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, 1996
------------------
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 October 30, 1996
- - ----- ----------------------------------
Common Stock
par value $.01 7,828,100
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, 1996 and December 31, 1995..................1
Condensed Consolidated Statements of Income
for the three months ended September 30, 1996 and 1995................2
Condensed Consolidated Statements of Income for
the nine months ended September 30, 1996 and 1995.....................3
Condensed Consolidated Statements of Shareholders'
Equity for the nine month transition period ended
December 31, 1995 and for the nine months
ended September 30, 1996..............................................4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and 1995.................5
Notes to Condensed Consolidated Financial Statements................6-8
Item 2:
Management's Discussion and Analysis...............................9-11
Part II: Other Information
Item 6: Exhibits and Reports Filed............................... ..12
Exhibit 11 - Computation of Per Share Earnings..............13
Signatures...........................................................14
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
====================================================================================================================================
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1996 1995
(amounts in thousands except share and per share data) (unaudited)
====================================================================================================================================
<S> <C> <C>
Assets
Cash and amounts due from depository institutions $ 3,937 $ 3,211
Interest-bearing deposits in other financial institutions 23,688 51,162
Investments held to maturity (market value of $6,987 and $10,779 at
September 30, 1996 and December 31, 1995, respectively) 6,877 10,622
Investments available for sale 15,989
Loans - net 235,388 216,756
Loans held for sale (market value of $10,130 at September 30, 1996) 9,980
Property and equipment - net 8,779 7,192
Other real estate owned - net 1,944 1,340
Goodwill - net 7,816 2,994
Loan servicing rights - net 2,161 2,546
Accrued interest receivable 1,892 1,796
Other assets 7,968 6,042
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $326,419 $303,661
====================================================================================================================================
Liabilities and Shareholders' Equity
Liabilities:
Deposits $253,904 $223,535
Federal Home Loan Bank advances 12,000 25,000
Securities sold under agreements to repurchase 1,724 2,350
Advances from borrowers for taxes and insurance 5,332 2,105
Bank drafts payable 2,654 3,155
Other liabilities 5.640 3,682
- - ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 281,254 259,827
- - ------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' equity:
Preferred stock $10.00 stated value; 10,000,000 shares authorized:
Series "A": 401,500 shares issued and outstanding at December 31, 1995 4,015
Series "C" - 1,035,000 shares issued and outstanding at
September 30, 1996 and December 31, 1995. 10,350 10,350
Common stock $.01 par value; 20,000,000 shares authorized;
7,852,040 and 6,587,653 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 78 66
Additional paid-in capital 31,089 26,035
Retained earnings 3,589 3,368
Unrealized appreciation on investments available for sale, net of taxes 59
- - ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 45,165 43,834
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $326,419 $303,661
====================================================================================================================================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30,
1996 1995
(amounts in thousands except per share data) (Unaudited)
====================================================================================================================================
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $5,713 $5,236
Interest and dividends on investments 510 302
- - ------------------------------------------------------------------------------------------------------------------------------------
6,223 5,538
- - ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 2,551 2,334
Interest on borrowings 83 370
- - ------------------------------------------------------------------------------------------------------------------------------------
2,634 2,704
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,589 2,834
Provision for loan losses 50 50
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,539 2,784
- - ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Mortgage trading income 259
Gain on sale of loans 426 270
Other income 854 754
- - ------------------------------------------------------------------------------------------------------------------------------------
1,280 1,283
- - ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 1,457 1,252
Occupancy and equipment 657 511
Professional fees 183 146
Advertising and promotions 77 55
Communications 120 100
Data processing 172 108
Insurance 1,296 173
Other 492 551
- - ------------------------------------------------------------------------------------------------------------------------------------
4,454 2,896
- - ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes 365 1,171
Provision for income taxes 153 421
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income $212 $750
- - ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Primary earnings per common share ** $ .15
Fully diluted earnings per common share ** $ .13
Dividends per common share $.03 $.025
Average common shares and common stock equivalents outstanding:
Primary 7,823 4,629
Fully diluted 7,823 5,610
====================================================================================================================================
<FN>
** Less than $.01 per share
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30,
1996 1995
(amounts in thousands except per share data) (Unaudited)
====================================================================================================================================
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $17,074 $15,255
