As filed with the Securities and Exchange Commission on October 23, 1997
REGISTRATION NO. 333-36717
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
REPUBLIC SECURITY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
FLORIDA 6120 59-2335075
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
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4400 CONGRESS AVENUE
WEST PALM BEACH, FLORIDA 33407
(561) 840-1200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------
RUDY E. SCHUPP
4400 CONGRESS AVENUE
WEST PALM BEACH, FLORIDA 33407
(561) 840-1200
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------
COPIES TO:
JOHN S. FLETCHER, ESQ. WALTER J. STANTON III, ESQ.
MORGAN, LEWIS & BOCKIUS LLP HORNSBY, SACHER, ZELMAN, STANTON,
5300 FIRST UNION FINANCIAL CENTER PAUL & BEILEY, P.A.
200 SOUTH BISCAYNE BOULEVARD 1401 BRICKELL AVENUE, SUITE 700
MIAMI, FLORIDA 33131 MIAMI, FL 33131
(305) 579-0432 (305) 579-1462
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective and all
other conditions to the Merger, pursuant to the Merger Agreement described
herein, have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B)
OF REGULATION S-K
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S-4 ITEMS NUMBER AND CAPTION LOCATION IN PROXY STATEMENT/PROSPECTUS
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<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page of Prospectus............... Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................... Additional Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information.................................... Summary; Risk Factors
4. Terms of the Transaction............................. The Merger; Comparison of Rights of Holders of
RSFC and CFC Common Stock; Appendix A -
Agreement and Plan of Merger
5. Pro Forma Financial Information...................... Summary; Unaudited Pro Forma Combined
Condensed Financial Data
6. Material Contracts with the Company Being Not Applicable
Acquired.................................................
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters............ Not Applicable
8. Interests of Named Experts and
Counsel.................................................. Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants......... Not Applicable
11. Incorporation of Certain Information by Reference... Not Applicable
12. Information With Respect to S-2 or S-3
Registrants.............................................. Certain Information Concerning RSFC
13. Incorporation of Certain Information by
Reference................................................ Incorporation of Certain Information by Reference
14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants............................. Not Applicable
<PAGE>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies........... Not Applicable
16. Information With Respect to S-2 or S-3
Companies................................................ Not Applicable
17. Information With Respect to Companies Other
than S-2 or S-3 Companies.............................. Certain Information Concerning CFC
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are to Be Solicited...................................... Outside Front Cover Page; Summary; Special
Meetings; Security Ownership of Certain
Beneficial Owners and Management; The Merger
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited, or in Exchange Offer............ Not Applicable
</TABLE>
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
4400 CONGRESS AVENUE
WEST PALM BEACH, FLORIDA 33407
October 23, 1997
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Republic Security Financial Corporation ("RSFC") which will be held on Monday,
December 1, 1997 at 10:00 a.m. local time, at the Palm Beach Airport Hilton, 150
Australian Avenue, West Palm Beach, Florida 33406.
As described in the enclosed Joint Proxy Statement/Prospectus, at the
Special Meeting, shareholders will be asked to approve the Agreement and Plan of
Merger, dated as of August 8, 1997 (the "Merger Agreement"), by and among RSFC,
Republic Security Bank ("Republic Security"), County Financial Corporation
("CFC") and County National Bank of South Florida ("County"), providing for the
merger of CFC with and into RSFC (the "Merger") and the subsequent merger of
County with and into Republic Security (the "Bank Merger").
Pursuant to the Merger Agreement, upon consummation of the Merger each
share of common stock of CFC will be converted into 4.807 shares of common stock
of RSFC (the "Conversion Rate") unless the Conversion Rate is adjusted. The
Conversion Rate may be adjusted if (i) the Average Closing Price (as defined in
the Merger Agreement) of RSFC common stock on the Determination Date (as defined
in the Merger Agreement) is less than $7.65; and (ii) on such date, the Average
Closing Price divided by $8.76 is less than the number obtained by dividing the
weighted average of the closing prices of the common stock of 10 unaffiliated
bank holdings companies, as listed in the Merger Agreement (the "Index Price")
on the Determination Date by the Index Price on August 6, 1997 and subtracting
0.05 from the resulting quotient. If both of these two circumstances occur, CFC
will have the right to terminate the Merger Agreement; provided, however, that
RSFC will have the option of adjusting the Conversion Rate to equal the number
equal to a quotient, the numerator of which is the product of $7.65 and the
Conversion Rate (as then in effect) and the denominator of which is the Average
Closing Price. If RSFC makes this election, no termination will have occurred
and the Merger Agreement will remain in effect in accordance with its terms
(except as the Conversion Rate will have been so modified). On October 17, 1997,
the closing price of the RSFC Common Stock was $9.75. If the Merger had been
consummated as of that date, each share of CFC Common Stock would have been
converted into 4.807 shares of RSFC Common Stock with an equivalent market value
of $46.87 per share and the aggregate dollar value of all RSFC shares to be
issued in the Merger would have been $59,294,346. The actual market value and
the number of shares of the RSFC Common Stock to be issued in the Merger may be
different due to changes in the market value of the RSFC Common Stock, possible
changes to the Conversion Rate, and the exercise of CFC stock options prior to
the consummation of the Merger.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTEREST OF RSFC AND ITS SHAREHOLDERS. IN ADDITION, THE BOARD OF DIRECTORS HAS
RECEIVED THE OPINION OF ITS FINANCIAL ADVISER, RYAN, BECK & CO., AS OF OCTOBER
23, 1997, TO THE EFFECT THAT THE MERGER IS FAIR FROM A FINANCIAL POINT OF VIEW
TO RSFC'S SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE AT THE SPECIAL MEETING IN FAVOR
OF THE MERGER AGREEMENT.
Only holders of RSFC Common Stock of record at the close of business on
October 22, 1997 are entitled to notice of and to vote at the Special Meeting or
any adjournments or postponements thereof.
You are urged to read the enclosed Joint Proxy Statement/Prospectus, which
provides you with a description of the Merger Agreement to be voted upon at the
Special Meeting
Because of the significance of the proposed Merger to RSFC, your
participation in this meeting, in person or by proxy, is especially important.
It is very important that your shares be represented at the Special Meeting.
Whether or not you plan to attend the Special Meeting, you are urged to
complete, date, sign and return the proxy card in the enclosed postage paid
envelope. Your shares will be voted at the Special Meeting in accordance with
your instructions. You can revoke the proxy at any time prior to voting and the
giving of a proxy will not affect your right to vote in the event you attend the
Special Meeting in person.
Thank you and I look forward to seeing you at the Special Meeting.
Sincerely,
Rudy E. Schupp
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
COUNTY FINANCIAL CORPORATION
801 N.E. 167TH STREET
NORTH MIAMI BEACH, FLORIDA 33162
October 23, 1997
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
County Financial Corporation ("CFC") which will be held on Monday, December 1,
1997 at 3:00 p.m., local time, at the offices of County National Bank at 801
N.E. 167th Street, North Miami Beach, Florida 33162.
At the Special Meeting, shareholders will be asked to consider and vote
upon the following proposals (the "Proposals"):
1. Approval of the Agreement and Plan of Merger, dated as of August 8,
1997 (the "Merger Agreement"), by and among Republic Security
Financial Corporation ("RSFC"), Republic Security Bank ("Republic
Security"), CFC and County National Bank of South Florida ("County"),
providing for the merger of CFC with and into RSFC (the "Merger") and
the subsequent merger of County with and into Republic Security (the
"Bank Merger").
2. Approval of a payment by Republic Security in the amount of $567,000
to George M. Apelian in consideration of the termination of a certain
prior employment agreement dated June 15, 1988 between CFC, County
and Mr. Apelian (the "Prior Employment Agreement") and the waiver by
Mr. Apelian of his right to certain severance benefits under the
Prior Employment Agreement. The payment to Mr. Apelian is contingent
upon the consummation of the Merger and the approval by holders of
more than 75% of the outstanding shares of the common stock of CFC
(excluding shares held by Mr. Apelian and his spouse) after adequate
disclosure to the shareholders of all material facts concerning the
payment.
Pursuant to the Merger Agreement, upon consummation of the Merger each
share of common stock of CFC will be converted into 4.807 shares of common stock
of RSFC (the "Conversion Rate") unless the Conversion Rate is adjusted. The
Conversion Rate will be adjusted if (i) the Average Closing Price (as defined in
the Merger Agreement) of RSFC common stock on the Determination Date (as defined
in the Merger Agreement) is less than $7.65; and (ii) on such date, the Average
Closing Price divided by $8.76 is less than the number obtained by dividing the
weighted average of the closing prices of the common stock of 10 unaffiliated
bank holdings companies, as listed in the Merger Agreement (the "Index Price")
on the Determination Date by the Index Price on August 6, 1997 and subtracting
0.05 from the resulting quotient. If both of these two circumstances occur, CFC
will have the right to terminate the Merger Agreement; provided, however, that
RSFC will have the option of adjusting the Conversion Rate to equal the number
equal to a quotient, the numerator of which is the product of $7.65 and the
Conversion Rate (as then in effect) and the denominator of which is the Average
Closing Price. If RSFC makes this election, no termination will have occurred
and the Merger Agreement will remain in effect in accordance with its terms
(except as the Conversion Rate will have been so modified). On October 17, 1997,
the closing price of the RSFC Common Stock was $9.75. If the Merger had been
consummated as of that date, each share of CFC Common Stock would have been
converted into 4.807 shares of RSFC Common Stock with an equivalent market value
of $46.87 per share and the aggregate dollar value of all RSFC shares to be
issued in the Merger would have been $59,294,346. The actual market value and
the number of shares of the RSFC Common Stock to be issued in the Merger may be
different due to changes in the market value of the RSFC Common Stock, possible
changes to the Conversion Rate, and the exercise of CFC stock options prior to
the consummation of the Merger.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF CFC AND ITS SHAREHOLDERS. IN ADDITION, THE BOARD OF DIRECTORS HAS
RECEIVED THE OPINION OF ITS FINANCIAL ADVISOR, ALEX SHESHUNOFF & CO. -
INVESTMENT BANKING, AS OF OCTOBER 24, 1997 THAT THE MERGER TERMS ARE FAIR TO
CFC'S SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AS BEING IN THE BEST INTERESTS OF
CFC AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE AT THE SPECIAL MEETING IN
FAVOR OF THE MERGER AGREEMENT. THE BOARD OF DIRECTORS, EXCLUDING GEORGE M.
APELIAN, HAS UNANIMOUSLY APPROVED THE PAYMENT TO GEORGE M. APELIAN AND
RECOMMENDS THAT YOU VOTE AT THE SPECIAL MEETING IN FAVOR OF THE PAYMENT.
Only holders of CFC Common Stock of record at the close of business on
October 22, 1997 are entitled to notice of and to vote at the Special Meeting or
any adjournments or postponements thereof.
A Notice of the Special Meeting and a Joint Proxy Statement/Prospectus
containing detailed information concerning the Proposals is attached. Please
read this material carefully.
Your participation in the Special Meeting, in person or by proxy, is
important. Whether or not you plan to attend the Special Meeting, you are urged
to complete, date, sign and return the proxy card in the enclosed postage paid
envelope. Your shares will be voted at the Special Meeting in accordance with
your instructions. You can revoke the proxy at any time prior to voting and the
giving of a proxy will not affect your right to vote in the event you attend the
Special Meeting in person.
Thank you and I look forward to seeing you at the Special Meeting.
Sincerely,
George M. Apelian
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
4400 CONGRESS AVENUE
WEST PALM BEACH, FLORIDA 33407
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 1, 1997
A Special Meeting of Shareholders of Republic Security Financial
Corporation ("RSFC") will be held on Monday, December 1, 1997 at 10:00 a.m.
local time, at the Palm Beach Airport Hilton, 150 Australian Avenue, West Palm
Beach, Florida 33406 to consider the following matters:
1. Approval of the Agreement and Plan of Merger, dated as of August 8,
1997 (the "Merger Agreement"), by and among RSFC, Republic Security
Bank ("Republic Security"), County Financial Corporation ("CFC") and
County National Bank of South Florida ("County"), providing for the
merger of CFC with and into RSFC (the "Merger") and the subsequent
merger of County with and into Republic Security (the "Bank Merger").
2. Such other business as may properly be brought before the Special
Meeting.
The Board of Directors has fixed the close of business on October 22, 1997,
as the record date for determining shareholders of RSFC entitled to notice of
and to vote at the Special Meeting and at any adjournments or postponements
thereof. A list of shareholders entitled to notice of the meeting shall be
available for inspection by any shareholder, during regular business hours, for
a period of ten days prior to the meeting at the principal executive office of
RSFC and at the Special Meeting.
You are cordially invited to attend the Special Meeting. Whether or not you
plan to attend the Special Meeting, you are urged to complete, date, sign and
return at your earliest convenience, in the envelope provided, the enclosed
proxy card which is being solicited on behalf of RSFC's Board of Directors. The
proxy card shows the form in which your shares of RSFC Common Stock are
registered. Your signature must be in the same form. Your shares will be voted
at the Special Meeting in accordance with your instructions. You can revoke the
proxy at any time prior to voting and the giving of a proxy will not affect your
right to vote in the event you attend the Special Meeting in person. We look
forward to seeing you.
By Order of the Board of Directors,
H. Gearl Gore
SECRETARY
West Palm Beach, Florida
October 23, 1997
<PAGE>
COUNTY FINANCIAL CORPORATION
801 N.E. 167TH STREET
NORTH MIAMI BEACH, FLORIDA 33162
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 1, 1997
A Special Meeting of Shareholders of County Financial Corporation ("CFC")
will be held on Monday, December 1, 1997 at 3:00 p.m., local time, at the
offices of County National Bank at 801 N.E. 167th Street, North Miami Beach,
Florida 33162 to consider and vote upon the following proposals:
1. Approval of the Agreement and Plan of Merger, dated as of August 8,
1997 (the "Merger Agreement"), by and among Republic Security
Financial Corporation ("RSFC"), Republic Security Bank ("Republic
Security"), CFC and County National Bank of South Florida ("County"),
providing for the merger of CFC with and into RSFC (the "Merger") and
the subsequent merger of County with and into Republic Security (the
"Bank Merger").
2. Approval of a payment by Republic Security in the amount of $567,000
to George M. Apelian in consideration of the termination of a certain
prior employment agreement dated June 15, 1988 between CFC, County
and Mr. Apelian (the "Prior Employment Agreement") and the waiver by
Mr. Apelian of his right to certain severance benefits under the
Prior Employment Agreement. The payment to Mr. Apelian is contingent
upon the consummation of the Merger and the approval by holders of
more than 75% of the outstanding shares of the Common Stock of CFC
(excluding shares held by George M. Apelian and his spouse) after
adequate disclosure to the shareholders of all material facts
concerning the payment.
3. Such other business as may properly be brought before the Special
Meeting.
The Board of Directors has fixed the close of business on October 22, 1997,
as the record date for determining shareholders of CFC entitled to notice of and
to vote at the Special Meeting and at any adjournments or postponements thereof.
A list of shareholders entitled to notice of the meeting shall be available for
inspection by any shareholder, during regular business hours, for a period of
ten days prior to the meeting at the principal executive office of CFC and at
the Special Meeting.
Pursuant to Sections 607.1302 and 607.1320 of the Florida Business
Corporation Act (the "FBCA"), a CFC shareholder is entitled to dissent from the
Merger and obtain payment in cash of the fair value of the shares held by such
shareholder (excluding any appreciation or depreciation in value in anticipation
of the Merger). In order to dissent and obtain such payment, a shareholder (i)
must give written notice to CFC, at or prior to the CFC Special Meeting, that
the shareholder dissents from the Merger Agreement and (ii) must not vote in
favor of the Merger Agreement either at the CFC Special Meeting or by proxy.
You are cordially invited to attend the Special Meeting. Whether or not you
plan to attend the Special Meeting, you are urged to complete, date, sign and
return the enclosed proxy card in the envelope provided. The proxy card is being
solicited on behalf of CFC's Board of Directors. The proxy card shows the form
in which your shares of CFC common stock are registered. Your signature must be
in the same form. Your shares will be voted at the Special Meeting in accordance
with your instructions. You can revoke the proxy at any time prior to voting and
the giving of a proxy will not affect your right to vote in the event you attend
the Special Meeting in person. We look forward to seeing you.
By Order of the Board of Directors,
Milton Mamber
SECRETARY
North Miami Beach, Florida
October 23, 1997
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
AND
COUNTY FINANCIAL CORPORATION
JOINT PROXY STATEMENT
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REPUBLIC SECURITY FINANCIAL CORPORATION
PROSPECTUS
6,100,000 SHARES OF COMMON STOCK
This Joint Proxy Statement/Prospectus ("Joint Proxy Statement/Prospectus")
is being furnished to shareholders of Republic Security Financial Corporation
("RSFC") and County Financial Corporation ("CFC") in connection with the
solicitation of proxies by the Board of Directors of RSFC from holders of RSFC's
outstanding shares of common stock, par value $0.01 per share (the "RSFC Common
Stock"), for use at a Special Meeting of shareholders of RSFC (together with any
adjournments or postponements thereof, the "RSFC Special Meeting") and in
connection with the solicitation of proxies by the Board of Directors of CFC
from holders of CFC's outstanding shares of common stock, par value 0.01 per
share (the "CFC Common Stock"), for use at a special meeting of shareholders of
CFC (together with any adjournments or postponements thereof, the "CFC Special
Meeting" and, together with the RSFC Special Meeting, the "Shareholder
Meetings").
