion of discounts, using methods that
approximate the interest method. The Bank has the ability and intention to hold
these investment securities for the foreseeable future and, accordingly, they
are not adjusted for temporary declines in their market value.
Investment securities available for sale are carried at estimated market
value. Unrealized gains and losses on these securities are recorded, net of
income tax, as a component of stockholders' equity until sold. Gains and losses
realized from the sale of investment securities are computed by the
specific-identification method.
LOANS
Loans are stated at the amount of unpaid principal net of unearned interest
income and the allowance for loan losses. Interest on loans is generally accrued
daily based on the principal balance outstanding. The accrual of interest income
is generally discontinued when a loan becomes ninety days past due as to
principal or interest. When interest accruals are discontinued, uncollected
interest credited to income in the current year is reversed and interest accrued
in the prior year is charged to the allowance for loan losses.
Loan origination and commitment fees, net of costs, are deferred and
amortized as an adjustment of the related loan's yield. The Bank is amortizing
these amounts over the expected life of the related loans using methods that
approximate the interest method. Commitment fees based on a percentage of a
customer's unused line of credit and fees related to standby letters of credit
are recognized over the commitment period.
F-59
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONCLUDED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate
to provide for potential loan losses inherent in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio and other
relevant factors.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets.
OTHER REAL ESTATE
Other real estate, included in other assets in the accompanying
consolidated balance sheets, consists of property acquired through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure. Such property is
carried at the lower of the basis in the loan at the time of settlement or fair
value less selling costs. Loan losses arising from the acquisition of such
property are charged against the allowance for loan losses upon acquisition.
Losses arising from dispositions and revaluations of such property are charged
to expense as incurred.
INCOME TAXES
Deferred income taxes are provided for timing differences, principally the
provision for loan losses and depreciation, that are accounted for in different
periods for financial reporting and income tax purposes.
The Financial Accounting Standards Board has adopted Statement No. 109,
'Accounting for Income Taxes' ('SFAS 109'), which significantly changes existing
practice by requiring, among other things, a liability approach to calculating
deferred income taxes. Provisions for income taxes are based on amounts reported
in the consolidated statements of operations (after exclusion of nontaxable
income items such as interest on state and municipal securities) and include
deferred taxes on temporary differences in the recognition of income and expense
for tax and financial statement purposes. Deferred taxes are computed on the
liability method as prescribed in SFAS 109.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally, federal
funds are sold for one day periods.
F-60
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
1. INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the accompanying
consolidated balance sheets and their approximate market values are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
Held-to-maturity:
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................. $11,675,134 $ 22,831 $ (35,979) $11,661,986
Obligations of states and political
sub-divisions............................ 500,000 8,005 -- 508,005
Interest bearing deposits with
other banks.............................. 200,320 -- -- 200,320
Other securities........................... 574,544 10,191 -- 584,735
----------- ---------- ---------- -----------
12,949,998 41,027 (35,979) 12,955,046
----------- ---------- ---------- -----------
Available-for-sale:
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................. 6,103,874 120,445 -- 6,224,319
----------- ---------- ---------- -----------
6,103,874 120,445 -- 6,224,319
----------- ---------- ---------- -----------
$19,053,872 $ 161,472 $ (35,979) $19,179,365
=========== ========== ========== ===========
</TABLE>
Gross unrealized gains of $120,445 on securities available for sale at
December 31, 1993 are shown net of income tax of $43,456 in the accompanying
consolidated financial statements.
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1992
Held-to-maturity:
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................. $12,168,573 $ 142,785 $ (3,548) $12,307,810
Obligations of states and political
sub-divisions............................ 2,004,736 43,238 (1,181) 2,046,793
Interest bearing deposits with
other banks.............................. 1,903,496 -- -- 1,903,496
Other securities........................... 1,224,766 2,296 -- 1,227,062
----------- ---------- ---------- -----------
$17,301,571 $ 188,319 $ (4,729) $17,485,161
=========== ========== ========== ===========
</TABLE>
F-61
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
1. INVESTMENT SECURITIES--(CONCLUDED)
Gross realized gains and losses on sales of securities (included in other
income in the accompanying consolidated statements of operations) were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Gross realized gains:
U.S. government and agency securities....................... $ -- $174,818 $46,161
Obligations of states and political subdivisions............ 108,768 -- --
Other....................................................... 2,500 45,660 --
-------- -------- -------
$111,268 $220,478 $46,161
======== ======== =======
Gross realized losses:
U.S. government and agency securities....................... $ -- $ -- $ 3,693
======== ======== =======
</TABLE>
The amortized cost and estimated market values of investment securities at
December 31, 1993 are summarized by contractual maturity as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less............................................... $ 9,115,736 $ 9,148,251
Due after one year through five years................................. 9,863,136 9,956,114
Due after five years through ten years................................ 75,000 75,000
----------- -----------
$19,053,872 $19,179,365
=========== ===========
</TABLE>
At December 31, 1993, investment securities with carrying values and market
values of approximately $3,952,000 and $4,031,000, respectively, were pledged to
collateralize repurchase agreements, public fund deposits and for other purposes
required or permitted by law.
2. LOANS AND ALLOWANCE FOR LOAN LOSSES
An analysis of loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
----------- -----------
<S> <C> <C>
Real estate, construction............................................. $ 848,550 $ 606,202
Real estate, mortgage................................................. 20,782,297 25,073,875
Commercial and industrial............................................. 17,653,500 17,998,131
Installment........................................................... 15,240,521 16,353,498
Credit cards.......................................................... 468,377 486,639
Other................................................................. 349,809 1,667,615
----------- -----------
55,343,054 62,185,960
Less allowance for loan losses........................................ 4,182,900 933,244
----------- -----------
$51,160,154 $61,252,716
=========== ===========
</TABLE>
F-62
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
2. LOANS AND ALLOWANCE FOR LOAN LOSSES--(CONCLUDED)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED -------------------------------------
SEPTEMBER 30, 1994 1993 1992 1991
----------------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of year................ $ 4,182,900 $ 933,244 $ 575,000 $ 370,000
Charge-offs............................... (2,713,000) (730,575) (432,381) (826,519)
Recoveries................................ 154,000 90,934 14,287 2,334
Provision for loan losses................. 14,000 3,889,297 776,338 1,029,185
----------------- ---------- ---------- ---------
Balance, end of year...................... $ 1,637,900 $4,182,900 $ 933,244 $ 575,000
================= ========== ========== =========
</TABLE>
Loans on non-accrual status aggregated $1,335,000 and $482,000 as of
December 31, 1993 and 1992, respectively.
3. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
---------- ----------
<S> <C> <C>
Leasehold improvements................................................... $ 602,922 $ 580,189
Furniture, fixtures and equipment........................................ 572,087 605,481
Computer software........................................................ 34,171 28,433
---------- ----------
1,209,180 1,214,103
Less accumulated depreciation and amortization........................... 750,982 720,292
---------- ----------
$ 458,198 $ 493,811
========== ==========
</TABLE>
4. DEPOSITS
Approximate maturities of certificates of deposit issued in amounts of
$100,000 or more are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
-------- ----------
<S> <C> <C>
Less than three months..................................................... $200,000 $1,339,000
Over three months but less than twelve months.............................. -- 896,000
Twelve months or more...................................................... 333,000 241,000
-------- ----------
$533,000 $2,476,000
======== ==========
</TABLE>
5. SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase generally mature within one
to four days from the transaction date.
F-63
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
6. INCOME TAXES
Income taxes (benefits) are comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal................................................... $(144,000) $ 173,000 $(26,000)
State..................................................... -- 20,000 4,355
--------- --------- --------
(144,000) 193,000 (21,645)
--------- --------- --------
Deferred:
Federal................................................... 144,000 (173,000) --
State..................................................... -- -- (4,355)
--------- --------- --------
144,000 (173,000) (4,355)
--------- --------- --------
$ -- $ 20,000 $(26,000)
========= ========= ========
</TABLE>
At December 31, 1993, the Bank had deferred tax assets of approximately
$1,574,000 that related primarily to the allowance for loan losses and
depreciation of which approximately $1,465,000 were fully reserved at that date.
Management elected early adoption of the provisions of SFAS 109 for the
year ended December 31, 1992 and all 1993 and 1992 disclosures are in accordance
with the new standard. Under the provisions of SFAS 109 the Company elected not
to restate prior years' consolidated financial statements. The cumulative effect
of the initial adoption of SFAS 109 is shown separately in the consolidated
statements of operations.
7. COMMITMENTS AND CONTINGENCIES
In the normal course of business the Bank is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheet. The contract amounts of those instruments outstanding at
December 31, 1993, reflect the extent of involvement the Bank has in particular
classes of financial instruments and are summarized as follows:
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit................. $6,264,000
Standby letters of credit.................... 145,000
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for balance sheet instruments.
F-64
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES--(CONCLUDED)
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include single family residences, other residential property, commercial
property and land.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
All of the Bank's loans, commitments and standby letters of credit have
been granted to customers in the Bank's market area. The concentrations of
credit by type of loan are set forth in Note 2.
The Bank has a Salary Savings Plan which provides for the Bank to make
contributions pursuant to applicable salary savings elections and
discretionary sponsor contributions as may be determined by the Board of
Directors. The sponsor contributions for each of the years ended December 31,
1993, 1992 and 1991 were approximately $15,000, $15,000 and $12,000.
The Company utilizes certain office facilities and equipment under
operating leases expiring through 1996. Total rent expense under such
operating leases, included in occupancy and equipment expense, was
approximately $583,000, $556,000 and $507,000 in 1993, 1992 and 1991.
Future minimum net operating lease payments are as follows: 1994 -
$545,000; 1995 - $377,000; 1996 - $317,000; 1997 - $317,000; 1998 - $205,000.
8. PROPOSED MERGER
(a) The Company is a party to a merger agreement with Republic Security
Financial Corporation (RSFC). Under the terms of the merger agreement, RSFC
would pay total consideration in cash equal to 125 percent of the book value
of the Company as of December 31, 1993, adjusted for the consolidated net
income or loss occurring between December 31, 1993 through the month end prior
to the closing date (the 'Purchase Price').
Under the merger agreement the amount to be paid per common share (the
'Share Purchase Price') would be calculated as the Purchase Price plus the
aggregate exercise price of all options outstanding at the effective time (as
defined), divided by the number of shares of the Company's common stock
outstanding (including any such shares owned by RSFC), plus the number of
shares of the Company's common stock which could be acquired if all such
outstanding options were exercised. Any options which have an exercise price
greater than the Share Purchase Price shall be excluded from the determination
thereof.
The merger agreement provides that should the Share Purchase Price be
less than $8.50, then the Company has the option to abandon the merger upon
payment of a $100,000 break-up fee to RSFC.
F-65
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
8. PROPOSED MERGER--(CONCLUDED)
(b) As of June 23, 1994 it is Management's opinion that the Share
Purchase Price will be less than $8.50 and that the merger will not be
consummated at such price.
9. LITIGATION
(a)(i) The Company is a defendant to a class action lawsuit that seeks to
enjoin the pending merger of the Company and Republic Security Financial
Corporation and to recover money damages of unspecified amounts against
certain members of the Board of Directors. The Company has a Director and
Officer Liability Insurance Policy ('Policy') in the amount of $2,000,000.
Under the terms of the Policy, the Company is required to pay the related
legal costs until settlement of this matter, at which time, the Company will
be reimbursed for its legal expenses. At December 31, 1993 the Company does
not have sufficient cash reserves or available lines of credit to fund its
necessary legal defense.
(a)(ii) Further, on May 3, 1994 the Insurer raised questions as to
whether any losses caused by the lawsuit are covered by the Policy. The
Company has indemnified all of its officers and directors from any losses that
they may incur as a result of their good faith actions in fulfilling their
responsibilities as officers and directors.
(a)(iii) The effect of the lack of funds to pay for the legal defense of
the Company and the ultimate outcome of the litigation cannot be presently
determined. Accordingly, no provision for any liability that may result upon
adjudication or from any loss resulting from a shortfall in insurance coverage
has been made in the accompanying consolidated financial statements.
(b) During December, 1993 the Company was named as defendant by an
individual claiming an option to purchase 362,757 shares of the Company's
common stock. During January, 1994 a corporation filed a motion to intervene
in this case claiming it had obtained a judgement against the plaintiff.
Management and the Company's attorney believe the potential effect of this
lawsuit on the future operations of the Company to be insignificant.
(c) On June 17, 1994, the Company was advised that a former officer of
the Bank had filed a suit for wrongful termination. The amount of damages that
have been claimed are estimated to be in excess of $15,000. The ultimate
outcome cannot be presently determined. Accordingly, no provision for any
liability that may result upon adjudication has been made in the accompanying
consolidated financial statements.
(d) The Company is a party to litigation arising in the normal course of
operations. Management believes that any liabilities arising from such
litigation will not materially effect future operations.
(e) Litigation update (unaudited) -- As of September 21, 1995 the
lawsuits mentioned in (a)(i), (b) and (c) above had been settled for
approximately $224,000, plus legal fees of approximately $110,000.
F-66
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY
The Company's principal asset is its investment in its wholly-owned
subsidiary. Regulatory approval is required to pay dividends in excess of
earnings retained in the current year plus retained net profits for the
preceding two years. At December 31, 1993, none of the Bank's net assets were
available for dividends without prior regulatory approval. The Bank is also
required to maintain minimum amounts of capital to total 'risk weighted'
assets, as defined by regulatory authorities. (See Note 11 for discussion of
the Bank's capital adequacy).
During 1991, the Bank sold 37,500 shares of common stock for $267,337
($10.00 per share, net of offering costs).
During 1992, the Company sold 79,614 shares of common stock for $658,360
($8.27 per share, net of offering costs) and 100 shares of common stock for
$1,000 ($10.00 per share). The Company also issued a total of 8,194 shares of
stock for legal services valued at $67,764 ($8.27 per share).
During 1993, the Company sold 10,278 shares of common stock for $84,999
($8.27 per share).
The Company has a non-statutory stock option plan. These options allow
for the purchase of 90,000 shares of common stock at an option price of $8.33
per share. The options expire on July 1, 1997. As the option price reflected
the market price at date of grant, no expense was recognized.
The Company also has an incentive stock option plan for employees of the
Company and its directors. These options allow for the purchase of 30,000
shares of common stock at a price to be determined each July 1 beginning July
1, 1989 for service during the previous year. The options expire if not
exercised within five years from date of grant or upon termination of service.
The following options have been granted under the plan:
<TABLE>
<CAPTION>
SHARES
DATE OF GRANT GRANTED OPTION PRICE
------------- ------- ------------
<S> <C> <C>
July 1, 1989................................... 3,300 $ 8.45
July 1, 1990................................... 3,270 $ 8.45
July 1, 1991................................... 3,150 $10.00
July 1, 1992................................... 3,240 $ 8.27
July 1, 1993................................... 2,250 $ 8.27
</TABLE>
To date, no options have been exercised. As the option prices reflect the
market prices at date of grant, no expense has been recognized.