Interest and dividends on investments 1,565 1,021
- - ------------------------------------------------------------------------------------------------------------------------------------
18,639 16,276
- - ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 7,785 6,911
Interest on borrowings 174 993
- - ------------------------------------------------------------------------------------------------------------------------------------
7,959 7,904
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 10,680 8,372
Provision for loan losses 105 100
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 10,575 8,272
- - ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Mortgage trading income 304
Gain on sale of loans 729 551
Other income 2,564 1,977
- - ------------------------------------------------------------------------------------------------------------------------------------
3,293 2,832
- - ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 4,645 3,832
Occupancy and equipment 1,821 1,587
Professional fees 545 560
Advertising and promotions 267 207
Communications 346 314
Data processing 516 317
Insurance 1,535 476
Other 1,564 1,386
- - ------------------------------------------------------------------------------------------------------------------------------------
11,239 8,679
- - ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes 2,629 2,425
Provision for income taxes 1,093 870
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income $1,536 $1,555
- - ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Primary earnings per common share $ .11 $ .31
Fully diluted earnings per common share $ .11 $ .30
Dividends per common share $.085 $.065
Average common shares and common stock equivalents outstanding:
Primary 7,297 4,269
Fully diluted 7,297 5,260
====================================================================================================================================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized
Appreciation on
Additional Investments
Preferred Common Paid-in Retained Available for Sale,
(amounts in thousands except share data) Stock Stock Capital Earnings Net of Taxes
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 $4,025 $37 $14,362 $2,022
Exercise of equity contracts - 634,476 shares 6 1,745
Exercise of warrants - 211,300 shares 2 818
Exercise of stock options - 2,668 shares 7
Issuance of stock grants - 12,000 shares 52
Conversion of preferred stock into common stock-
2,469 shares (10) 10
401(k) plan - 1,997 shares 8
Issuance of series "C" preferred stock -
1,035,000 shares 10,350 (850)
Issuance of common stock - 2,070,000 shares 21 9,883
Cash dividends - common stock (302)
Cash dividends-preferred stock series "A" and "C" (329)
Net income for nine month transition period
ended December 31, 1995 1,977
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 14,365 66 26,035 3,368
Exercise of warrants - 268,126 shares 3 1,039
Conversion of preferred stock series "A"
into common stock - 982,995 shares (3,980) 9 3,971
Issuance of stock grants - 9,000 shares 32
Exercise of stock options - 4,266 shares 12
Cash redemption of preferred stock series "A" (35)
Cash dividends - common stock (612)
Cash dividends - preferred stock series "A" and "C" (703)
Net income for nine months ended September 30, 1996 1,536
Change in appreciation on investments available for sale,
net of taxes 59
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $10,350 $78 $31,089 $3,589 $59
====================================================================================================================================
<FN>
The information for the nine months ended September 30, 1996 is unaudited.
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
(unaudited)
(amounts in thousands) 1996 1995
====================================================================================================================================
Operating Activities:
<S> <C> <C>
Net income $1,536 $1,555
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects of merger
Provision for loan losses 105 100
Provision for depreciation 508 450
Amortization of goodwill and other intangibles 440 165
Gain on sale of loans and mortgage trading (729) (551)
Loan costs deferred (147) (176)
Loans originated or acquired for sale (8,480) (23,290)
Sale of loans and loan participation certificates 29,472 40,645
Other - net 3,047 271
- - ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 25,752 19,169
- - ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Cash and cash equivalents acquired in merger-net 15,235
Maturities and calls of investments held-to-maturity 8,492 4,200
Purchases of investments available for sale (15,960)
Purchases of investments held-to-maturity (4,493)
Loans originated or acquired for investment (62,796) (75,507)
Principal collected on loans 47,976 60,069
Other - net (994) (2,680)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,540) (13,918)
- - ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net decrease in demand deposits, NOW accounts,
Money Market accounts and savings accounts (5,133) (7,178)
Proceeds from sales
of certificates of deposit 19,714 43,984
Payment for maturing certificates of
deposits (40,651) (42,461)
Decrease) increase in FHLB advances (13,000) 7,000
Other - net (890) (565)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (39,960) 780
- - ------------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (26,748) 6,031
Cash and cash equivalents at beginning of period 54,373 21,192
- - ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $27,625 $27,223
====================================================================================================================================
<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 $1,236,000
and $498,000 in income taxes during the nine months ended September 30, 1996 and
1995, respectively. The Company paid $8,069,000 and $7,778,000 in interest on
deposits and other borrowings during the nine months ended September 30, 1996
and 1995, respectively. The Company had $1,101,000 and $488,000 of transfers
from loans to OREO during the nine months ended September 30, 1996 and 1995,
respectively. Assets of $62 million were acquired and $57 million liabilities
assumed related to the merger of Banyan Bank during the nine months ended
September 30, 1996.