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of CFC with and into RSFC, pursuant to the Agreement and Plan of
Merger, dated as of August 8, 1997, among RSFC, Republic Security Bank ("
Republic Security"), CFC and County National Bank of South Florida ("County")
(the "Merger Agreement"). Pursuant to the Merger Agreement, upon consummation of
the Merger each share of common stock of CFC will be converted into 4.807 shares
of common stock of RSFC (the "Conversion Rate") unless the Conversion Rate is
adjusted. The Conversion Rate may be adjusted if (i) the Average Closing Price
(as defined in the Merger Agreement) of RSFC common stock on the Determination
Date (as defined in the Merger Agreement) is less than $7.65; and (ii) on such
date, the Average Closing Price divided by $8.76 is less than the number
obtained by dividing the weighted average of the closing prices of the common
stock of 10 unaffiliated bank holdings companies, as listed in the Merger
Agreement (the "Index Price") on the Determination Date by the Index Price on
August 6, 1997 and subtracting 0.05 from the resulting quotient. If both of
these two circumstances occur, CFC will have the right to terminate the Merger
Agreement; provided, however, that RSFC will have the option of adjusting the
Conversion Rate to equal the number equal to a quotient, the numerator of which
is the product of $7.65 and the Conversion Rate (as then in effect) and the
denominator of which is the Average Closing Price. If RSFC makes this election,
no termination will have occurred and the Merger Agreement will remain in effect
in accordance with its terms (except as the Conversion Rate will have been so
modified). Upon consummation of the Merger, RSFC will issue RSFC stock options
to those persons curently holding CFC stock options. Promptly after the Merger,
RSFC intends to register those shares which may be acquired upon exercise of the
options on a Registration Statement on Form S-8 under the Securities Act.
For shareholders of CFC, this Joint Proxy Statement/Prospectus also relates
to the approval of a payment by Republic Security in the amount of $567,000 to
George M. Apelian, the President and Chief Executive Officer of CFC and County.
The payment is in consideration of the termination of a certain prior employment
agreement dated June 15, 1988 between CFC, County and Mr. Apelian (the "Prior
Employment Agreement") and the waiver by Mr. Apelian of his right to certain
severance benefits under the Prior Employment Agreement. The payment to Mr.
Apelian is contingent upon the consummation of the Merger and the approval by
holders of more than of 75% of the outstanding shares of CFC common stock
(excluding shares held by George M. Apelian and his spouse) after adequate
disclosure to the shareholders of all material facts concerning the payment.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of RSFC
with respect to shares of the RSFC Common Stock issuable to CFC shareholders
upon consummation of the Merger. All information concerning RSFC contained in
this Joint Proxy Statement/Prospectus has been furnished by RSFC and all
information concerning CFC has been furnished by CFC.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of RSFC and CFC on or about October 30,
1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHAREHOLDERS OF RSFC AND CFC SHOULD CONSIDER IN CONNECTION WITH
THEIR VOTE.
--------------------
THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS REFERS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS OCTOBER 23, 1997.
i
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR THE
SALE OF ANY SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF RSFC OR CFC SINCE
THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
RSFC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning RSFC may be inspected and copied at
the Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, where copies may be obtained at
prescribed rates, as well as at the following regional offices: Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. The Commission maintains a web site (http://www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding RSFC. The RSFC Common Stock is listed on the Nasdaq National Market.
Copies of reports, proxy statements and other information concerning RSFC may
also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
CFC is subject to the periodic reporting requirements of the Exchange Act,
and in accordance therewith files periodic reports with the Commission. Such
reports, concerning CFC may be inspected and copied at the Commission's Public
Reference Section, Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, where copies may be obtained at prescribed rates, as
well as at the following regional offices: Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048; and Midwest Regional Office,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The
Commission maintains a web site (http://www.sec.gov) that contains reports
regarding CFC.
RSFC has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission with respect to the shares of RSFC Common Stock to be issued
by it in the Merger. This Joint Proxy Statement/Prospectus constitutes the
Prospectus of RSFC that is filed as part of such Registration Statement. As
permitted by the rules and regulations of the Commission, this Joint Proxy
Statement/Prospectus omits certain information contained in the Registration
Statement and reference is hereby made to the Registration Statement for further
information with respect to RSFC and the RSFC Common Stock.
All information contained in this Joint Proxy Statement/Prospectus with
respect to RSFC and Republic Security, except certain information relating to
financial information of County described under "The Merger--Opinion of Ryan
Beck & Co." has been supplied by RSFC for inclusion herein and has not been
independently verified by CFC. All information contained in this Joint Proxy
Statement/Prospectus with respect to CFC and County, except such information
described under "The Merger--Opinion of Alex Sheshunoff," has been supplied by
CFC for inclusion herein and has not been independently verified by RSFC.
ii
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by RSFC (File No.
0-14671) are incorporated in this Joint Proxy Statement/Prospectus by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1996
filed with the Commission pursuant to Section 13(a) or 15(d) of the Exchange
Act, on March 19, 1997.
2. Current Report on Form 8-K filed with the Commission on January 7,
1997.
3. Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
filed with the Commission on May 14, 1997.
4. Current Report on Form 8-K filed with the Commission on June 30, 1997.
5. Current Report on Form 8-K filed with the Commission on July 10, 1997.
6. Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 filed
with the Commission on August 14, 1997.
7. Current Report on Form 8-K filed with the Commission on August 15,
1997.
8. Current Report on Form 8-K filed with the Commission on August 20,
1997.
9. The description of RSFC's Common Stock and the Series C Preferred which
is contained in the "Description of Securities" included in RSFC's Registration
Statement on Form S-1 (No. 33-62847) filed with the Commission and declared
effective on November 6, 1995.
All reports and other documents filed by RSFC after the date of this Joint
Proxy Statement/Prospectus pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act and prior to the date of the Special Meetings shall be deemed to be
incorporated by reference herein and to be a part hereof from the dates of
filing of such reports or documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for the purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in
another document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED HEREIN BY REFERENCE) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM
REPUBLIC SECURITY FINANCIAL CORPORATION, 4400 CONGRESS AVENUE, P.O. BOX 4298,
WEST PALM BEACH, FLORIDA 33402-4298, ATTENTION: SECRETARY, TELEPHONE: (561)
840-7841. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY NOVEMBER __, 1997.
CERTAIN FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS, INCLUDING STATEMENTS ABOUT THE BUSINESS, OPERATIONS AND FINANCIAL
CONDITION OF RSFC, CFC, REPUBLIC SECURITY AND COUNTY, OF CFC AND RSFC FOLLOWING
THE MERGER (THE "COMBINED COMPANY") AND OF COUNTY AND REPUBLIC SECURITY
FOLLOWING THE BANK MERGER (THE "COMBINED BANK"), AND VARIOUS STATEMENTS
CONTAINED UNDER THE CAPTIONS "SUMMARY," "RISK FACTORS," "THE MERGER," "CERTAIN
INFORMATION CONCERNING RSFC" AND "CERTAIN INFORMATION CONCERNING CFC." THE
ACTUAL RESULTS OF RSFC, CFC, THE COMBINED COMPANY AND THE COMBINED BANK COULD
DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING STATEMENTS.
iii
<PAGE>
THE COMBINED COMPANY WILL STRIVE TO SUCCESSFULLY INTEGRATE THE OPERATIONS
OF THE RSFC AND CFC. AMONG THE FACTORS THAT COULD AFFECT THE COMBINED COMPANY'S
ABILITY TO ACHIEVE ITS GOALS, AND CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS, INCLUDE, BUT ARE NOT LIMITED
TO, THE FOLLOWING:
- THE ABILITY OF THE COMBINED COMPANY TO SUCCESSFULLY INTEGRATE RSFC'S
AND CFC'S OPERATIONS IN A TIMELY MANNER AND TO CONTAIN RESTRUCTURING
EXPENSES;
- THE ABILITY OF THE COMBINED BANK TO SUCCESSFULLY INTEGRATE REPUBLIC
SECURITY'S AND COUNTY'S OPERATIONS IN A TIMELY MANNER AND TO CONTAIN
RESTRUCTURING EXPENSES;
- RAPID CHANGES IN INTEREST RATES;
- ADVERSE ECONOMIC CONDITIONS IN PALM BEACH, BROWARD OR DADE COUNTIES,
FLORIDA;
- INTENSE COMPETITION FOR DEPOSITORS AND BORROWERS FROM FINANCIAL
INSTITUTIONS WITH MUCH GREATER RESOURCES THAN THE COMBINED BANK;
- ADVERSE CHANGES IN LAWS AND REGULATIONS; AND
- RAPID GROWTH AND SIGNIFICANT CHANGES IN THE COMBINED BANK'S LOAN
PORTFOLIO COMPOSITION.
THESE AND OTHER RISKS AND UNCERTAINTIES AFFECTING THE COMBINED COMPANY AND
THE COMBINED BANK ARE DISCUSSED IN GREATER DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. SEE "RISK FACTORS"
iv
<PAGE>
<TABLE>
<CAPTION>
[FOR RSFC]
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION...................................... UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA..........................................
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE................................... MANAGEMENT FOLLOWING THE MERGER .............
Executive Compensation, Benefits and Related Matters............
SUMMARY.................................................... Management Indebtedness.........................................
The Companies............................................
Shareholder Meetings..................................... SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
Dissenters' Rights of Appraisal.......................... OWNERS AND MANAGEMENT.............................................
The Merger............................................... RSFC............................................................
Risk Factors............................................. CFC.............................................................
Selected Consolidated Financial Data--
Republic Security Financial Corporation................ COMPARISON OF RIGHTS OF HOLDERS OF RSFC AND
Selected Consolidated Financial Data-- CFC COMMON STOCK..................................................
County Financial Corporation .......................... Authorized Capital Stock........................................
Market Price and Dividend Data........................... Board of Directors..............................................
Selected Comparative Per Share Data...................... Cumulative Voting...............................................
Preemptive Rights...............................................
RISK FACTORS............................................... Special Meetings of Shareholders; Action Without
a Meeting.....................................................
MARKET PRICE AND DIVIDEND DATA............................. Mergers, Share Exchanges and Sales of Assets....................
Amendment of Articles of Incorporation and of Bylaws...........
SHAREHOLDER MEETINGS....................................... Rights of Dissenting Shareholders...............................
Dividends.......................................................
VOTING AND PROXY INFORMATION............................... Certain Anti-Takeover Provisions................................
RSFC.....................................................
CFC...................................................... CERTAIN INFORMATION CONCERNING RSFC...............................
Proxies.................................................. Business........................................................
Management's Discussion and Analysis of Financial
DISSENTERS' RIGHTS OF APPRAISAL............................ Condition and Results of Operations...........................
THE MERGER................................................. CERTAIN INFORMATION CONCERNING CFC................................
Background to the Merger................................. Business........................................................
RSFC Reasons for the Merger; Potential Adverse Management's Discussion and Analysis of Financial
Effects of the Merger; and Recommendation Condition and Results of Operations...........................
of RSFC's Board of Directors...........................
Opinion of Ryan, Beck & Co............................... PROXY SOLICITATION................................................
CFC Reasons For The Merger; Potential Adverse
Effects of the Merger; and Recommendation LEGAL MATTERS.....................................................
of CFC's Board of Directors............................
Opinion of Alex Sheshunoff & Co. - Investment Banking.... EXPERTS...........................................................
The Merger Agreement.....................................
Certain Federal Income Tax Consequences.................. INDEX TO FINANCIAL STATEMENTS.....................................F-1
Restrictions on Resales of Securities....................
Accounting Treatment.....................................
Interests of Certain Persons in the Merger...............
Regulatory Approvals.....................................
</TABLE>
v
<PAGE>
ANNEX A: Agreement and Plan of Merger.............A-1
ANNEX B: Form of Opinion of Ryan, Beck & Co.......B-1
ANNEX C: Form of Opinion of Alex Sheshunoff
& Co. - Investment Banking..............C-1
ANNEX D: Dissenters Rights Provisions of the
Florida Business Corporation Act........D-1
vi
<PAGE>
<TABLE>
<CAPTION>
[FOR CFC]
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION...................................ii UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA..................................
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE................................ii MANAGEMENT FOLLOWING THE MERGER...........................
Executive Compensation, Benefits and Related Matters....
SUMMARY................................................... Management Indebtedness.................................
The Companies...........................................
Shareholder Meetings.................................... SECURITY OWNERSHIP OF CERTAIN
Dissenters' Rights of Appraisal......................... BENEFICIAL OWNERS AND MANAGEMENT..........................
The Merger.............................................. RSFC....................................................
Risk Factors............................................ CFC.....................................................
Selected Consolidated Financial Data--
Republic Security Financial Corporation............... COMPARISON OF RIGHTS OF HOLDERS OF RSFC
Selected Consolidated Financial Data-- AND CFC COMMON STOCK......................................
County Financial Corporation......................... Authorized Capital Stock................................
Market Price and Dividend Data.......................... Board of Directors......................................
Selected Comparative Per Share Data..................... Cumulative Voting.......................................
Preemptive Rights.......................................
RISK FACTORS.............................................. Special Meetings of Shareholders; Action Without
a Meeting............................................
MARKET PRICE AND DIVIDEND DATA............................ Mergers, Share Exchanges and Sales of Assets............
Amendment of Articles of Incorporation and of Bylaws....
SHAREHOLDER MEETINGS...................................... Rights of Dissenting Shareholders.......................
Dividends...............................................
VOTING AND PROXY INFORMATION.............................. Certain Anti-Takeover Provisions........................
RSFC....................................................
CFC..................................................... CERTAIN INFORMATION CONCERNING RSFC.......................
Proxies................................................. Business................................................
Management's Discussion and Analysis of Financial
DISSENTERS' RIGHTS OF APPRAISAL........................... Condition and Results of Operations...................
THE MERGER................................................ CERTAIN INFORMATION CONCERNING
Background to the Merger................................ CFC.......................................................
RSFC Reasons for the Merger; Potential Adverse Business................................................
Effects of the Merger; and Recommendation Management's Discussion and Analysis of
of RSFC's Board of Directors.......................... Financial Condition and Results of Operations.........
Opinion of Ryan, Beck & Co..............................
CFC Reasons For The Merger; Potential Adverse PROPOSAL 2: PAYMENT TO
Effects of the Merger; and Recommendation GEORGE APELIAN............................................
of CFC's Board of Directors...........................
Opinion of Alex Sheshunoff & Co. - Investment Banking... PROXY SOLICITATION........................................
The Merger Agreement....................................
Certain Federal Income Tax Consequences................. LEGAL MATTERS.............................................
Restrictions on Resales of Securities...................
Accounting Treatment.................................... EXPERTS...................................................
Interests of Certain Persons in the Merger..............
Regulatory Approvals.................................... INDEX TO FINANCIAL STATEMENTS.............................F-1
</TABLE>
v
<PAGE>
ANNEX A: Agreement and Plan of Merger.............A-1
ANNEX B: Form of Opinion of Ryan, Beck & Co.......B-1
ANNEX C: Form of Opinion of Alex Sheshunoff
& Co. - Investment Banking............C-1
ANNEX D: Dissenters Rights Provisions of the
Florida Business Corporation Act........D-1
vi
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS INTENDED ONLY TO HIGHLIGHT CERTAIN INFORMATION
CONTAINED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THE SUMMARY IS NOT
INTENDED TO BE A COMPLETE STATEMENT OF ALL MATERIAL FEATURES OF THE MERGER AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES
ATTACHED HERETO.
THE COMPANIES
RSFC. RSFC is a commercial bank holding company, headquartered in West
Palm Beach, Florida. Its principal business is the operation of Republic
Security Bank, a Florida commercial bank ("Republic Security"). As of June 30,
1997, RSFC had consolidated assets of $624.9 million, deposits of $488.2
million and shareholders' equity of $64.6 million.
REPUBLIC SECURITY. Republic Security commenced operations on November 19,
1984 as a stock savings bank. On November 8, 1995, it converted its charter from
a federal savings bank to a state chartered commercial bank. Republic Security
is a member of the Federal Reserve Bank and the Federal Home Loan Bank System
(the "FHLB"), and its deposits are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to applicable limits. As of June 30, 1997, Republic
Security had assets of $624.9 million, deposits of $497.3 million and
shareholders' equity of $55.7 million.
Republic Security has seventeen full-service branches, seven of which it
acquired as a result of its acquisition of Family Bank in June, 1997. Nine
branches are located in Palm Beach County, Florida, seven in Broward County,
Florida and one in Dade County, Florida. Republic Security's main business
activities are attracting deposits, originating loans, making investments and
servicing loans for Republic Security and for others. Republic Security's loan
portfolio is primarily comprised of residential and commercial real estate
loans, business loans and consumer loans, including automobile loans. At June
30, 1997, Republic Security's loan portfolio was composed of [11%] commercial
purpose loans, 40% commercial real estate loans, 34% residential real estate
loans (including constructions loans) and 15% consumer loans. Earnings depend
primarily upon the difference between interest received on loans and investments
and interest paid on Republic Security's deposit base and borrowing.
On June 30, 1997, Republic Security acquired Family Bank. At the time,
Family had assets of $ 256.0 million, deposits of $219.0 million, and
shareholders' equity of $21.8 million.
During 1995, as a consequence of Republic Security's conversion to a
commercial bank charter, RSFC changed its fiscal year-end from March 31 to
December 31.
The address of RSFC's principal executive offices is 4400 Congress Avenue,
West Palm Beach, Florida 33407 and its telephone number is (561) 840-1200.
CFC. CFC is a commercial bank holding company, headquartered in North
Miami Beach, Florida. Its principal business is the operation of County National
Bank of South Florida, a national banking association ("County"). As of June 30,
1997, CFC had consolidated assets of $238.1 million, deposits of $210.0 million
and stockholders' equity of $23.0 million.
COUNTY. County is a national banking association. As of June 30, 1997,
County had assets of $238.1 million, deposits of $211.9 million and
shareholders' equity of $23 million. The deposits of County are insured by the
FDIC up to applicable limits.