11. REGULATORY MATTERS
On May 7, 1993, as a result of unsatisfactory conditions noted by the
Federal Deposit Insurance Corporation ('FDIC'), a Memorandum of Understanding
('Memorandum') representing an agreement between the Board and both the
Regional Director of the FDIC Atlanta Regional Office and the Florida
F-67
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
11. REGULATORY MATTERS--(CONCLUDED)
State Comptroller ('Regulators') was issued. The Memorandum sets forth a
program of corrective action which, among other things, requires the
establishment of certain committees, the establishment of certain policies,
programs, financial plans, and procedures for enforcement of such, and the
establishment of certain management, dividend, transactional and capital
restrictions. One such restriction is that the Bank maintain a minimum Tier 1
leverage ratio (as defined) of 6.5 percent. If such ratio falls below this
percentage, the Board of Directors is required within sixty days from the date
of that determination to increase Tier 1 capital by an amount sufficient to
cover the shortfall. At December 31, 1993 the Bank's actual Tier 1 leverage
ratio was 2.61 percent.
Further, the Bank has not complied with certain other of the requirements
of the Memorandum including, but not limited to, the employment of a Chief
Executive Officer and a Senior Lending Officer, the maintaining of a loan
review and grading system and an adequate allowance for loan losses.
At December 31, 1993, the minimum regulatory capital requirements and the
Bank's actual capital amounts and percentages were as follows:
<TABLE>
<CAPTION>
MINIMUM CAPITAL ACTUAL
REGULATORY CAPITAL REQUIREMENTS: REQUIRED CAPITAL
-------------------------------- --------------- -----------
<S> <C> <C>
Total risk-based capital percentage.................................... 8.0% 5.05%
Total risk-based capital............................................... $4,740,000 $2,991,376
Tier 1 risk-based capital percentage................................... 4.0% 3.80%
Tier 1 risk-based capital.............................................. $2,370,000 $2,250,738
Tier 1 leverage (per order) percentage................................. 6.5% 2.61%
Tier 1 leverage (per order)............................................ $5,595,590 $2,250,738
</TABLE>
12. GOING CONCERN
The Bank's consolidated financial statements have been presented on the
basis of a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Bank
sustained a net loss of $3,696,162 for the year ended December 31, 1993.
Further, the Bank is not in compliance with the minimum regulatory capital
requirements as well as other requirements of a Memorandum of Understanding as
more fully described in Note 11. As a result of the net loss in 1993 the Bank
will require an infusion of equity capital. These conditions raise substantial
doubt about the Bank's ability to continue as a going concern. Management's
plans to bring the Bank into compliance with regulatory capital requirements
are as follows:
As discussed in Note 8 to the consolidated financial statements the
Company is a party to a proposed merger with another financial institution.
Additionally, Management is in the process of preparing a capital plan as an
alternative to the merger. This plan may include, but is not limited to, a
rights offering to all stockholders and the sale of additional shares to
certain stockholders of common shares for total consideration of $3,000,000 to
$5,000,000.
F-68
<PAGE>
GOVERNORS BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 IS UNAUDITED)
12. GOING CONCERN--(CONCLUDED)
Should the planned capital infusion be achieved, the ability of the
Company and the Bank to maintain required regulatory capital levels is
dependent upon, among other factors, the Bank's attaining profitable
operations, the future levels of nonperforming assets and the condition of the
economy in which it operates.
13. RELATED PARTY TRANSACTIONS
Directors and executive officers of the Bank, including companies in
which they are officers or have significant ownership interests, were
customers of and had other transactions with the Bank in the ordinary course
of business. The total amount of loans to these related parties at December
31, 1993 and 1992 was approximately $2,570,000 and $3,234,000. Of the amounts
outstanding at December 31, 1993, $876,036 were criticized as 'substandard'
(loans inadequately protected by the current sound worth and paying capacity
of the obligor or by pledged collateral) and $165,041 as 'other loans
especially mentioned' (loans that are currently protected but that exhibit
potential unwarranted credit risks).
During 1992, a total of 8,194 shares of the Company's common stock valued
at $67,764 were issued for legal services to an officer and to a director, and
a law firm of the director.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $2,368,000, $3,003,000 and
$2,617,000 for the years ended December 31, 1993, 1992 and 1991.
Cash paid for income taxes was approximately $468,000 and $215,000 for
the years ended December 31, 1992 and 1991. No cash was paid for income taxes
for the year ended December 31, 1993.
15. PRIOR PERIOD ADJUSTMENT
The consolidated financial statements for the year ended December 31,
1991 have been restated to correct an error in the Bank's method of
recognizing loan origination fees. The effect of this adjustment is to
increase the net loss, as previously reported, by $55,745 (net of a $31,435
income tax benefit).
F-69
<PAGE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE
OFFERINGS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR RYAN, BECK. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SHARES OF COMMON STOCK AND SERIES C PREFERRED STOCK TO WHICH IT RELATES, OR
AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................. 3
Incorporation of Certain Documents
by Reference.................................... 3
Prospectus Summary................................ 4
Risk Factors...................................... 12
The Company and the Bank.......................... 16
Use of Proceeds................................... 17
Market Price and Dividend Data.................... 17
Capitalization.................................... 19
Selected Consolidated
Financial Data.................................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................... 22
Business.......................................... 34
Proposed Acquisition of Banyan Bank............... 47
Pro Forma Combined Condensed
Financial Information........................... 50
Regulatory Matters................................ 55
Management........................................ 70
Description of Securities......................... 71
Underwriting...................................... 79
Legal Matters..................................... 79
Experts........................................... 80
Index to Financial Statements..................... F-1
</TABLE>
SHARES
OF COMMON STOCK
SHARES
OF % CUMULATIVE
CONVERTIBLE PREFERRED STOCK,
SERIES C
[REPUBLIC LOGO]
-------------------
PROSPECTUS
-------------------
[RYAN, BECK & CO. LOGO]
, 1995
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Registration..........................................
NASDAQ Natural Market Filing Fee..........................
Transfer Agent and Registrar..............................
Printing and Engraving....................................
Legal Fees and Expenses...................................
Accounting Fees and Expenses..............................
NASD and Blue Sky Qualification Fees and Expenses.........
Miscellaneous.............................................
---------
Total................................................ $
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850 of the Florida Business Corporation Act empowers a
corporation, subject to certain limitations, to indemnify any person who was
or is a party to any proceeding by reason of the fact that he was or is a
director, officer, employee or agent of the corporation, against liability and
expenses actually and reasonably incurred by him in connection with such
proceeding, including any appeal thereof, if such party acted in good faith
and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe his conduct to have been
unlawful.
The Company's Bylaws provide as follows:
ARTICLE VI
INDEMNIFICATION
Section 1. Indemnification. The Corporation, to the full extent
not expressly prohibited by law, shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
ending or completed action, suit or proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer or employee of the Corporation
or of any of its subsidiaries or is or was serving at the request of
the Corporation or any of its subsidiaries as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
Section 2. Without limiting the generality of the foregoing, the
Corporation shall indemnify all such directors, officers or
employees both as to action in their official capacities and as to
action in any other capacity while holding such office (including
matters as to which such person shall have been alleged or adjudged
to be liable for negligence) except that such indemnification shall
not extend to gross negligence or willful misconduct.
Section 3. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted
II-1
<PAGE>
against him and incurred by him in any such capacity or arising out
of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions
of this Article.
Section 4. Amendment. This Article may not be amended or repealed
in a manner which would adversely affect the indemnification rights
of a director or officer or former director or officer hereunder;
provided, the act or omission which is the basis for the threatened,
pending or completed action, suit or proceeding occurred prior to
the adoption of the amendment or repeal.
The Bylaws are not exclusive of any other rights to which any person
seeking indemnification from the registrant may be entitled.
Pursuant to Florida law, the registrant may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the registrant, or is or was serving at the request of the
registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the registrant would have the power to
indemnify him against such liability under the applicable provisions of the
bylaws of the registrant or applicable law. The Company currently has in place
an insurance contract covering the liability of directors and officers as
permitted under Florida law.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
----- ----------------------
<S> <C>
1 Underwriting Agreement between Republic Security Financial Corporation and Ryan, Beck & Co., Inc.(1)
3(a) Articles of Incorporation, as amended, of Republic Security Financial Corporation(1)
(b) Bylaws, as amended, of Republic Security Financial Corporation(2)
4(a) Form of Common Stock certificate(2)
(b) Series C Preferred Stock Certificate and Designations, Relative Rights, Preferences and Limitations(1)
(e) Rights Agreement by and between Republic Security Financial Corporation and IBJ Schroder Bank and Trust
Company(5)
5 Opinion of Morgan, Lewis & Bockius regarding legality of securities being registered(1)
10(a) Lease Agreement dated February 6, 1984, as amended, between the Bank and Guy W. Held, as Trustee, for
the branch at 851 West Indiantown Road(2)
(b) Lease Agreement dated February 28, 1985 between the Registrant and First American Bank and Trust, for
executive offices at 675 West Indiantown Road(2)
(c) Lease Agreement dated as of March 1, 1985, between the Bank and K&R Associates, for the branch in
Delray Beach(2)
(d) Forms of Supplemental Executive Retirement Plan Agreements(2)
(e) Supplemental Executive Retirement Program Agreement--Richard J. Haskins(3)
(f) Supplemental Executive Retirement Program Agreement--R.E. Schupp(3)
(g) Restricted Stock Plan(3)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
----- ----------------------
<S> <C>
(h) Restricted Stock Plan Agreement--Richard J. Haskins(3)
(i) Restricted Stock Plan Agreement--R.E. Schupp(3)
(j) Employment Agreement between the Company and R.E. Schupp, as amended(4)
(k) Employment Agreement between the Company and Richard J. Haskins, as amended(4)
(l) Stock Purchase Agreement, dated September 7, 1995, by and among Republic Security Financial
Corporation, Republic Security Bank, Federal Savings Bank and all of the shareholders of Banyan Bank
(m) Non-Qualified Stock Option Agreement--Richard J. Haskins
(n) Non-Qualified Stock Option Agreement--Rudy E. Schupp
11 Statement regarding Computation of Per Share Earnings
12 Statement regarding Computation of Ratios
22 Subsidiaries of the Company(6)
23(a) Consent of Ernst & Young LLP
(b) Consent of McGladrey & Pullen, LLP
(c) Consent of BDO Seidman, LLP
(d) Consent of Morgan, Lewis & Bockius; included in its opinions under items 5 and 8 hereof
25 Powers of Attorney; included on the signature page of the Registration Statement
</TABLE>
------------------
(1) To be filed by amendment.
(2) Incorporated by reference to Registration Statement on Form S-1, File No.
2-99505.
(3) Incorporated by reference to Form 10-K as filed with the Securities and
Exchange Commission on June 28, 1990.
(4) Incorporated by reference to Form 10-K as filed with the Securities and
Exchange Commission on June 24, 1994.
(5) Incorporated by reference to Registration Statement on Form 8-A as filed
with the Securities and Exchange Commission on April 27, 1995.
(6) Incorporated by reference to Form 10-K as filed with the Securities and
Exchange Commission on June 29, 1995.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan, annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the
II-3
<PAGE>
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(4) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offerings of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(5) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs in contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
II-4
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the Offerings of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offerings.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of West Palm Beach, State
of Florida on the 21st day of September, 1995.
REPUBLIC SECURITY FINANCIAL CORPORATION
By: /s/ Rudy E. Schupp
-----------------------------------------
Rudy E. Schupp, Chairman of the Board,
President, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears
below authorizes and appoints Rudy E. Schupp as his attorney-in-fact to sign
and file on his behalf, in each capacity stated below, any and all amendments
to this Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Rudy E. Schupp Chairman of the Board, President, September 21, 1995
---------------------------- Chief Executive Officer and Director
Rudy E. Schupp
/s/ Richard J. Haskins Executive Vice President, Principal September 21, 1995
---------------------------- Financial and Accounting Officer and
Richard J. Haskins Director
/s/ H. Gearl Gore Director September 21, 1995
----------------------------
H. Gearl Gore
/s/ Lennart E. Lindahl, Jr. Director September 21, 1995
----------------------------
Lennart E. Lindahl, Jr.
/s/ Richard C. Rathke Director September 21, 1995
----------------------------
Richard C. Rathke
/s/ Victor H. Siegel Director September 21, 1995
----------------------------
Victor H. Siegel
/s/ William F. Spitznagel Director September 21, 1995
----------------------------
William F. Spitznagel
/s/ Bruce E. Wiita Director September 21, 1995
----------------------------
Bruce E. Wiita
/s/ William Wolfson Director September 21, 1995
----------------------------
William Wolfson
</TABLE>
II-6
STOCK PURCHASE AGREEMENT
by and among
REPUBLIC SECURITY FINANCIAL CORPORATION,
REPUBLIC SECURITY BANK, FEDERAL SAVINGS BANK,
and
ALL OF THE SHAREHOLDERS OF BANYAN BANK
SEPTEMBER 7, 1995
-
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
THE PURCHASE
1.1 Agreement to Purchase......................................... 1
1.2 Shares Escrow................................................. 3
1.3 Representation of Sellers..................................... 3
1.4 Cash Amount................................................... 3
1.5 The Closing................................................... 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
2.1 Corporate Organization........................................ 5
2.2 Capitalization; Stock Ownership............................... 5
2.3 Investments; No Subsidiary.................................... 5
2.4 Authorization and Enforceability; No Violation................ 6
2.5 Financial Statements.......................................... 6
2.6 Loan Portfolio................................................ 7
2.7 Deposits...................................................... 7
2.8 No Undisclosed Liabilities, Etc............................... 7
2.9 Absence of Certain Changes.................................... 7
2.10 Real Properties............................................... 9
2.11 Taxes and Fees................................................ 9
2.12 Contracts..................................................... 10
2.13 Litigation.................................................... 11
2.14 Compliance with Laws and Regulations.......................... 11
2.15 Employment Benefit Plans and Arrangements; Labor
Matters....................................................... 12
2.16 Accounting Practices.......................................... 13
2.17 Minute Books.................................................. 13
2.18 Insurance..................................................... 13
2.19 Agreements with Regulators.................................... 13
2.20 Environmental................................................. 14
2.21 Community Reinvestment Act.................................... 14
2.22 Transactions with Insiders.................................... 14
2.23 Fidelity Bond................................................. 14
2.24 Brokers....................................................... 14
2.25 No Untrue Statements.......................................... 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RSFC AND REPUBLIC
3.1 Corporate Organization........................................ 15
3.2 Authorization and Enforceability; No Violation................ 15
3.3 Corporate Organization........................................ 15
3.4 Authorization and Enforceability; No Violation................ 16
3.5 Brokers....................................................... 16
3.6 No Takeover Activity.......................................... 16
3.7 No Untrue Statements.......................................... 16
-i-
<PAGE>
ARTICLE IV
COVENANTS OF SELLERS
4.1 Access, Information and Documents............................. 17
4.2 No Other Transactions......................................... 17
4.3 Conduct of Business Prior to the Closing...................... 18
4.4 Negative Covenants............................................ 18
4.5 Current Information........................................... 20
4.6 Cooperation with Republic..................................... 20
4.7 Future Financial Statements................................... 20
4.8 Observer at Meetings.......................................... 20
ARTICLE V
COVENANTS OF REPUBLIC
5.1 Pursuit of Approvals.......................................... 21
5.2 Public Offering............................................... 21
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF REPUBLIC AND SELLERS
6.1 Government Approvals.......................................... 21
6.2 No Litigation................................................. 22
6.3 Authority to Close............................................ 22
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF REPUBLIC
7.1 Representations, Warranties and Covenants..................... 23
7.2 Material Change............................................... 23
7.3 Financial Conditions.......................................... 23
7.4 100% Purchase................................................. 23
7.5 Public Offering............................................... 23
7.6 Accountants' Comfort Letter................................... 23
7.7 Opinion of Counsel............................................ 24
7.8 Officers' Certificates........................................ 25
7.9 Consents...................................................... 25
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination by Mutual Consent................................. 25
8.2 Termination by Sellers........................................ 25
8.3 Termination by Republic....................................... 26
8.4 Effect of Termination......................................... 26
8.5 Extension or Waiver........................................... 27
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations and Warranties.................... 27
9.2 Indemnification by the Principals............................. 27
9.3 Indemnification by RSFC and Republic.......................... 28
9.4 Claims Procedure.............................................. 28
9.5 Limitations on Indemnification................................ 29
-ii-
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Sellers Deposit Relationship................................. 30
10.2 Release of Martin J. Hasey................................... 30
10.3 Expenses..................................................... 30
10.4 Legal Fees................................................... 30
10.5 Entire Agreement; Amendment; Waiver.......................... 30
10.6 Notices...................................................... 31
10.7 Rights Under this Agreement; Nonassignability................ 32
10.8 Form of This Agreement....................................... 32
10.9 Governing Law................................................ 32
10.10 Public Announcements......................................... 32
10.11 Counterparts................................................. 32
Schedules
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and
entered into as of September 7, 1995, by and among REPUBLIC SECURITY FINANCIAL
CORPORATION, a Florida corporation ("RSFC"), REPUBLIC SECURITY BANK, FEDERAL
SAVINGS BANK, a federal stock savings bank ("Republic"), and all of the
shareholders of Banyan Bank ("Sellers").