====================================================================================================================================
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
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, 1996 and
December 31, 1995, and the results of operations for the three and nine
months ended September 30, 1996 and 1995, and changes in cash flows for
the nine 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 nine months
ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and
footnotes thereto included in Republic Security Financial Corporation's
annual report on Form 10-KT for the nine month transition period ended
December 31, 1995.
The balance sheet at December 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 Allowance for Loan Losses
At September 30, 1996, the Bank had $5,092,000 in
non-performing assets (loans 90 days or more past due, other real
estate owned and repossessed assets). The provision for loan losses was
$105,000 and $100,000 for the nine months ended September 30, 1996 and
1995, respectively.
The allowance for loan losses is maintained at a level
believed adequate by management to absorb estimated probable credit
losses. Management's periodic evaluation of the adequacy of the
allowance is based on the Company's past loan loss experience, known
and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and
other relevant factors. This evaluation is inherently subjective as it
requires material estimates including the amounts and timing of future
cash flows expected to be received on impaired loans that may be
susceptible to significant change.
3. Merger
On January 19, 1996, the Company acquired Banyan Bank
("Banyan") for $9,701,320, plus $60,000 in merger related costs. The
purchase price, which was paid in the form of cash, was determined
based upon a multiple of Banyan's shareholder equity balance, limited
to a specified amount, as of the last day of the month prior to
closing.
Banyan was a state chartered commercial bank headquartered in
Boca Raton, Florida. Banyan had total assets at January 19, 1996 of
approximately $62,000,000, total deposits of approximately $56,000,000
6
<PAGE>
and two full service branches located in Boca Raton, and Boynton Beach,
Florida.
The acquisition was accounted for as a purchase. Accordingly,
operations of Banyan Bank are included since the acquisition date of
January 19, 1996. Approximately $5,000,000 in goodwill was recognized
representing the purchase price in excess of the fair value of the net
assets acquired. Goodwill will be amortized over 15 years using the
straight-line method.
Pro forma financial information for Republic Security Financial
Corporation, as if the Banyan Bank merger had taken place as of January
1, 1995 for income and per share data is as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
Three months ended, Six months ended, Nine months ended,
(in thousands) March 31, 1995 June 30, 1995 September 30, 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total interest income $6,263 $12,753 $19,428
====================================================================================================================================
Net interest income after provision for loan losses $3,370 $6,665 $10,079
====================================================================================================================================
Income before taxes $684 $1,781 $3,256
====================================================================================================================================
Net income $394 $1,027 $1,923
====================================================================================================================================
Net income per common share $.02 $.08 $.18
====================================================================================================================================
</TABLE>
The unaudited pro forma data is for information purposes only
and 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.
4. Redemption of 7.5% Cumulative Convertible Preferred Stock, Series A
On September 21, 1996, the Company called the 7.5% Cumulative
Convertible Preferred Stock Series A (the "Preferred Stock") for
redemption on July 26, 1996 ("Redemption Date"). The Preferred Stock
became payable and ceased to accrue dividends on that date, and upon
surrender of the stock certificates for redemption, the holders
received the redemption price of $10 per share, or alternatively, the
holders surrendered each of their shares of Preferred Stock for
conversion into 2.47 shares of the Company's common stock. In
connection with the redemption, 982,995 shares of the Company's common
stock were issued.
5. 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 the 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, 1996, the Bank had
adjustable rate commitments to extend credit of approximately
$18,602,000 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 for one-to-four
family residential properties .
In addition, 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.