County has 14 full-service branches, all of which are located in Dade,
Broward and Palm Beach Counties, Florida. CFC's main business activities are
attracting deposits, originating loans, making investments and servicing its
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<PAGE>
loans. CFC's loan portfolio is primarily business-oriented, with an emphasis on
commercial purpose and commercial real estate loans. At June 30, 1997, County's
loan portfolio was composed of 24.5% commercial purpose loans, 6.5% real estate
construction loans, 55.3 % commercial real estate loans, 12.6% residential real
estate loans and 1.1% consumer loans. Earnings depend primarily upon the
difference between interest received on loans and investments and interest paid
on CFC's deposit base and borrowing.
The address of CFC's principal executive offices is 801 N.E. 167th Street,
North Miami Beach, Florida 33162 and its telephone number is (305) 651-7110.
SHAREHOLDER MEETINGS
GENERAL. At the RSFC Special Meeting, to be held on Monday, December 1,
1997, at 10:00 a.m., local time, at the Palm Beach Airport Hilton, 150
Australian Avenue, West Palm Beach, Florida 33406, RSFC shareholders will
consider and vote upon a proposal to approve the Merger Agreement. The CFC
Special Meeting will be held on Monday, December 1, 1997 at 3:00 p.m., local
time, at the offices of County National Bank at 801 N.E. 167th Street, North
Miami Beach, Florida 33162. The purpose of the CFC Special Meeting is to
consider and vote upon a proposal to approve the Merger Agreement and a proposal
to approve a payment by Republic Security of $567,000 to George M. Apelian. See
"Shareholder Meetings."
RECORD DATES; SHARES ENTITLED TO VOTE ON THE MERGER. Holders of record of
shares of RSFC Common Stock at the close of business on October 22, 1997 (the
"RSFC Record Date") and holders of record of shares of CFC Common Stock at the
close of business on October 22, 1997 (the "CFC Record Date") will be entitled
to notice of and to vote at the respective Shareholder Meetings. At the RSFC
Record Date, there were outstanding 16,271,333 shares of RSFC Common Stock. At
the CFC Record Date, there were outstanding 1,265,081 shares of CFC Common
Stock. See "Voting and Proxy Information."
REQUIRED VOTES. The proposal to approve the Merger Agreement must be
approved by the holders of at least a majority of the shares of RSFC Common
Stock outstanding at the RSFC Record Date and at least a majority of the shares
of CFC Common Stock outstanding at the CFC Record Date. The proposal to approve
the payment by Republic Security to George M. Apelian must be approved by the
holders of more than 75% of the outstanding shares of CFC Common Stock
(excluding the shares held by George M. Apelian and his spouse) after adequate
disclosure to the shareholders of all material facts concerning the payment. At
the respective Record Dates, directors and executive officers of RSFC and CFC
and their affiliates had the right to vote, in the aggregate 1,636,856 shares
and 710,403 shares, respectively, of RSFC Common Stock and CFC Common Stock,
representing 10.0% and 56.2%, respectively, of the RSFC Common Stock and CFC
Common Stock outstanding as of the respective Record Dates. The directors and
executive officers of RSFC who hold such RSFC shares have informed RSFC that
they intend to vote all such shares in favor of the approval of the Merger
Agreement. Paula Berliner, Joseph D. Cesarotti, Mary Anna Fowler, H. Gearl Gore,
Richard J. Haskins, Eugene W. Hughes, Jr., Lennart E. Lindahl, Jr., Carol R.
Owen, Richard C. Rathke, Rudy E. Schupp, Victor H. Siegel, W.F. Spitznagel,
Bruce E. Wiita and William Wolfson have each entered into a voting agreement
with CFC in which, among other things, each agrees to vote all shares of RSFC
Common Stock that he or she has the right to vote in favor of the Merger. Such
shares total 1,636,856, representing 10.0% of the shares of RSFC Common Stock
outstanding on the Record Date. The directors and executive officers of CFC who
hold such CFC shares have informed CFC that they intend to vote all such shares
in favor of the approval of the Merger Agreement. George M. Apelian, Dr. Julian
J. Blitz, Joseph E. Carney, Jr., Peter H. Carney, Dr. Thomas F. Carney, Morton
M. Fisher, C. Bernard Jacobs, Thomas J. Langan, Milton Mamber, Mary McCarty and
Dr. Morton Terry have each entered into a voting agreement with RSFC in which,
among other things, each agrees to vote all shares of CFC Common Stock that he
or she has the right to vote in favor of the Merger. Such shares total 567,525,
representing 44.9% of the shares outstanding on the Record Date. See "Voting and
Proxy Information."
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<PAGE>
DISSENTERS' RIGHTS OF APPRAISAL
The holders of RSFC Common Stock who vote against the Merger Agreement
will not be entitled to dissenters' rights of appraisal under the Florida
Business Corporation Act (the "FBCA") because such shareholders hold shares that
are listed on the Nasdaq National Market. Each CFC shareholder will have the
right to dissent from the Merger and, if the Merger is consummated, to receive
in cash the value of their shares of CFC Common Stock, provided that such
shareholder complies with certain statutory procedures required by Section
607.1320 of the FBCA. Failure to take any steps in a timely manner may result in
the loss and/or waiver of such dissenter's rights. In order to exercise
dissenters rights, a CFC shareholder must take the following actions: (i)
deliver to CFC at or before the Special Meeting his intent to demand payment for
his shares if the Merger is consummated; and (ii) not vote in favor of the
Merger either in person or by proxy. Under the Merger Agreement, RSFC has no
obligation to consummate the Merger if the holders of more than 10% of the CFC
Common Stock exercise their dissenters rights. See "Dissenters' Rights of
Appraisal."
THE MERGER
GENERAL. Under the terms of the Merger Agreement, CFC will be merged with
and into RSFC (the "Merger"), and CFC will cease to exist as a separate legal
entity. As a consequence of the Merger, at the effective time of the Merger (the
"Effective Time"), each share of common stock of CFC will be converted into
4.807 shares of common stock of RSFC (the "Conversion Rate") unless the
Conversion Rate is adjusted. The Conversion Rate may be adjusted if (i) the
Average Closing Price (as defined in the Merger Agreement) of RSFC common stock
on the Determination Date (as defined in the Merger Agreement) is less than
$7.65; and (ii) on such date, the Average Closing Price divided by $8.76 is less
than the number obtained by dividing the weighted average of the closing prices
of the common stock of 10 unaffiliated bank holdings companies, as listed in the
Merger Agreement (the "Index Price") on the Determination Date by the Index
Price on August 6, 1997 and subtracting 0.05 from the resulting quotient. If
both of these two circumstances occur, CFC will have the right to terminate the
Merger Agreement; provided, however, that RSFC will have the option of adjusting
the Conversion Rate to equal the number equal to a quotient, the numerator of
which is the product of $7.65 and the Conversion Rate (as then in effect) and
the denominator of which is the Average Closing Price. If RSFC makes this
election, no termination will have occurred and the Merger Agreement will remain
in effect in accordance with its terms (except as the Conversion Rate will have
been so modified). Based upon the shares outstanding of CFC and RSFC as of
August 7, 1997 and the Conversion Rate, the holders of the then outstanding
shares of CFC Common Stock would own securities representing approximately 27%
of the outstanding shares of RSFC Common Stock after consummation of the Merger.
A copy of the Merger Agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus. See "The Merger."
On October 17, 1997, the closing price of the RSFC Common Stock was $9.75.
If the Merger had been consummated as of that date, each share of CFC Common
Stock would have been converted into 4.807 shares of RSFC Common Stock with an
equivalent market value of $46.87 and the aggregate dollar value of all RSFC
shares to be issued in the Merger would have been $59,294,346. The actual market
value of the RSFC Common Stock to be received in the Merger may be different due
to changes in the market value of the RSFC Common Stock and possible changes to
the Conversion Rate.
EXCEPT IN THE CIRCUMSTANCES DESCRIBED ABOVE, THE CONVERSION RATE IS FIXED
AND NEITHER RSFC NOR CFC HAS THE RIGHT TO TERMINATE THE MERGER AGREEMENT BASED
SOLELY ON CHANGES IN THE MARKET PRICE OF RSFC COMMON STOCK. ACCORDINGLY, THE
VALUE OF THE RSFC COMMON STOCK THAT HOLDERS OF CFC COMMON STOCK WILL RECEIVE IN
THE MERGER IS SUBJECT TO FLUCTUATION DUE TO CHANGES IN THE MARKET PRICE OF RSFC
COMMON STOCK. CFC SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
RSFC COMMON STOCK. FOR CERTAIN RECENT STOCK PRICE DATA, SEE "MARKET PRICE AND
DIVIDEND DATA."
Additionally, at the Effective Time, RSFC will issue stock options to
each person holding an outstanding option to purchase shares of CFC Common
Stock. The stock options will be issued with the same terms and conditions as
were applicable under the CFC stock options for the number of shares of RSFC
Common Stock into which such shares
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<PAGE>
would have been converted pursuant to the Merger had such options been exercised
immediately prior to the Effective Time at a price per share equal to, (y) the
exercise price for the shares of CFC Common Stock otherwise purchasable pursuant
to such options, divided by, (z) the Conversion Rate. Promptly after the Merger,
RSFC intends to register the shares which may be acquired upon exercise of the
options on a Registration Statement on Form S-8 under the Securities Act.
RECOMMENDATION OF RSFC'S BOARD OF DIRECTORS. The Board of Directors of
RSFC (the "RSFC Board") has unanimously approved the Merger Agreement and
recommends that holders of RSFC Common Stock vote for the proposal to approve
the Merger Agreement. Following a due diligence investigation of CFC, the RSFC
Board considered the Merger to be in the best interests of RSFC and its
shareholders for several reasons. The RSFC Board believes that the Merger
provides RSFC an opportunity to fulfill a strategic plan to enhance its
long-term growth prospects by expanding Republic Security's geographical
presence, diversifying its loan portfolio and providing for the potential to
increase earnings per share over the long term. See "The Merger--RSFC Reasons
for the Merger; Potential Adverse Effects of the Merger; and Recommendation of
RSFC Board of Directors."
OPINION OF RYAN, BECK & CO. On August 8, 1997, Ryan, Beck & Co. ("Ryan
Beck") delivered its oral opinion to the RSFC Board to the effect that, as of
such date, the Merger was fair from a financial point of view to the
shareholders of RSFC. Ryan Beck has updated its opinion by delivery to the RSFC
Board of a written opinion to the same effect dated as of the date of this Joint
Proxy Statement/Prospectus. The full text of the written opinion of Ryan Beck,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex B to this Joint Proxy
Statement/Prospectus and should be read carefully in its entirety. See "The
Merger--Opinion of Ryan Beck & Co."
RECOMMENDATION OF CFC'S BOARD OF DIRECTORS. The Board of Directors of CFC
(the "CFC Board") has approved the Merger Agreement and recommends that the
holders of CFC Common Stock vote for the proposal to approve the Merger
Agreement. The CFC Board considered a number of factors in reaching its decision
to recommend approval of the Merger Agreement. The CFC Board believes the Merger
with RSFC represents an opportunity to maximize the prospects for the
shareholder's intrinsic values through the benefits of being associated with a
larger banking organization, by expanding CFC's geographical presence,
broadening and diversifying its loan and deposit portfolios, providing for the
potential to increase earnings and earnings per share and profitability over the
long-term, and enhancing aggregate capital and share liquidity. See "The
Merger--CFC Reasons for the Merger; Potential Adverse Effects of the Merger; and
Recommendation of CFC's Board of Directors."
OPINION OF ALEX SHESHUNOFF & CO. - INVESTMENT BANKING. On August 6, 1997,
Alex Sheshunoff & Co. - Investment Banking ("Sheshunoff") delivered its oral
opinion to the CFC Board to the effect that, as of such date, the Merger was
fair from a financial point of view to the shareholders of CFC. Sheshunoff has
updated its opinion by delivery to the CFC Board of a written opinion to the
same effect dated as of the date of this Joint Proxy Statement/Prospectus. The
full text of the written opinion of Sheshunoff which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
as Annex C to this Joint Proxy Statement/Prospectus and should be read carefully
in its entirety. See "The Merger--Opinion of Alex Sheshunoff & Co. - Investment
Banking."
CONDITIONS TO THE MERGER. The respective obligations of RSFC and CFC to
effect the Merger are subject to various conditions, including, among others:
(i) RSFC and CFC shall each have received all material governmental approvals
required in connection with the Merger; (ii) the Merger Agreement shall have
been approved by the shareholders of RSFC and of CFC; (iii) no order, judgment
or decree shall be outstanding, and no suit, action or other proceeding shall be
pending or threatened, which would have the effect of preventing the
consummation of the Merger; (iv) the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part shall have become effective and shall not
be the subject of a stop order or proceedings seeking a stop order; (v) there
shall be no material adverse change in either CFC, RSFC or their respective
businesses, financial conditions or prospects, taken as a whole, since June 30,
1997; (vi) RSFC shall have received a consolidated balance sheet of CFC for the
calendar month end immediately preceding the Effective Time and as of the
Closing Date, which shall reflect total deposits of not less than $205,000,000,
total loans of not less than $130,000,000, tangible equity of not less than
$23,000,000, non-performing assets of not
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<PAGE>
more than $4,250,000, and an allowance for other loan losses of not less than
the greater of 1.4% of total loans or $2,000,000; (vii) RSFC and CFC shall have
received from Morgan, Lewis & Bockius LLP a tax opinion that the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; (viii) RSFC and CFC shall each have received a fairness opinion
from their respective financial advisors; (ix) the representations and
warranties of RSFC and CFC set forth in the Merger Agreement will have been true
and correct in all material respects; (x) holders of no more than 10% of the
outstanding shares of CFC Common Stock will have properly demanded appraisal of
and payment for their shares in accordance with Section 607.1302 of the FBCA;
(xi) RSFC will have received from each director and any other person deemed to
be an "affiliate" of CFC a duly executed copy of the letter agreement relating
to the restrictions on transfer of the shares of RSFC Common Stock to be
received in the Merger as a result of the Securities Act and applicable
Commission accounting releases relating to pooling of interests accounting
treatment; and (xii) certain employment agreements between Republic Security and
George M. Apelian and Richard Kuci shall remain in full force and effect. See
"The Merger--The Merger Agreement."
REGISTRATION RIGHTS. If the Merger Agreement is approved, RSFC shall,
within 30 days of the end of the first calendar month after the month which
includes the Effective Date, file with the Securities and Exchange Commission a
report on Form 8-K reporting at least 30 days of operating results of the
Combined Company. After the report on Form 8-K has been filed, any affiliate of
CFC, as defined in Rule 145 of the Securities Act of 1933, who, after the
Effective Date, owns RSFC shares in an aggregate amount in excess of 200,000
shares (a"Qualifying Affiliate"), shall have the right to require RSFC, at
RSFC's expense, to register such Qualifying Affiliate's shares on Registration
Statement Form S-3 or any other such form for which RSFC qualifies.
REGULATORY APPROVALS. The Merger is subject to prior approval by the Board
of Governors of the Federal Reserve System (the "FRB"). Additionally, the Bank
Merger is subject to the prior approval of the Florida Banking Department. The
FRB has approved the Meger and an application has been filed with the Florida
Banking Department. See "The Merger-- Regulatory Approvals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The Merger is intended to qualify
as a tax free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended. In this connection, Morgan, Lewis & Bockius, LLP, counsel for
RSFC, has delivered to RSFC and CFC an opinion that, among other things: (i) no
gain or loss will be recognized by a CFC shareholder who receives solely shares
of RSFC Common Stock pursuant to the Merger; (ii) the aggregate tax basis of the
RSFC Common Stock received by a CFC shareholder will equal the aggregate tax
basis of the CFC Common Stock surrendered therefore by such shareholder; and
(iii) the holding period of the RSFC Common Stock received generally will
include the holding period of the CFC Common Stock surrendered. Due to the
individual nature of the tax consequences of the Merger, it is recommended that
each CFC shareholder consult his or her own tax adviser concerning the federal,
state, local and foreign tax consequences of the Merger. See "The
Merger--Certain Federal Income Tax Consequences."
ANTICIPATED ACCOUNTING TREATMENT. The Merger is expected to qualify as a
"pooling of interests" for accounting and financial reporting purposes. The
Merger Agreement is subject to termination by either RSFC or CFC if, in the
opinion of Ernst & Young LLP, any event occurs which would disqualify the Merger
from qualifying for pooling of interests accounting.
MANAGEMENT FOLLOWING THE MERGER. Following the consummation of the Merger,
the composition of the RSFC Board and the Board of Directors of the Combined
Bank (the "Combined Bank Board") will each consist of 18 members, initially
comprised of the current RSFC Board members (Paula Berliner, Joseph D.
Cesarotti, Mary Anna Fowler, H. Gearl Gore, Richard J. Haskins, Eugene W.
Hughes, Jr., Lennart E. Lindahl, Jr., Carol R. Owen, Richard C. Rathke, Rudy E.
Schupp, Victor H. Siegel, William F. Spitznagel, Bruce E. Wiita and William
Wolfson) and four CFC designees (George M. Apelian, Dr. Thomas F. Carney, Thomas
J. Langan and Mary McCarty). See "Management Following the Merger."
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by RSFC or
CFC shareholders, (i) by mutual consent of RSFC and CFC, (ii) by either
5
<PAGE>
RSFC or CFC if such party is unable to fulfill one of its obligations under the
Merger Agreement and the other party does not waive such nonfulfillment, (iii)
by either RSFC or CFC if the other party has materially breached any
representation, warranty or covenant of the Merger Agreement, (iv) by either
RSFC or CFC if their respective shareholders do not approve the Merger Agreement
and the Merger, (v) by either RSFC or CFC if, in the opinion of Ernst & Young
LLP, any event occurs which would disqualify the Merger from qualifying for
pooling of interests accounting, or (vi) by either RSFC or CFC if all the
conditions precedent to its obligations to effect the Merger shall not have been
fulfilled or waived and the Merger shall not have been consummated by January
31, 1998. See "The Merger--The Merger Agreement."
