<PAGE>
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the period ended September 30, 1995
____________________________________________
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from _______________ to ______________
Commission File Number: 0-14671
____________________________________________
REPUBLIC SECURITY FINANCIAL CORPORATION
_________________________________________________________________________
(Exact name of registrant as specified in its charter)
FLORIDA 59-2335075
________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 Congress Avenue, West Palm Beach, Florida 33402
________________________________________________________________
(Address of principal executive offices) (Zip Code)
(407) 840-1200
________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 1 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
[ X ] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding as of November 6, 1995
Common Stock
par value $.01 4,431,175
outstanding
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
______
Part I:Financial Information
Item 1:
Condensed Consolidated Statements of Financial
Condition - September 30, 1995 and March 31, 1995 3
Condensed Consolidated Statements of Income
for the three months ended September 30, 1995 and 1994 4
Condensed Consolidated Statements of Income for
the six months ended September 30, 1995 and 1994 5
Condensed Consolidated Statements of Shareholders'
Equity for the year ended March 31, 1995 and for the
six months ended September 30, 1995 6
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 1995 and 1994 7
Notes to Condensed Consolidated Financial
Statements 8-12
Item 2:
Management's Discussion and Analysis 13-16
Part II:
Other Information
Item 6: Exhibits and Reports Filed 17
Exhibit 11 - Computation of Per Share Earnings 18
Signatures 19
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
___________________________________________________________________________________________
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands except per share data)
<CAPTION>
___________________________________________________________________________________________
SEPTEMBER 30, MARCH 31,
1995 1995
(unaudited) (Note 1)
___________________________________________________________________________________________
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $3,703 $3,566
Interest-bearing deposits in other financial institutions 23,520 14,050
Investments (Market value of $11,643 and $14,229 at
September 30, 1995, and March 31, 1995, respectively) 11,437 14,153
Loans - net 207,928 227,940
Loans held for sale (Market value of $7,502) 7,478
Property and equipment - net 6,017 6,103
Real estate owned - net 1,095 1,009
Goodwill - net 3,118 3,227
Loan servicing rights 2,624 2,796
Accrued interest receivable 1,837 2,041
Other assets 5,144 5,154
___________________________________________________________________________________________
Total $273,901 $280,039
___________________________________________________________________________________________
Liabilities and Shareholders' Equity
Deposits $210,803 $229,735
Advances from Federal Home Loan Bank 27,000 15,000
Securities sold under agreements to repurchase 2,091 2,748
Redeemable subordinated debentures 1,985
Advances from borrowers for taxes and insurance 2,576 1,598
Bank drafts payable 3,775 4,148
Other liabilities 4,046 4,379
___________________________________________________________________________________________
Total liabilities 250,291 259,593
___________________________________________________________________________________________
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 stated value; 10,000,000 shares authorized:
401,500 and 402,500 shares issued and outstanding at
September 30, 1995 and March 31, 1995, respectively 4,015 4,025
Common stock $.01 par value; 20,000,000 shares authorized;
4,413,563 and 3,652,743 shares issued and outstanding at
September 30, 1995 and March 31, 1995, respectively 44 36
Additional paid-in capital 16,595 14,363
Retained earnings 2,956 2,022
___________________________________________________________________________________________
Total shareholders' equity 23,610 20,446
___________________________________________________________________________________________
Total $273,901 $280,039
___________________________________________________________________________________________
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
___________________________________________________________________________________________
Three Months Ended September 30
(Unaudited)
(dollars in thousands except per share data) 1995 1994
___________________________________________________________________________________________
<S>
INTEREST INCOME: <C> <C>
Interest on loans $ 5,152 $ 3,466
Interest and dividends on investments 302 158
___________________________________________________________________________________________
5,454 3,624
___________________________________________________________________________________________
INTEREST EXPENSE:
Interest on deposits 2,334 1,305
Interest on borrowings 370 234
___________________________________________________________________________________________
2,704 1,539
___________________________________________________________________________________________
Net interest income 2,750 2,085
Provision for loan losses 50 75
___________________________________________________________________________________________
Net interest income after provision for loan losses 2,700 2,010
___________________________________________________________________________________________
NON-INTEREST INCOME (LOSS):
Service charges on deposit accounts 374 162
Mortgage trading income 259 174
Gain on sale of loans 270 55
Other income 464 211
___________________________________________________________________________________________
1,367 602
___________________________________________________________________________________________
OPERATING EXPENSES:
Employee compensation and benefits 1,236 1,055
Occupancy and equipment 493 294
Professional fees 146 131
Advertising and promotions 55 43