7
<PAGE>
6. Income per Common Share
Primary 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. Fully diluted net income per common share is
calculated by dividing net income by the average number of common
stock and common stock equivalents outstanding during the year, plus
the assumed conversion of all outstanding convertible preferred shares
to common shares. Common stock equivalents for both primary and fully
diluted net income per share include stock options, warrants, and
equity contracts and are included in the computation of earnings per
share using the treasury stock method. Convertible preferred stock is
computed using the "if converted" method, which assumes the conversion
of all outstanding convertible preferred shares into common shares.
7. Federal Deposit Insurance Corporation Special Savings Association
Insurance Fund Assessment
On September 30, 1996, President Clinton signed into law a
bill which calls for a one-time Federal Deposit Insurance Fund (FDIC)
premium for deposits insured by the Savings Association Insurance Fund.
Republic Security Bank's one-time premium expense associated with the
bill was $1,154,000, which is reflected in the September 30, 1996
statements of income.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net income for the three months ended September 30, 1996 was $212,000
compared to $750,000 for the three months ended September 30, 1995. The decrease
of $538,000 in net income is primarily due to the one-time FDIC premium of
$1,154,000, which resulted in a decrease of $669,000 in net income, offset by an
increase in net interest income.
The Company had net income of $1,536,000 or $.11 fully diluted earnings
per common share for the nine months ended September 30, 1996, compared to net
income of $1,555,000 or $.30 fully diluted earnings per common share for the
nine months ended September 30, 1995. Net income, excluding the one-time FDIC
premium of $669,000, net of tax effect, is $2,205,000 for the nine months ended
September 30, 1996 which represents a $650,000 or 42% increase compared to the
nine months ended September 30, 1995. The increase in net income, excluding the
one-time FDIC premium, is a result of $2,303,000 increase in net interest income
after provision for loan losses, a $461,000 increase in non-interest income
offset by a $1,406,000 increase in operating expenses excluding the one-time
FDIC premium, and a $708,000 increase in income taxes.
Earnings per share for the three and nine months ended September 30,
1996 were impacted by the $9.8 million common equity offering in November 1995
which resulted in an increase of 2,070,000 of common shares outstanding.
Net Interest Income
Net interest income for the quarter ended September 30, 1996 increased
$755,000 or 27% compared to the quarter ended September 30, 1995 due to a $33
million increase in average interest-earning assets offset by an $8 million
increase in average interest-bearing liabilities. In addition, the net interest
margin increased from 4.44% for the quarter ended September 30, 1995 to 4.99%
for the quarter ended September 30, 1996. The Banyan Bank acquisition is the
primary contributor to the increases in interest-earning assets and
interest-bearing liabilities. In addition, the compositions of the Bank's loan
and deposit portfolios have changed since September 30, 1995 to reflect an
increase in commercial purpose and commercial real estate loans and an increase
in business and personal transaction deposit accounts.
Net interest income increased $2,308,000 or 28% for the nine months
ended September 30, 1996 compared to the nine months ended September 30, 1995.
Interest-earning assets increased approximately $31 million, while net interest
margin increased 56 basis points to 5.00% for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995. In addition to
the Banyan Bank acquisition in January 1996, the Bank has continued to shift the
composition of it's loan and deposit portfolios to that of a commercial bank. As
a result, net interest margin has increased since September 30, 1995, due to
increases in commercial real estate and commercial purpose loans as well as an
increase in non-interest bearing deposit accounts.
Non-Interest Income
Total non-interest income for the three months ended September 30, 1996
is comparable to total non-interest income for the three months ended September
30, 1995. However, other income increased $100,000 primarily due to an increase
in service charges on deposit accounts as a result of an increase in the volume
of demand accounts and a minimal increase in fees charged. Gain on sale of loans
increased $156,000, while mortgage trading income decreased $259,000.
9
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- - --------------------------------------------------------------------------------
Non-interest income for the nine months ended September 30, 1996
increased $461,000 or 16% compared to the nine months ended September 30, 1995
due to an increase of approximately $500,000 in service charges on deposit
accounts, $87,000 in other fee income and $178,000 in gain on sale of loans
offset by a $304,000 decrease in mortgage trading income. Increase in service
charges on deposit accounts is due to an increase in the volume of transaction
accounts largely due to the Banyan Bank acquisition and a slight increase in
fees charged. The increase in other fee income represents increases in fees
related to loan accounts and ATM charges due to increases in volume.