TERMINATION FEE. If the Merger Agreement is terminated under certain
circumstances, the Merger Agreement requires each party to pay all of the
reasonable fees and expenses incurred by the other party in connection with the
Merger Agreement and the transactions contemplated thereby. In addition to any
such payments, if the Merger Agreement is terminated in contemplation of an
alternative acquisition by a third party, then, in the case of a termination by
CFC, CFC would be required to pay the amount of $1,500,000 to RSFC and, in the
case of a termination by RSFC, RSFC would be required to pay the amount of
$500,000 to CFC. See "The Merger--The Merger Agreement."
NO SOLICITATION OF TRANSACTIONS. The Merger Agreement restricts the
ability of RSFC and CFC to solicit transactions other than the Merger. RSFC has
agreed not to encourage, solicit, hold discussions or negotiations with, or
provide information to, any third party concerning any merger or acquisition
unless RSFC, Republic Security or a subsidiary of either is the surviving
corporation and which has a purchase price of $10,000,000 or less (an
"Additional Acquisition"). CFC has agreed not to encourage, solicit, hold
discussions or negotiations with, or provide information to, any third party
concerning any merger, sale of substantially all of the assets, sale of shares
of capital stock or similar transactions. RSFC and CFC and their respective
Boards of Directors are not prohibited from taking any action which is necessary
in the exercise of their fiduciary duties to their shareholders or required by
law. See "The Merger--The Merger Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. The Merger Agreement provides
that CFC directors George M. Apelian, Dr. Thomas F. Carney, Thomas J. Langan and
Mary McCarty will be elected to the Boards of Directors of RSFC and Republic
Security. In addition, George Apelian and Richard Kuci have entered into
employment agreements with Republic Security. The agreement with Mr. Apelian
provides for his employment as Executive Vice President and Dade County
Executive of Republic Security through December 31, 1999 at an annual salary of
$100,000 plus performance incentive compensation in an amount up to 28% of his
salary. Additionally, Republic Security has agreed to pay Mr. Apelian a payment
of $567,000 in the event that the Merger is consummated and the holders of more
than 75% of the outstanding shares of the CFC Common Stock (excluding the shares
held by George M. Apelian and his spouse) approve the payment after having
received adequate disclosure regarding such payment. The agreement with Richard
Kuci provides for his employment as Executive Vice President, Business Banking -
Dade County at an annual salary of $108,000 plus performance incentive
compensation in an amount up to 20% of his salary. The agreements also provide
for severance compensation and contain noncompetition covenants. Mr. Apelian
will also have the right to purchase for a nominal price, County's rights in a
cash-value life insurance policy on Mr. Apelian which had a cash value of
$$49,502 on December 31, 1996. See "The Merger--Interests of Certain Persons in
the Merger."
TERMINATION PAYMENT TO GEORGE M. APELIAN
At the CFC Special Meeting, the shareholders of CFC will be asked to
approve a payment in the amount of $567,000 (the "Termination Payment") to be
made by Republic Security to George M. Apelian, the President and Chief
Executive Officer of CFC and County. Republic Security's obligation to make the
Termination Payment is contingent upon the consummation of the Merger and the
approval of the payment by the holders of more than 75% of the outstanding
shares of CFC Common Stock (excluding the shares held by Mr. Apelian and his
spouse) after adequate disclosure to the shareholders of all material facts
concerning the payment. If the Termination Payment is not approved by the
shareholders of CFC, the Termination Payment will not be made.
6
<PAGE>
Republic Security's obligation to make the Termination Payment is set
forth in an employment agreement dated August 8, 1997 between Republic Security
and Mr. Apelian (the "New Employment Agreement"). Under this agreement, Republic
Security has agreed to make the Termination Payment in consideration of the
termination of a certain prior employment agreement dated June 15, 1988 between
CFC, County and Mr. Apelian (the "Prior Employment Agreement") and the waiver by
Mr. Apelian of his right to certain severance benefits under the Prior
Employment Agreement.
Under the New Employment Agreement, the Termination Payment is contingent
upon the approval of CFC's shareholders holding more than 75% of the outstanding
CFC Common Stock (and, for this purpose, the shares of CFC Common Stock held by
Mr. Apelian and his spouse are not counted as outstanding) after adequate
disclosure to the shareholders of all material facts concerning the payment.
If the Termination Payment was not contingent upon shareholder approval, (i)
under Section 280G of the Internal Revenue Code, as amended (the "Code"),
approximately $417,000 of the Termination Payment would be treated as an
"excess parachute payment", (ii) under Code Section 4999, Mr. Apelian would be
obligated to pay a non-deductible excise tax of 20% on the excess parachute
payment and (iii) under Code Section 280G, Republic Security would not be able
to deduct the amount of the excess parachute payment.
RISK FACTORS
The Merger involves certain risk factors that should be carefully
considered by the shareholders of RSFC and CFC. See "Risk Factors."
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA--REPUBLIC SECURITY FINANCIAL CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data for the year ended December 31, 1996,
the nine months ended December 31, 1995, and the year ended March 31, 1995 and
the balance sheet data as of December 31, 1996 and December 31, 1995, are
derived from consolidated financial statements of RSFC, contained elsewhere
herein, which have been audited by Ernst & Young LLP, independent certified
public accountants. The selected financial data for the years ended March 31,
1994 and 1993 and the balance sheet data as of March 31, 1995, 1994 and 1993
have been derived from audited consolidated financial statements not contained
herein. The financial data for the six month periods ended June 30, 1997 and
1996 are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which RSFC considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1997. The data contained
below should be read in conjunction with RSFC's consolidated financial
statements and related notes thereto contained elsewhere in this Joint Proxy
Statement/Prospectus.
8
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA-RSFC
====================================================================================================================================
NINE MONTHS
SIX MONTHS ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, YEAR ENDED MARCH 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997(A) 1996 1996(A) 1995 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Interest income $22,796 $20,851 $42,231 $28,259 $29,259 $23,272 $22,364
Interest expense 9,308 8,000 16,429 11,618 11,126 8,091 8,291
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 13,488 12,851 25,802 16,641 18,133 15,181 14,073
Provision for loan losses 825 155 355 241 81 354 793
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan 12,663 12,696 25,447 16,400 18,052 14,827 13,280
Non-interest income 3,325 3,123 6,939 4,631 4,449 6,052 5,743
Operating expenses 11,216 10,590 21,672 13,460 16,228 13,914 13,445
Merger expenses 3,979
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and accounting change 793 5,229 10,714 7,571 6,273 6,965 5,578
Income taxes 297 1,898 3,874 2,697 2,119 2,139 1,548
- ------------------------------------------------------------------------------------------------------------------------------------
Income before accounting change 496 3,331 6,840 4,874 4,154 4,826 4,030
Change in method of accounting for income taxes 500
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $496 $3,331 $6,840 $4,874 $4,154 $5,326 $4,030
====================================================================================================================================
PER SHARE DATA:
Primary earnings per common share:
Income before change in accounting for income taxes $.01 $.18 $.37 $.34 $.32 $.47 $.48
====================================================================================================================================
Net income $.01 $.18 $.37 $.34 $.32 $.52 $.48
====================================================================================================================================
Fully diluted earnings per common share:
Income before change in accounting for income taxes $.01 $.18 $.37 $.33 $.32 $.45 $.48
Net income $.01 $.18 $.37 $.33 $.32 $.50 $.48
====================================================================================================================================
Average common shares and common stock
equivalents outstanding:
Primary 16,635 15,493 15,952 13,434 11,973 10,014 8,349
Fully diluted 16,635 15,493 15,952 14,693 13,097 10,647 8,349
====================================================================================================================================
Book value per common share $3.58 $3.27 $3.73 $3.27 $2.84 $2.81 $2.51
Dividends per common share $.09 $.06 $.12 $.07 $.07 $.04
====================================================================================================================================
</TABLE>
(a) Includes one time merger expenses of $2.5 million, net of tax, related
to the Family Bank acquisition for the six months ended June 30, 1997. Includes
one-time SAIF assessment of $669,000, net of tax for the year ended December 31,
1996. (See Note 15 to Consolidated Financial Statement).
9
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA--RSFC (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS
SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED MARCH 31,
JUNE 30, DECEMBER 31, DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER 1997 1996 1996 1995 1995 1994 1993
SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
AT PERIOD END:
Total assets $624,859 $536,118 $607,159 $509,162 $474,284 $379,385 $322,061
Investments 95,159 50,355 95,488 48,150 48,255 52,051 34,658
Loans (b) 439,418 395,602 404,450 364,548 356,172 279,152 226,427
Allowance for loan losses 4,765 3,789 3,876 3,745 3,845 2,410 2,450
Total deposits 488,206 447,943 489,056 402,448 401,218 310,712 281,126
Borrowed money 54,207 10,015 38,633 32,280 19,742 22,865 4,297
Shareholders' equity 64,602 63,484 66,164 61,976 36,812 33,821 26,482
Shares outstanding 16,147 14,587 15,532 14,154 11,219 10,489 8,822
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Assets $599,500 $538,000 $544,600 $466,970 $405,331 $342,464 $266,854
Stockholders' equity 67,950 63,500 64,400 44,180 34,846 28,574 17,958
Interest-earning assets 553,500 486,000 494,800 430,690 370,894 319,456 245,957
Interest-bearing liabilities 428,000 398,500 384,000 350,370 299,142 254,271 198,957
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER DATA: (a) (a) (a)
Return on average assets 1.00% 1.24% 1.38% 1.39% 1.02% 1.56% 1.51%
Return on average shareholders' equity 8.84% 10.49% 11.66% 14.71% 11.92% 18.64% 22.44%
Average shareholders' equity to average
Total assets 11.33% 11.80% 11.83% 9.46% 8.60% 8.34% 6.73%
Shareholders' equity to total assets 10.34% 11.84% 10.90% 12.17% 7.76% 8.91% 8.22%
Net interest spread 3.89% 4.25% 4.26% 4.33% 4.17% 4.10% 4.93%
Net interest margin 4.87% 5.29% 5.21% 5.15% 4.89% 4.75% 5.72%
Non-performing loans (c) $5,584 $3,285 $4,472 $3,533 $3,228 $1,722 $3,962
Non-performing assets (c) $6,238 $5,380 $6,167 $5,464 $4,843 $3,820 $5,978
Non-performing loans to total loans 1.27% .83% 1.11% .99% .91% .62% 1.75%
Non-performing assets to total assets 1.00% 1.00% 1.02% 1.07% 1.02% 1.01% 1.86%
Allowance for loan losses to total loans 1.08% .96% .96% 1.05% 1.08% .86% 1.08%
Allowance for loan losses to non- 85% 115% 87% 106% 119% 140% 62%
performing loans
Net charge-offs to average loans (.01%) .12% .15% .09% .01% .15% .46%
Efficiency ratio (d) 67% 67% 67% 64% 71% 67% 71%
Dividend payout ratio (e) 56% 33% 40% 22% 30% 7%
Number of full-service offices 17 17 17 15 13 10 9
Loan servicing portfolio (in millions) $260 $290 $277 $307 $323 $189 $267
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Ratios for the six months ended June 30, 1997 exclude one-time merger
expenses of $2.5 Million, net of tax, where appropriate, related to the
Family Bank acquisition. Ratios for the year ended December 31, 1996
exclude a one-time SAIF assessment expense of $669,000, net of tax, where
appropriate (see Note 15 to Consolidated Financial Statements.) Ratios for
the year ended March 31, 1994 includes a $500,000 effect of change in
accounting for income taxes where appropriate.
(b) Net of deferred loan fees, purchased loan discounts and premiums and
undisbursed loans-in-process.
(c) Non-performing loans are loans contractually past due 90 days or more
placed on non-accrual. Non-performing assets include non-performing loans,
other real estate owned and repossessed assets.
(d) The efficiency ratio is calculated by dividing non-interest expense by
net interest income plus non-interest income excluding realized securities
gains/losses.
(e) Dividend payout ratio is calculated by dividing dividends declared per
share by primary net income per share and excludes the impact of the
pooled company (Family Bank).
10
<PAGE>
<TABLE>
<CAPTION>
RSFC QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
FIRST SECOND THIRD FOURTH
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER (A) QUARTER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $10,335 $10,476 $10,704 $10,716
Interest expense 4,020 3,980 4,162 4,267
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 6,315 6,496 6,542 6,449
Provision for loan losses 75 80 100 100
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 6,240 6,416 6,442 6,349
Non-interest income 1,393 1,677 1,883 1,986
operating expense 5,102 5,488 6,099 4,983
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,531 2,605 2,226 3,352
Provision for income taxes 861 975 785 1,253
- ------------------------------------------------------------------------------------------------------------------------
Net income $1,670 $1,630 $1,441 $2,099
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Net income per common share $.08 $.09 $.08 $.12
Dividends per common share $.03 $.03 $.03 $.03
Average common shares and common stock equivalents outstanding 14,531 15,526 16,278 16,478
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes one-time SAIF assessment expense of $669,000, net of income tax
(See Note 15 to Consolidated Financial Statements)
11
<PAGE>
<TABLE>
<CAPTION>
RSFC QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $8,906 $9,319 $9,522 $9,419
Interest expense 3,693 3,993 3,965 3,660
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 5,213 5,326 5,557 5,759
Provision for loan losses (21) 127 89 25
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 5,234 5,199 5,468 5,734
Non-interest income 1,163 1,364 1,788 1,477
Operating expense 4,845 4,375 4,618 4,466
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,552 2,188 2,638 2,745
Provision for income taxes 518 738 900 1,059
- ------------------------------------------------------------------------------------------------------------------------
Net income $1,034 $1,450 $1,738 $1,686
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Primary earnings per common share $.08 $.11 $.13 $.10
Fully diluted earnings per common share $.08 $.10 $.12 $.11
Dividends per common share $.02 $.02 $.02 $.03
Average common shares and common stock equivalents outstanding
Primary 12,058 12,837 12,908 14,475
Fully diluted 13,052 13,831 13,922 14,475
========================================================================================================================
</TABLE>
12
<PAGE>
SELECTED FINANCIAL DATA--CFC
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
The following selected financial data for each of the years ended December
31, 1996 and 1995 and the balance sheet data as of December 31, 1996 and 1995
are derived from financial statements of CFC, contained elsewhere herein, which
have been audited by Deloitte & Touche LLP, independent auditors. The selected
financial data for the years ended December 31, 1994, 1993 and 1992 and the
balance sheets as of December 31, 1994, 1993 and 1992 have been derived from
audited financial statements not contained herein. The financial data for the
six month periods ended June 30, 1997 and 1996 are derived from unaudited
financial statements. The unaudited financial statements include all
adjustments, consisting of only normal recurring accruals, which CFC considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the six months ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1997. The data contained below should be
read in conjunction with CFC's consolidated financial statements and related
notes thereto contained elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
=============================================================================================================================
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
(AMOUNTS IN THOUSANDS) 1997 1996 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Interest income $9,293 $8,857 $18,132 $17,939 $15,815 $15,115 $16,802
Interest expense 2,699 2,642 5,245 5,585 4,753 4,809 6,581
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 6,594 6,215 12,887 12,354 11,062 10,306 10,221
Provision for loan losses 12 12 24 259 238 513 1,520
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses 6,582 6,203 12,863 12,095 10,824 9,793 8,701
Non-interest income 1,528 1,405 2,783 2,925 3,497 4,354 4,745
Operating expenses 6,212 5,852 14,722 12,195 11,429 11,794 12,555
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,898 1,756 924 2,825 2,892 2,353 891
Provision for Income taxes -- 54 -- 980 1,186 1,143 (1,992)
- -----------------------------------------------------------------------------------------------------------------------------
Net income $1,898 $1,702 $ 924 $ 1,845 $ 1,706 $ 1,210 $ 686
=============================================================================================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA--CFC (Continued)
=============================================================================================================================
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
AT PERIOD END:
Total assets $238,132 $228,760 $245,946 $234,022 $231,036 $257,047 $289,626
Investments 58,993 60,086 56,460 60,354 72,615 91,117 100,606
Loans 141,299 144,967 146,271 139,285 135,511 126,737 136,909
Allowance for loan losses (2,120) ( 2,587) (2,524) (3,040) ( 2,790) (2,726) (3,196)
Total deposits 209,983 202,817 213,310 209,245 209,563 236,847 263,123
Borrowed money
Shareholders' equity 23,033 21,674 21,139 20,487 18,420 16,624 15,193
Shares outstanding 1,265,081 1,263,617 1,264,328 1,264,328 1,261,913 1,234,484 1,221,865
=============================================================================================================================
AVERAGE BALANCES:
Assets 235,750 229,865 231,032 227,515 242,927 268,634 265,592
Shareholders' equity 21,737 20,687 21,582 19,483 17,258 15,885 14,562
Interest-earning assets 213,547 209,499 210,869 207,559 214,004 229,000 224,834
Interest-bearing liabilities 150,636 150,938 150,014 152,184 160,342 175,654 178,070
=============================================================================================================================
OTHER DATA:
Return on average assets 1.62% 1.49% .4% .81% .70% .46% .26%
Return on average shareholders' equity 17.6% 16.5% 4.3% 9.5% 9.9% 7.7% 4.7%
Average shareholders' equity to average total
assets 9.2% 8.9% 9.3% 8.6% 7.1% 5.9% 5.5%
Shareholders' equity to total assets 9.6% 8.5% 9.34% 8.56% 8.0% 6.5% 5.2%
Net interest spread 5.17% 4.98% 5.10% 4.97% 4.42% 4.67% 4.69%
Net interest margin 6.23% 5.97% 6.11% 5.95% 5.17% 4.57% 5.77%
Non-performing loans $1,122 $1,988 $2,670 $1,492 $ 149 $1,201 $ 1,073
Non-performing assets $4,007 $5,382 $6,008 $5,770 $3,293 $7,349 $11,454
Non-performing loans to total loans and
mortgage-backed securities .79% 1.37% 1.83% 1.07% .11% .95% .78%
Non-performing assets to total assets 1.6% 2.3% 2.4% 2.5% 1.4% 2.9% 4.0%
Allowance for loan losses to total loans 1.5% 1.8% 1.7% 2.0% 2.1% 2.1% 2.3%
Net charge-offs to average loans 2.9% 3.2% .38% .01% .15% .34% 1.17%
Efficiency ratio (a) 77% 77% 94% 81% 80% 83% 93%
Number of full-service offices 13 12 13 12 12 11 11
=============================================================================================================================
</TABLE>
(a) The efficiency ratio is calculated by dividing non-interest expense by
net interest income plus non-interest income excluding realized securities
gains/losses.