RECITALS
WHEREAS, each of the Sellers owns the number of shares of
$6.00 par value common stock of Banyan Bank, a Florida state bank ("Banyan"),
set forth opposite the Seller's name in Section 1.1 of this Agreement, and such
shares constitute all of the issued and outstanding shares of common stock of
Banyan (the "Shares"); and
WHEREAS, Republic desires to purchase, and the Sellers desire
to sell, the Shares upon the terms and conditions set forth herein; and
WHEREAS, Republic is willing to enter into this Agreement only
on the condition that Martin J. Hasey and William J. Hasey (the "Principals"),
as owners of 64,065 Shares and 114,800 Shares, respectively, enter into this
Agreement to agree to maintain deposit relationships with Republic after the
Purchase and to indemnify Republic in the manner provided herein;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and adequacy of which are
conclusively acknowledged, the parties do represent, warrant, covenant and agree
as follows:
ARTICLE I
THE PURCHASE
1.1 AGREEMENT TO PURCHASE. At the Closing (hereinafter
defined), Republic agrees to purchase, and each of the Sellers agrees to sell
(the "Purchase"), the number of Shares set forth opposite the Seller's name
below for the cash purchase per share price equal to the "Cash Amount":
NUMBER
SELLER OF SHARES
------ ---------
Martin J. Hasey 57,643
William J. Hasey, Trustee 114,800
U/D/T/ dated December 30, 1989
<PAGE>
J. Patrick Lynch and 2,500
Patricia K. Lynch
J. Patrick Lynch IRA 2,000
Colleen Hasey 1,100
Robert Fredrikson 2,500
William J. Hasey, Jr. 52,643
Martin J. Hasey or 6,422
Catherine Hasey
Regina M. Hasey, Trustee 76,800
U/D/T/ dated December 30, 1989
Martin J. Hasey Trust for the 7,326
Benefit of Ryan M. Hasey
Martin J. Hasey Trust for the 7,326
Benefit of Patrick M. Hasey
Martin J. Hasey Trust for the 7,326
Benefit of Michael P. Hasey
Martin J. Hasey Trust for the 7,326
Benefit of William J. Hasey
Robert Fredrikson or 31,257
Jean Fredrikson
Jean Fredrikson Trustee, 3,126
Sharlene M. Fredrikson, UTAD 12/78
Jean Fredrikson Trustee, 3,126
Deborah J. Fredrikson, UTAD 12/78
Jean Fredrikson Trustee, 3,126
Lyn M. Fredrikson, UTAD 12/78
James V. Fazioli 4,226
Marilyn Fazioli Custodian for 4,226
Robert A. Fazioli
Marilyn Fazioli Custodian for 4,226
Laura J. Fazioli
James C. or Marilyn Fazioli 3,126
-2-
<PAGE>
William J. Hasey, Jr., 4,226
Trustee for Christine Hasey
William J. Hasey, Jr., 3,126
Trustee for Colleen Hasey
Catherine L. Seydell Trust 17,628
Catherine L. Seydell 4,226
Trustee for William J. Seydell
Catherine L. Seydell 4,226
Trustee for Sandra Ann Seydell
Jean Fredrikson Trustee, 1,100
Sharlene M. Fredrikson, UTAD 12/89
Jean Fredrikson Trustee, 1,100
Deborah J. Fredrikson, UTAD 12/89
Jean Fredrikson Trustee, 1,100
Lyn M. Fredrikson, UTAD 12/89
Jean Fredrikson 2,000
Marilyn Fazioli 2,000
1.2 SHARES ESCROW. Within 30 days of the date of this
Agreement, each Seller agrees to deliver to Martin J. Hasey ("Hasey") all of the
stock certificates representing the Seller's shares together with stock powers
(in the form of Schedule 1.2 hereof) duly endorsed by the Seller to transfer the
Shares. Hasey hereby agrees to deliver the stock certificates and stock powers
to Republic at the Closing against receipt of bank checks in the amount of the
"Cash Amount" payable to each Seller. In the event that this Agreement
terminates in accordance with its terms prior to the Closing, Hasey agrees to
return each such stock certificate and stock power to its respective owner.
1.3 REPRESENTATION OF SELLERS. Each Seller hereby represents
and warrants to Republic that his or her shares are duly owned by the Seller are
now, and at the Closing will be, free and clear of any and all liens, security
interests or encumbrances of any kind or nature and that the Shares may be sold
and transferred to Republic without restriction.
1.4 CASH AMOUNT. The "Cash Amount" shall be equal to
the Total Consideration divided by the number of shares of Banyan
Common Stock issued and outstanding at the Closing. The "Total
Consideration" shall be equal to 207% of the first $4,600,000 of
-3-
<PAGE>
Tangible Equity of Banyan, plus 100% of any Tangible Equity in excess of
$4,600,000, as of the calendar month ended immediately prior to the Closing
Date. "Tangible Equity" shall have the meaning set forth in 12 C.F.R.
ss.325.2(s), provided that all expenses of the transactions contemplated by this
Agreement, including, without limitation, counsel and accountants' fees, shall
be paid prior to such calendar month ended prior to the Closing Date and proof
of payment shall be delivered at the Closing. Schedule 1.4 attached hereto sets
forth an example of a determination of Total Consideration. The parties agree
that Schedule 1.4 is as of June 30, 1995 (not the month prior to Closing), is
solely for example purposes and is not based on amounts which any party has
verified.
Sellers agree to cause Banyan, on or before the seventh day of
the month in which the Closing is to occur, to deliver to Republic Banyan's
unaudited statements of financial condition and operation as of and for the
period ended on the calendar month ended immediately prior thereto. In the event
that Banyan so delivers such financial statements and Republic fails to close
the Purchase on or before seven days after such delivery, then the Total
Consideration shall be increased by an amount equal to the "Per Diem." The "Per
Diem" shall mean the amount equal to simple interest on the amount of total
consideration, determined as of such calendar month end, from the date of such
month end to the Closing Date at the rate per annum equal to the 30-day
Commercial Paper rate (high-grade unsecured notes sold through dealers by major
corporations) as published in THE WALL STREET JOURNAL for the last banking day
of such calendar month. In the event (i) Banyan so delivers such financial
statements and Republic closes the Purchase on or before seven days after such
delivery or (ii) Banyan fails to deliver such financials within such first seven
days of the month, then no Per Diem will be added to the Total Consideration.
1.5 THE CLOSING. The closing of the transactions described
herein (the "Closing") shall take place at the offices of Republic, 4400
Congress Avenue, West Palm Beach, Florida, at 10:00 a.m., local time, on the
date determined by Republic after January 1, 1996, not more than 30 days after
the calendar month end first occurring after the later of (i) the date of the
letter of preliminary approval of the applicable regulatory authority approving
a merger of Banyan into Republic immediately after the Closing (the "Merger"),
(ii) the date of the closing of the underwritten public offering referred to in
Section 5.2 hereof to be made by RSFC or (iii) such later date on which all
conditions precedent to such Closing contained in Articles VI and VII hereof
have been satisfied or duly waived; or at such other date, time and place as the
parties shall agree, but in no event later than February 29, 1996. In the event
the Closing fails to take place prior to March 1, 1996 solely because of a
failure to obtain
-4-
<PAGE>
regulatory approval of the Merger, the parties agree that this Agreement is not
terminable as provided in Sections 8.2 and 8.3 hereof until after midnight March
31, 1996. The term "Closing Date" shall mean the date on which the Closing takes
place.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
"Material" as used in this Article II shall mean an effect
with a value of at least $50,000.
The Principals hereby represent and warrant to RSFC and
Republic, to the best of their knowledge, as follows:
2.1 CORPORATE ORGANIZATION. Banyan is a Florida chartered
state bank, duly organized and validly existing under the laws of the United
States and in good standing with the State of Florida and the Federal Deposit
Insurance Corporation (the "FDIC"). Banyan has the corporate power and authority
to carry on its business and operations as now being conducted and to own and
operate its properties and assets as now owned and being operated by it.
Banyan's deposit accounts are duly insured by the FDIC to the maximum extent
permitted under applicable law. Banyan has delivered to Republic complete and
correct copies of Banyan's Articles of Incorporation and Bylaws, as amended to
date, which are in full force and effect on the date hereof.
2.2 CAPITALIZATION; STOCK OWNERSHIP. As of the date hereof,
the authorized capital stock of Banyan consists of 600,000 shares of common
stock, par value $6.00 per share, of which 442,883 shares are issued and
outstanding (none of which are held by Banyan as treasury stock). All of the
issued and outstanding shares of Banyan Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable, and none of them were
issued in violation of any preemptive or other right. Except as described on
Schedule 2.2 hereof, Banyan is not a party to or bound by any contract,
agreement or arrangement to issue, sell or otherwise dispose of or redeem,
purchase or otherwise acquire any of its capital stock and there is no
outstanding option, warrant or other right to subscribe for or purchase, or
contract, agreement or arrangement with respect to, any capital stock of Banyan
or any other security exercisable or convertible into any capital stock of
Banyan. All such options or other items shown on Schedule 2.2 shall be
terminated prior to Closing without any expense to Banyan.
2.3 INVESTMENTS; NO SUBSIDIARY. Banyan does not own,
directly or indirectly, any shares of capital stock of any
corporation or any equity investment in any partnership,
association or other business organization.
-5-
<PAGE>
2.4 AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION. This
Agreement is a legal, valid and binding obligation of Sellers enforceable
against Sellers in accordance with its terms, except as enforceability may be
limited by regulatory authorities having jurisdiction or by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and except that the availability of
equitable remedies is within the discretion of the appropriate court. Except for
required regulatory approvals, the execution, delivery and performance of this
Agreement do not, and the consummation of the Purchase and the Merger will not,
(a) violate or conflict with the Articles of Incorporation or Bylaws of Banyan,
(b) require any third-party consent pursuant to or result in any breach of or
default under any provision of any contract or agreement of any kind to which
Banyan is a party or by which it is bound or to which any of its property or
asset is subject, (c) result in any breach or violation of, or default under, or
any event which with due notice or lapse of time or both would constitute a
default under, result in the termination of, or accelerate the performance
required by, or require Banyan to obtain or make any consent, authorization,
approval, registration or filing (other than as described in this Agreement),
under any statute, law, bylaw, ordinance, regulation, rule, judgment, decree,
order, license, waiver, variance or other requirement of any court or agency,
board, bureau, body or department of the United States or any state thereof
which is applicable to Banyan or any of the properties or assets of Banyan, (d)
cause any acceleration of maturity of any note, instrument or other obligation
to which Banyan is a party or by which either is bound or with respect to which
it is an obligor or guarantor, or (e) result in the creation or imposition of
any lien, pledge, claim, charge, restriction, equity or encumbrance of any kind
whatsoever upon or give to any other person any interest or right, including any
right of termination or cancellation, in or with respect to any of the business,
operations, properties, assets, agreements or contracts of Banyan.
2.5 FINANCIAL STATEMENTS. Banyan has delivered to Republic
copies of its audited statements of financial condition as of December 31, 1992,
1993 and 1994, and statements of changes in shareholders' equity, statements of
cash flows and statements of operations for each of the years then ended,
together with supporting schedules and notes thereto, audited by McGladrey &
Pullen, certified public accountants, and its unaudited statements of financial
condition as of June 30, 1995 and statements of operations for the six-month
period then ended (such statements as of and for the period ended June 30, 1995
are hereinafter referred to as the "Interim Statements"). All of the
aforementioned financial statements, including, without limitation, the
allowance for loan losses, (and the Future Financial Statements, to be delivered
to RSFC in accordance with Section 4.7 hereof), are (or
-6-
<PAGE>
will be) true, correct and complete in all material respects and present (or
will present) the financial position and results of operations of Banyan as of
the respective dates of such financial statements and for the respective periods
then ended in conformity with GAAP, consistently applied throughout the periods
involved.
2.6 LOAN PORTFOLIO. With respect to each loan owned by
Banyan in whole or in part (each, a "Loan"), except as described on
Schedule 2.6 hereto:
(a) neither Banyan nor any prior holder of a Loan has modified
the note or any of the related security documents in any material
respect or satisfied, cancelled or subordinated the note or any of the
related security documents except as otherwise disclosed by documents
in the applicable Loan file;
(b) Banyan is the sole holder of legal and beneficial
title to each Loan (or Banyan's applicable participation
interest, as applicable);
(c) the note and the related security documents, copies of
which are included in the Loan files, are true and correct copies of
the documents they purport to be and have not been superseded, amended,
modified, cancelled or otherwise changed except as otherwise disclosed
by documents in the applicable Loan file;
(d) each Loan secured by a mortgage on residential
property (except for construction loans) was originated by a
bank, thrift or other HUD-approved lender.
