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, 1997
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)
(561) 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 31, 1997
- ----- ----------------------------------
Common Stock 16,271,333
par value $.01
outstanding
<PAGE>
[GRAPHIC OMITTED]
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
Page Number
Part I: Financial Information
Item 1:
Condensed Consolidated Statements of Financial
Condition - September 30, 1997 and December 31, 1996...............1
Condensed Consolidated Statements of Income
for the three months ended September 30, 1997 and 1996.............2
Condensed Consolidated Statements of Income for
the nine months ended September 30, 1997 and 1996..................3
Condensed Consolidated Statements of Shareholders'
Equity for the year ended December 31, 1996 and for the
nine months ended September 30, 1997...............................4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997 and 1996..............5
Notes to Condensed Consolidated Financial Statements...............6-8
Item 2:
Management's Discussion and Analysis...............................9-11
Signatures..............................................................12
Part II: Other Information
Item 6: Exhibits and Reports Filed................................13
(a) Exhibit 11 - Computation of Per Share Earnings
(b) A report on Form 8-K was filed on August 8, 1997 for the Agreement
and Plan of Merger with County Financial Corporation
(c) A report on Form 8-K was filed on August 20, 1997
in connection with the merger with Family Bank
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
======================================================================================================================
September 30, December 31,
(amounts in thousands except share and per share data) 1997 1996
- ----------------------------------------------------------------------------- ------------------- --------------------
<S> <C> <C>
Assets (Unaudited)
Cash and amounts due from depository institutions $12,649 $17,642
Interest-bearing deposits in other financial institutions 37,405 34,430
Federal funds sold 13,025
- ----------------------------------------------------------------------------- ------------------- --------------------
Total cash and cash equivalents 50,054 65,097
Investments available-for-sale 81,102 49,670
Investments held-to-maturity (Market value of $11,595 and $46,003 at
September 30, 1997 and December 31, 1996, respectively) 11,570 45,818
Loans - net 445,562 400,574
Loans held for sale (market value of $7,850 at December 31, 1996) 7,773
Property and equipment - net 15,988 14,289
Other real estate owned - net 1,003 1,499
Goodwill - net 7,224 7,675
Loan servicing rights - net 1,647 2,032
Accrued interest receivable 3,743 3,572
Other assets 11,293 9,160
- ----------------------------------------------------------------------------- ------------------- --------------------
Total $629,186 $607,159
============================================================================= =================== ====================
Liabilities and Shareholders' Equity
Liabilities:
Deposits $492,419 $489,056
Federal Home Loan Bank advances 42,000 30,000
Securities sold under agreements to repurchase 10,889 8,633
Advances from borrowers for taxes and insurance 4,941 1,613
Bank drafts payable 5,955 3,778
Other liabilities 7,080 7,915
- ----------------------------------------------------------------------------- ------------------- --------------------
Total liabilities 563,284 540,995
- ----------------------------------------------------------------------------- ------------------- --------------------
Commitments and Contingencies
Shareholders' equity:
Preferred stock $10.00 stated value; 20,000,000 shares authorized: Series "C" -
1,035,000 shares issued and outstanding at September 30, 1997
and December 31, 1996 10,350 10,350
Common stock $.01 par value; 100,000,000 shares authorized;
16,234,519 and 15,531,664 shares issued and outstanding at
September 30, 1997 and December 31, 1996, respectively 162 155
Additional paid-in capital 38,844 37,350
Retained earnings 16,274 18,306
Unrealized gain on investments available-for-sale, net of taxes 272 3
- ----------------------------------------------------------------------------- ------------------- --------------------
Total shareholders' equity 65,902 66,164
- ----------------------------------------------------------------------------- ------------------- --------------------
Total $629,186 $607,159
============================================================================= =================== ====================
<FN>
Note: All data is restated for the acquisition of Family Bank which was acquired on June 30, 1997 and was accounted
for as a "pooling-of-interests".