Operating Expense
Operating expenses increased $1,558,000 for the three months ended
September 30, 1996 compared to the three months ended September 30, 1995. The
increase in operating expenses is primarily related to the one-time FDIC premium
charge of $1,154,000. Excluding the one-time FDIC premium, other operating
expenses increased $404,000 or 14% for the three months ended September 30,
1996, compared to the three months ended September 30, 1995. Compensation
expense increased $205,000 due to the Banyan Bank merger which increased the
banking center network by two full-service offices and "de novo" growth.
Occupancy and equipment expenses increased $146,000 for the three months ended
September 30, 1996 compared to the three months ended September 30, 1995 due to
the increase in the number of banking center offices and relocation of existing
offices as well as an increase in equipment purchases to support the new data
service bureau. Data processing expenses increased $64,000 for the three months
ended September 30, 1996 compared to three months ended September 30, 1995 due
to an increase in the number of deposit and loan accounts. Other operating
expenses decreased $59,000 for the three months ended September 30, 1996
compared to the three months ended September 30, 1995 due to a decrease of
$123,000 in a one-time loss related to a processing change of which $50,000 was
recovered in December 1995 and a decrease of $61,000 in other real estate owned
expenses offset by a $125,000 increase in goodwill amortization associated with
the Banyan Bank acquisition and the Century Bank branch purchase.
Operating expenses, excluding the one-time FDIC premium of $1,154,000,
increased $1,406,000 or 16% for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995 due to an increase in
employee compensation and benefits, occupancy and equipment expenses, data
processing costs and other operating expenses. The increase in employee
compensation and benefits is a result of approximately $180,000 of non-recurring
employee compensation costs associated with the absorption of the Banyan Bank
acquisition and the remaining increase is due primarily to an increased banking
center network. Occupancy and equipment expenses increased $234,000 for the nine
months ended September 30, 1996 compared to the nine months ended September 30,
1995 due to the addition of two banking centers as a result of the Banyan Bank
acquisition and property and equipment additions of approximately $2.6 million
during the period from December 1994 to September 1996. Data processing costs
increased for the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995 due to an increase in the volume of deposit and
loan accounts and a $80,000 non-recurring expense associated with the conversion
of data service bureaus. Other operating expenses increased $178,000 for the
nine months ended September 30, 1996 compared to the nine months ended September
30, 1995 primarily due to a $275,000 increase in amortization of goodwill as a
result of the Banyan Bank and Century Bank branch purchases offset by a
non-recurring loss in September 1995 associated with a processing change.
Overall, operating expenses, excluding the one-time FDIC premium in the nine
months ended September 30, 1996, as a percent of total average assets has
remained stable at 3.1% for the nine months ended September 30, 1996 and 1995.
Provision for Income Taxes
Provisions for income taxes decreased for the three months ended
September 30, 1996, compared to the three months ended September 30, 1995, due
to a decrease of $806,000 in income before taxes offset by an increase in the
effective tax rate of 6% to 42% at September 30, 1996. The effective tax rate
increased primarily due to an increase in non-deductible amortization of
goodwill associated with acquisitions.
10
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- - --------------------------------------------------------------------------------
Provision for income taxes increased $223,000 for the nine months ended
September 30, 1996, compared to the nine months ended September 30, 1995. The
increase is attributable to an increase in income before taxes of $204,000 for
the nine months ended September 30, 1996, and an increase in the effective tax
rate to 42% for the nine months ended September 30, 1996 from 36% for the nine
months ended September 30, 1995. The effective income tax rate increased
primarily due to an increase in non-deductible amortization of goodwill
associated with acquisitions.
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" liquidity ratios. The
majority of the liquid assets of the bank are deposits with the Federal Home
Loan Bank of Atlanta (FHLB). The Bank was in compliance with liquidity
requirements during the nine months ended September 30, 1996.
On certain occasions, demand for loan funds may exceed cash available
from deposits. On such occasions, the Bank may borrow funds from the FHLB, draw
on lines of credit with commercial banks and/or enter into repurchase agreements
on eligible investments.
Cash and cash equivalents decreased approximately $27 million during
the nine months ended September 30, 1996 primarily due to $71 million of loan
production, $20 million purchase of investments, $13 million repayment of FHLB
advances and $26 million of deposit run-off, offset by principal collected on
loans of $48 million, proceeds from loan sales of $29 million and cash acquired
in merger of $15 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.