2.7 DEPOSITS. None of the deposits of Banyan is a
"brokered" deposit.
2.8 NO UNDISCLOSED LIABILITIES, ETC. Since December 31, 1994
(except for the transactions contemplated by this Agreement), Banyan has not
incurred or become aware of any liability or obligation (absolute, accrued,
contingent or otherwise) of any nature which should properly have been reflected
or reserved for in the Interim Statements and were not so reflected and
reserved.
2.9 ABSENCE OF CERTAIN CHANGES. Except as described on
Schedule 2.9 and/or as reflected in the Interim Statements, since December 31,
1994 (except for the transactions contemplated by this Agreement), Banyan has
not:
(a) had any change in financial condition, properties,
business or operations which would have a material adverse
effect;
-7-
<PAGE>
(b) suffered any damage, destruction or loss of physical
property or assets (whether or not covered by insurance), in
the aggregate in excess of $10,000 in value;
(c) issued, sold or otherwise disposed of, or agreed to
issue, sell or otherwise dispose of, any of its capital stock;
(d) incurred or agreed to incur any material indebted-
ness for borrowed money, other than in the ordinary course of
business;
(e) made or obligated itself to make any capital
expenditure in excess of $25,000 in the aggregate;
(f) mortgaged, pledged or subjected to any charge, lien, claim
or encumbrance, or agreed to mortgage, pledge or subject to any charge,
lien, claim or encumbrance, any of its material properties or assets,
other than in the ordinary course of business;
(g) declared, set aside or paid any dividend (whether in cash,
property or stock) with respect to any of its capital stock, or
redeemed, purchased or otherwise acquired, or agreed to redeem,
purchase or otherwise acquire, any of its capital stock;
(h) increased the compensation or bonuses or special
compensation of any kind of any of its directors, officers, employees
or agents over the rate being paid to them on July 31, 1995, other than
in the ordinary course of business, or adopted or increased any
benefits under any insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with any such director, officer,
employee or agent;
(i) made or permitted any amendment or termination of
any material contract, agreement or license to which it is a
party, other than in the ordinary course of business;
(j) made any material change in its accounting methods
or practices with respect to its financial condition,
properties, business or operations;
(k) repaid any outstanding loans, other than repayments
in the ordinary course of business;
(l) entered into any other material transaction not in
the ordinary course of business;
(m) become aware of the need to make additional specific
provisions for reserves for loan losses which would have a
-8-
<PAGE>
material adverse effect on its financial condition, proper-
ties, business or operations;
(n) hired any new officers, other than in the ordinary
course of business, consistent with past practice; and
(o) entered into any real estate or equipment lease,
requiring aggregate rental payments in excess of $10,000;
2.10 REAL PROPERTIES. Schedule 2.10 hereto describes all real
estate owned or leased by Banyan, exclusive of "other real estate owned"
acquired by Banyan as a result of foreclosure or "deed in lieu" settlements and
held by Banyan for resale. All such real property, if owned by Banyan, is owned
under good, clear and marketable title, free and clear of all claims, liens,
charges, security interests or encumbrances of any nature whatsoever except (i)
statutory liens securing payments not yet due, (ii) liens which are incurred in
the ordinary course of its business and (iii) such imperfections or
irregularities of title, claims, liens, charges, security interests or
encumbrances as do not materially impair business operations at such property.
Banyan is the lessee of all leasehold estates described in Schedule 2.10 and is
in possession of the properties purported to be leased thereunder and each such
lease is valid, without default thereunder by the lessee or the lessor. True and
complete copies of all leases listed in Schedule 2.10 have been delivered by
Banyan to RSFC.
2.11 TAXES AND FEES. All tax, fee and information returns or
forms (each a "return") required to have been filed prior to the date of this
Agreement by Banyan with respect to the business, operations, properties, assets
or liabilities of Banyan, including, without limitation, information and other
returns for customers and depositors, with any governmental agency, board,
bureau, body, department, authority or municipality of the United States, any
state thereof, or any other jurisdiction have been duly and timely filed
(including within extension periods permitted by IRS regulations), and each such
return in all material respects correctly reflects, as applicable, the income,
sales, excise, capital, place of business, franchise, fuel, custom or other tax
or fee liability and all other information required to be reported thereon, and
all such taxes or fees shown as due on such returns have been paid or accrued
other than taxes or fees described on Schedule 2.11 hereto which are being
contested and which have not been finally determined. Except as set forth on
Schedule 2.11 hereto, there is no issue relating to any such return that, if
determined adversely to Banyan, would result in the assertion of any material
deficiency for any tax or fee or interest or penalties in connection therewith,
and no facts or circumstances exist as of the date hereof which could give rise
to any such issue. The provisions for taxes due by Banyan in the Interim
Statements are sufficient for all unpaid taxes, whether or not disputed, for the
-9-
<PAGE>
period then ended and all prior periods for which tax returns are not yet
required to be filed. Except as set forth on Schedule 2.11 hereto, Banyan has
not (a) entered into any agreement, waiver or other arrangement with respect to
any extension of time for the filing of any tax return, the payment of any tax,
the period during which any tax authorities may assess or reassess any amounts
or the running of any statute of limitations, or with respect to any tax issues
relating to or which may materially affect its financial condition, properties,
business or operations or (b) since December 31, 1994, incurred any tax
liability as a result of any transaction relating to its financial condition,
properties, business or operations that was not fully reflected or reserved
against in the Interim Statements other than tax accruals in the ordinary course
of business. The federal income tax returns of Banyan have never been audited.
Except as set forth on Schedule 2.11 hereto, there are no actions, suits,
proceedings, investigations or claims now pending or threatened against Banyan
in respect of any material taxes, assessments, fees or any matters under
discussion with any governmental authority relating to any material taxes,
assessments, or fees, relating to its business, operations, properties, assets
or liabilities. Banyan has collected or withheld from each payment made to any
of its current or former customers, depositors, shareholders, officers,
creditors, employees and other persons the amount of all material taxes,
including but not limited to income taxes and "backup" withholding, required to
be collected or withheld therefrom, and, to the extent required, have paid the
same to the proper tax or other receiving authority within the time required
under any applicable requirements.
2.12 CONTRACTS. Except as set forth on Schedule 2.12
hereto, Banyan is not a party to any written or oral:
(a) contract or agreement, other than contracts or
agreements made in the ordinary course of business, involving
more than $10,000;
(b) contract or agreement with any governmental
authority, other than contracts or agreements made in the
ordinary course of business;
(c) contract or agreement providing for the settlement
of any material action, suit, proceeding or investigation
involving Banyan;
(d) employment or consulting agreement of any kind with any
officer, director, employee or consultant, or any policy, program,
agreement or understanding (whether or not in the form of an agreement)
obligating Banyan to pay any amount to any officer or employee on
account of severance or termination of employment;
-10-
<PAGE>
(e) contract or collective bargaining agreement with any
labor union or representative of its employees; or
(f) contract or agreement which is material to its
financial condition, properties, business or operations.
Except as set forth in Schedule 2.12 hereto, each contract or other agreement to
which Banyan is a party is in full force and effect and is valid and enforceable
by Banyan in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally, and, as to
enforceability, to general principles of equity. Neither Banyan nor any other
party is in default in any material respect in the observance or the performance
of any term or obligation to be performed by it under any such contract or other
agreement. Banyan has delivered or made available to Republic true and complete
copies of all contracts and agreements referred to in clauses (a) through (e)
above, and any agreement, contract or commitment with any present or former
shareholder, director, officer, employee or consultant or for the employment of
any person.
2.13 LITIGATION. Except as set forth in Schedule 2.13 hereto
and except for actions in which Banyan is the plaintiff where the amount in
controversy is less than $10,000, there are no actions, suits, proceedings or
investigations before any court or administrative authority in the United
States, any state thereof, or any other jurisdiction, of any kind now pending or
threatened or any facts or circumstances which could give rise to, any such
action, suit, proceeding or investigation, involving Banyan or any of its
businesses, operations, properties, assets or liabilities. There is no
arbitration proceeding involving Banyan which is pending or threatened under any
collective bargaining agreement. Except as set forth in Schedule 2.13 hereto,
neither Banyan nor any of its properties, assets or liabilities, is subject to
any judicial or administrative judgment, order, decree or restraint which
adversely affects its business, operations or financial condition.
2.14 COMPLIANCE WITH LAWS AND REGULATIONS. The business and
operations of Banyan have been and are in all material respects conducted in
accordance with all applicable laws, rules and regulations (including, without
limitation, the Equal Credit Opportunity Act, the Consumer Credit Protection
Act, the Truth in Lending Act, the Community Reinvestment Act and the Real
Estate Settlement Procedures Act), and Banyan is not subject to or being
threatened with, any material fine, penalty, liability or legal disability to
its business as the result of its failure to comply with any requirement of any
governmental body or agency having jurisdiction over it, the conduct of its
business, the use of its assets and properties, or any premises occupied by it.
Banyan has filed all reports and maintained all records required to be filed
-11-
<PAGE>
or maintained during the past five fiscal years and the current fiscal year
under applicable rules and regulations of the FDIC and the State of Florida.
Each such filing contains the information required to be stated therein and such
information was true and correct in all material respects as of the time such
report was filed.
2.15 EMPLOYMENT BENEFIT PLANS AND ARRANGEMENTS; LABOR
MATTERS.
(a) Schedule 2.15 hereto lists all employee benefits plans,
contracts, programs or arrangements, including but not limited to
pension, profit-sharing, stock option, stock bonus, deferred
compensation, supplemental retirement, severance, health care,
hospitalization, medical, dental, disability, life insurance and salary
continuation, which are currently maintained, contributed to or
required to be contributed to by Banyan or which otherwise cover or
provide benefits to any employee or former employee of Banyan or any
beneficiary thereof (collectively, the "Plans"). Banyan has delivered
to RSFC true and complete copies of all of the Plans and all documents
relating thereto, including, but not limited to, summary plan
descriptions, annual reports (IRS Form 5500 Series), actuarial reports,
and accountant or trustee reports, if any, and such reports are
accurate in all material respects and there has been no material change
in the financial or funding status of any such Plan since the dates of
the most recent of such reports. Each Plan has been maintained and
administered in all material respects in accordance with its terms and
with all applicable laws, including the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder, and in a manner which will not result in any material
charge or assessment against or liability of Banyan. Except as set
forth on Schedule 2.15 hereto, any Plan that is intended to qualify
under Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified, and nothing has occurred since the
date of such determination that could adversely affect such
qualification. The fair market value of the assets of each Plan that is
subject to Title IV equals or exceeds the present value of all benefit
liabilities (as defined in Title IV of ERISA) under the Plan, with such
present value being determined by application of the actuarial methods
and assumptions applied by the Plan's enrolled actuary at the most
recent annual valuation of the Plan. Banyan has not engaged in any
transaction which may result in imposition on it of any material excise
tax under Sections 4971 through 4980, inclusive, of the Code, or
otherwise incurred a liability for any excise tax, other than excise
taxes which have heretofore been paid or have been accrued, and, in
either
-12-
<PAGE>
case are fully reflected in the Interim Statements. There does not
exist any accumulated material funding deficiency (within the meaning
of Section 302 of ERISA or Section 412 of the Code), whether or not
waived, with respect to any Plan. There are no circumstances pursuant
to which Banyan could be liable to the Pension Benefit Guaranty
Corporation or a multi-employer plan (as defined in Section 3(37) of
ERISA) with respect to any plan not listed on Schedule 2.15. Except as
set forth in Schedule 2.15 hereto, no Plan provides hospital, medical
or health care benefits (other than those mandated by the Consolidated
Omnibus Budget Reconciliation Act of 1986) or any life insurance or
death benefit protection (other than under a Plan that qualifies under
Section 401(a) of the Code) to any retired employees.
(b) As of the date hereof, no association of employees has
petitioned or applied for labor union certification with respect to all
or any part of the business or operations of Banyan nor is there any
organized campaign to obtain any such certification and there have been
no negotiations with any labor union or association of employees with
respect to any future or amended agreements by Banyan involving its
business or operations and Banyan has not made or received any offers
or proposals with respect thereto.
2.16 ACCOUNTING PRACTICES. The books, records and accounts
maintained by Banyan accurately and fairly reflect in reasonable detail its
businesses, operations, properties, assets and liabilities, and Banyan maintains
internal accounting controls that provide reasonable assurances that
transactions are executed only with management's authorization and transactions
are recorded as necessary to permit preparation of accurate financial statements
and to maintain accountability for its properties and assets.
2.17 MINUTE BOOKS. The minute books of Banyan are in all
material respects complete and accurate records of all meetings and other
corporate actions of its shareholders and Board of Directors and Banyan has made
available to Republic for inspection the originals thereof or delivered true
copies thereof.
2.18 INSURANCE. All of the insurance policies in force on the
date hereof insuring Banyan, and its assets, business, employees, officers and
directors, are described in Schedule 2.18 hereto. Banyan has delivered or made
available to Republic true and complete copies of all such policies.
2.19 AGREEMENTS WITH REGULATORS. Banyan is not currently a
party to any written agreement or memorandum of understanding with, nor a party
to any commitment letter or similar undertaking to, nor subject to any order or
directive by, nor a recipient of any extraordinary supervisory letter from, the
Federal Reserve, the
-13-
<PAGE>
FDIC or the State of Florida which restricts the conduct of its business, or in
any manner relates to its capital adequacy, its credit policies or its
management. Banyan has not been advised by the Federal Reserve, the FDIC or the
State of Florida that it is contemplating issuing or requesting any such
agreement, memorandum, commitment, understanding, order or supervisory letter.
2.20 ENVIRONMENTAL. Banyan is not (i) in violation of any law,
regulation, order, permit, license or decree regulating emissions into the
environment and the proper disposal of wastes, petroleum products or other
materials; or (ii) liable or responsible for any cleanup, fines, liability or
expense arising under any environmental law, regulation or order as a result of
the disposal of wastes, petroleum products or other materials in or on its
property (whether owned or leased or in which either has acquired an interest by
way of mortgage or foreclosure) by it, its predecessors in title, or any other
person, or in or on any other property, including property no longer owned,
leased or used by it. There are no asbestos or petroleum products or any
hazardous or waste material of any kind located under, on or in the property
(owned or leased) of Banyan, and such property has never been used for the
handling, treatment, storage or disposal of any petroleum products or any
hazardous or toxic substances as defined under any applicable state or federal
law.
2.21 COMMUNITY REINVESTMENT ACT. Except as set forth on
Schedule 2.21, Banyan has complied in all material respects with
its obligations under the Community Reinvestment Act.
2.22 TRANSACTIONS WITH INSIDERS. Except as set forth on
Schedule 2.22, all of the loans, transactions, agreements and dealings between
Banyan and any "Insider", as defined in Regulation O, comply in all respects
with the provisions of Regulation O.