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
===================================================================================================================
Three Months Ended September 30,
(amounts in thousands except per share data) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME: (Unaudited)
Interest and fees on loans $10,354 $9,350
Interest and dividends on investments 1,747 1,354
- -------------------------------------------------------------------------------------------------------------------
12,101 10,704
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 4,372 4,033
Interest on borrowings 575 129
- -------------------------------------------------------------------------------------------------------------------
4,947 4,162
- -------------------------------------------------------------------------------------------------------------------
Net interest income 7,154 6,542
Provision for loan losses 25 100
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 7,129 6,442
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charge on deposit accounts 878 934
Gain on sale of loans 146 426
Gain (loss) on sale of investments 264 (2)
Other income 476 525
- -------------------------------------------------------------------------------------------------------------------
1,764 1,883
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 3,436 2,456
Occupancy and equipment 950 957
Professional fees 330 211
Advertising and promotions 88 140
Communications 140 177
Data processing 232 179
Insurance 3 1,339
Other 827 640
6,006 6,099
- -------------------------------------------------------------------------------------------------------------------
Income before taxes 2,887 2,226
Provision for income taxes 1,065 785
- -------------------------------------------------------------------------------------------------------------------
Net income $1,822 $1,441
===================================================================================================================
PER SHARE DATA:
Primary earnings per common share $0.10 $0.08
Fully diluted earnings per common share $0.10 $0.08
Dividends per common share $0.05 $0.03
Avg. common shares and common stock equivalents outstanding 16,905 16,278
===================================================================================================================
<FN>
Note: All data is restated for the acquisition of Family Bank which was acquired on June 30, 1997 and was accounted for
as a "pooling-of-interests".
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
===================================================================================================================
Nine months ended September 30,
(amounts in thousands except per share data) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME: (Unaudited)
Interest and fees on loans $29,647 $27,605
Interest and dividends on investments 5,330 3,910
- -------------------------------------------------------------------------------------------------------------------
34,977 31,515
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 12,599 11,851
Interest on borrowings 1,656 311
- -------------------------------------------------------------------------------------------------------------------
14,255 12,162
- -------------------------------------------------------------------------------------------------------------------
Net interest income 20,722 19,353
Provision for loan losses 850 255
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 19,872 19,098
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 2,783 2,321
Gain on sale of loans 343 729
Gain (loss) on sale of investments 412 (9)
Mortgbage trading income 119
Other income 1,302 1,862
- -------------------------------------------------------------------------------------------------------------------
4,959 4,903
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 9,024 7,845
Occupancy and equipment 2,962 2,695
Professional fees 818 767
Advertising and promotions 411 456
Communications 520 517
Data processing 614 535
Insurance 163 1,659
Other 2,660 2,165
Merger expenses 3,979
- -------------------------------------------------------------------------------------------------------------------
21,151 16,639
- -------------------------------------------------------------------------------------------------------------------
Income before taxes 3,680 7,362
Provision for income taxes 1,362 2,621
- -------------------------------------------------------------------------------------------------------------------
Net income $2,318 $4,741
===================================================================================================================
PER SHARE DATA:
Primary earnings per common share $0.11 $0.26
Fully diluted earnings per common share $0.11 $0.26
Dividends per common share $0.14 $0.09
Avg. common shares and common stock equivalents outstanding 16,674 15,760
===================================================================================================================
<FN>
Note: All data is restated for the acquisition of Family Bank which was
acquired on June 30, 1997 and was accounted for as a "pooling-of-interest". See
notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands except share and per share data)