14
<PAGE>
<TABLE>
<CAPTION>
CFC QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
FIRST SECOND THIRD FOURTH
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) QUARTER QUARTER QUARTER (A) QUARTER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $4,336 $4,521 $4,619 $ 4,656
Interest expense 1,333 1,309 1,286 1,317
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 3,003 3,212 3,333 3,339
Provision for loan losses 6 6 6 6
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,997 3,206 3,327 3,333
Non-interest income 733 672 658 720
Operating expense 2,868 2,984 2,960 5,910
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 862 894 1,025 (1,857)
Provision for income taxes 54 0 0 (54)
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 808 $ 894 $1,025 $(1,803)
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Net income per common share $0.64 $0.71 $0.81 $(1.43)
Average common shares and common stock
equivalents outstanding
Primary 1,263,617 1,263,617 1,263,628 1,268,316
Fully diluted 1,263,617 1,263,617 1,263,628 1,268,316
========================================================================================================================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CFC QUARTERLY FINANCIAL DATA
========================================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1995
FIRST SECOND THIRD FOURTH
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $4,303 $4,504 $4,584 $4,548
Interest expense 1,279 1,391 1,452 1,463
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 3,024 3,113 3,132 3,085
Provision for loan losses 66 79 (38) 152
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,958 3,034 3,170 2,933
Non-interest income 740 685 691 809
Operating expense 2,923 3,036 2,874 3,362
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 775 683 987 380
Provision for income taxes 288 207 292 193
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 487 $ 476 $ 695 $ 187
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Primary earnings per common share $.39 $.38 $.55 $.14
Fully diluted earnings per common share $.39 $.38 $.55 $.14
Average common shares and common stock equivalents outstanding
Primary 1,263,617 1,263,617 1,263,617 1,263,617
Fully diluted 1,263,617 1,263,617 1,263,617 1,263,617
========================================================================================================================
</TABLE>
16
<PAGE>
MARKET PRICE AND DIVIDEND DATA
RSFC
The RSFC Common Stock is traded under the symbol "RSFC" on the Nasdaq
National Market. It is the present intention of the RSFC Board to continue to
pay regular quarterly cash dividends. However, the declaration and payment of
future dividends is at the sole discretion of the RSFC Board and the amount, if
any, depends upon the earnings, financial condition and capital needs of RSFC
and Republic Security, and other factors, including restrictions arising from
federal and state banking laws and regulations to which RSFC and Republic
Security are subject. In addition, the holders of Series C Preferred (as defined
below in "Comparison of Rights of Holders of RSFC and CFC Common
Stock--Authorized Capital Stock") will have a right prior to the holders of RSFC
Common Stock to receive the payment of dividends.
The table below sets forth, for the periods indicated, the high and low bid
prices and cash dividends paid for the RSFC Common Stock as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
RSFC COMMON STOCK DIVIDEND PER SHARE
------------------ OF RSFC
HIGH LOW COMMON STOCK
---- --- ------------
<S> <C> <C> <C>
YEAR ENDED MARCH 31, 1994
First Quarter............................... $4 $3 $ .0095
Second Quarter.............................. 3 1/2 2 7/8 .0095
Third Quarter............................... 4 1/4 3 1/2 .0095
Fourth Quarter.............................. 4 1/4 3 5/8 .01
YEAR ENDED MARCH 31, 1995
First Quarter............................... 4 1/4 3 3/8 .01
Second Quarter.............................. 4 1/2 3 3/4 .02
Third Quarter............................... 4 3/8 3 1/4 .02
Fourth Quarter.............................. 4 3/8 3 3/4 .02
NINE MONTHS ENDED DECEMBER 31, 1995(1)
Quarter ended June 30, 1995................. 5 4 1/8 .02
Second Quarter.............................. 6 4 3/4 .02
Third Quarter............................... 5 7/8 5 1/8 .03
YEAR ENDED DECEMBER 31, 1996
First Quarter............................... 6 5 1/8 .03
Second Quarter.............................. 6 1/4 5 1/2 .03
Third Quarter............................... 5 7/8 5 1/8 .03
Fourth Quarter.............................. 6 1/8 5 1/4 .03
YEAR ENDING DECEMBER 31, 1997
First Quarter............................... 7 3/4 6 5/16 .04
Second Quarter.............................. 9 6 7/8 .05
Third Quarter............................... 11 8 1/4
Fourth Quarter (through October 17,
1997)....................................... 10 5/8 9 3/4
</TABLE>
- -------------------------------
(1) On July 26, 1995, as a consequence of Republic Security's conversion to a
commercial bank charter, RSFC changed its fiscal year-end from March 31 to
December 31.
On August 7, 1997, the last full trading day prior to the announcement of
the Merger Agreement, the reported Nasdaq National Market closing price of the
RSFC Common Stock was $9.50 per share. On October 17, 1997, the most recent
available date prior to the date of this Joint Proxy Statement/Prospectus, the
reported Nasdaq National Market closing price of the RSFC Common Stock was $9.75
per share.
17
<PAGE>
CFC
There is no established public trading market for CFC Common Stock, and no
reliable information is available as to trades of such shares or the prices at
which such shares have traded. Based upon the limited information available to
it, CFC is not aware of any sales of CFC Common Stock during 1995. CFC is aware
of certain transactions during 1996 and the first two quarters of 1997 pursuant
to which approximately 4,127 shares of CFC Common Stock was sold for prices
ranging from a low of $12.00 to a high of $17.00. To the knowledge of CFC, no
trades in CFC Common Stock have occurred since the announcement of the Merger.
CFC has not paid dividends during its last two fiscal years. The payment of
dividends by CFC is subject to the restrictions set forth in the FBCA. The FBCA
provides that a corporation may pay dividends only if it is solvent and would
not be rendered insolvent by a dividend payment. Dividend payments are dependent
upon earnings, financial conditions and other factors, and there can be no
assurance that CFC will be in a position to pay dividends in the future. The
source of funds for dividends will be derived solely from dividends declared by
County to CFC. The declaration of dividends by County is subject to various
restrictions contained in the National Bank Act.
Under the terms of the Merger Agreement, CFC is prohibited from paying any
dividends, except for quarterly cash dividends in amounts per share not
exceeding the amounts per share of any dividends paid by RSFC with respect to
the same quarter, multiplied by the Conversion Rate. At the present time, and
assuming CFC has Tangible Equity in excess of $23.0 million, CFC anticipates
that it will pay the maximum cash dividend permitted by the provisions of the
Merger Agreement.
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth certain information concerning the RSFC
Common Stock and the CFC Common Stock. The tables also include certain pro forma
per share combined information which is based on the historical data of RSFC and
CFC adjusted to give effect to the Merger, excluding anticipated cost-savings
from operational efficiencies of the Combined Company. The data contained below
should be read in conjunction with RSFC's consolidated financial statements and
related notes thereto of RSFC and CFC contained elsewhere in this Joint Proxy
Statement/Prospectus. See also "Unaudited Pro Forma Combined Condensed
Financial Data."
<TABLE>
<CAPTION>
RSFC CFC
---- ---
EQUIVALENT
PRO FORMA PRO FORMA
PER SHARE PER
HISTORICAL DATA HISTORICAL SHARE DATA(1)
---------- --------- ---------- -------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE(2):
June 30, 1997 $3.58 $3.53 $18.21 $16.97
December 31, 1996 $3.73 $3.57 $16.72 $17.16
CASH DIVIDENDS DECLARED PER SHARE:
Six months ended June 30, 1997 $.09 $.09 --- $0.43
Year ended December 31, 1996(4) $.12 $.12 --- $0.55
Nine months ended December 31, 1995 $.07 $.07 --- $0.34
Year ended March 31, 1995 $.07 $.07 --- $0.34
INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Six months ended June 30, 1997(3) $.01 $.09 $ 1.50 $0.43
Year ended December 31, 1996(4) $.37 $.31 $ .73 $1.49
Nine months ended December 31, 1995 $.34 $.30 $ 1.07 $1.44
Year ended March 31, 1995 $.32 $.31 $ 1.35 $1.49
</TABLE>
- ------------------
(1) The equivalent pro forma per share data represents the value of the pro
forma per share data multiplied by the Conversion Rate.
(2) Book value per share is calculated by dividing common shareholders' equity
plus the proceeds of the assumed conversion of "in the money" options,
warrants and convertible preferred stock by the number of common stock
outstanding and conversion of all "in the money" options, warrants and
convertible preferred stock.
(3) Includes non-recurring merger expenses of $2.5 million, net of tax,
related to the Family Bank merger.
(4) Includes one-time SAIF assessment of $669,000, net of tax.
18
<PAGE>
RISK FACTORS
RSFC AND CFC SHAREHOLDERS SHOULD CONSIDER THE FOLLOWING FACTORS IN ADDITION
TO THE OTHER INFORMATION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS
BEFORE DECIDING HOW TO VOTE ON THE PROPOSALS CONTAINED HEREIN. CERTAIN
STATEMENTS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING,
WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES,"
"INTENDS," "EXPECTS" AND WORDS OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF RSFC, CFC OR THE COMBINED COMPANY OR INDUSTRY RESULTS TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: THE ABILITY OF THE COMBINED COMPANY TO INTEGRATE
SUCCESSFULLY RSFC AND CFC OPERATIONS IN A TIMELY MANNER AND TO CONTAIN
RESTRUCTURING EXPENSES; RAPID CHANGES IN INTEREST RATES; ADVERSE ECONOMIC
CONDITIONS IN PALM BEACH, BROWARD AND DADE COUNTIES, FLORIDA; INTENSE
COMPETITION FOR DEPOSITORS AND BORROWERS FROM FINANCIAL INSTITUTIONS WITH MUCH
GREATER RESOURCES THAN THE COMBINED BANK; ADVERSE CHANGES IN LAWS AND
REGULATIONS; RAPID GROWTH AND SIGNIFICANT CHANGES IN THE COMBINED BANK'S LOAN
PORTFOLIO COMPOSITION AND OTHER FACTORS REFERENCED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. CERTAIN OF THESE FACTORS ARE DISCUSSED IN MORE DETAIL
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING, WITHOUT
LIMITATION, UNDER THE CAPTIONS "SUMMARY," "THE MERGER," "CERTAIN INFORMATION
CONCERNING RSFC" AND "CERTAIN INFORMATION CONCERNING CFC." GIVEN THESE
UNCERTAINTIES, RSFC AND CFC SHAREHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. RSFC AND CFC EACH DISCLAIM ANY
OBLIGATION TO UPDATE ANY SUCH FACTORS OR TO ANNOUNCE PUBLICLY THE RESULT OF ANY
REVISIONS TO ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT
FUTURE EVENTS OR DEVELOPMENTS.
RISK FACTORS APPLICABLE TO THE MERGER. The following risk factors apply to the
Merger.
POSSIBLE CHANGES TO CONVERSION RATE. The Conversion Rate for the conversion
of CFC Common Stock into RSFC Common Stock has been initially established as
4.807. This Conversion Rate may be adjusted if (i) the Average Closing Price (as
defined in the Merger Agreement) of RSFC common stock on the Determination Date
(as defined in the Merger Agreement) is less than $7.65; and (ii) on such date,
the Average Closing Price divided by $8.76 is less than the number obtained by
dividing the weighted average of the closing prices of the common stock of 10
unaffiliated bank holdings companies, as listed in the Merger Agreement (the
"Index Price") on the Determination Date by the Index Price on August 6, 1997
and subtracting 0.05 from the resulting quotient. In the event of these two
contingencies, CFC shall have the right to terminate the Merger Agreement. If,
however, CFC elects to exercise this right, RSFC shall have the option of
voiding such termination by increasing the Conversion Rate to a number equal to
a quotient, the numerator of which is the product of $7.65 and the Conversion
Rate (as then in effect) and the denominator of which is the Average Closing
Price. As a result of the foregoing, it is possible that the Conversion Rate may
change after the shareholders of RSFC and CFC have voted to approve the Merger
Agreement.
EFFECT OF CHANGES IN VALUE OF RSFC COMMON STOCK. As discussed above, the
Conversion Rate will become fixed on the Determination Date or shortly
thereafter. On that date, the number of the RSFC Common Stock to be issued in
the Merger will also become fixed. Therefore there can be no assurance that the
price of RSFC Common Stock, and subsequently the value of the consideration for
the CFC Common Stock, that exists on the date of the Shareholder Meetings will
be indicative of the price at the Effective Time. The Effective Time will occur
as soon as practicable following the Shareholder Meetings and the satisfaction
or waiver of the conditions set forth in the Merger Agreement. Shareholders of
RSFC and CFC are urged to obtain current market quotations for RSFC Common
Stock. See "Market Price and Dividend Data."
POTENTIAL DIFFICULTIES IN INTEGRATING OPERATIONS. RSFC and CFC have entered
into the Merger Agreement with the expectation that the Merger will result in
certain benefits, including operating cost savings, for the Combined Company.
Achieving the anticipated benefits of the Merger will depend in part upon
whether the operations and organizations of RSFC and CFC can be integrated in an
efficient and effective manner. There can be no assurance that this integration
will occur or that cost savings in operations will be achieved. The Combined
Company may also encounter unanticipated operational or organizational
difficulties. The successful combination of the two banks will require,
19
<PAGE>
among other things, consolidation of certain operations, elimination of
duplicative corporate and administrative expenses and elimination of certain
positions at CFC, RSFC, County and Republic Security. The integration of certain
operations following the Merger will require the dedication of management
resources which may temporarily distract attention from the day-to-day business
of the Combined Bank. There can be no assurance that integration will be
accomplished smoothly or successfully. Failure to accomplish effectively the
integration of the two banks' operations could have a material adverse effect on
RSFC's results of operations and financial condition following the Merger.
SUBSTANTIAL VOTING DILUTION TO RSFC SHAREHOLDERS. The Merger will result in
substantial voting dilution to the shareholders of RSFC. After the Merger, the
holders of RSFC Common Stock will have their voting interest in RSFC reduced
from 100% to 73% (assuming that the Conversion Rate is 4.807 and excluding the
impact of the exercise or conversion of all outstanding options, warrants and
convertible preferred stock).
RISK OF NO SOLICITATION PROVISION. The Merger Agreement contains a "no
solicitation provision" that restricts the ability of RSFC and CFC to solicit
transactions with other parties. See "The Merger--The Merger Agreement." The
existence of this no solicitation provision may have the effect of limiting the
ability of the respective boards of directors to seek (i) competing proposals
that could result in greater value being realized by the shareholders or (ii)
equity investments in either company.
BENEFITS ACCRUING TO MANAGEMENT OF CFC. As a result of the Merger, certain
members of the CFC Board and CFC's management will receive shares of RSFC Common
Stock in exchange for shares of CFC Common Stock on the same terms as are
applicable to the other shareholders of CFC. In addition, all stock options
currently held by each officer and director of CFC will, in connection with the
Merger, be converted into a right to receive shares of RSFC Common Stock based
on the Conversion Rate. The Merger Agreement provides that at the Effective Time
certain CFC directors and officers will be appointed to the RSFC Board of
Directors, the Combined Bank Board and/or as executive officers pursuant to
employment agreements of the Combined Company. As a result of these
transactions, certain officers and directors of CFC may have conflicts of
interest in connection with the Merger. See "The Merger--Interests of Certain
Persons in the Merger" and "Management Following the Merger."
RISK FACTORS APPLICABLE TO THE COMBINED COMPANY. The following risk factors
apply to either or both of RSFC and CFC, as the context dictates, and will
continue to apply to the Combined Company after the Merger.
CHANGE IN COMPOSITION OF LOAN PORTFOLIO. As a result of the Bank Merger,
the composition of the loan portfolio of the Combined Bank will be different
from that of the respective loan portfolios of Republic Security and County. At
June 30, 1997, Republic Security's loan portfolio was composed of 11% commercial
purpose loans, 40% commercial real estate loans, 34% residential real estate
loans and 15% consumer loans. At June 30, 1997, County's loan portfolio was
composed of 24.5% commercial purpose loans, 6.5% real estate construction loans,
55.3% commercial real estate loans, 12.6% residential real estate loans and 1.1%
consumer loans. On a pro forma basis, the Combined Bank's loan portfolio is
composed of 14% commercial purpose loans, 44% commercial real estate loans, 30%
residential real estate loans (including construction loans) and 12% consumer
loans. Commercial and consumer loans are generally considered to carry different
and potentially greater risks than residential mortgage loans. Thus, as a result
of the Bank Merger, the Combined Bank's loan portfolio may carry more risk than
the current loan portfolio of Republic Security. Although the redistribution of
the loan composition is consistent with Republic Security's operating strategy
and will allow the Combined Bank to be comparable to its bank peer group, there
are no assurances that the Combined Bank will be able to generate sufficient
loan volume in the commercial and consumer area to maintain its portfolios of
consumer and commercial loans at their current level or to increase such
portfolios.
ALLOWANCE FOR LOAN LOSSES. Industry experience indicates that a portion of
the loans of Republic Security and County will become delinquent and a portion
of the loans will require partial or entire charge off. Regardless of the
underwriting criteria utilized by the Combined Bank or its predecessors, losses
may be experienced as a result of various factors beyond the Combined Bank's
control, including, among others, changes in market conditions affecting the
value of collateral and problems affecting the credit of the borrower. Due to
the concentration of loans in South Florida, adverse economic conditions in that
area could result in a decrease in the value of a significant portion of the
Combined
20
<PAGE>
Bank's collateral. There can be no assurance that the Combined Bank will not
experience significant losses in its loan portfolios which may require
significant additions to the loan loss reserves.