2.23 FIDELITY BOND. Banyan has obtained all fidelity bonds
that are required by law or regulation. All such fidelity bonds are currently in
force and Banyan has no reason to anticipate that the issuers thereof will fail
to renew them or plan to revoke and/or cancel them.
2.24 BROKERS. Neither Banyan nor any director, officer,
employee, agent or other representative of Banyan has paid or is obligated to
pay to any party any finder's fee, brokerage commission or like payment in
connection with the transactions contemplated by this Agreement.
2.25 NO UNTRUE STATEMENTS. No statement by Banyan
contained in this Agreement or any of the Schedules hereto or
documents referred to herein contains or will contain any untrue
statement of a material fact, or omits or will omit to state a fact
-14-
<PAGE>
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RSFC AND REPUBLIC
RSFC and Republic hereby represent and warrant to the Sellers
as follows:
3.1 CORPORATE ORGANIZATION. RSFC is a Florida corporation,
duly organized, validly existing and in good standing under the laws of the
State of Florida. RSFC has the corporate power and authority to carry on its
business and operations as now being conducted and to own and operate its
properties and assets as now owned and being operated by it. RSFC is qualified
or licensed to do business and is in good standing in each jurisdiction in which
it operates.
3.2 AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION. RSFC's
Board of Directors has duly authorized the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and this
Agreement is a legal, valid and binding obligation of RSFC, enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and except that the availability of
equitable remedies is within the discretion of the appropriate court. The
execution, delivery and performance of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, (a) violate or
conflict with any provision of the Articles of Incorporation or Bylaws of RSFC,
(b) require any third party consent pursuant to or result in any breach of or
default under any provision of any contract or agreement of any kind to which
RSFC is a party or by which RSFC is bound or to which any property or asset of
RSFC is subject, or (c) result in any breach or violation of, or default under,
or any event which with due notice or lapse of time or both would constitute a
default under, result in the termination of, or accelerate the performance
required by, or require RSFC to obtain or make any consent, authorization,
approval, registration or filing (other than as described in this Agreement),
under any statute, law, bylaw, ordinance, regulation, rule, judgment, decree,
order, license, waiver, variance or other requirement of any court or agency,
board, bureau, body or department of the United States or any state thereof
which is applicable to Republic or any of the properties or assets of RSFC.
3.3 CORPORATE ORGANIZATION. Republic is a federal stock
savings bank, duly organized and validly existing under the laws of
the United States and in good standing with the OTS and the FDIC.
-15-
<PAGE>
Republic has applied to convert to become a Florida chartered state bank and, on
the Closing Date, may be either a federal stock savings bank or a Florida
chartered state bank. Republic has the corporate power and authority to carry on
its business and operations as now being conducted and to own and operate its
properties and assets as now owned and being operated by it. Republic is
qualified or licensed to do business and is in good standing in each
jurisdiction in which it operates.
3.4 AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION. Republic's
Board of Directors has duly authorized the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and this
Agreement is a legal, valid and binding obligation of Republic, enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and except that the availability of
equitable remedies is within the discretion of the appropriate court. The
execution, delivery and performance of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, (a) violate or
conflict with any provision of the Charter or Bylaws of Republic, (b) require
any third party consent pursuant to or result in any breach of or default under
any provision of any contract or agreement of any kind to which Republic is a
party or by which Republic is bound or to which any property or asset of
Republic is subject, or (c) result in any breach or violation of, or default
under, or any event which with due notice or lapse of time or both would
constitute a default under, result in the termination of, or accelerate the
performance required by, or require Republic to obtain or make any consent,
authorization, approval, registration or filing (other than as described in this
Agreement), under any statute, law, bylaw, ordinance, regulation, rule,
judgment, decree, order, license, waiver, variance or other requirement of any
court or agency, board, bureau, body or department of the United States or any
state thereof which is applicable to Republic or any of the properties or assets
of Republic.
3.5 BROKERS. Neither RSFC nor Republic, nor any director,
officer, employee, agent or other representative of RSFC or Republic, has paid
or is obligated to pay to any party any finder's fee, brokerage commission or
like payment in connection with the transactions contemplated by this Agreement.
3.6 NO TAKEOVER ACTIVITY. Neither RSFC nor Republic are
engaged in any discussions or negotiations which could result in a
merger with or acquisition of RSFC or Republic.
3.7 NO UNTRUE STATEMENTS. No statement by RSFC or
Republic contained in this Agreement or any of the Schedules hereto
contains or will contain any untrue statement of a material fact,
-16-
<PAGE>
or omits or will omit to state a fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
COVENANTS OF SELLERS
4.1 ACCESS, INFORMATION AND DOCUMENTS. Prior to the date
hereof, Republic has conducted preliminary due diligence with respect to Banyan.
From the date hereof until the Closing, Sellers will cause Banyan to give, and
will cause its directors, officers, employees, agents and other representatives
to give, to Republic and to its agents and representatives (including, but not
limited to, its accountants and counsel) reasonable access to any and all of its
properties, assets, books, records and other documents, to enable Republic to
make such audit, examination and investigation of the business, operations,
properties, assets, liabilities, books, records and other documents of Banyan as
Republic may determine, and will furnish, and will cause its and its directors,
officers, employees, agents and other representatives to furnish, to Republic
such information and copies of such documents and records as Republic shall
request, including without limitation files relating to loans originated or
purchased, investments, leases, contracts, employment records and benefit plans,
minutes of the proceedings of the Board of Directors and any committees thereof,
minutes of shareholders' meetings, legal proceedings, examination reports,
correspondence with regulatory authorities and correspondence with independent
auditors. As part of such examination, Republic may make such reasonable
inquiries of such persons having professional relationships with Banyan as
Republic shall determine, and Banyan will authorize, and will cause its
directors, officers, employees, agents and other representatives to authorize,
such persons to respond to each inquiry and to cooperate fully with Republic in
connection therewith.
RSFC and Republic agree to keep confidential and not to
disclose to any persons, except its officers, directors, accountants and legal
counsel and as may otherwise be required by law, all confidential information
provided to it by Banyan in connection with the foregoing examination of Banyan.
4.2 NO OTHER TRANSACTIONS. Except and only to the extent
required by fiduciary obligations, no Seller shall, nor shall Seller permit any
of its directors, officers, employees, representatives, agents or other persons
controlled by Banyan to, directly or indirectly, encourage or solicit or hold
discussions or negotiations with, or provide any information to, any person,
entity or group (other than Republic) concerning any merger, sale of substantial
assets, sale of shares of capital stock or similar transactions involving
Banyan.
-17-
<PAGE>
4.3 CONDUCT OF BUSINESS PRIOR TO THE CLOSING. During
the period from the date of this Agreement to the Closing, Sellers shall cause
Banyan to (i) maintain its existence and good standing under the laws of its
organization, and (ii) conduct its business and engage in transactions only in
the ordinary course and consistent with its past prudent banking practices. In
addition, Sellers agrees to cause Banyan from the date hereof to the Closing,
except as permitted or required by this Agreement, not to take any action that
would result in any of the representations or warranties contained in this
Agreement not being true and correct in any material respect at the Closing.
Sellers agree to cause Banyan to confer with Republic upon the request of
Republic and advise Republic regarding all material (as defined in Article II
hereof) adverse developments, transactions and proposals relating to its
financial condition, properties, business or operations, and cause its
directors, officers, employees, agents and other representatives to disclose to
Republic any and all material changes in, or events which materially and
adversely affect, its financial condition, properties, business or operations.
4.4 NEGATIVE COVENANTS. From the date hereof to the Closing,
except as permitted or required by this Agreement (or as described on Schedule
4.4 hereof with respect to the loans or real estate owned described therein),
Sellers shall not permit Banyan, without the prior consent of Republic to:
(a) change any provision of its Articles of
Incorporation or Bylaws, or take any other action with respect
thereto;
(b) change the number of shares of its issued capital stock or
issue or grant any option, warrant, call, commitment, subscription,
right to purchase or agreement of any character relating to its
authorized or issued capital stock, or any securities convertible into
shares of such stock, or split, combine or reclassify any shares of its
capital stock, or declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock or redeem or otherwise acquire
any shares of such capital stock;
(c) hire any officer;
(d) grant any severance or termination pay (which is payable
after the calendar month end prior to the Closing) to, or enter into or
amend any severance or employment agreement with, any of its directors,
officers or employees or adopt any new employee benefit plan or
arrangement of any type;
(e) sell or dispose of any assets (other than real
estate owned by Banyan) or incur any liabilities, in either
-18-
<PAGE>
case in excess of $10,000 in the aggregate, other than deposit
liabilities acquired in the ordinary course of its business consistent
with past practices and policies;
(f) make any capital expenditure in excess of (i) $5,000
per project or related series of projects or (ii) $25,000 in
the aggregate;
(g) file any applications or make any contract with
respect to branching or site location or relocation;
(h) engage in any transactions with its directors or officers,
other than the Oakland Park REO, the Sunday House mortgage and loans
which Banyan makes to such parties in the ordinary course of business;
(i) take any action, except as may be required by law,
regulation or judicial order, which could prevent the Merger;
(j) enter into or renew any employment or consulting
agreement or amend or otherwise modify any existing employment
or consulting agreements;
(k) increase the compensation or benefits of any of its
employees, officers or directors or pay any bonuses, directly
or indirectly, to any such persons;
(l) enter into, amend or renew any real estate lease;
(m) enter into, amend or renew any equipment lease;
(n) enter into any agreement not terminable at will by
it which requires the payment by it of an aggregate amount in
excess of $10,000;
(o) knowingly waive any material right;
(p) incur any material indebtedness for money owed,
other than in the ordinary course;
(q) mortgage, pledge or subject to any charge, lien,
claim or encumbrance any of its assets;
(r) make any material change in its accounting methods
or practices;
(s) amend or modify any employee retirement plans or
increase the amount of contributions to such plans; or
(t) agree or obligate itself to do any of the foregoing.
-19-
<PAGE>
4.5 CURRENT INFORMATION. During the period from the date of
this Agreement to the Closing, Sellers shall cause Banyan to promptly advise
Republic in writing of any information or fact that would make any
representation or warranty or any statement in this Agreement or in the
Schedules not true and correct if such information or fact had been known when
the representation, warranty or statement was made. Republic shall have 10 days
from receipt thereof to terminate this Agreement in accordance with Section 8.3
hereof (without regard to the 15-day cure period provided in Section 8.3(c)
hereof) or else such right to terminate, as a result of the information
disclosed in the writing, shall be deemed waived.
4.6 COOPERATION WITH REPUBLIC. Sellers agree to cause Banyan
to cooperate with Republic in the preparation of all applications and regulatory
filings and will furnish promptly upon written request all documents,
information, financial statements or other materials as may be required in order
to complete such applications.
4.7 FUTURE FINANCIAL STATEMENTS. Sellers shall cause Banyan to
deliver to Republic, within 20 days after the end of each calendar month from
the month of July 1995 through the Closing Date, its unaudited statements of
financial condition as of the end of such month and its statements of operations
for the period from January 1, 1995 through the month then ended. All of the
financial statements hereinabove referred to in this Section 4.7 are hereinafter
referred to as the "Future Financial Statements". The Future Financial
Statements shall be prepared in accordance with GAAP on a basis consistent with
the Interim Statements. The Future Financial Statements so delivered after the
date hereof shall be accompanied by a certificate of a duly authorized officer
certifying that, to the best of his knowledge, such statements are complete,
true and accurate and that they have been prepared in accordance with GAAP, and
on a basis consistent with the Interim Statements.
4.8 OBSERVER AT MEETINGS. Unless prohibited by law, Sellers
agree to cause Banyan to permit the President and/or Executive Vice President of
Republic to attend, as an observer, all meetings of its shareholders, Board of
Directors and committees of the Board of Directors, including loan committees,
which may be held from the date hereof through the Closing. Sellers shall cause
Banyan to provide Republic with the same notice of all such meetings which is
given to shareholders or directors, as the case may be, and with copies of all
materials and documents distributed at such meetings. Republic shall maintain
the strict confidentiality of all matters observed at such meetings; provided,
however, Republic may discuss such matters with officers, directors, legal
counsel and advisors of Republic and may disclose such matters publicly if
obligated to do so by law.
-20-
<PAGE>
ARTICLE V
COVENANTS OF REPUBLIC
5.1 PURSUIT OF APPROVALS. Republic will use its best efforts
to obtain all necessary government approvals and any other regulatory approvals
which may be required and to do all other things which are or may be necessary
to consummate the Purchase and the Merger and will cooperate with Banyan in the
preparation of all applications and will furnish promptly upon written request
all documents, information, financial statements or other materials as may be
required in order to complete such applications. Banyan will be provided the
opportunity to review and approve in advance all information relating to it
which appears in any filing made with, or written material submitted to any
third party or governmental body in connection with the transactions
contemplated by this Agreement.
5.2 PUBLIC OFFERING. The parties acknowledge that RSFC will be
using its best efforts to prepare and file a registration statement on Form S-2
under the Securities Act of 1933 to register an underwritten public offering of
equity securities in an aggregate amount, net of estimated commissions,
discount, fees and expenses of the offering, of not less than $10,000,000 and to
pursue effectiveness of the registration statement and closing of the offering;
provided, however, that RSFC shall not be obligated to pursue such effectiveness
or to make the offering in the event RSFC, in its sole judgment, determines
that, at the time RSFC is to enter into a firm commitment underwriting agreement
for such public offering, the price per share of securities to be offered by
RSFC, the discount and terms offered by RSFC's underwriter or general market
conditions are not in the best interests of Republic's existing shareholders.
Sellers agree to cause Banyan to provide, and to engage McGladrey & Pullen to
provide (at RSFC's expense), such financial and other information and consents,
in a timely fashion, as RSFC or RSFC's underwriters or counsel deems appropriate
with respect to Banyan for use in such registration statement.
ARTICLE VI
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF REPUBLIC AND SELLERS
The obligations of Republic and Sellers to close the Purchase
are subject to the fulfillment prior to or at the Closing of the following
conditions:
6.1 GOVERNMENT APPROVALS. (a) The receipt of all
government approvals required to be received to consummate the
Purchase and the Merger shall have been received, without the
-21-
<PAGE>
imposition of conditions which would, in the reasonable determination of
Republic, (i) have a material adverse effect on the financial condition,
properties, business or operations of Republic upon completion of the Merger, or
(ii) otherwise impair the value of Banyan to Republic; (b) such government
approvals shall remain in effect; (c) all applicable statutory waiting or notice
periods with respect to such government approvals shall have expired; and (d)
all conditions and requirements prescribed by law or by such government
approvals shall have been satisfied to the extent required prior to the Closing.