Communications 100 68
Data processing 108 66
Insurance 173 145
Other 585 336
___________________________________________________________________________________________
2,896 2,138
___________________________________________________________________________________________
Income before taxes 1,171 474
Provision for income taxes 421 170
___________________________________________________________________________________________
Net income $ 750 $ 304
___________________________________________________________________________________________
PER SHARE DATA:
Primary earnings per common share $ .15 $ .06
___________________________________________________________________________________________
Fully diluted earnings per common share .13 .06
___________________________________________________________________________________________
Dividends per common share .025 .01
___________________________________________________________________________________________
Average common shares and common stock
equivalents outstanding-Primary 4,629 4,489
Average common shares and common stock
equilvalents outstanding-Fully Diluted 5,621 4,489
___________________________________________________________________________________________
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
___________________________________________________________________________________________
Six Months Ended September 30
(Unaudited)
(dollars in thousands except per share data) 1995 1994
<S> <C> <C>
___________________________________________________________________________________________
INTEREST INCOME:
Interest on loans $ 10,131 $ 6,559
Interest and dividends on investments 643 426
___________________________________________________________________________________________
10,774 6,985
___________________________________________________________________________________________
INTEREST EXPENSE:
Interest on deposits 4,766 2,551
Interest on borrowings 650 497
___________________________________________________________________________________________
5,416 3,048
___________________________________________________________________________________________
Net interest income 5,358 3,937
Provision for loan losses 75 150
___________________________________________________________________________________________
Net interest income after provision for loan losses 5,283 3,787
___________________________________________________________________________________________
NON-INTEREST INCOME (LOSS):
Service charges on deposit accounts 688 309
Mortgage trading income 259 175
Gain on sale of loans 453 342
Loss on investments - trading (200)
Other income 881 830
___________________________________________________________________________________________
2,281 1,456
___________________________________________________________________________________________
OPERATING EXPENSES:
Employee compensation and benefits 2,451 2,142
Occupancy and equipment 982 583
Professional fees 345 279
Advertising and Promotions 115 80
Communications 206 146
Data processing 219 132
Insurance 326 281
Other 931 706
___________________________________________________________________________________________
5,575 4,349
___________________________________________________________________________________________
Income before taxes 1,989 894
Provision for income taxes 712 325
___________________________________________________________________________________________
Net income $ 1,277 $ 569
___________________________________________________________________________________________
PER SHARE DATA:
Primary earnings per common share $ .25 $ .11
___________________________________________________________________________________________
Fully diluted earnings per common share .23 .11
___________________________________________________________________________________________
Dividends per common share .045 .02
___________________________________________________________________________________________
Average common shares and common stock
equivalents outstanding 4,544 4,478
Average common shares and common stock
equilvalents outstanding 5,536 4,478
___________________________________________________________________________________________
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
<CAPTION>
(dollars in thousands except per share data)
___________________________________________________________________________________________
Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings
<S> <C> <C> <C> <C>
___________________________________________________________________________________________
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 and preferred stock (519)
___________________________________________________________________________________________
Net income for year ended March 31, 1995 1,167
Balance, March 31, 1995 4,025 36 14,363 2,022
Exercise of equity contracts - 634,476 shares 7 1,744
Exercise of warrants - 108,710 shares 1 419
Exercise of stock options - 2,668 shares 7
Conversion of preferred stock for common stock
- 2,469 shares (10) 10
Stock grants - 10,500 shares 44
401(k) plan - 1,997 shares 8
Cash dividends - common and preferred stock (343)
Net income for six months ended
September 30, 1995 1,277
___________________________________________________________________________________________
Balance, September 30, 1995 $4,015 $44 $16,595 $2,956
___________________________________________________________________________________________
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
___________________________________________________________________________________________
Six Months Ended September 30
(unaudited)
(dollars in thousands except per share data) 1995 1994
___________________________________________________________________________________________
<S> <C> <C>
Operating Activities:
Net income $ 1,277 $ 569
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 75 150
Provision for depreciation and amortization 649 431
Amortization of deferred loan fees and costs (246) (131)
Realized gain on sale of loans and servicing (537) (825)
Loans originated or acquired for sale (20,988) (35,207)