INTENSE COMPETITION IN THE MARKET AREAS OF REPUBLIC SECURITY AND COUNTY.
Vigorous competition exists in all areas where Republic Security and County
presently engage in business. Republic Security and County each face intense
competition in their market areas from major banking and financial institutions,
including many which have substantially greater resources, name recognition and
market presence than Republic Security and County. Other banks, many of which
have higher legal lending limits, actively compete for loans, deposits and other
services which Republic Security and County each offer. Competitors of Republic
Security and County include commercial banks, savings banks, savings and loan
associations, insurance companies, finance companies, credit unions and mortgage
companies. Trends toward the consolidation of the banking industry may make it
more difficult for smaller banks, such as Republic Security and County, to
compete with large national and regional banking institutions.
EFFECT OF INTEREST RATES. The operations of Republic Security and County,
and of commercial banks in general, are significantly influenced by general
economic conditions, by the related monetary and fiscal policies of the federal
government and, in particular, the FDIC and the FRB. Deposit flows and the cost
of funds are influenced by interest rates of competing investments and general
market rates of interest. Lending activities are affected by the demand for
commercial and residential mortgage financing and for other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and by other factors affecting the supply of office space and housing
and the availability of funds.
At December 31, 1996, Republic Security's liabilities which would reprice
within the next twelve months exceeded the assets (which would re-price during
that time) by approximately $81 million, or 13% of total assets. As a result of
this difference, an increase in market interest rates is likely to result in a
reduction of net interest income for Republic Security because the level of
interest paid on interest-bearing liabilities is likely to increase more quickly
than the level of interest earned on interest-earning assets. At December 31,
1996, County's assets which would reprice within the next twelve months exceeded
the liabilities by approximately $25.2 million, or 10.3% of total assets. As a
result of this positive sensitivity gap, an increase in market interest rates is
likely to result in an increase of net interest income for County because the
level of interest earned on interest earning assets is likely to increase more
quickly than the level of interest paid on interest bearing liabilities assets.
At December 31, 1996, the Combined Bank's liabilities which would reprice within
the next twelve months exceed the assets by approximately $55.8 million, or 6%
of total combined assets.
Increases in the level of interest rates may reduce loan demand, and
thereby the amount of loans that can be originated by Republic Security and
County and, similarly, the amount of loan and commitment fees, as well as the
value of the investment securities and other interest-earning assets of Republic
Security and County. Moreover, volatility in interest rates can result in
disintermediation, which is the flow of funds away from banks into direct
investments, such as corporate securities and other investment vehicles which,
because of the absence of federal deposit insurance, generally pay higher rates
of return than bank deposits, or the transfer of funds within the bank from a
lower yielding savings accounts to higher yielding certificates of deposit.
ABILITY TO MAKE DIVIDEND PAYMENTS. RSFC is a legal entity separate and
distinct from Republic Security. Because RSFC's principal business activity is
limited to owning Republic Security, RSFC's payments of dividends on the RSFC
Common Stock and Series C Preferred will generally be funded from dividends
received by RSFC from Republic Security. Federal and state regulations limit the
aggregate amount of cash dividends that Republic Security may pay to RSFC, its
sole shareholder. Republic Security's ability to make dividend payments to RSFC
is subject to Republic Security's continuing profitable operations and there can
be no assurance that future earnings of Republic Security will support
sufficient dividend payments to RSFC.
DEPENDENCE ON KEY PERSONNEL. The success of Republic Security and County
depends to a significant extent upon the performance of their respective
Chairmen, Presidents and Executive Vice Presidents, the loss of any of whom
could have a materially adverse effect on the respective bank. Each of Republic
Security and County believes that its
21
<PAGE>
respective future success will depend in large part upon its ability to retain
such personnel. There can be no assurance that Republic Security or County will
be successful in retaining such personnel. The President and one of the
Executive Vice-Presidents of County have entered into employment agreements with
Republic Security, pursuant to which they have agreed to become employees of
Republic Security following the consummation of the Merger. See "The Merger
- --Interests of Certain Persons in the Merger."
CONTROL BY MANAGEMENT. The executive officers and directors of RSFC and CFC
own approximately 11% and 48.9%, respectively, of the outstanding shares of the
common stock of RSFC and CFC, respectively, excluding currently exercisable
options and warrants. Such persons would own 14% and 49.3%, respectively, of the
outstanding shares of the respective common stock if all outstanding options,
whether or not currently exercisable, were exercised. After the consummation of
the Merger, the executive officers and directors of the Combined Company are
expected to own approximately 14% of the outstanding shares of RSFC Common
Stock, excluding currently exercisable options and warrants, and approximately
17% of the outstanding shares of RSFC Common Stock if all outstanding options,
whether or not exercisable, were exercised. Therefore, management is likely, by
virtue of this concentration of stock ownership, to influence significantly the
election of RSFC directors and to influence significantly the outcome of actions
requiring shareholder approval.
RETENTION OF CUSTOMERS. The Combined Bank expects to retain the individual
customer-base of Republic Security and CFC after the Merger. However, it is
possible that a greater number of customers than anticipated will move their
banking relationships to other financial institutions as a result of the Merger.
CERTAIN POTENTIAL ANTI-TAKEOVER PROVISIONS. Certain provisions of RSFC's
Articles and Bylaws could delay or frustrate the removal of incumbent directors
and could make a merger, tender offer or proxy contest involving RSFC more
difficult, even if such events were perceived by shareholders as beneficial to
their interests. In addition, certain provisions of state and federal law may
also have the effect of discouraging or prohibiting a future takeover attempt in
which shareholders of RSFC might otherwise receive a substantial premium for
their shares over then-current market prices.
22
<PAGE>
MARKET PRICE AND DIVIDEND DATA
RSFC
The RSFC Common Stock is traded under the symbol "RSFC" on the Nasdaq
National Market. It is the present intention of the RSFC Board of Directors to
continue to pay regular quarterly cash dividends. However, the declaration and
payment of future dividends is at the sole discretion of the RSFC Board of
Directors and the amount, if any, depends upon the earnings, financial condition
and capital needs of RSFC and Republic Security and other factors, including
restrictions arising from federal and state banking laws and regulations to
which RSFC and Republic Security are subject. In addition, the holders of Series
C Preferred will have a right prior to the holders of RSFC Common Stock to
receive the payment of dividends.
The table below sets forth, for the fiscal quarters indicated, the high and
low bid prices for the RSFC Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
RSFC COMMON STOCK DIVIDEND PER SHARE
----------------- OF RSFC
HIGH LOW COMMON STOCK
---- --- ------------
<S> <C> <C> <C>
YEAR ENDED MARCH 31, 1994
First Quarter.............................. $4 $3 $ .0095
Second Quarter............................. 3 1/2 2 7/8 .0095
Third Quarter.............................. 4 1/4 3 1/2 .0095
Fourth Quarter............................. 4 1/4 3 5/8 .01
YEAR ENDED MARCH 31, 1995
First Quarter.............................. 4 1/4 3 3/8 .01
Second Quarter............................. 4 1/2 3 3/4 .02
Third Quarter.............................. 4 3/8 3 1/4 .02
Fourth Quarter............................. 4 3/8 3 3/4 .02
NINE MONTHS ENDED DECEMBER 31, 1995(1)
Quarter ended June 30, 1995................ 5 4 1/8 .02
Second Quarter............................. 6 4 3/4 .02
Third Quarter.............................. 5 7/8 5 1/8 .03
YEAR ENDED DECEMBER 31, 1996
First Quarter.............................. 6 5 1/8 .03
Second Quarter............................. 6 1/4 5 1/2 .03
Third Quarter.............................. 5 7/8 5 1/8 .03
Fourth Quarter............................. 6 1/8 5 1/4 .03
YEAR ENDING DECEMBER 31, 1997
First Quarter.............................. 7 3/4 6 5/16 .04
Second Quarter............................. 9 6 7/8 .05
Third Quarter.......................... 11 8 1/4
Fourth Quarter (through October 17, 1997).. 10 5/8 9 3/4
</TABLE>
- ----------------------------
(1) On July 26, 1995, as a consequence of Republic Security's conversion to
a commercial bank charter, RSFC changed its fiscal year-end from
March 31 to December 31.
On August 7, 1997, the last full trading day prior to the announcement of
the Merger Agreement, the reported Nasdaq National Market closing price of the
RSFC Common Stock was $9.50 per share. On October 17, 1997, the most recent
available date prior to the date of this Joint Proxy Statement/Prospectus, the
reported Nasdaq National Market closing price of the RSFC Common Stock was $9.75
per share.
CFC
There is no established public trading market for CFC Common Stock, and no
reliable information is available as to trades of such shares or the prices at
which such shares have traded. Based upon the limited information available to
it, CFC is not aware of any sales of CFC Common Stock during 1995. CFC is aware
of certain transactions during
23
<PAGE>
1996 and the first two quarters of 1997 pursuant to which approximately 4,127
shares of CFC Common Stock was sold for prices ranging from a low of $12.00 to a
high of $17.00. To the knowledge of CFC, no trades in CFC Common Stock have
occurred since the announcement of the Merger. To the knowledge of CFC, no
trades in CFC Common Stock have occurred since the announcement of the Merger.
CFC has not paid any dividends during its last two fiscal years. The
payment of dividends by CFC is subject to the restrictions set forth in the
FBCA. The FBCA provides that a corporation may pay dividends only if it is
solvent and would not be rendered insolvent by a dividend payment. Dividend
payments are dependent upon earnings, financial conditions and other factors,
and there can be no assurance that CFC will be in a position to pay dividends in
the future. The source of funds for dividends will be derived solely from
dividends declared by County to CFC. The declaration of dividends by County is
subject to various restrictions contained in the National Bank Act.
Under the terms of the Merger Agreement, CFC is prohibited from paying any
dividends, except for quarterly cash dividends in amounts per share not
exceeding the amounts per share of any dividends paid by RSFC with respect to
the same quarter, multiplied by the Conversion Rate. At the present time,
assuming CFC has tangible equity in excess of $23.0 million, CFC anticipates
that it will pay the maximum cash dividend permitted by the provisions of the
Merger Agreement.
24
<PAGE>
SHAREHOLDER MEETINGS
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of RSFC and CFC in connection with the solicitation of proxies by
the RSFC Board of Directors for use at the RSFC Special Meeting to be held on
Monday, December 1, 1997, at 10:00 a.m., local time, at the Palm Beach Airport
Hilton, 150 Australian Avenue, West Palm Beach, Florida 33406 and at all
adjournments and postponements thereof, and by the CFC Board for use at the CFC
Special Meeting to be held on Monday, December 1, 1997, at 3:00 p.m., local
time, at 801 N.E. 167th Street, North Miami Beach, Florida 33162, and at all
adjournments and postponements thereof.
At the respective Shareholder Meetings, the holders of RSFC Common Stock
and CFC Common Stock will be separately asked to consider and vote upon
proposals to approve the Merger Agreement. A copy of the Merger Agreement
(without the schedules thereto) is attached as Annex A to this Joint Proxy
Statement/Prospectus. Pursuant to the Merger Agreement, upon satisfaction or
waiver of certain conditions described in the Merger Agreement, (i) CFC will be
merged with and into RSFC (the "Merger"), (ii) each outstanding share of CFC
Common Stock will be converted into the right to receive 4.807 shares of RSFC
Common Stock, subject to possible adjustment in accordance with the terms
therein and (iii) CFC will cease to exist as a separate legal entity. Pursuant
to the Merger Agreement, subsequent to the Merger, (i) County will be merged
with and into Republic Security (the "Bank Merger") and (ii) County will cease
to exist as a separate entity. In addition, at the CFC Special Meeting, the CFC
shareholders will be asked to approve a one-time payment by Republic Security of
$567,000 to George M. Apelian, President and Chief Executive Officer of CFC and
County.
A representative of Ernst & Young LLP, independent certified public
accountants of RSFC, will be present at the RSFC Special Meeting, and a
representative of Deloitte & Touche LLP, independent auditors of CFC, will be
present at the CFC Special Meeting, and each will have an opportunity to make a
statement, if such representative so desires, and to respond to appropriate
questions raised at such Shareholder Meeting.
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VOTING AND PROXY INFORMATION
RSFC
The RSFC Board of Directors has fixed the close of business on October 22,
1997 as the RSFC Record Date for determining the holders of RSFC Common Stock
entitled to receive notice of and to vote at the RSFC Special Meeting or any
adjournments or postponements thereof. At the close of business on the RSFC
Record Date, there were outstanding 16,271,333 shares of RSFC Common Stock. As
of such date, such shares of RSFC Common Stock were held by approximately 788
shareholders of record. The presence in person or by proxy of holders of record
of shares representing a majority of the total issued and outstanding shares of
the RSFC Common Stock will constitute a quorum at the RSFC Special Meeting.
Under Florida law and the terms of the Merger Agreement, the affirmative
vote of the holders of at least a majority of the shares of RSFC Common Stock
outstanding at the RSFC Record Date is required in order to adopt the Merger
Agreement. The holders of RSFC Common Stock are entitled to one vote on all
matters properly brought before the RSFC Special Meeting for each share of RSFC
Common Stock held by such persons. Votes may be cast in person at the RSFC
Special Meeting or by proxy.
As of the RSFC Record Date, directors and executive officers of RSFC and
their affiliates had the right to vote 1,636,856 shares of RSFC Common Stock in
the aggregate (representing approximately 10.0% of the outstanding shares of
RSFC Common Stock as of the RSFC Record Date). The directors and executive
officers of RSFC who hold such shares have informed RSFC that they intend to
vote all such shares in favor of the approval and adoption of the Merger
Agreement. Paula Berliner, Joseph D. Cesarotti, Mary Anna Fowler, H. Gearl Gore,
Richard J. Haskins, Eugene W. Hughes, Jr., Lennart E. Lindahl, Jr., Carol R.
Owen, Richard C. Rathke, Rudy E. Schupp, Victor H. Siegel, M.D., W.F.
Spitznagel, Bruce E. Wiita, M.D. and William Wolfson have each entered into a
voting agreement with CFC in which, among other things, each agrees to vote all
shares of RSFC Common Stock that he has the right to vote in favor of the
Merger. Such shares total 1,636,856, representing 10.0% of the shares of RSFC
Common Stock outstanding on the Record Date.
Any RSFC shareholder who signs and returns a proxy may revoke it at any
time before it has been voted at the special meeting by (i) delivering to the
Secretary of RSFC written notice of its revocation, (ii) executing and
delivering to the Secretary of RSFC a proxy bearing a later date or (iii)
attending the RSFC Special Meeting and voting in person. Attendance at the RSFC
Special Meeting will not in and of itself constitute a revocation of any proxy
given to RSFC. Written notice of revocation should be sent to RSFC, P.O. Box
4298, West Palm Beach, Florida 33402-4298, Attention: Secretary. All properly
executed proxies, if received in time for voting and not revoked, will be voted
in accordance with the instructions specified, or, if no instructions are
specified, will be voted for the approval of the Merger Agreement.
CFC
The CFC Board has fixed the close of business on October 22, 1997 as the
CFC Record Date for determining the holders of CFC Common Stock entitled to
receive notice of and to vote at the CFC Special Meeting or any adjournments or
postponements thereof. At the close of business on the CFC Record Date, there
were outstanding 1,265,081 shares of CFC Common Stock. As of such date, the
shares of CFC Common Stock were held by approximately 379 shareholders of
record. The presence in person or by proxy of holders of record of shares
representing a majority of the total outstanding shares of the CFC Common Stock
will constitute a quorum at the CFC Special Meeting.
Under Florida law and the terms of the Merger Agreement, the affirmative
vote of the holders of at least a majority of the shares of CFC Common Stock
outstanding at the CFC Record Date is required in order to approve the Merger
Agreement. The affirmative vote of the holders of more than 75% of the
outstanding shares of CFC Common Stock
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(excluding shares held by George M. Apelian and his spouse) is required to
approve the payment by Republic Security of $567,000 to George M. Apelian after
adequate disclosure to the shareholders of all material facts concerning the
payment.
The holders of CFC Common Stock are entitled to one vote on all matters
properly brought before the CFC Special Meeting for each share of CFC Common
Stock held by such persons. Votes may be cast in person at the CFC Special
Meeting or by proxy.
As of the CFC Record Date, directors and executive officers of CFC and
their affiliates had the right to vote 710,403 shares of CFC Common Stock in the
aggregate representing approximately 56.2% of the outstanding shares of CFC
Common Stock as of the CFC Record Date. The directors and executive officers of
CFC who hold such shares have informed CFC that they intend to vote all such
shares in favor of the approval of the Merger Agreement and the Plan of Merger.
George M. Apelian, Dr. Julian J. Blitz, Joseph E. Carney, Jr., Peter H. Carney,
Dr. Thomas F. Carney, Morton M. Fisher, C. Bernard Jacobs, Thomas J. Langan,
Milton Mamber and Dr. Morton Terry have each entered into a voting agreement
with RSFC in which, among other things, each agrees to vote all shares of CFC
Common Stock that he or she has the right to vote in favor of the Merger. Such
shares total 567,525, representing 44.9% of the shares of CFC Common Stock
outstanding on the Record Date. If all of the directors and executive officers
of CFC vote in the manner in which they have indicated, the Merger Agreement
will be approved. The directors and executive officers of CFC have also informed
CFC that they intend to vote all of such shares in favor of the approval of the
payment of $567,000 to George M. Apelian.