The following table shows the capital amounts of the Bank at September 30, 1996:
================================================================================
(Dollars in thousands)
- - --------------------------------------------------------------------------------
Tier 1 capital $27,505
Tier 2 capital $2,333
Tier 1 leverage ratio 8.80%
Tier 1 risked based capital ratio 12.45%
Total risk based capital ratio 13.50%
================================================================================
The Bank was in compliance with all capital requirements at September 30, 1996.
Financial Condition
As of September 30, 1996, total assets increased approximately $23
million from December 31, 1995. Assets increased $67 million due to the Banyan
Bank acquisition (including $5 million of goodwill), $1 million due to an
increase in capital as a result of the exercise of outstanding warrants and $3
million due to an increase in advances from borrowers for taxes and insurance.
These increases were offset by a $13 million repayment of FHLB advances, a $26
million in deposit run-off, and a $9.7 million payment of cash for the Banyan
purchase. 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.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11) Statement regarding Computation of Per Share Earnings
12
<PAGE>
EXHIBIT 11(a)
<TABLE>
<CAPTION>
STATEMENT 11. RE: Computation of Per Share Earnings
====================================================================================================================================
Three Months Ended Nine Months Ended
September 30, September 30,
(Amounts in thousands except per share data) 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS:
<S> <C> <C> <C> <C>
Average shares outstanding 7,698 4,366 7,161 4,104
Net effect of dilutive stock options,
warrants and equity contracts based on the modified
treasury stock method using average market price 125 263 136 165
- - ------------------------------------------------------------------------------------------------------------------------------------
Total weighted average number of shares outstanding 7,823 4,629 7,297 4,269
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income $212 $750 $1,536 $1,555
Deduct preferred dividends 200 75 703 226
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $12 $675 $833 $1,329
====================================================================================================================================
Earnings per share ** $.15 $.11 $.31
====================================================================================================================================
FULLY DILUTED EARNINGS:
Average shares outstanding 4,366 4,104
Net effect of dilutive stock options,
warrants and equity contracts based on the modified
treasury stock method using the greater of the ending
market price or the average market price 253 165
Assumed coversion of convertible preferred stock - Series "A" 991 991
- - ------------------------------------------------------------------------------------------------------------------------------------
Total weighted average number of shares outstanding 5,610 5,260
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income $750 $1,555
====================================================================================================================================
Earnings per share $.13 $.30
====================================================================================================================================
<FN>
** Less than $.01 per share
</FN>
</TABLE>
13
<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: November 12, 1996
----------------- ------------------------------
Carla H. Pollard
Vice President/Controller
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 3,937 3,937
<INT-BEARING-DEPOSITS> 23,688 23,688
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 15,989 15,989
<INVESTMENTS-CARRYING> 6,877 6,877
<INVESTMENTS-MARKET> 6,987 6,987
<LOANS> 247,701 247,701
<ALLOWANCE> 2333 2333
<TOTAL-ASSETS> 326,419 326,419
<DEPOSITS> 253,904 253,904
<SHORT-TERM> 13,724 13,724
<LIABILITIES-OTHER> 13,626 13,626
<LONG-TERM> 0 0
0 0
10,350 10,350
<COMMON> 31,167 31,167
<OTHER-SE> 3,648 3,648
<TOTAL-LIABILITIES-AND-EQUITY> 326,419 326,419
<INTEREST-LOAN> 5,713 17,074
<INTEREST-INVEST> 510 1,565
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 6,223 18,639
<INTEREST-DEPOSIT> 2,551 7,785
<INTEREST-EXPENSE> 83 174
<INTEREST-INCOME-NET> 3,589 10,680
<LOAN-LOSSES> 50 105
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 4,454 11,239
<INCOME-PRETAX> 365 2,629
<INCOME-PRE-EXTRAORDINARY> 365 2,629
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 212 1,536
<EPS-PRIMARY> 0 .11
<EPS-DILUTED> 0 .11
<YIELD-ACTUAL> 4.99 5.00
<LOANS-NON> 2,903 2,903
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,333 2,431
<CHARGE-OFFS> 111 700
<RECOVERIES> 61 123
<ALLOWANCE-CLOSE> 2333 2333
<ALLOWANCE-DOMESTIC> 2333 2333
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 30 38
</TABLE>