====================================================================================================================================
Unrealized
Additional Gain on Securities
Preferred Common Paid-in Retained Available-for-Sale,
Stock Stock Capital Earnings Net of Taxes
- ------------------------------------------------------- ------------- ------------ ------------ ----------- ---------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 (restated) $14,365 $141 $32,058 $15,262 $150
Exercise of warrants - 268,126 shares 3 1,039
Conversion of preferred stock series "A"
into common stock - 982,995 shares (3,980) 10 3,970
Issuance of stock grants - 9,000 shares 32
Issuance of stock for Dividend Reinvestment and
Optional Stock Purchase Plan - 2,586 shares 13
Exercise of stock options - 4,622 shares 12
Cash redemption of preferred stock series "A" (35)
Issuance of common stock - 110,812 1 226
Cash dividends - common stock (2,910)
Cash dividends - preferred stock series "A" and "C" (886)
Net income 6,840
Change in unrealized gain on investments
available-for-sale, net of taxes (147)
- ------------------------------------------------------- ------------- ------------ ------------ ----------- ---------------------
Balance, December 31, 1996 10,350 155 37,350 18,306 3
Exercise of warrants - 701,640 shares 7 1,467
Issuance of stock grants - 3,000 shares 27
Cash dividends - common stock (1,352)
Cash dividends paid by pooled company - common stock (2,456)
Cash dividends - preferred stock series "C" (542)
Net income 2,318
Change in unrealized gain on investments
available-for-sale, net of taxes 269
- ------------------------------------------------------- ------------- ------------ ------------ ----------- ---------------------
Balance, September 30, 1997 $10,350 $162 $38,844 $16,274 $272
===================================================================================================================================
<FN>
Note: All data is restated for the acquisition of Family Bank which was acquired on June 30, 1997 and was
accounted for as a "pooling-of-interests".
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
Nine Months September 30,
(Unaudited)
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $2,318 $4,741
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 850 255
Depreciation 940 791
Amortization of goodwill 451 323
Gain on sale of loans -trading, loans and servicing (462) (729)
Loans costs deferred (243) (147)
Purchase of loans for sale (16,155)
Loan originated for sale (13,669) (8,480)
Sale of loans and loan participation certificates 38,060 29,472
Other - net 5,670 2,311
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,760 28,537
Investing Activities:
Cash and cash equivalents acquired in merger-net 15,235
Purchases of investments available-for-sale (35,477) (23,546)
Proceeds from sale and maturities of investments available-for-sale 43,714 13,747
Maturities and calls of investments held-to-maturity 3,492 5,769
Purchases of investments held-to-maturity (8,944) (21,899)
Net increase in loans (47,361) (23,530)
Purchases of property and equipment (3,181) (2,180)
Other - net 184 1,856
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (47,573) (34,548)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase in demand deposits, NOW accounts,
Money Market accounts and savings accounts 7,022 8,451
Net decrease in certificates of deposit (3,659) (10,379)
Increase (decrease) in FHLB advances 12,000 (13,000)
Increase (decrease) in securities sold under agreements to repurchase 2,256 (1,231)
Cash dividend payments (4,350) (3,378)
Other - net 1,501 1,051
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 14,770 (18,486)
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents 15,043 24,497
Cash and cash equivalents at beginning of period 65,097 69,647
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $50,054 $45,150
===================================================================================================================
<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 $2.2 million and $2.6 million in income taxes
during the nine months ended September 30, 1997 and 1996, respectively. The Company paid $14.5 million and $12.3 million in
interest on deposits and other borrowings during the nine months ended September 30, 1997 and 1996, respectively. The Company had
$1.5 million and $1.3 million of transfers from loans to OREO during the nine months ended September 30, 1997 and 1996,
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, 1997
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 except for merger expenses
(see Note 2)) considered necessary to present fairly the consolidated
financial position of Republic Security Financial Corporation and its
subsidiary as of September 30, 1997 and December 31, 1996, and the
results of operations for the three and nine months ended September 30,
1997 and 1996, and changes in cash flows for the nine months then
ended. The unaudited condensed consolidated financial statements have
been restated to include the accounts and results of operations of
Family Bank (see Note 2).
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, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in Republic Security Financial Corporation's
annual report on Form 10-K for the year ended December 31, 1996.