Any CFC shareholder who signs and returns a proxy may revoke it at any time
before it has been voted by (i) delivering to the Secretary of CFC written
notice of its revocation, (ii) executing and delivering to the Secretary of CFC
a proxy bearing a later date or (iii) attending the CFC Special Meeting and
voting in person. Attendance at the CFC Special Meeting will not in and of
itself constitute a revocation of any proxy given to CFC. Written notice of
revocation should be sent to CFC, 801 N.E. 167th Street, North Miami Beach,
Florida 33162, Attention: Secretary. All properly executed proxies, if received
in time for voting and not revoked, will be voted in accordance with the
instructions specified, or, if no instructions are specified, will be voted for
the approval of the adoption of the Merger Agreement and for the approval of the
payment of $567,000 to George Apelian.
PROXIES
All shares represented by properly executed proxies received prior to or at
the respective Shareholder Meetings and not revoked will be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated on a properly executed returned proxy, such proxies will be voted FOR
approval of the proposals set forth thereon (the "Proposals"). A properly
executed proxy marked "ABSTAIN," although counted for purposes of determining
whether there is a quorum and for purposes of determining the aggregate voting
power and number of shares represented and entitled to vote at the Shareholder
Meetings, will not be voted and will have the effect of a vote against the
Merger. Brokers and nominees are precluded from exercising their voting
discretion with respect to the approval and adoption of the Proposals and thus,
absent specific instructions from the beneficial owner of such shares, are not
empowered to vote such shares with respect to the approval and adoption of such
Proposals. Therefore, because the affirmative vote of a majority of the shares
of RSFC and CFC Common Stock outstanding on the Record Dates is required to
approve the Merger, a "broker non-vote" (I.E., shares held by brokers or
nominees that are represented at a meeting but with respect to which the broker
or nominee is not empowered to vote on a particular Proposal) will have the
effect of a vote against the Merger. Shares represented by "broker non-votes"
will, however, be counted for purposes of determining whether there is a quorum
at the Shareholder Meetings.
Neither the management of RSFC nor of CFC, as the case may be, knows of any
business to be presented at its respective Shareholder Meeting other than such
business described in this Joint Proxy Statement/Prospectus. Should additional
business properly come before either of the Shareholder Meetings, the persons
acting as the proxies will have discretion to vote in accordance with their own
judgment on such business.
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DISSENTERS' RIGHTS OF APPRAISAL
The holders of RSFC Common Stock who vote against the Merger Agreement will
not be entitled to dissenters' rights of appraisal under the FBCA because such
shareholders hold shares that are listed on the Nasdaq National Market. See
"Comparison of Rights of Holders of RSFC and CFC Common Stock--Rights of
Dissenting Shareholders."
Holders of CFC Common Stock as of the CFC Record Date are entitled to
dissenters' rights under Sections 607.1301, 607.1302 and 607.1320 of the FBCA,
copies of which are attached hereto as Appendix D to this Joint Proxy
Statement-Prospectus. The following discussion is not a complete statement of
law pertaining to dissenters' rights under the FBCA and is qualified in its
entirety by reference to Appendix D.
Under the FBCA, any holder of CFC Common Stock as of the CFC Record Date
who follows the procedures set forth in Section 607.1320 will be entitled to
receive an offer from CFC to pay the dissenting shareholder an amount estimated
by CFC to be the "fair value" for such shareholder's shares. "Fair value" is
defined under the FBCA as the value of the dissenter's shares as of the close of
business on the day prior to the date the Merger is approved by the CFC's
shareholders, excluding any appreciation or depreciation in anticipation of the
corporate action, unless such exclusion would be inequitable. Any shareholder
who wishes to exercise dissenters' rights, or who wishes to preserve his or her
right to do so, should review the following discussion and Appendix D carefully
because failure to comply timely and properly with the procedures specified will
result in the loss of dissenters' rights under the FBCA. A person having a
beneficial interest in CFC Common Stock held of record in the name of another
person, such as a broker or nominee, must act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner to
perfect such dissenters' rights as the beneficial owner may have.
A CFC shareholder wishes to exercise dissenters' rights must deliver to
CFC, before the vote of holders of CFC Common Stock on the Merger Agreement at
the CFC Special Meeting, a written notice of intent ("Notice of Intent") to
demand payment for his or her shares. Such shareholder must not vote in favor of
approval of the Merger Agreement. Because a signed proxy which does not contain
voting instructions will, unless revoked, be voted for the Merger Agreement, a
CFC shareholder who votes by proxy and who wishes to exercise dissenters' rights
must either: (i) vote against the Merger Agreement; or (ii) abstain from voting
with respect to he Merger Agreement. A vote against approval of the Merger
Agreement will not, in and of itself, constitute a written demand for
dissenters' rights satisfying the requirements of Section 607.1320.
Any Notice of Intent should be addressed to CFC at 801 N.E. 167 Street,
North Miami Beach, Florida 33162, Attention: George M. Apelian, President, and
should be executed by, or on behalf of, the holder of record. The Notice of
Intent must reasonably inform CFC of the identity of the shareholder and that
such shareholder is thereby objecting to the Merger and demanding payment of his
or her shares if the Merger is consummated.
Under Section 607.1320, CFC must provide written notification (a "Notice of
Approval"), within 10 days after shareholder approval of the Merger Agreement,
of such shareholder approval to each shareholder who gave CFC a Notice of
Intent. Within twenty days after the Notice of Approval is given by CFC, the
dissenting shareholder must file with CFC a written notice of election to
dissent ("Notice of election to dissent") and deposit his or her certificates
evidencing shares of CFC Common Stock with CFC simultaneously with the filing of
the Notice of Election to Dissent. Upon filing a Notice of election to Dissent,
a shareholder shall thereafter be entitled only to payment as provided by
Section 607.1320 and shall not be entitled to vote or to exercise any other
rights of a shareholder. A notice of Election to dissent may be withdrawn in
writing by a dissenting shareholder at any time before CFC has made an offer to
pay for the shares of the shareholder.
Within 10 days after the expiration of the period in which shareholders may
file their Notice of Election to Dissent or within 10 days after the
consummation of the Merger, whichever is later, but in no event more than 90
days after the date the CFC shareholders approve the Merger Agreement, CFC must
make a written offer to each dissenting stockholder who has filed a notice of
Election to Dissent to pay an amount that CFC estimates to be the "fair value"of
the shares. If the dissenting shareholder accepts CFC's offer, payment must be
made within 90 days after the offer was
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made or consummation of the Merger, whichever occurs later. If CFC fails to make
the offer or if the dissenting shareholder does not accept the offer within 30
days after the offer is made, then CFC, within 30 days after receipt of written
demand from any dissenting shareholder given within 60 days after consummation
of the Merger, must bring an action in a court of competent jurisdiction in Dade
County, Florida, requesting that the "fair value" of the shares be determined,
together with a fair rate of interest, as determined by the court. If CFC fails
to bring such an action, any dissenting shareholder may do so on behalf of CFC.
The costs and expenses of any such action shall be determined by the court
and shall be assessed against CFC, but all or any part of such costs and
expenses may be apportioned and assessed as the court may deem equitable against
any or all of the dissenting shareholders who are parties to the action, and to
whom CFC has made any offer to pay for the shares, if the court finds that such
shareholders' failure to accept such offer was arbitrary, vexatious, or not in
good faith. Such expenses shall include reasonable compensation for, and
reasonable expenses of, appraisers appointed by the court, but shall exclude the
fees and expenses of counsel for, and experts employed by, any party. If the
fair value of the shares, as determined by the court, materially exceeds the
amount CFC offered to pay therefor or if no offer was made, the court may award
to any shareholder who is a party to the proceeding such sum as the court may
determine to be reasonable compensation to any attorney or expert employed by
the shareholder in the action.
CFC shareholders who are considering the assertion of dissenters' rights
should be aware that the "fair value" of their shares of CFC Common Stock as
determined under the FBCA could be more than, the same as, or less than the
consideration they would receive pursuant to the Merger Agreement if they did
not seek dissenters' rights. RSFC's obligation to consummate the Merger under
the Merger Agreement is subject to the condition that not more than 10% of the
shares of CFC shall be subject to the exercise of dissenters' rights under the
FBCA.
Only a holder of record of CFC Common Stock as of the CFC Record Date is
entitled to assert dissenters' rights for the shares of CFC Common Stock
registered in the holder's name. The demand for dissenters' rights should be
executed by or on behalf of the holder of record fully and correctly, as his or
her name appears on the stock certificates. If the shares of CFC Common Stock
are owned of record in a fiduciary capacity, such as by a trustee guardian or
custodian, execution of the demand shall be made in that capacity, and if the
shares of CFC Common Stock are owned of record by more than one person, as by
joint tenancy or in common, the demand should be executed by or behalf of all
joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for such owner or
owners. A record holder such as a broker who holds shares of CFC Common Stock as
nominee for several beneficial owners may exercise dissenters' rights with
respect to the shares of CFC Common Stock held for one or more beneficial owner
while not exercising such rights with respect to the shares of CFC common stock
held for other beneficial owners. In such case, the written demand should set
forth the number of shares of CFC Common Stock as to which dissenters' rights
are sought. Where no number of shares of CFC Common Stock is expressly
mentioned, the demand will be presumed to be with respect to all shares of CFC
Common Stock held in the name of the record owners. CFC shareholders who hold
their shares of CFC Common Stock in brokerage accounts or other nominee forms
and who wish to exercise dissenters' rights are urged to consult with their
brokers to determine the appropriate procedures for making a demand.
If any CFC shareholder who demands dissenters' right with respect to his or
her shares of CFC Common Stock fails to perfect, or effectively withdraws or
loses, the right to dissent, the shareholder's rights as a shareholder will be
restored, and, if the Merger has been consummated, the shares of CFC Common
Stock of such shareholder will be converted into shares of RSFC Common Stock in
accordance with the terms of the Merger Agreement.
Failure to follow the steps required by Sections 607.1301, 607.1302 and
607.1320 of the FBCA for perfecting dissenters' rights will result in the loss
of such rights. Consequently, any CFC shareholder who desires to exercise
dissenters' rights is urged to consult a legal advisor before attempting to
exercise such rights.
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THE MERGER
THE FOLLOWING INFORMATION INSOFAR AS IT RELATES TO MATTERS CONTAINED IN THE
MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT, WHICH IS INCORPORATED HEREIN BY REFERENCE AND ATTACHED HERETO AS
ANNEX A. RSFC AND CFC SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS
ENTIRETY. ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
WITH RESPECT TO CFC, EXCEPT SUCH INFORMATION DESCRIBED UNDER "--OPINION OF ALEX
SHESHUNOFF & CO.- INVESTMENT BANKING" HAS BEEN SUPPLIED BY CFC FOR INCLUSION
HEREIN AND HAS NOT BEEN INDEPENDENTLY VERIFIED BY RSFC.
BACKGROUND TO THE MERGER
On January 6, 1997, the CFC Board of Directors authorized the retention of
Alex Sheshunoff & Co. - Investment Banking ("Sheshunoff"), Austin, Texas to
advise CFC on various matters relating to the maximization of CFC's
shareholders' value, including the possible sale or merger of CFC with another
institution. From January through April 1997, Sheshunoff conducted its customary
business investigations of CFC and prepared on behalf of CFC, various documents
including a Confidential Offering Memorandum to solicit non-binding indications
of interest from leading domestic financial institutions, including RSFC, which
may have had interest in acquiring CFC. Twenty one institutions responded to
Sheshunoff's solicitations, and Sheshunoff distributed a Confidential Offering
Memorandum to nineteen of such entities upon their execution and Sheshunoff's
receipt of a Confidentiality Agreement satisfactory to CFC.
Pursuant to their program of contacts, Sheshunoff contacted RSFC in mid
April 1997. In late April 1997, members of RSFC's senior management met with
Ryan, Beck & Co. ("Ryan, Beck") to discuss a possible merger or acquisition
transaction between RSFC and CFC. Based upon data in the Offering Memorandum,
CFC's strengths and weaknesses were discussed and a preliminary list of cost
savings was developed. A list of other potential acquirors was developed and the
maximum prices which other acquirors could pay was analyzed and reviewed. RSFC
discussed the terms of a possible indication of interest and such an indication
was eventually submitted.
On May 9, 1997, Sheshunoff received on behalf of CFC, written non-binding
indications of interest from eight institutions and upon subsequent review with
CFC's management and Board on May 12, 1997, rejected three non-binding
indications of interest as too low in value to merit further consideration and
permitted five Southeast banking institutions to conduct on-site due diligence.
These five preliminary written non-binding indications of interest ranged in
value from a low of $45 million to a high of $53.4 million, the majority having
a value of approximately $50 million, based upon then prevailing stock market
valuations. Four institutions contemplated common stock exchanges and one
included an option for a combination of cash and/or common stock; comprised of a
substantial non-voting common stock component. During June, 1997, these five
institutions conducted their on-site due diligence of CFC.
Each party, including RSFC, that conducted due diligence was asked to
submit a new indication of interest which reflected the results of its due
diligence investigation by July 10, 1997. On July 10, 1997, Sheshunoff received
on behalf of CFC, subsequent oral or written non-binding indications of interest
from all of the five institutions that conducted due diligence. Two of the
initial non-binding indications of interest were modified from common stock
acquisitions to purchase transactions, contemplating the purchase of assets and
assumption of liabilities and thus were deemed unacceptable to CFC as these
structures did not attain one of CFC's Board's objectives of completing an
orderly sale in a tax free transaction. One of the non-binding indications of
interest contemplated a transaction not to exceed $50 million in the aggregate.
The two remaining non-binding indications of interest contemplated a tax free
transaction utilizing all common stock which ranged in value, in the aggregate,
from $53 million to $55.6 million, based upon then prevailing stock market
valuations.
On July 16, 1997, CFC's Board of Directors met to consider the two written
non-binding indications of interest which contemplated a tax free transaction
utilizing all common stock. One written non-binding indication of interest
contemplated an exchange of shares of common stock based upon a fixed value for
shares of CFC common stock, and floating exchange ratio for shares of common
stock to be issued in the transaction. This proposal made no provision
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for CFC's termination of the agreement under adverse stock market conditions,
prohibited the payment by CFC of cash dividends between the date of the
agreement and closing, and contemplated potential reductions of the purchase
price in the event of certain adverse events. The other written non-binding
indication of interest, by RSFC, contemplated a fixed exchange ratio for shares
of common stock to be issued in the transaction and made provision for CFC's
termination of the agreement under adverse stock market conditions, as more
fully described elsewhere in this Joint Proxy Statement/Prospectus, permitted
the payment by CFC under certain circumstances, of cash dividends between the
date of the agreement and closing, and contemplated no potential reductions of
the purchase price in the event of certain adverse events. CFC's Board
considered the benefits and disadvantages of a fixed value transaction as
opposed to a fixed exchange transaction and the then prevailing stock market
values, price to book value, price to tangible book value and price earnings
multiples of the two potential acquirors. After much discussion, the CFC Board
expressed a preference for RSFC's fixed exchange transaction, as opposed to the
fixed value transaction, as the RSFC transaction would, at the signing of a
definitive agreement, establish the number of shares of RSFC Common Stock CFC
shareholders would receive and permitted CFC shareholders to participate,
without limitation, in any price movement of RSFC common stock subsequent to the
signing of a definitive agreement. The RSFC non-binding indication of interest
also provided CFC shareholders with some limited protection in the event of a
significant and adverse price decline of RSFC's market value on both an absolute
and relative basis. The CFC Board then authorized the execution of an Exclusive
Non-Solicitation, Stand-Still Agreement, subsequently renewed and extended to
August 13, 1997, with RSFC permitting both CFC and RSFC the opportunity to
exchange information, conduct their own business investigation, prepare certain
disclosure schedules and to negotiate the full terms, conditions,
representations and warranties of the definitive Merger Agreement.
During the period from July 17th to early August the parties updated and
completed due diligence and negotiated the terms of the Merger Agreement. On
August 6th, because of the decline in RSFC's stock price, Sheshunoff and Ryan,
Beck renegotiated certain terms of the proposal. Sheshunoff and Ryan, Beck
discussed changing the transaction from one with a fixed conversion rate to a
fixed price transaction involving the use of a floating conversion rate.
Ultimately, the parties agreed to keep the transaction as one with a fixed
conversion rate but renegotiated the Conversion Rate from 4.676 shares of RSFC
for each share of CFC to 4.807 shares of RSFC for each share of CFC.
On August 6, 1997, CFC's Board of Directors met again to consider the
Merger Agreement contained in this Joint Proxy Statement/Prospectus, consider
the prevailing stock market values, price to book value, price to tangible book
value and price to earnings multiples of RSFC and other banking organizations,
review the findings of the due diligence investigations, discuss changes to this
agreement as compared to earlier proposed drafts of the Merger Agreement and
hear Sheshunoff's oral opinion as to the fairness of the Conversion Rate to
holders of shares of CFC Common Stock. The CFC Board then duly authorized the
Merger Agreement, shareholder agreements and related employment agreements. On
August 8, 1997, RSFC's Board of Directors met to consider the Merger Agreement
and authorized the Merger Agreement and related documents.
On August 8th, the parties signed the Merger Agreement and a public
announcement was made.
RSFC REASONS FOR THE MERGER; POTENTIAL ADVERSE EFFECTS OF THE MERGER; AND
RECOMMENDATION OF RSFC'S BOARD OF DIRECTORS
Since 1992 the RSFC Board of Directors has been pursuing a Shareholder
Value Plan, a key strategic element of which includes growth through mergers and
acquisitions. In the last five years, RSFC has completed five acquisitions. If
the Merger is consummated, it will be RSFC's sixth acquisition over this time
period. The RSFC Board of Directors believes that a merger with CFC represents
an opportunity for RSFC to enhance its long-term growth prospects by expanding
Republic Security's geographical presence, diversifying its loan portfolio and
providing for the potential to increase earnings per share over the long term.