Loss on investments - trading 200
Sales of loans and loan participation certificates 33,202 36,312
Loan costs deferred (105) (297)
Proceeds from sale of investments - trading 24,000
(Increase) decrease in interest receivable 204 (76)
Increase in interest payable 69 40
Other, net 150 73
___________________________________________________________________________________________
Net cash provided by operating activities 13,750 25,239
___________________________________________________________________________________________
Investing Activities:
Loans originated or acquired for investment (45,522) (21,518)
Principal collected on loans 45,975 9,077
Proceeds from maturities of investments held-to-maturity 2,850
Purchases of property and equipment (218) (1,074)
Purchases of loan servicing rights (1,412)
Proceeds from sale of real estate owned 344
Other, net (119) 635
___________________________________________________________________________________________
Net cash provided by (used in) investing activities 3,310 (14,292)
___________________________________________________________________________________________
Financing Activities:
Net decrease in demand deposits, NOW accounts,
Money Market accounts and savings accounts (4,665) (1,660)
Proceeds from sales of certificates of deposit 17,264 16,891
Payments for maturing certificates of deposit (31,531) (15,252)
Net increase in short-term borrowings from FHLB 12,000
Cash dividends paid to shareholders (343) (225)
Other, net (178) 94
___________________________________________________________________________________________
Net cash used in financing activities (7,453) (152)
___________________________________________________________________________________________
Increase in cash and cash equivalents 9,607 10,795
Cash and cash equivalents at beginning of period 17,616 13,154
___________________________________________________________________________________________
Cash and cash equivalents at end of period $27,223 $23,949
___________________________________________________________________________________________
<FN>
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 purchased and sold for one-
day periods. The Company paid $398,000 and $307,000 in income taxes during the six months ended
September 30, 1995 and September 30, 1994, respectively. The Company paid $5,347,000 and
$3,113,000 in interest on deposits and other borrowings during the six months ending September
30, 1995 and 1994, respectively. The Company had $430,000 and $930,000 of transfers from loans
to REO during the six months ending September 30,1995 and 1994, respectively.
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed 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").
In the opinion of the Company's management, the financial
statements contain all adjustments (consisting of normal
recurring accruals) considered necessary to present fairly the
consolidated financial position of Republic Security Financial
Corporation and its subsidiary as of September 30, 1995 and
March 31, 1995, and the results of operations for the three
and six months ended September 30, 1995 and 1994, and changes
in cash flows for the six months then ended.
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article
10 of Regulations S-X. Accordingly, they do not include all
of the information and footnotes required by generally
accepted accounting principles for complete financial
statements. Operating results for the three and six months
ended September 30, 1995 are not necessarily indicative of the
results that may be expected for the transitional period
ending December 31, 1995 (see Note 7). For further
information, refer to the consolidated financial statements
and footnotes thereto included in Republic Security Financial
Corporation's annual report on Form 10K for the year ended
March 31, 1995.
The balance sheet at March 31, 1995 has been derived
from the audited financial statements at that date but does
not include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements.
2. Non-Performing Assets and Allowances for Loan Losses
At September 30, 1995, the Bank had non-performing
assets (loans 60 days or more past due, real estate owned, and
repossessed assets) of $5.0 million. The total provision for
loan losses for the Bank was $50,000 and $75,000 for the three
months ended September 30, 1995 and 1994, respectively. In
evaluating possible loan losses from non-performing assets,
management has taken into consideration past loan loss
experience, current economic conditions, workout arrangements,
pending sales, the financial strength of the borrowers, the
appraised value of the collateral, future cash flows expected
to be received on impaired loans and other relevant factors.
Although management believes the allowance for possible losses
is adequate, their evaluation of possible losses is a
continuing process which may necessitate adjustments to the
allowance in future periods.
<PAGE>
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 at March 31, 1995 have been reclassified
to loans.
3. Financial Accounting Standards Board No. 122 "Accounting for
Mortgage Servicing Rights"
On May 12, 1995, the Financial Accounting Standards
Board issued Statement No. 122 "Accounting for Mortgage
Servicing Rights", an amendment to Statement No. 65. The
Company elected to adopt this standard for financial statement
reporting for the quarter ended June 30, 1995. Statement No.
122 prohibits retroactive application to prior years.
Statement No. 122 requires that a portion of the cost of
originating a mortgage loan be allocated to the mortgage
servicing right based on its fair value relative to the loan
as a whole when the loan is purchased or originated for sale
with servicing retained. To determine the fair value of
servicing rights created after the adoption of Statement
No. 122, the Company will use a valuation model that
calculates the present value of estimated future cash
flows. This valuation method incorporates assumptions
determined by the Company about the discount rate,
prepayment speeds, default and interest rates.