6.2 NO LITIGATION. No order, judgment or decree shall be
outstanding against a party hereto or a third party that would have the effect
of preventing consummation of the Purchase or the Merger; no suit, action or
other proceeding shall be pending or, to the knowledge of any party hereto,
threatened by any governmental body in which it is sought to restrain or
prohibit the Purchase and the Merger; and no suit, action or other proceeding
shall be pending before any court or governmental agency in which it is sought
to restrain or prohibit the Purchase and the Merger or obtain other substantial
monetary or other relief against one or more of the parties hereto in connection
with this Agreement and which Republic or Sellers determine in good faith, based
upon the advice of their respective counsel, makes it inadvisable to proceed
with the Purchase and the Merger because any such suit, action or proceeding has
a significant potential to be resolved in such a way as to deprive the party
electing not to proceed of any of the material benefits to it of the Purchase
and the Merger or to have a material adverse effect on the business or financial
condition of such party.
6.3 AUTHORITY TO CLOSE. Republic shall have furnished the
Principals with such certificates of its officers, an opinion of counsel to
Republic (such opinion to be as to Republic to the same extent as set forth in
Section 7.7 as to Banyan) and such documents, as the Principals may reasonably
request, to confirm that all governmental, Board of Director and shareholder
approvals necessary for Republic to consummate the Purchase and the Merger have
been obtained and that the Purchase does not violate its Articles of
Incorporation, Bylaws or applicable contract provisions.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF REPUBLIC
The obligation of Republic to close the Purchase is subject to
the fulfillment of each of the following conditions prior to or at the Closing,
or waiver thereof by Republic:
-22-
<PAGE>
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of
the obligations of Banyan and Sellers required to be performed by it or them at
or prior to the Closing pursuant to the terms of this Agreement, including
pursuant to Section 10.1 hereof, shall have been duly performed and complied
with in all material respects and the representations and warranties of the
Principals contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement, and as of the Closing as though made
at and as of the Closing, except for those representations and warranties
specifically relating to a time or times other than the Closing which shall be
true and correct in all material respects at such time or times and except for
changes permitted by this Agreement with the same force and effect as if made at
and as of the Closing.
7.2 MATERIAL CHANGE. There shall not have occurred a
material adverse change in Banyan, its business, financial
condition or prospects since December 31, 1994.
7.3 FINANCIAL CONDITIONS. The interim consolidated balance
sheet of Banyan for the calendar month end immediately prior to the Closing
Date, and as of the Closing Date, shall reflect total assets of not less than
$45,000,000, classified assets of not more than $900,000, allowance for loan
losses of not less than 1% of total assets and non-performing assets of not more
than 1% of total assets.
7.4 100% PURCHASE. All, and not less than all, of the Shares
shall be tendered for purchase by Republic at the Closing. Republic shall not be
obligated to purchase any of the Shares if, for any reason (whether or not
within the control of any Seller), one or more of the Shares is not available
for purchase by Republic at the Closing. Each of the holders of options to
purchase shares of Banyan Common Stock, as described on Schedule 2.2 hereof,
shall have terminated and surrendered his or her options and executed and
delivered to Banyan and Republic a full release of all claims of every kind and
nature which he or she may have with respect to all such options.
7.5 PUBLIC OFFERING. The RSFC underwritten public offering
referred to in Section 5.2 hereof shall have closed and RSFC shall have received
net proceeds thereof of not less than $10,000,000.
7.6 ACCOUNTANTS' COMFORT LETTER. Republic shall have received
the letter of McGladrey & Pullen, dated the Closing Date, to the effect that,
based on agreed-upon procedures, nothing has come to their attention which would
cause them to believe that the Tangible Equity, total assets, classified assets
and non-performing assets of Banyan as of the calendar month ended prior to the
Closing Date are not as reported by Banyan.
-23-
<PAGE>
7.7 OPINION OF COUNSEL. Republic shall have received at the
Closing an opinion, in form and substance reasonably satisfactory to counsel to
Republic, dated the date of the Closing, of counsel to Sellers and Banyan
acceptable to Republic, to the effect that:
(a) Banyan is a Florida chartered state bank duly organized
and validly existing under the laws of Florida and in good standing
with the State of Florida and the FDIC, and is duly qualified to do
business in each jurisdiction in which qualification is necessary.
Banyan has all material permits, licenses, orders and approvals of all
governmental or regulatory bodies required to conduct its business
under applicable state and federal laws and regulations.
(b) The authorized capital stock of Banyan conforms to the
description thereof contained in Section 2.2 of this Agreement. All of
the outstanding shares of Banyan Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable, and the
shareholders of Banyan have no preemptive or other rights with respect
to any shares of the capital stock of Banyan. Banyan is not a party to
or bound by any contract, agreement or arrangement to issue, sell or
otherwise dispose of or redeem, purchase or otherwise acquire any of
its capital stock and there is no outstanding option, warrant or other
right to subscribe for or purchase, or contract, agreement or
arrangement with respect to, the Banyan Common Stock or other security
exercisable or convertible into any capital stock of Banyan.
(c) The execution, delivery and performance of this Agreement
by Banyan and consummation of the Purchase have been duly authorized
and approved by all requisite action of Banyan's Board of Directors and
its shareholders, if any. This Agreement has been duly executed and
delivered by, and constitutes valid and binding obligations of Sellers,
enforceable against each in accordance with its terms, subject to any
bankruptcy, insolvency, moratorium or other laws generally affecting
the enforcement of creditors' rights and by general principles of
equity. The consummation of the transactions contemplated by this
Agreement and the Closing the Purchase will not result in any breach or
violation of any provisions of its Articles of Incorporation or Bylaws,
result in a breach or violation of, or default under, any judgment,
decree, mortgage, agreement, indenture or other instrument material to
the business or financial condition of Banyan, violate any statute,
rule or regulation applicable to Banyan which would have a material
adverse effect on the business or financial condition of Banyan.
-24-
<PAGE>
(d) All approvals, consents and authorizations required to
permit the performance by Banyan of its obligations under this
Agreement and consummation of the transactions herein contemplated have
been obtained (whether from governmental authorities or other persons).
(e) Except as disclosed in such opinion, to the knowledge of
such counsel after due investigation, there is neither any litigation,
proceeding or governmental investigation pending or threatened that
challenges the validity or legality of the transactions contemplated by
this Agreement or the Purchase or which seeks or threatens to restrain,
enjoin or prohibit consummation of such transaction, nor any
litigation, proceeding, or governmental investigation pending or
threatened against or relating to Banyan or its respective properties
or business, or the transactions contemplated by this Agreement, which
will result in any liability material to the business or financial
condition of Banyan.
7.8 OFFICERS' CERTIFICATES. The Principals shall have
furnished Republic with such certificates of themselves or others and such other
documents to evidence the fulfillment of the conditions set forth in this
Article VII as Republic may reasonably request, including certification of the
names, addresses and numbers of shares of Banyan Common Stock held by Banyan
shareholders of record as of the Closing.
7.9 CONSENTS. Republic shall have received all necessary
consents to the transactions contemplated herein, including the Merger, required
by any agreement material to the operation or conduct of business of Banyan.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION BY MUTUAL CONSENT. This Agreement may
be terminated at any time prior to the Closing by mutual written
consent of Republic and the Principals.
8.2 TERMINATION BY SELLERS. The Principals may
terminate this Agreement on behalf of Sellers by written notice to
Republic, at any time prior to the Closing, if (a) any event occurs
such that a material condition set forth in Article VI hereof which
must be fulfilled before Sellers are obligated to consummate the
Purchase cannot be fulfilled (other than by reason of Sellers'
failure to comply with their obligations hereunder) and
nonfulfillment is not waived, expressly or by implication, by the
Principals; or (b) there shall have been a material default under
or a material breach or Republic's covenants hereunder. The
-25-
<PAGE>
Principals may also terminate this Agreement at any time after 12:00 midnight,
local time, February 29, 1996 (except as otherwise provided in Section 1.5
hereof), if all the conditions precedent to its obligations to effect the
Purchase shall not have been fulfilled by reason other than Sellers' failure to
comply with their obligations hereunder and the Closing shall not have been
effected on or prior to such date.
8.3 TERMINATION BY REPUBLIC. Republic may terminate this
Agreement by written notice to the Principals at any time prior to October 15,
1995, if as a result of the review by Republic of Banyan's loan portfolio,
assets, liabilities, books, records, business and prospects, Republic, in its
sole discretion, determines that the acquisition of Banyan by Republic is not
desirable or in the best interests of Republic's shareholders. Republic may
terminate this Agreement by written notice to the Principals at any time prior
to the Closing, if (a) any event occurs such that a condition set forth in
Articles VI or VII hereof which must be fulfilled before Republic is obligated
to consummate the Closing or cannot be fulfilled (other than by reason of
Republic's failure to comply with its obligations hereunder) and nonfulfillment
is not waived by Republic; (b) there shall have been a material default under or
a material breach of Seller's covenants hereunder; or (c) any representation or
warranty of Sellers shall no longer be true and correct as of any date and
remains not true and correct 15 days after notice thereof is given to the
Principals. Republic may also terminate this Agreement at any time after 12:00
midnight, local time, February 29, 1996 (except as otherwise provided in Section
1.5 hereof), if all the conditions precedent to their obligations to effect the
Closing shall not have been fulfilled by reason other than Republic's failure to
comply with its obligations hereunder and the Closing shall not have been
effected on or prior to such date.
8.4 EFFECT OF TERMINATION. If this Agreement is terminated,
this Agreement, except for this Section 8.4, which shall remain in full force
and effect, shall no longer be of any force or effect and there shall be no
liability hereunder on the part of any party or its directors, officers or
shareholders; provided that (i) if such termination results from breaches by
Sellers or the Principals of any representation, warranty or covenant hereunder,
then the Principals shall pay Republic liquidated damages in the amount of
$100,000 and (ii) if such termination results from breaches by Republic of any
representation or warranty or covenant hereunder, then RSFC and/or Republic
shall pay Sellers, pro rata, liquidated damages in the amount of $100,000. Each
of the parties hereto acknowledges and agrees that the actual amount of damages
suffered by him or it as a result of any such termination (including lost
opportunity costs) cannot be precisely calculated, that, in any event, the
amount of such actual damages suffered is less than the amount of liquidated
damages
-26-
<PAGE>
provided for in this Section 8.4 and that such amount of liquidated damages is
fair. The parties agree that the failure of RSFC to consummate the public
offering referred to in Section 5.2 hereof shall be deemed sufficient cause for
the Principals to terminate this Agreement in accordance with the last sentence
of Section 8.3 hereof, but shall not be deemed a breach resulting in liquidated
damages being payable to Sellers pursuant to this Section 8.4
8.5 EXTENSION OR WAIVER. At any time prior to the Closing,
either Republic or the Principals may (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other party hereto
contained herein or in any document delivered pursuant hereto, or (c) waive
compliance with any of the agreements or conditions of the other parties hereto
contained herein. Any agreement on the part of any party hereto for any such
extension or waiver shall only be valid if set forth in a writing signed on
behalf of such party.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties
agree that the representations, warranties and covenants made by the Principals,
RSFC and Republic herein shall survive the Closing for a period of one year from
the Closing Date (the "Survival Period").
9.2 INDEMNIFICATION BY THE PRINCIPALS. Subject to the Closing
having occurred and the limitations of Section 9.5, each Principal hereby
agrees, jointly and severally, to protect, defend, indemnify and hold harmless
RSFC and Republic, and their successors and assigns, officers, directors,
shareholders and employees, representatives and agents (each, a "Purchaser
Indemnitee") from and against any and all demand, obligation, claim, loss,
expense, tax, legal action, judgment or damage and any interest or penalties
thereon ("Loss") suffered by a Purchaser Indemnitee in connection with or
arising out of or resulting from or incident to the following (which Loss shall
include, without limitation, costs and expenses of defending against the threat
of such Loss):
(a) any breach of any of the representations or warranties of,
or of any covenants or agreements made by, the Principals contained in
this Agreement and/or in any Schedule hereto or document delivered in
connection herewith; provided that a Loss shall be deemed to have been
suffered only if any such breach of a representation or warranty be in
regard to facts or circumstances to the knowledge of a Principal; and
-27-
<PAGE>
(b) any suit, action, investigation, inquiry or other
proceeding brought by a Seller, whether instituted before or after the
Closing which seeks to restrain or prohibit, or questions the validity
or legality of, or otherwise challenges the transactions contemplated
hereby.
9.3 INDEMNIFICATION BY RSFC AND REPUBLIC. Subject to the
Closing having occurred and the limitations of Section 9.5, each of RSFC and
Republic hereby, jointly and severally, agree to protect, defend, indemnify and
hold harmless each of the Sellers from and again any and all demand, obligation,
claim, loss, expense, tax, legal action, judgment or damage and any interest or
penalties thereon ("Loss") suffered by such Seller in connection with or arising
out of or resulting from or incident to the following (which Loss shall include,
without limitation, costs and expenses of defending against the threat of such
Loss):
(a) any breach of any of the representations or warranties of,
or of any covenants or agreements made by, RSFC or Republic contained
in this Agreement and/or in any Schedule hereto or document delivered
in connection herewith; provided that a Loss shall be deemed to have
been suffered only if any such breach of a representation or warranty
be in regard to facts or circumstances to the knowledge of the
President or Executive Vice President of RSFC or Republic; and
(b) any suit, action, investigation, inquiry or other
proceeding brought by a shareholder of RSFC, whether instituted before
or after the Closing which seeks to restrain or prohibit, or questions
the validity or legality of, or otherwise challenges the transactions
contemplated hereby.
9.4 CLAIMS PROCEDURE. In the case of any claim, demand, action
or proceeding for which indemnification is sought pursuant to Section 9.2 or
9.3, the party or parties seeking indemnification (the "Indemnitee") shall
promptly notify the party or parties against whom indemnification is sought
("Indemnitor") in writing of the existence and nature of such claim, demand,
action or proceeding; provided, however, that no failure or delay by the
Indemnitee in the performance of the foregoing shall reduce or otherwise affect
the obligation of Indemnitor to indemnify and hold the Indemnitee harmless. If
such claim, demand, action or proceeding is by a third Person (a "Claim"), the
Indemnitee hereby agrees that it shall give Indemnitor a reasonable opportunity
to defend the same or prosecute such action to conclusion or settlement
satisfactory to Indemnitor at its sole cost and expense and with counsel of
their own selection (who shall be approved by the Indemnitee, which approval
shall not be unreasonably withheld) and Indemnitor shall pay any resulting
settlements, judgments or decrees; provided, however, that the Indemnitee shall
at all times also have the right fully to participate in the defense at
-28-
<PAGE>
Indemnitee's sole cost and expense so long as such participation occurs without
hindering or impairing the defense of Indemnitor. If Indemnitor shall, within a
reasonable time after said notice, fail to defend, the Indemnitee shall have the
right, but not the obligation, and without waiving any rights against
Indemnitor, to undertake the defense of, and, in its sole discretion, to
compromise or settle the Claim on behalf, for the account, and at the risk and
expense, of Indemnitor and shall be entitled to collect the amount of any
settlement or judgment or decree and all costs and expenses (including, without
limitation, reasonable attorneys' fees) in connection therewith. If the Claim is
one that cannot by its nature be defended solely by Indemnitor, the Indemnitee
shall make available all information and assistance that Indemnitor may
reasonably request; provided, however, that any associated out-of-pocket
expenses shall be paid by Indemnitor.