The balance sheet at December 31, 1996 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. Merger
On June 30, 1997, RSFC issued 8,289,125 shares of its common
stock in exchange for all outstanding common stock of Family Bank
("Family") a Florida commercial bank. This business combination has
been accounted for as a pooling-of-interests combination and,
accordingly, the unaudited condensed consolidated financial statements
for periods prior to the combination have been restated to include the
accounts and results of operations of Family Bank. In connection with
the Family merger the Company incurred approximately $4 million in
merger expenses.
The results of operations previously reported by the separate
companies and the combined amounts presented in the accompanying
unaudited condensed consolidated financial statements are summarized
below.
======================================================
Six months ended
June 30 June 30,
1997 1996
- ------------------------------------------------------
Revenue: (Unaudited)
-------------------------------
RSFC $15,351 $14,429
Family 10,770 9,545
- ------------------------------------------------------
Combined $26,121 $23,974
======================================================
Net Income (loss):
RSFC (1) $(2,045) $1,324
Family 2,541 2,007
- ------------------------------------------------------
Combined $496 $3,331
======================================================
(1) The six months ended June 30, 1997, includes merger costs of $2.5
million, net of taxes, related to the Family Bank acquisition. The
merger costs consist of approximately $1.6 million in professional
fees, $1 million in data processing conversion costs and $1.4 million
in costs associated with the integration of operations and other
expenses.
Securities held by Family with a book value of approximately
$39.4 million and a market value of approximately $39.5 million at June
30, 1997, were transferred from held-to-maturity to available-for-sale
to maintain RSFC's existing interest rate risk position for the
combined company.
6
<PAGE>
3. Potential Merger
On August 8, 1997, the Company and the Bank entered into a
definitive agreement whereby County National Bank of South Florida
("County"), a national chartered, commercial bank, will merge with
Republic Security Bank. The definitive agreement provides for a fixed
exchange ratio whereby shareholders of County will receive 4.807 shares
of Republic Security Financial Corporation common stock for each share
of County common stock. The Company will issue approximately 6.1
million shares of Republic Security Financial Corporation common stock
for all outstanding common shares of County stock in a tax free
exchange. Management anticipates the transaction will be accounted for
as a pooling-of-interests. County is headquartered in North Miami
Beach, Florida with 14 branch locations in Northern Dade, Broward and
Palm Beach counties. County has total assets, loans, deposits and
equity of approximately $250 million, $140 million, $220 million and
$24 million, respectively, at September 30, 1997. The transaction is
subject to regulatory approvals and approval by the Companies'
shareholders.
4. Non-Performing Assets and Allowance for Loan Losses
At September 30, 1997, the Bank had $6.6 million in
non-performing assets (loans 90 days or more past due, other real
estate owned and repossessed assets). The provision for loan losses was
$860,000 and $255,000 for the nine months ended September 30, 1997 and
1996, respectively. The increase in the provision for loan losses for
the nine months ended September 30, 1997 compared to the nine months
ended September 30, 1996 is primarily due to the realignment of
Family's loan loss reserve policy to that of the Bank.
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.
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 totaled $4.5 million at
September 30, 1997.
The allowance for credit 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.
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 counter party.
At September 30, 1997, the Bank had adjustable rate commitments to extend
credit of approximately
7
<PAGE>
$60 million 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 to the above commitments and contingencies, there
are various matters of litigation pending against the Company that
management has reviewed with legal counsel. In the opinion of the
Company's management, amounts accrued for awards or assessments in
connection with these matters are adequate and ultimate resolution of
these matters will not have a material effect on the Company's
consolidated financial position, results of operations or cash flow.
On August 6, 1997, a final judgement was ordered on a pending
litigation matter against the Company whereby the Company will pay
approximately $400,000 to the plaintiff in the matter. The Company had
accrued approximately $400,000 related to this pending litigation at
September 30, 1997.