No servicing rights were recorded during the six months ended
September 30, 1995 as the costs associated with the
mortgage servicing rights were immaterial.
4. Redeemable Subordinated Debentures
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.
<PAGE>
5. Shareholders' Equity
The Company granted stock options to purchase 700,000
shares of the Company's common stock to two executives on May
31, 1995 at various tiered vesting dates and option prices.
All unexercised options expire on May 31, 2005.
On November 6, 1995, the Company canceled the stock
option grants to purchase 700,000 shares of the Company's
common stock.
6. Segment Information
During fiscal 1995, the Company reduced mortgage banking
operations to a level that no longer warrants reporting these
operations as a segment as defined by Statement of Accounting
Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise".
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 September 30, 1995 and 1994.
7. Fiscal Year-End
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.
8. Commitments and Contingencies
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 September 30, 1995, the Bank had adjustable rate
commitments to extend credit of $5.6 million excluding the
undisbursed portion of loans in process. These commitments
are primarily for one-to-four family residential properties.
<PAGE>
In July 1995, the Chairman of the Federal Deposit
Insurance Corporation ("FDIC") announced in testimony before
the Congress a proposal to recapitalize the Savings
Association Insurance Fund ("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
Bank Insurance Fund ("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 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 net of taxes, respectively. Such an
assessment, as currently proposed, would not be affected by
the conversion of the Bank to a commercial bank and would have
a material adverse effect on the Company's earnings and
results of operations.
9. Potential Acquisitions
On September 7, 1995, the Company signed an agreement to
acquire all of the outstanding capital stock of Banyan Bank, a
Florida chartered bank ("Banyan") which is headquartered in
Boca Raton, Florida. At September 30, 1995 Banyan had
approximately $49.6 million, $44.5 million and $4.6 million of
total assets, deposits and capital, respectively. Under the
terms of the agreement, the Company will pay 207% of the first
$4.6 million of Banyan's Tangible Equity (as defined in the
agreement), plus 100% of any Tangible Equity in excess of $4.6
million, as of the calendar month ended immediately prior to
the closing of the transaction. The acquisition, which will
be accounted for as a purchase under generally accepted
accounting principles, is subject to fulfillment of a number
of conditions including regulatory approval.
On October 3, 1995, the Company entered into an
agreement with Century Bank, an unaffiliated thrift, to
purchase one branch office located in West Palm Beach,
Florida. The amount to be paid by the Company to the seller
for the transfer of the assets and liabilities of the branch
shall be equal to approximately $1.1 million. The acquisition
will be accounted for as a purchase and this amount
will be recorded as an intangible asset and will be amortized
over seven years on a straight line basis. In connection with
the acquisition, the Bank will assume approximately $32.6
million of deposit liabilities and $31.5 million of assets,
including $12.5 million of adjustable rate single-family
residential loans with an 8.25% yield and $19 million in cash.
The acquisition is expected to be consummated in December
1995. The acquired branch will be integrated into the Bank's
existing branch network by combining this new office with an
existing office in the vicinity.
<PAGE>
10. Subsequent Events
On November 8, 1995, the Bank converted its charter from
a federal savings bank to a State of Florida commercial bank
and at the same time the Company became a Federal Reserve bank
holding company.
On November 10, 1995, the Company received $17.2 million
in net proceeds related to the sale of 1,800,000 shares of
common stock and 900,000 shares of 7% Cumulative Convertible
Preferred Stock, Series C. On November 14, 1995 the Company
expects to receive approximately $2.6 million in net proceeds
related to the exercise of overallotment options for 270,000
shares of common stock and 135,000 shares of 7% Cumulative
Convertible Preferred Stock, Series C.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income for the quarter ended September 30, 1995 increased
$446,000 to $750,000 from $304,000 for the quarter ended September
30, 1994. The increase is due to an increase in net interest income
of $665,000 and an increase in non-interest income of $765,000
partially offset by an increase of $758,000 in operating expenses.
Net income for the six months ended September 30, 1995 was
approximately $1.3 million compared to $569,000 for the six months
ended September 30, 1994. The increase is attributable to an
increase in net interest income of $1.4 million, an increase in non-
interest income of $825,000, partially offset by an increase in
operating expenses of $1.2 million.