9.5 LIMITATIONS ON INDEMNIFICATION.
(a) The indemnification provisions contained in this Article
IX shall survive the Closing; provided, however, that no indemnity
Claim may be made under this Article IX unless the party seeking
indemnification gives the other party notice of such Claim prior to the
end of the Survival Period (as defined in Section 9.1 above). Notice of
a Claim shall be considered to have been made timely under this Section
9.5 with respect to any matter if, prior to the end of the Survival
Period, the Indemnitee has given notice to Indemnitor of the general
nature of facts or circumstances that Indemnitee reasonably believes
may result in a Claim for indemnification under this Agreement, even if
the Loss relating to such Claim occurs after the end of the Survival
Period.
(b) Notwithstanding any other term or provision of this
Article IX, no Indemnitor shall be required to indemnify for a Loss to
the extent that such Loss has been reimbursed by the Indemnitee's
actual receipt of insurance proceeds. In the event that insurance does
not cover the full amount of the Loss, Indemnitor shall remain liable
for the difference between the insurance payment as described above and
the amount of the Loss, subject to the limitations set forth above.
(c) The maximum amount for which Martin J. Hasey shall be
liable pursuant to this Article IX shall be equal to the Cash Amount
paid at the Closing for 64,058 Shares. The maximum amount for which
William J. Hasey shall be liable pursuant to this Article IX shall be
equal to the Cash Amount paid at the Closing for 114,800 Shares.
-29-
<PAGE>
(d) No Indemnitor shall be obligated to pay any amount under
this Article IX until the total amount of Loss suffered by the
Indemnitee shall exceed $30,000.
ARTICLE X
MISCELLANEOUS
10.1 SELLERS DEPOSIT RELATIONSHIP. Sellers hereby covenant and
agree to maintain certificates of deposit and/or savings and checking deposits
with Banyan through the Closing, and with Republic for at least one year after
the Closing, with an aggregate deposit balance of not less than $6,000,000. Each
Seller acknowledges that the covenant and agreement contained in this Section
10.1 is a material inducement to, and a necessary precondition for, RSFC and
Republic entering into this Agreement.
10.2 RELEASE OF MARTIN J. HASEY. In the event the Purchase and
the Merger are duly consummated, RSFC and Republic (and Banyan, if the Merger is
not consummated) agree that Martin J. Hasey shall be released of any liability
he may have to Republic (as successor to Banyan) resulting from his negligence,
errors and omissions acting in his capacity as general counsel to Banyan prior
to the Closing Date, to the extent that such negligence, errors and omissions
are not known to him to be errors and omissions as of the Closing Date.
10.3 EXPENSES. Whether or not the Purchase is consummated,
each of the parties will pay all of its own legal, accounting and other expenses
incurred in the preparation of this Agreement and the performance of the terms
and provisions of this Agreement. Republic shall be responsible for all of the
fees referred to in Section 5.2.
10.4 LEGAL FEES. In the event of litigation between any of the
parties to this Agreement with respect to enforcement of the provisions hereof,
the prevailing party in such litigation shall be entitled to recover its legal
fees and expenses from the other party to such litigation.
10.5 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
supersedes all previous arrangements or understandings, whether written or oral,
and contains the entire agreement of the parties, with respect to the subject
matter hereof, except that the Confidentiality Agreement between Republic and
Banyan shall remain in full force and effect. This Agreement may be modified,
varied or otherwise amended only by a writing executed on behalf of each of the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the party against whom enforcement of such
waiver is sought. No waiver, course of dealing, delay in acting or other
purported waiver by any
-30-
<PAGE>
party of compliance with any provision of this Agreement shall be construed as a
continuing waiver, or as a waiver of any subsequent breach, of any such
provision or of any rights or remedies with respect thereto.
10.6 NOTICES. Any notice, request, election, or other
communication required or permitted to be given by any party under any provision
of this Agreement shall be in writing and shall be deemed to have been duly
given if delivered in person, by overnight courier or by facsimile transmission,
to the following address, or to such other address as any party shall designate
upon written notice to the other party pursuant to this Section 10.6:
If to Republic:
Republic Security Bank,
Federal Savings Bank
4400 Congress Avenue
West Palm Beach, Florida 33407
Facsimile No.: 407-881-9225
Attn: Rudy E. Schupp, President
and Chairman of the Board
With a copy to:
John S. Fletcher, Esq.
Morgan, Lewis & Bockius
5300 First Union Financial Center
200 South Biscayne Boulevard
Miami, Florida 33131-2339
Facsimile No.: 305-579-0321
If to Sellers or any Principal:
Martin J. Hasey
c/o Banyan Bank
Suite 260
2500 North Military Trail
Boca Raton, Florida 33431
Facsimile No.: 407-494-6735
With a copy to:
John F. Flanigan, Esq.
Moyle, Flanigan, Katz, Fitzgerald
& Sheehan, P.A.
625 North Flagler Drive
West Palm Beach, Florida 33401
Facsimile No.: 407-659-1789
-31-
<PAGE>
10.7 RIGHTS UNDER THIS AGREEMENT; NONASSIGNABILITY. This
Agreement shall bind and inure to the benefit of the parties hereto and their
respective successors, but shall not be assignable by any party. Nothing
contained in this Agreement is intended to confer upon any person, other than
the parties to this Agreement and their respective successors, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement.
10.8 FORM OF THIS AGREEMENT. Captions to the various
provisions in this Agreement are for the convenience of the reader only and
shall not be construed as affecting the meaning or interpretation of any
provision of this Agreement. Terms used in the singular shall be read in the
plural, and vice versa, and terms used in the masculine gender shall be read in
the feminine or neuter gender, when the context so requires. This Agreement may
be executed in several counterparts, each of which shall be deemed an original,
but together shall constitute one and the same instrument.
10.9 GOVERNING LAW. This Agreement has been entered into
under, and shall be construed and enforced in accordance with, the
laws of the State of Florida.
10.10 PUBLIC ANNOUNCEMENTS. Republic and the Principals shall
each approve in advance the substance of and cooperate with each other in the
development and distribution of all news releases and other public information
disclosures with respect to this Agreement or any of the transactions
contemplated hereby, except as may be otherwise required by law or regulation.
10.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the several parties hereto on separate
counterparts, each of which when so executed shall be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
-32-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
REPUBLIC SECURITY FINANCIAL
CORPORATION
By _______________________
Rudy E. Schupp,
President and
Chairman of the Board
[SEAL]
ATTEST:
----------------------
Richard J. Haskins,
Assistant Secretary
REPUBLIC SECURITY BANK,
FEDERAL SAVINGS BANK
By _______________________
Rudy E. Schupp,
President and
Chairman of the Board
[SEAL]
ATTEST:
----------------------
Jon L. Williams,
Assistant Secretary
SELLERS:
--------------------------
Martin J. Hasey
--------------------------
William J. Hasey, Trustee
U/D/T/ dated December 30, 1989
(SIGNATURES CONTINUED ON NEXT PAGE)
-33-
<PAGE>
--------------------------
J. Patrick Lynch
--------------------------
Patricia K. Lynch
--------------------------
J. Patrick Lynch IRA
--------------------------
Colleen Hasey
--------------------------
Robert Fredrikson
--------------------------
William J. Hasey, Jr.
--------------------------
Catherine Hasey
--------------------------
Regina M. Hasey, Trustee
U/D/T/ dated December 30, 1989
--------------------------
Martin J. Hasey Trust for the
Benefit of Ryan M. Hasey
--------------------------
Martin J. Hasey Trust for the
Benefit of Patrick M. Hasey
--------------------------
Martin J. Hasey Trust for the
Benefit of Michael P. Hasey
(SIGNATURES CONTINUED ON NEXT PAGE)
-34-
<PAGE>
--------------------------
Robert Fredrikson
--------------------------
Jean Fredrikson
--------------------------
Jean Fredrikson Trustee,
Sharlene M. Fredrikson, UTAD 12/78
--------------------------
Jean Fredrikson Trustee,
Deborah J. Fredrikson, UTAD 12/78
--------------------------
Jean Fredrikson Trustee,
Lyn M. Frdrikson, UTAD 12/78
--------------------------
James V. Fazioli
--------------------------
Marilyn Fazioli Custodian for
Robert A. Fazioli
--------------------------
Marilyn Fazioli Custodian for
Laura J. Fazioli
--------------------------
James C. Fazioli
--------------------------
Marilyn Fazioli
(SIGNATURES CONTINUED ON NEXT PAGE)
-35-
<PAGE>
----------------------------
William J. Hasey, Jr.,
Trustee for Christine Hasey
----------------------------
William J. Hasey, Jr.,
Trustee for Colleen Hasey
----------------------------
Catherine L. Seydell Trust
----------------------------
Catherine L. Seydell
Trustee for William J. Seydell
----------------------------
Catherine L. Seydell
Trustee for Sandra Ann Seydell
----------------------------
Jean Fredrikson Trustee,
Sharlene M. Fredrikson, UTAD 12/89
----------------------------
Jean Fredrikson Trustee,
Deborah J. Fredrikson, UTAD 12/89
----------------------------
Jean Fredrikson Trustee,
Lyn M. Fredrikson, UTAD 12/89
-36-
REPUBLIC SECURITY FINANCIAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement is made and entered into as of May 31, 1995 by
and between RICHARD J. HASKINS ("Optionee") and REPUBLIC SECURITY FINANCIAL
CORPORATION, a Florida corporation (the "Corporation").
WHEREAS, at its meeting on May 31, 1995 (the "Effective
Date"), the Board of Directors of the Corporation granted to Optionee certain
nonqualified options to purchase shares of the Corporation's common stock, $.01
par value ("Shares"); and
WHEREAS, the parties desire to memorialize and set
forth the terms and conditions of such grant;
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree as follows:
1. GRANT. The Corporation, as of the Effective Date, hereby grants
Optionee the right and option to purchase 200,000 Shares in three tranches as
follows: Option A (option to purchase 25,000 Shares); Option B (option to
purchase 25,000 Shares); and Option C (option to purchase 150,000 Shares)
(collectively referred to herein as the "Option" or "Options"). The Options
shall not be treated as incentive options within the meaning of section 422 of
the Internal Revenue Code of 1986, as amended.
<PAGE>
2. VESTING. The Options shall, except as provided herein, vest and
become immediately exercisable as follows: Option A shall vest on May 31, 1996;
Option B on May 31, 1997; and Option C on May 31, 1998. Notwithstanding the
foregoing, all Options shall vest and become immediately exercisable upon the
occurrence of any one of the following events: (a) Optionee's death or
termination of employment due to permanent disablement or (b) the occurrence of
a change of control of the Corporation. For purposes of this Agreement, the
following terms shall have the following meanings: The term "permanent
disablement" shall mean Optionee's inability to engage in any substantial
gainful activity by reason of a medically determinable physical or mental
impairment and which has lasted or can be expected to last for a continuous
period of not less than twelve months. A "change of control" shall be deemed to
have occurred when any "person" (as used in Section 13(d) of the Securities
Exchange Act of 1934), directly or indirectly, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), of 50% or
more of the Corporation's common stock then outstanding.
3. OPTION TERM. All of the unexercised Options shall
expire on May 31, 2005. In no event, shall any of the Options
granted herein be exercisable after May 31, 2005.
4. OPTION PRICE. The Options shall have the following
purchase prices: Option A Shares for $4.625 per share; Option B
- 2 -
<PAGE>
Shares for $6.25 per share and Option C Shares for $8.00 per share.
5. TERMINATION OF EMPLOYMENT. If Optionee voluntarily terminates his
employment with the Corporation or is terminated for cause, any Options which,
on the date of such termination, are not vested, or which are vested and shall
not have been exercised, shall automatically terminate and be forfeited to the
Corporation. If Optionee is terminated by the Corporation for any reason other
than for cause, Optionee shall, on the date of such termination, forfeit all
Options which are not then vested and shall be permitted to exercise all vested
Options only during the ninety-day period immediately following such termination
date.
6. DEATH OR DISABILITY. If, while employed by the Corporation, Optionee
dies or suffers permanent disablement, all Options shall immediately vest and
shall be exercisable by his beneficiary (in the event of his death) or by
Optionee or his legal representative (in the event of his disablement) at any
time during the one-year period immediately following the date of Optionee's
death or termination of employment due to such disablement.
7. EXERCISE. Options, once vested, may be exercised by
Optionee by giving written notice of such exercise to the
Corporation, at its principal executive offices, attention:
- 3 -
<PAGE>
Secretary. Such notice shall specify the number of Shares to be purchased and
shall be accompanied by payment of the aggregate purchase price of such Shares,
plus an additional amount equal to the Federal, state, local and other taxes
required to be withheld by the Corporation with respect to delivery of the
Shares for which the Option is exercised, if any (the "Exercise Price"). Payment
of the Exercise Price shall be made (i) in cash by personal check, (ii) by the
transfer and delivery to the Corporation of outstanding Shares having a fair
market value on the date of exercise at least equal to the Exercise Price, or
(iii) in a combination of cash and Shares. In the alternative, if requested by
Optionee, the Corporation shall cooperate in a cashless exercise to be effected
through a registered securities broker (acceptable to the Corporation), to which
would be delivered instructions to sell a sufficient number of Shares, issuable
upon exercise of such Options, to cover the aggregate exercise price of the
Options and the broker's commissions and expenses.
8. RESTRICTIONS ON SHARES.
(a) Optionee hereby represents and agrees that he will acquire
Shares purchased by him hereunder for investment only and not with a view to the
sale and distribution thereof. Optionee will acquire such Shares for his own
account and not on behalf of others and will not grant any other person any
right or option or any participation or beneficial interest in any of the
Shares. Optionee acknowledges his understanding that such Shares will
- 4 -
<PAGE>
constitute restricted securities within the meaning of Rule 144 under the
Securities Act of 1933 (the "Act"), that none of the Shares may be sold except
pursuant to an effective registration statement under the Act or in a
transaction exempt from registration under the Act and that he has no right to
require or participate in any such registration. Optionee acknowledges that he
understands the meaning and effect of such restrictions. Optionee warrants that
he has sufficient knowledge and experience in financial and business matters so
that he is capable of evaluating the risks and merits of any purchase of Shares
hereunder.
(b) The parties agree that each of the stock certificates
representing Shares issued upon any exercise of an Option shall bear the
following legend:
TRANSFER RESTRICTED
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under any state securities laws and may not be sold, assigned
or otherwise transferred unless duly registered under such Act
and laws or upon receipt by the company of an opinion of
counsel satisfactory to the company that such sale, assignment
or transfer may be made exempt from the registration
requirements of such Act and laws.