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 to the extent those shares are dilutive. 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.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share". SFAS 128 requires companies with complex capital
structures that have publicly held common stock or common stock
equivalents to present both basic and diluted earnings per share
("EPS") on the face of the income statement. The presentation of basic
EPS replaces the presentation of primary EPS currently required by
Accounting Principles Board Opinion No. 15 ("APB No. 15"), "Earnings
Per Share". Basic EPS is calculated as income available to common
stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted EPS (previously referred to as
fully diluted EPS) is calculated using the "if converted" method for
convertible securities and the treasury stock method for options and
warrants as prescribed by APB No. 15. This statement is effective for
financial statements issued for interim and annual periods ending after
December 15, 1997. The Company does not believe the adoption of SFAS
128 in fiscal 1998 will have a significant impact on the Company's
reported EPS.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of the Three and Nine months ended September 30, 1997 and 1996
Results of Operations
The Company had net income of $1.8 million or $.10 per common share for
the three months ended September 30, 1997 compared to net income of $1.4 million
or $.08 per common share for the three months ended September 30, 1996. Net
income for the nine months ended September 30, 1997 was $2.3 million or $.11 per
common share compared to net income of $4.7 million or $.26 per common share for
the nine months ended September 30, 1996. The decrease in net income for the
nine months ended September 30, 1997 is primarily due to the one-time merger
expenses of approximately $4.0 million ($2.5 million net of income taxes),
associated with the Family Bank acquisition which closed on June 30, 1997. Net
income for the nine months ended September 30, 1997 was also impacted by an
increase of $595,000, pretax, for the provision for loan losses and
an increase of $1.4 million, pre-tax, in Stock Appreciation Rights ("SARs")
accrual compared to the nine months ended September 30, 1996. These increases in
expenses were partially offset by a $1.4 million or 7% increase in net interest
income for the nine months ended September 30, 1997 compared to the nine months
ended September 30, 1996. Net interest income increased $612,000 or 9% for the
three months ended September 30, 1997 compared to the three months ended
September 30, 1996.
Net Interest Income
The increase in net interest income for the quarter ended September 30,
1997 compared to the quarter ended September 30, 1996 is due to an increase of
$13 million in net interest-earning assets offset by a decrease in net interest
margin of 20 basis points. Average interest-earning assets increased
approximately $68 million while average interest-bearing liabilities increased
approximately $55 million for the three months ended September 30, 1997 compared
to the three months ended September 30, 1996. The Bank purchased $25 million of
mortgage-backed securities in December 1996 which were funded by a $25 million
Federal Home Loan Bank advance, which contributed to the increase in average
interest earnings assets and interest bearing liabilities. The decrease in net
interest margin for the three months ended September 30, 1997 compared to the
three months ended September 30, 1996 was also primarily a result of the $25
million leverage transaction.
Net interest income increased $1.4 million for the nine months ended September
30, 1997 compared to the nine months ended September 30, 1996. The increase is
due to a $29.6 million increase in net interest-earning assets offset by a
decrease in net interest margin of 32 basis points. Average interest-earning
assets and average interest-bearing liabilities increased $67.7 million and
$38.0 million, respectively, for the nine months ended September 30, 1997
compared to the nine months ended September 30, 1996.
Provision for Loan Losses
The provision for loan losses decreased $75,000 for the three months
ended September 30, 1997 compared to the three months ended September 30, 1996.
For the nine months ended September 30, 1997, the provision for loan losses
increased $595,000 compared to the nine months ended September 30, 1996
primarily as a result of the realignment of Family's loan loss reserve policy to
that of the Bank.
Non-Interest Income
Non-interest income decreased $119,000 for the three months ended
September 30, 1997 compared to the three months ended September 30, 1996
primarily due to an increase of $266,000 in gain on sale of investments offset
by decreases of $280,000 in gain on sale of loans, $56,000 in service charge on
deposit accounts and $49,000 in other income. No significant change occurred in
non-interest income for the nine months ended September 30, 1997 compared to the
nine months ended September 30, 1996.