Net Interest Income
Net interest income increased $665,000 for the quarter ended
September 30, 1995 compared to the quarter ended September 30, 1994
due to an increase in average loans outstanding of approximately
$45.0 million and an increase in the average investment balance of
approximately $11.0 million. The increases in the loan and
investment balances is largely attributable to the acquisition of
Governors in November 1994.
Net interest income increased $1.4 million for the six months
ended September 30, 1995 compared to the same period in the prior
year due to an increase in interest earning assets offset by an
increase in interest-bearing liabilities. The increases are
primarily related to the Governors acquisition.
Provision for Loan Losses
The provision for loan losses decreased $25,000 and $75,000
for the three and six months ended September 30, 1995, respectively,
compared to the three and six months ended September 30, 1994
primarily due to a decrease in net loan charge-offs. However, the
allowance for loan losses as a percent of total loans increased from
.69% at September 30, 1994 to 1.13% at September 30, 1995. This
increase is a result of the allowance acquired from Governors and a
decrease in net loan charge-offs during fiscal 1995 and the six
months ended September 30, 1995. Management believes the allowance
for loan losses acquired were adequate for the loan portfolio
acquired. The amount of provision for loan losses is a function of
management's ongoing evaluation of the allowance for loan losses
which considers the characteristics of the loan portfolio, past loan
loss experience, economic conditions and other relevant factors. As
of September 30, 1995, the allowance for loan losses was $2.6
million.
<PAGE>
Non-Interest Income
The increase in non-interest income for the quarter ended
September 30, 1995 compared to the quarter ended September 30, 1994
is attributable to a $212,000 increase in service charges on deposit
accounts, a $215,000 increase in gain on sales of loans, a $148,000
increase in other fee income, a $105,000 increase in net loan
servicing income and a $85,000 increase in loan trading gains. The
amount of fee income related to deposit and loan accounts has more
than doubled since the quarter ended September 30, 1994 primarily
due to an increase in the volume of deposit and loan accounts and,
to a lesser extent, an increase in fee charges. Net loan servicing
income has increased due to an increase in the amount of loans
serviced for others and a decrease in the amortization of loan
servicing rights. Loan trading department brokers loan packages
for a fee and also acts as a principal in buying and reselling the
same loan package for a gain.
Non-interest income increased $825,000 for the six months ended
September 30, 1995 compared to the six month's ended September 30,
1994 due to a $195,000 increase in gain on sale of loans and
mortgage trading income, a $115,000 increase in loan servicing fees
attributable to an increase in the amount of loans serviced for
others and an increase of $622,000 in service charges on deposit
accounts and other fee income due to an increase in the volume of
deposit and loan accounts. In addition, the six months ended
September 30, 1994 included a $307,000 gain on the sale of loan
servicing rights and a $200,000 loss on the sale of trading
investments. Loss on trading investments is due to increases in
interest rates during the six months ended September 30, 1994, which
resulted in lower net asset values for adjustable rate mortgage fund
investments.
Operating Expense
Operating expenses for the quarter ended September 30, 1995
increased $758,000 to approximately $2.9 million from $2.1 million
for the quarter ended September 30, 1994 as a result of increases in
employee compensation occupancy expense, data processing expense and
insurance expense. These increases are due to increases in the
number of employees, the number of branch locations and departments
and an increase in loan and deposit volumes, primarily as a result
of the acquisition of Governors.
Operating expenses increased approximately $1.2 million for
the six months ended September 30, 1995 compared to the six months
ended September 30, 1994 primarily due to increases in employee
compensation, occupancy expense and data processing expenses related
to the Bank's growth as a result of the Governor's acquisition.
Liquidity, Sources of Capital and Capital Requirements
As a member of the Federal Home Loan Bank System, the Bank is
subject to regulations which require it to maintain "long term" and
"short term" liquidity ratios. The majority of the liquid assets of
the Bank are deposits with the Federal Home Loan Bank of Atlanta.
The Bank was in compliance with liquidity requirements during the
six months ended September 30, 1994.
<PAGE>
On certain occasions, demand for loan funds may exceed cash
available from deposits. On such occasions, the Bank may borrow
funds from the Federal Home Loan Bank of Atlanta, draw on lines of
credit with commercial banks and/or enter into repurchase agreements
on eligible investments.