9. ADDITIONAL PROVISIONS.
(a) Neither the Options nor any of Optionee's rights or
interests therein shall be assignable or transferable by Optionee other than by
will, the laws of descent and distribution or a transfer to a trust approved by
the Board of Directors in its discretion. Except as expressly provided herein,
Options
- 5 -
<PAGE>
shall be exercisable only by Optionee. No Options may be pledged or encumbered
in any way. Options shall immediately expire and terminate if they become
transferred due to execution, attachment or similar legal process.
(b) Nothing contained herein shall be construed as giving
Optionee any right to be retained in the employ of the Corporation, or interfere
in any way with the right of the Corporation to terminate the employment of
Optionee.
(c) In the event of any change in the Shares of the
Corporation by reason of any stock dividend, recapitalization, reorganization,
merger, consolidation, split-up, combination or exchange of Shares, or any
rights to purchase Shares at a price substantially below fair market value, or
any similar change affecting the Shares, the number or kind of shares subject to
the Options and the Option price hereunder shall be appropriately adjusted
consistent with such change to prevent dilution or enlargement of the rights of
the Optionee. In the event of a dispute as to any such adjustment, the
determination thereof by the Compensation Committee of the Board of Directors of
the Corporation shall be final and binding on the parties hereto.
(d) In the event that the Board of Directors hereafter offers
to grant additional stock options or some other compensation plan to Optionee,
the offer and grant may be conditioned by the Board of Directors upon the
surrender by Optionee of all or
- 6 -
<PAGE>
some of the unexercised Options. Acceptance of any such offer and grant and the
resulting surrender of Options shall at all times be subject to Optionee's
discretion. Upon such surrender, and to the extent thereof, the unexercised
Options shall terminate and be of no further force or effect.
(e) Optionee shall have no rights as a shareholder of the
Corporation with respect to any unexercised Options or Shares subject to the
Options prior to the date of issuance to him of a certificate or certificates
for such Shares.
(f) This Agreement shall be governed and interpreted in
accordance with the laws of the State of Florida and may be amended only by the
written agreement of both of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have entered into this
agreement as of the date first above written.
REPUBLIC SECURITY FINANCIAL
CORPORATION
___________________________ By: __________________________
RICHARD J. HASKINS Lennart E. Lindahl, Jr.,
Vice Chairman
- 7 -
REPUBLIC SECURITY FINANCIAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement is made and entered into as of May 31, 1995 by
and between RUDY E. SCHUPP ("Optionee") and REPUBLIC SECURITY FINANCIAL
CORPORATION, a Florida corporation (the "Corporation").
WHEREAS, at its meeting on May 31, 1995 (the "Effective
Date"), the Board of Directors of the Corporation granted to Optionee certain
nonqualified options to purchase shares of the Corporation's common stock, $.01
par value ("Shares"); and
WHEREAS, the parties desire to memorialize and set
forth the terms and conditions of such grant;
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree as follows:
1. GRANT. The Corporation, as of the Effective Date, hereby grants
Optionee the right and option to purchase 500,000 Shares in three tranches as
follows: Option A (option to purchase 50,000 Shares); Option B (option to
purchase 50,000 Shares); and Option C (option to purchase 400,000 Shares)
(collectively referred to herein as the "Option" or "Options"). The Options
shall not be treated as incentive options within the meaning of section 422 of
the Internal Revenue Code of 1986, as amended.
<PAGE>
2. VESTING. The Options shall, except as provided herein, vest and
become immediately exercisable as follows: Option A shall vest on May 31, 1996;
Option B on May 31, 1997; and Option C on May 31, 1998. Notwithstanding the
foregoing, all Options shall vest and become immediately exercisable upon the
occurrence of any one of the following events: (a) Optionee's death or
termination of employment due to permanent disablement or (b) the occurrence of
a change of control of the Corporation. For purposes of this Agreement, the
following terms shall have the following meanings: The term "permanent
disablement" shall mean Optionee's inability to engage in any substantial
gainful activity by reason of a medically determinable physical or mental
impairment and which has lasted or can be expected to last for a continuous
period of not less than twelve months. A "change of control" shall be deemed to
have occurred when any "person" (as used in Section 13(d) of the Securities
Exchange Act of 1934), directly or indirectly, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), of 50% or
more of the Corporation's common stock then outstanding.
3. OPTION TERM. All of the unexercised Options shall
expire on May 31, 2005. In no event, shall any of the Options
granted herein be exercisable after May 31, 2005.
4. OPTION PRICE. The Options shall have the following
purchase prices: Option A Shares for $4.625 per share; Option B
- 2 -
<PAGE>
Shares for $6.25 per share and Option C Shares for $8.00 per share.
5. TERMINATION OF EMPLOYMENT. If Optionee voluntarily terminates his
employment with the Corporation or is terminated for cause, any Options which,
on the date of such termination, are not vested, or which are vested and shall
not have been exercised, shall automatically terminate and be forfeited to the
Corporation. If Optionee is terminated by the Corporation for any reason other
than for cause, Optionee shall, on the date of such termination, forfeit all
Options which are not then vested and shall be permitted to exercise all vested
Options only during the ninety-day period immediately following such termination
date.
6. DEATH OR DISABILITY. If, while employed by the Corporation, Optionee
dies or suffers permanent disablement, all Options shall immediately vest and
shall be exercisable by his beneficiary (in the event of his death) or by
Optionee or his legal representative (in the event of his disablement) at any
time during the one-year period immediately following the date of Optionee's
death or termination of employment due to such disablement.
7. EXERCISE. Options, once vested, may be exercised by
Optionee by giving written notice of such exercise to the
Corporation, at its principal executive offices, attention:
- 3 -
<PAGE>
Secretary. Such notice shall specify the number of Shares to be purchased and
shall be accompanied by payment of the aggregate purchase price of such Shares,
plus an additional amount equal to the Federal, state, local and other taxes
required to be withheld by the Corporation with respect to delivery of the
Shares for which the Option is exercised, if any (the "Exercise Price"). Payment
of the Exercise Price shall be made (i) in cash by personal check, (ii) by the
transfer and delivery to the Corporation of outstanding Shares having a fair
market value on the date of exercise at least equal to the Exercise Price, or
(iii) in a combination of cash and Shares. In the alternative, if requested by
Optionee, the Corporation shall cooperate in a cashless exercise to be effected
through a registered securities broker (acceptable to the Corporation), to which
would be delivered instructions to sell a sufficient number of Shares, issuable
upon exercise of such Options, to cover the aggregate exercise price of the
Options and the broker's commissions and expenses.
8. RESTRICTIONS ON SHARES.
(a) Optionee hereby represents and agrees that he will acquire
Shares purchased by him hereunder for investment only and not with a view to the
sale and distribution thereof. Optionee will acquire such Shares for his own
account and not on behalf of others and will not grant any other person any
right or option or any participation or beneficial interest in any of the
Shares. Optionee acknowledges his understanding that such Shares will
- 4 -
<PAGE>
constitute restricted securities within the meaning of Rule 144 under the
Securities Act of 1933 (the "Act"), that none of the Shares may be sold except
pursuant to an effective registration statement under the Act or in a
transaction exempt from registration under the Act and that he has no right to
require or participate in any such registration. Optionee acknowledges that he
understands the meaning and effect of such restrictions. Optionee warrants that
he has sufficient knowledge and experience in financial and business matters so
that he is capable of evaluating the risks and merits of any purchase of Shares
hereunder.
(b) The parties agree that each of the stock certificates
representing Shares issued upon any exercise of an Option shall bear the
following legend:
TRANSFER RESTRICTED
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under any state securities laws and may not be sold, assigned
or otherwise transferred unless duly registered under such Act
and laws or upon receipt by the company of an opinion of
counsel satisfactory to the company that such sale, assignment
or transfer may be made exempt from the registration
requirements of such Act and laws.
9. ADDITIONAL PROVISIONS.
(a) Neither the Options nor any of Optionee's rights or
interests therein shall be assignable or transferable by Optionee other than by
will, the laws of descent and distribution or a transfer to a trust approved by
the Board of Directors in its discretion. Except as expressly provided herein,
Options
- 5 -
<PAGE>
shall be exercisable only by Optionee. No Options may be pledged or encumbered
in any way. Options shall immediately expire and terminate if they become
transferred due to execution, attachment or similar legal process.
(b) Nothing contained herein shall be construed as giving
Optionee any right to be retained in the employ of the Corporation, or interfere
in any way with the right of the Corporation to terminate the employment of
Optionee.
(c) In the event of any change in the Shares of the
Corporation by reason of any stock dividend, recapitalization, reorganization,
merger, consolidation, split-up, combination or exchange of Shares, or any
rights to purchase Shares at a price substantially below fair market value, or
any similar change affecting the Shares, the number or kind of shares subject to
the Options and the Option price hereunder shall be appropriately adjusted
consistent with such change to prevent dilution or enlargement of the rights of
the Optionee. In the event of a dispute as to any such adjustment, the
determination thereof by the Compensation Committee of the Board of Directors of
the Corporation shall be final and binding on the parties hereto.
(d) In the event that the Board of Directors hereafter offers
to grant additional stock options or some other compensation plan to Optionee,
the offer and grant may be conditioned by the Board of Directors upon the
surrender by Optionee of all or
- 6 -
<PAGE>
some of the unexercised Options. Acceptance of any such offer and grant and the
resulting surrender of Options shall at all times be subject to Optionee's
discretion. Upon such surrender, and to the extent thereof, the unexercised
Options shall terminate and be of no further force or effect.
(e) Optionee shall have no rights as a shareholder of the
Corporation with respect to any unexercised Options or Shares subject to the
Options prior to the date of issuance to him of a certificate or certificates
for such Shares.
(f) This Agreement shall be governed and interpreted in
accordance with the laws of the State of Florida and may be amended only by the
written agreement of both of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have entered into this
agreement as of the date first above written.
REPUBLIC SECURITY FINANCIAL
CORPORATION
___________________________ By: __________________________
RUDY E. SCHUPP Lennart E. Lindahl, Jr.,
Vice Chairman
- 7 -
EXHIBIT 11
REPUBLIC SECURITY FINANCIAL CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JUNE 30, YEAR ENDED MARCH 31,
----------------- ----------------------------
1995 1994 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average shares outstanding................................. 4,300 3,611 3,632 2,920 1,795
Net effect of dilutive stock options, warrants and equity
contracts based on the modified treasury stock method
using average market price............................... 159 869 842 1,007 1,100
------ ------ ------ ------ ------
Total weighted average number
of shares outstanding.................................... 4,459 4,480 4,474 3,927 2,895
====== ====== ====== ====== ======
Income before extraordinary item
and accounting change.................................... $ 527 $ 265 $1,167 $1,593 $1,218
Add income effect of utilizing net proceeds from conversion
of options, warrants and equity contracts to reduce debt
and invest excess in government bonds--net of income tax
effect................................................... 42 158 212 227
Deduct preferred dividends................................. 75 75 302 165
------ ------ ------ ------ ------
Income before extraordinary item and accounting change
available to common stockholders......................... $ 452 $ 232 $1,023 $1,640 $1,445
====== ====== ====== ====== ======
Income before extraordinary item and accounting change, per
share amount............................................... $ .10 $ .05 $ .23 $ .42 $ .50
====== ====== ====== ====== ======
Net income................................................. $ 527 $ 265 $1,167 $2,093 $1,218
Add income effect of utilizing net proceeds from conversion
of options, warrants and equity contracts to reduce debt
and invest excess in government bonds--net of income tax
effect................................................... 42 158 212 227
Deduct preferred stock dividends........................... 75 75 302 165
------ ------ ------ ------ ------
Income available to common stockholders.................... $ 452 $ 232 $1,023 $2,140 $1,445
====== ====== ====== ====== ======
Net income per share amount................................ $ .10 $ .05 $ .23 $ .55 $ .50
====== ====== ====== ====== ======
</TABLE>
EXHIBIT 12
REPUBLIC SECURITY FINANCIAL CORPORATION
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
-------------------- ----------------------------------------------
1995 1994 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated pretax income from
continuing operations....................... $ 818 $ 420 $1,830 $2,411 $1,800 $1,258 $ 640
Interest on deposits.......................... 2,432 1,246 6,244 4,733 4,319 6,461 8,018
Other interest................................ 280 263 1,153 779 241 489 803
Amortization of debt issue costs.............. 10 14 57 57 57 57 57
Interest portion of rental expense............ 51 21 84 84 64 49 47
------ ------ ------ ------ ------ ------ ------
Earnings...................................... $3,591 $1,964 $9,368 $8,064 $6,481 $8,314 $9,565
====== ====== ====== ====== ====== ====== ======
Interest on deposits.......................... $2,432 $1,246 $6,244 $4,733 $4,319 $6,461 $8,018
Other interest................................ 280 263 1,153 779 241 489 803
Amortization of debt issue costs.............. 10 14 57 57 57 57 57
Interest portion of rental expense............ 51 21 84 84 64 49 47
Preferred stock dividend requirements(1)...... 117 117 472 256 0 0 0
------ ------ ------ ------ ------ ------ ------
Fixed charges................................. $2,890 $1,661 $8,010 $5,909 $4,681 $7,056 $8,925
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges:
Excluding interest on deposits.............. 2.53 1.73 1.77 2.83 5.97 3.11 1.71
Including interest on deposits.............. 1.24 1.18 1.17 1.36 1.38 1.18 1.07
</TABLE>
------------------------
(1) Preferred stock dividend requirements is computed by dividing the preferred
stock dividends by 1 minus the effective income tax rate of 36%.
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption 'Experts' and to
the use of our report dated May 10, 1995, in the Registration Statement (Form
S-2) and related Prospectus of Republic Security Financial Corporation for the
registration of shares of its common stock and shares of Cumulative Convertible
Preferred Stock, Series C.
ERNST & YOUNG LLP
West Palm Beach, Florida
September 21, 1995
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Banyan Bank
Boca Raton, Florida
We hereby consent to the use in this Registration Statement (Form S-2) of
our report, dated March 3, 1995, relating to the financial statements of Banyan
Bank, and to the reference to our Firm under the caption 'Experts' in the
Prospectus.
McGladrey & Pullen, LLP
St. Paul, Minnesota
September 21, 1995
EXHIBIT 23(c)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Governors Bank Corporation and Subsidiary
West Palm Beach, Florida
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 12, 1994, except for Note 8(b)
which is as of June 23, 1994, Note 9(a)(ii) which is as of May 3, 1994, and Note
9(c) which is as of June 17, 1994, relating to the consolidated financial
statements of Governors Bank Corporation and Subsidiary (the 'Company'), which
is contained in that Prospectus. Our report contains explanatory paragraphs
regarding uncertainties as to the Company's ability to continue as a going
concern and as to the outcome of certain litigation.
We also consent to the reference to us under the caption 'Experts' in the
Prospectus.
BDO SEIDMAN, LLP
West Palm Beach, Florida
September 21, 1995