9
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
Operating Expenses
Operating expenses decreased $93,000 or 1.5% for the quarter ended
September 30, 1997 compared to the quarter ended September 30, 1996 primarily
due to a decrease in insurance expense of $1.3 million offset by increases of
$980,000 in employee compensation and benefits, $119,000 in professional fees
and $187,000 in other operating expenses. The increase in employee compensation
and benefits expenses is due to the accrual of $900,000 for Stock Appreciation
Rights (SARs) for the quarter ended September 30, 1997. The increase in
professional fees for the three months ended September 30,1997 compared to the
three months ended September 30, 1996 is due to a $50,000 litigation settlement
in August 1997 and an increase in legal fees associated with litigation and
problem loans. Insurance expense decreased $1.2 million for the three months
ended September 30, 1997 compared to the three months ended September 30, 1996
due to the one time special Savings Association Insurance Fund (SAIF) assessment
in September 1996. The additional decrease in insurance expense is due to a
decrease in FDIC premiums and other insurance premiums and a refund of FDIC
premium from 1996. The FDIC premiums were reduced for all deposits effective
January 1, 1997 after the one-time special assessment made in September 1996.
Operating expenses, excluding merger costs, increased $533,000 or 3.2%
for the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996. The increase in operating expenses is due primarily to
increases of $1.2 million in employee compensation and benefits, $267,000
increase in occupancy and equipment expenses and $495,000 in other operating
expenses offset by a decrease of $1.5 million in insurance expense. Employee
compensation and benefits increased approximately $1.4 million related to SARs
accrual offset by $180,000 of non recurring employee compensation expenses in
the nine months ended September 30, 1996 associated with the absorption of the
Banyan Bank acquisition. Occupancy and equipment expenses increased for the nine
months ended September 30, 1997 compared to the nine months ended September 30,
1996 due to an increase in equipment associated with the change in data
processing bureaus which took place in August 1996 and a one-time payment of
$50,000 for early cancellation of a lease. Other operating expenses increased
due primarily to non recurring expenses of $100,000 associated with the start-up
of the trust services division and $150,000 of fixed asset write-off associated
with the relocation of a branch. Insurance expense decreased for the nine months
ended September 30, 1997 compared to the nine months ended September 30, 1996
due to the one-time special SAIF assessment of $1.2 million in September 1996,
an approximate savings of $190,000 in FDIC premiums, a decrease of approximately
$60,000 in other insurance premiums and a $75,000 FDIC premium refund received
in January 1997.
Provision for Income Taxes
Income tax expenses increased $280,000 for the three months ended
September 30, 1997 compared to the three months ended September 30, 1996 due to
an increase of $661,000 in income before taxes and a 2% increase in the
effective tax rate in 1997 compared to 1996. Income taxes decreased $1.6 million
for the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996 due to a decrease of $3.7 million in income before taxes.
Income before income taxes decreased for the nine months ended September 30,
1997 compared to the nine months ended September 30, 1996 due primarily to
merger expenses of $4.0 million associated with the Family Bank acquisition
which closed on June 30, 1997.
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 investments available-for-sale,
deposits with the Federal Home Loan Bank of Atlanta and federal funds sold. The
Bank was in compliance with liquidity requirements during the nine months ended
September 30, 1997.
On certain occasions, demand for loan funds may exceed cash available from
deposits. On such occasions, the
10
<PAGE>
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 and cash equivalents decreased by approximately $15 million during
the nine months ended September 30, 1997. The decrease in cash is due primarily
to loan originations, net of principal paydowns, of approximately $47 million
dividend payments of approximately $4 million and fixed asset purchases of
approximately $3 million offset by cash provided by operating activities of $18
million, an increase in FHLB advances of $12 million and an increase in deposits
and securities sold under agreements to repurchase. The majority of loan
originations during the nine months ended September 30, 1997 related to
commercial business and commercial real estate loans. Fixed asset purchases
consist primarily of computer equipment required for integration of Family Bank
branches, land for new branch sites and leasehold improvements and equipment
associated with the start-up of trust services division.