Cash provided by operating activities for the six months ended
September 30, 1995 were approximately $13.8 million, and resulted
primarily from loan sales. Cash provided by operations as well as
increases in FHLB advances were used to fund deposit run-off of
approximately $18.9 million. The decrease in deposits is
attributable to lowering interest rates paid on certificates of
deposits since March 1995 to become aligned with the commercial bank
market. Management believes most of the deposit run-off as a result
of lowering interest rates paid on deposits has already occurred and
anticipates deposit run-off to significantly decrease. Cash flows
increased cash and cash equivalents by approximately $9.6 million
during the six months ended September 30, 1995.
Management does not anticipate any significant impact on the
Company's financial condition or liquidity as a result of the
proposed one-time assessment to recapitalize the SAIF. See Note 8
to the condensed consolidated financial statements.
The Office of Thrift Supervision ("OTS") 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 8.0% of
risk-weighted assets.
The following table provides the capital amounts and ratios of
the Bank as compared to OTS requirements at September 30, 1995:
___________________________________________________________________________
Capital Requirement Bank OTS Requirement
(in thousands)
___________________________________________________________________________
Core capital $19,000 $8,000
Tangible capital 19,000 4,000
Risk-based capital 21,000 15,000
___________________________________________________________________________
The Bank was in compliance with its' capital requirements at
September 30, 1995.
Financial Condition
Total assets decreased $6.1 million to $273.9 million at
September 30, 1995 from $280 million at March 31, 1995. The
majority of the decrease in total assets is attributable to $18.9
million decrease in deposits offset by an increase of $12.0 million
in Federal Home Loan Bank advances which will be partially repaid
with the proceeds of loans held for sale of $7.5 million at
September 30, 1995. The Bank sells mortgage loans in the normal
course of business. At September 30, 1995, loans under commitment
which did not close before quarter-end are classified as loans held
for sale. The decrease in deposits was attributable to lowering
interest rates paid on certificates of deposits since March 1995 to
become aligned with the commercial bank market. Management believes
most of the deposit run-off as a result of lowering interest rates
paid on deposits has already occurred and anticipates deposit run-
off to significantly decrease.
<PAGE>
Shareholders' equity increased approximately $3.1 million
at September 30, 1995 from March 31, 1995. The increase in
stockholders' equity is primarily attributable to continued net
income, an increase of $1.7 million due to the exercise of equity
contracts and an increase of $420,000 due to the exercise of
warrants offset by $343,000 in common and preferred dividends paid
during the six months ended September 30 ,1995.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company filed the following reports during the three
months ended September 30, 1995:
(a) Form 8-K filed August 9, 1995
Reporting change in fiscal year end.
(b) Form 8-K filed September 14, 1995
Reporting Governors Bank acquisition
The following exhibit is included herein:
EXHIBIT (11) - Statement RE: Computation of Per Share
Earnings
<PAGE>
<TABLE>
EXHIBIT (11) - Statement RE: Computation of Per Share Earnings
<CAPTION>
___________________________________________________________________________________________
Three Months Ended Six Months Ended
September 30 September 30
(Amounts in thousands except per share data) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
___________________________________________________________________________________________
PRIMARY:
Average shares outstanding 4,366 3,638 4,333 3,624
Net effect of dilutive stock options, warrants and
equity contracts based on the modified
treasury stock method using average
market price 263 851 211 854
___________________________________________________________________________________________
Total weighted average number of shares and
common stock equivalents outstanding 4,629 4,489 4,544 4,478
___________________________________________________________________________________________
Net income $ 750 $ 304 $1,277 $ 569
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
of income tax effect 39 80
Less preferred dividends accrued (75) (75) (151) (151)
___________________________________________________________________________________________
Total $ 675 $ 268 $1,126 $ 498
___________________________________________________________________________________________
Net income per common share $ .15 $ .06 $ .25 $ .11
___________________________________________________________________________________________
FULLY DILUTED:
Average shares outstanding 4,366 4,333
Net effect of dilutive stock options, warrants and
equity contracts based on the modified
treasury stock method using average
market price or the period end price 263 211
Assumed conversion of 7% Cumulative Preferred
Stock - Series A 992 992
___________________________________________________________________________________________
Total 5,621 5,536
___________________________________________________________________________________________
Net income $ 750 $1,277
___________________________________________________________________________________________
Net income per common share $ .13 $ .23
___________________________________________________________________________________________
</TABLE>
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Republic Security Financial Corporation
(Registrant)
Date: /S/Carla H. Pollard
____________________ ______________________________
Carla H. Pollard
Vice President, Controller