The following table shows the capital amounts and ratios of the Bank at
September 30, 1997
(Dollars in thousands) Amount Ratio
- ---------------------------------------------------- ---------------------
Total risk based capital $53,139 11.9%
Tier 1 risk based capital $48,265 10.8%
Leverage capital $48,265 7.9%
==================================================== =====================
The Bank was in compliance with its' capital requirements at September
30, 1997.
Financial Condition
As of September 30, 1997, total assets increased approximately $22
million or 3.6% from December 31, 1996. Loans-net increased approximately $45
million which was funded by a decrease of approximately $15 million in interest
bearing deposits in other institutions and federal funds sold, the sale of
approximately $8 million of loans held for sale, an increase in FHLB advances of
$12 million, an increase in deposits of approximately $3 million, an increase in
securities sold under agreements to repurchase of approximately $2 million and
an increase in Bank drafts payable and advances from borrowers for taxes and
insurance of approximately $5 million.
11
<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 14, 1997 /s/ Carla H. Pollard
------------------ --------------------
Carla H. Pollard
Vice President/Controller
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Ex-11 - Statement regarding Computation of Earnings Per Share
(b) A report on Form 8-K was filed on August 8, 1997 for the Agreement and
Plan of Merger with County Financial Corporation
(c) A report on Form 8-K was filed on August 20, 1997 in connection with the
merger with Family Bank
13
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) 1997 1996 1997 1996
==========================================================================================================================
<S> <C> <C> <C> <C>
PRIMARY EARNINGS:
Average shares outstanding 16,177 15,398 15,854 14,859
Net effect of dilutive stock options, and
warrants based on the modified
treasury stock method using average market price 728 880 820 901
Total weighted average number of shares outstanding 16,905 16,278 16,674 15,760
Net income $1,822 $1,441 $2,318 $4,741
Deduct preferred dividends (181) (200) (543) (703)
Net income available to common shareholders $1,641 $1,241 $1,775 $4,038
Earnings per share $.10 $.08 $.11 $.26
========================================================= ================= ============= ============== =============
<FN>
Note: Fully diluted earnings per share is not presented becuase it is the same as primary earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 12,649 12,649
<INT-BEARING-DEPOSITS> 37,405 37,405
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 81,102 81,102
<INVESTMENTS-CARRYING> 11,570 11,570
<INVESTMENTS-MARKET> 11,595 11,595
<LOANS> 450,056 450,056
<ALLOWANCE> 4,494 4,494
<TOTAL-ASSETS> 629,186 629,186
<DEPOSITS> 492,419 492,419
<SHORT-TERM> 27,889 27,889
<LIABILITIES-OTHER> 17,976 17,976
<LONG-TERM> 25,000 25,000
0 0
10,350 10,350
<COMMON> 39,006 39,006
<OTHER-SE> 16,546 16,546
<TOTAL-LIABILITIES-AND-EQUITY> 629,186 629,186
<INTEREST-LOAN> 10,354 29,647
<INTEREST-INVEST> 1,747 5,330
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 12,101 34,977
<INTEREST-DEPOSIT> 4,372 12,599
<INTEREST-EXPENSE> 575 1,656
<INTEREST-INCOME-NET> 7,154 20,722
<LOAN-LOSSES> 25 850
<SECURITIES-GAINS> 264 412
<EXPENSE-OTHER> 6,006 21,151
<INCOME-PRETAX> 2,887 3,680
<INCOME-PRE-EXTRAORDINARY> 2,887 3,680
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,882 2,318
<EPS-PRIMARY> $.10 $.11
<EPS-DILUTED> $.10 $.11
<YIELD-ACTUAL> 5.00 4.94
<LOANS-NON> 5,461 5,461
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,765 3,876
<CHARGE-OFFS> 351 798
<RECOVERIES> 55 566
<ALLOWANCE-CLOSE> 4,494 4,494
<ALLOWANCE-DOMESTIC> 4,494 4,494
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 736 736
</TABLE>