The RSFC Board of Directors considered the fact that by acquiring CFC's
operations, Republic Security will obtain an immediate and significant market
presence in Dade and Broward Counties, Florida, thereby enhancing long-term
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growth opportunities. RSFC had, through its acquisition of Family Bank, recently
expanded into Broward County. RSFC believed that a continued expansion into Dade
County would be profitable for RSFC. Although the per capita income in Dade
County is lower than that of Palm Beach County, the market is much larger and
diverse. RSFC anticipates that the Combined Bank will have at least 30
full-service banking centers from which to serve the attractive customer base of
these three counties. In addition, the RSFC Board of Directors believes that the
Merger will allow RSFC to utilize its operational and technological expertise to
enhance the performance of CFC's operations.
The RSFC Board of Directors also believes that the Merger presents an
opportunity for Republic Security to broaden the composition of its loan
portfolio. County's loan portfolio is comprised predominantly of
business-oriented loans, specifically commercial real estate loans, while
Republic Security's loan portfolio is more consumer-oriented. As a result, the
composition of the Combined Bank's loan portfolio will be more diversified.
Furthermore, in determining its decision to approve the Merger and whether
the consideration being paid to the shareholders of CFC in connection with the
Merger is fair to RSFC and its shareholders from a financial point of view, the
RSFC Board of Directors considered the anticipated financial benefits of the
Merger. The Merger is expected to be accretive to RSFC's earnings per share. On
a pro forma basis, the Combined Bank's return-on-average-assets (ROAA),
return-on-average-equity (ROAE) and efficiency ratio will compare favorably to
its peer group. The RSFC Board of Directors reviewed and analyzed internally and
externally prepared financial analysis of the Combined Company considering
post-merger cost savings in arriving at anticipated financial benefits. In
addition, the RSFC Board of Directors reviewed and considered deal values of
recent bank merger transactions. In addition, in reaching its decision, the RSFC
Board of Directors considered the opinion of Ryan, Beck & Co.
In reaching its decision to approve and adopt the Merger Agreement, the
RSFC Board of Directors also considered factors that are not favorable to the
Merger, including (i) the potential adverse impact of CFC's high concentration
of commercial real estate loans on the Combined Bank's loan portfolio, (ii) the
potential difficulties in managing the Combined Company, and (iii) the decrease
in RSFC's book value per share. In reaching its determination to approve the
Merger, the RSFC Board of Directors did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. After deliberating with respect to the
Merger and the other transactions contemplated by the Merger Agreement, and
considering the matters discussed above, the RSFC Board of Directors unanimously
approved the Merger Agreement and the transactions contemplated thereby as being
in the best interests of RSFC and its shareholders.
AFTER EVALUATING THE FAVORABLE AND UNFAVORABLE FACTORS DISCUSSED ABOVE AS
WELL AS OTHERS, THE RSFC BOARD OF DIRECTORS UNANIMOUSLY DETERMINED TO APPROVE
THE MERGER AGREEMENT AND RECOMMENDS THAT THE RSFC SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT.
OPINION OF RYAN, BECK & CO.
On July 25, 1997 RSFC formally retained Ryan, Beck to advise RSFC on the
acquisition of CFC. Ryan, Beck is regularly engaged in the valuation of banks,
bank holding companies, savings and loan associations and savings and loan
holding companies in connection with mergers, acquisitions and other
securities-related transactions. Ryan, Beck has knowledge of, and experience
with, the Florida banking market and banking organizations operating in that
market, and was selected by RSFC because of its knowledge of, experience with,
and reputation in the financial services industry.
In its capacity as RSFC's financial advisor, Ryan, Beck participated in the
negotiations with respect to the pricing and other terms and conditions of the
Merger, but the decision as to whether to acquire CFC and the final pricing of
the Merger was ultimately made by the Board of Directors of RSFC. Ryan, Beck
rendered its oral opinion to the RSFC Board of Directors on August 8, 1997 and
rendered its formal written opinion (the "Opinion") on October 23, 1997, that
the Conversion Rate is "fair" to RSFC's shareholders from a financial point of
view. No limitations were imposed by the RSFC Board of Directors upon Ryan, Beck
with respect to the investigations made or procedures followed by it in arriving
at its opinion.
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THE FULL TEXT OF THE OPINION OF RYAN, BECK DATED AS OF OCTOBER ____, 1997,
WHICH SETS FORTH ASSUMPTIONS MADE AND MATTERS CONSIDERED, IS ATTACHED AS ANNEX B
TO THIS JOINT PROXY STATEMENT / PROSPECTUS. SHAREHOLDERS OF RSFC ARE URGED TO
READ THIS OPINION IN ITS ENTIRETY. RYAN, BECK'S OPINION IS DIRECTED ONLY TO THE
CONVERSION RATE AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY RSFC SHAREHOLDER
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF
THE OPINION OF RYAN, BECK SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. RYAN,
BECK'S ORAL OPINION AS OF AUGUST 8, 1997 WAS TO THE SAME EFFECT AS SUCH OPINION.
In connection with its analysis, Ryan, Beck: (i) reviewed the Merger
Agreement and related documents; (ii) reviewed this Joint Proxy Statement /
Prospectus; (iii) reviewed RSFC's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the years ended December 31, 1996 and March 31, 1995,
the nine months ended December 31, 1995 and the fiscal year ended March 31, 1994
and RSFC's Quarterly Reports on Form 10-Q for the periods ended June 30, 1997
and March 31, 1997; (iv) reviewed CFC's Annual Reports to Shareholders and/or
Annual Reports on Form 10-KSB for the years ended December 31, 1996, 1995, and
1994, and CFC's Quarterly Reports on Form 10-Q for the periods ended June 30,
1997 and March 31, 1997; (v) reviewed the Registration Statement on Form S-4
with respect to County's acquisition of Carney Bank; (vi) reviewed certain
operating and financial information provided to us by the managements of RSFC
and CFC relating to their business and prospects; (vii) reviewed the historical
stock prices and trading volume of RSFC's Common Stock; (viii) as more
particularly described below, reviewed the publicly available financial data of
commercial banking organizations which Ryan, Beck deemed generally comparable to
RSFC; (ix) as more particularly described below, reviewed the publicly available
financial data of commercial banking organizations which Ryan, Beck deemed
generally comparable to CFC; (x) as more particularly described below, reviewed
the terms of recent acquisitions of commercial banking organizations which Ryan,
Beck deemed generally comparable to CFC; and (xi) conducted such other studies,
analyses, inquiries and examinations as Ryan, Beck deemed appropriate. Ryan,
Beck also reviewed certain financial projections provided by CFC for the year
ending December 31, 1997 and met with certain members of CFC's senior management
to discuss CFC's past and current business operations, financial condition,
strategic plan and future prospects. Ryan, Beck also reviewed RSFC's financial
projections for the year ending December 31, 1997, and met with certain members
of RSFC's senior management to discuss RSFC's past and current business
operations, financial condition, strategic plan and future prospects.
In connection with its review, Ryan, Beck relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information regarding RSFC and CFC provided to Ryan, Beck by RSFC and CFC
and their representatives. Ryan, Beck is not an expert in the evaluation of
allowances for loan losses. Therefore, Ryan, Beck has not assumed any
responsibility for making an independent evaluation of the adequacy of the
allowances for loan losses as set forth on CFC's and RSFC's balance sheets at
June 30, 1997, and Ryan, Beck assumed such allowances were adequate and complied
fully with applicable law, regulatory policy and prudent banking practice as of
the date of such financial statements. Ryan, Beck has reviewed certain
historical financial data and financial projections (and the assumptions and
bases therefor) provided by RSFC and CFC. Ryan, Beck assumed that such forecasts
and projections reflected the best currently available estimates and judgments
of the respective managements. In certain instances, for the purposes of its
analyses, Ryan, Beck made adjustments to such financial and operating forecasts
which in Ryan, Beck's judgment were appropriate under the circumstances. Ryan,
Beck was not retained to nor did it make any independent evaluation or appraisal
of the assets or liabilities of RSFC or CFC nor did Ryan, Beck review any loan
files of RSFC or CFC or their respective subsidiaries. Ryan, Beck also assumed
that the Merger in all respects is, and will be, undertaken and consummated in
compliance with all laws and regulations that are applicable to RSFC and CFC.
The preparation of a fairness opinion on a transaction such as the Merger
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, the Opinion is not readily susceptible to summary
description. In arriving at its opinion, Ryan, Beck performed a variety of
financial analyses. Ryan, Beck believes that its analyses must be considered as
a whole and the consideration of portions of such analyses and the factors
considered therein, without considering all
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factors and analyses, could create an incomplete view of the analyses and the
process underlying Ryan, Beck's Opinion. No one of the analyses was assigned a
greater significance than any other.
The projections furnished to Ryan, Beck were prepared by the respective
managements of RSFC and CFC. RSFC and CFC do not publicly disclose internal
management projections of the type provided to Ryan, Beck in connection with the
review of the Merger. Such projections were not prepared with a view towards
public disclosure. The public disclosure of such projections could be misleading
since the projections were based on numerous variables and assumptions which are
inherently uncertain, including, without limitation, factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in such projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of RSFC or CFC. Any estimates contained in Ryan,
Beck's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates. Estimates
of values of companies do not purport to be appraisals nor do they necessarily
reflect the prices at which companies or their securities may actually be sold.
The following is a brief summary of the analyses and procedures performed
by Ryan, Beck in the course of arriving at its opinion.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES: Ryan, Beck compared CFC's
financial data as of June 30, 1997 (annualized where necessary) to a peer group
of twenty-four selected commercial banking organizations located in the
Southeast region of the United States with assets between $175 million and $350
million. Ryan, Beck deemed this group to be generally comparable to CFC. At or
for the six months ended June 30, 1997 (annualized where appropriate), CFC had
tangible equity to tangible assets of 9.67%, a return on average assets of 1.05%
adjusted to reflect a 35% tax rate, a return on average equity of 11.35%
adjusted to reflect a 35% tax rate, a net interest margin of 5.93%, a ratio of
non-interest expenses to average assets of 5.27%, a ratio of non-performing
loans to total loans of 0.71%, a ratio of non-performing assets to total assets
of 1.63%, a ratio of loan loss reserves to non-performing loans of 211.82%, and
an efficiency ratio of 76.49%. These ratios were compared to the median ratios
of the twenty-four selected commercial banking organizations, which were, as
calculated, a tangible equity to tangible assets ratio of 9.01%, a return on
average assets of 1.13%, a return on average equity of 12.23%, a net interest
margin of 4.66%, a ratio of non-interest expense to average assets of 3.11%, a
ratio of non-performing loans to total loans of 0.37%, a ratio of non-performing
assets to total assets of 0.37%, a ratio of loan loss reserves to non-performing
loans of 308.65%, and an efficiency ratio of 60.31%. Ryan, Beck noted that the
performance of CFC as measured by a return on average assets and average equity
were slightly less than that of the peer group and that CFC's efficiency ratio
and non-interest expenses to average assets were significantly greater than that
of the peer group. This is in part due to the 14 branches operated by CFC versus
the median of the peer group at seven. Ryan, Beck also noted that non-performing
loans to total loans and non-performing assets to total assets of CFC exceeded
the median of the peer group and CFC's loan loss reserves to non-performing
loans was less than the median of the peer group.
Ryan, Beck also compared RSFC's financial data as of June 30, 1997 with
that of a group of twenty-four selected commercial banking organizations located
in the Southeast region with assets between $400 million and $1 billion and for
which public trading and pricing information was available. Ryan, Beck deemed
this group to be generally comparable to RSFC. At or for the six months ending
June 30, 1997, RSFC had tangible equity to tangible assets of 9.27%, a return on
average assets of 1.25% adjusted to exclude the one-time SAIF assessment, a
return on average equity of 10.93% adjusted to exclude the one-time SAIF
assessment, a dividend yield of 2.35%, a net interest margin of 4.98%, an
efficiency ratio of 61.39%, a ratio of non-performing assets to total assets of
1.00% and a ratio of reserves to non-performing loans of 85.33%. These ratios
were compared to the median ratios of the twenty-four selected commercial
banking organizations, which were, as calculated, a tangible equity to tangible
assets ratio of 9.16%, a return on average assets ratio of 1.21%, a return on
average equity ratio of 12.58%, a dividend yield of 2.20%, a net interest margin
of 5.05%, an efficiency ratio of 61.03%, a ratio of non-performing assets to
total assets of 0.38% and a ratio of reserves to non-performing loans of
317.35%. Using RSFC's July 31, 1997 Common Stock price of $8.50, its price to
1997 estimated earnings was 19.32 times, price to book value was 226.67% and
price to tangible book value was
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256.02%. The peer group's median price to estimated 1997 earnings was 15.47
times, price to book value was 199.32% and price to tangible book value was
212.82%.
ANALYSIS OF SELECTED TRANSACTIONS: Ryan, Beck compared CFC's financial data
at or for the six months ended June 30, 1997 with that of a group of twenty-one
selected commercial banking organizations being acquired in transactions
announced since January 1, 1996 and for which pricing data pertaining to the
transactions was publicly available. The criteria for this group was commercial
banks in the Southeast region with assets between $150 million and $350 million,
a tangible equity to tangible assets ratio of less than 12%, and in which the
consideration was all or part common stock. Ryan, Beck deemed this group to be
generally comparable to CFC. The median ratios of the twenty-one selected
companies, as calculated, represented a 8.40% tangible equity to tangible assets
ratio, a non-performing assets to assets ratio of 0.27%, an annualized
year-to-date return on average assets of 1.12% and an annualized year-to-date
return on average equity of 13.40%. These ratios were compared to CFC's ratios,
which were, as calculated, a 9.67% tangible equity to tangible assets ratio, a
non-performing assets to assets ratio of 1.63%, a return on average assets of
1.05% adjusted to reflect a 35% tax rate, and a return on average equity of
11.35% adjusted to reflect a 35% tax rate.
Ryan, Beck also calculated certain ratios based on the $42.21 of RSFC
Common Stock to be received for each share of CFC Common Stock based upon the
average closing RSFC stock price for the twenty trading days ended August 6,
1997. This price represented 231.83% of fully diluted book value, 231.83% of
fully diluted tangible book value, 21.65 times annualized earnings for the six
months ended June 30, 1997 adjusted to reflect a 35% tax rate and a core deposit
premium to tangible book value of 15.54%. The median ratios for the Comparable
Transactions, as calculated, represented a price to fully diluted book value of
234.98%, a price to fully diluted tangible book value of 243.12%, a price to
latest twelve month earnings of 19.38 times and a core deposit premium to
tangible book value of 18.19%. The imputed value of CFC based on the median
multiples of the above mentioned acquisition peer group was $42.78 based on
price to fully diluted book value, $44.26 based on price to fully diluted
tangible book value, $37.79 based on price to six month earnings annualized and
normalized to reflect a 35% tax rate and $46.30 based on the core deposit
premium to tangible book value.
No company or transaction used in the ANALYSIS OF SELECTED PUBLICLY TRADED
COMPANIES AND TRANSACTIONS sections is identical to CFC, RSFC or the Merger.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies involved and other
factors that could affect the trading values of the securities of the company or
companies to which they are being compared.
IMPACT ANALYSIS: Ryan, Beck analyzed the Merger in terms of its effect on
RSFC's projected earnings per share, current book value, tangible book value,
and capital ratios. Ryan, Beck based its analysis on RSFC and CFC's projected
1998 and 1999 earnings, as provided by RSFC's management, and certain
assumptions with respect to cost savings and other synergies and the amount of
the restructuring charge resulting from the Merger. Based upon the stand alone
earnings projections provided by RSFC and CFC and RSFC's average closing stock
price for the twenty trading days ended August 6, 1997 of $8.78 per share, the
analysis showed that the Merger would be accretive to RSFC's estimated 1998
earnings per share by approximately 1.42% and accretive to 1999 earnings per
share by approximately 4.61%. Based upon RSFC's and CFC's June 30, 1997
financial statements, the Merger would be dilutive to fully diluted book value
per share by approximately 2.48%, and accretive to RSFC's fully diluted tangible
book value per share by approximately 0.31%. RSFC's pro forma total equity to
total assets will decrease from 10.69% to 10.10%, its tangible equity to
tangible assets will decrease from 9.63% to 9.33%, and its intangible assets to
total equity will be reduced from 11.02% to 8.48%. The actual results achieved
may vary from the projected results and the variations may be material.
DISCOUNTED DIVIDEND ANALYSIS: Using a discounted dividend analysis, Ryan,
Beck estimated the net present value of the future dividend streams that CFC
could produce in perpetuity. Projection ranges for CFC's five-year balance sheet
and income statement were provided by CFC's management. Management's projections
were based upon various factors and assumptions, many of which are beyond the
control of CFC. These projections are, by their nature, forward-looking and may
differ materially from the actual values or actual future results which may be
significantly more or less
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favorable than suggested by such projections. In producing a range of per share
CFC values, Ryan, Beck utilized the following assumptions: discount rates range
from 12.0% to 14.0%, terminal price/earnings multiples range from 11.0x to 13.0x
(which when applied to terminal year estimated earnings produces a value which
approximates the net present value of the dividends in perpetuity, given certain
assumptions regarding growth rates and discount rates) and earnings that include
estimated savings in CFC's non-interest expenses equal to 20.53% in 1998 and
31.59% in 1999, with an assumed 5% growth in synergies in years thereafter. The
discounted dividend analysis produced a range of net present values per share of
CFC Common Stock from $37.55 to $44.99. These analyses do not purport to be
indicative of actual values or expected values or an appraisal range of the
shares of CFC Common Stock. Ryan, Beck noted that the discounted dividend
analysis is a widely used valuation methodology, but noted that it relies on
numerous assumptions, including expense savings levels, dividend payout rates,
terminal values and discount rates, the future values of which may be
significantly more or less than such alternatives.
In connection with its written Opinion dated as of October 23, 1997,
Ryan, Beck confirmed the appropriateness of its reliance on the analyses used to
render its August 8, 1997 oral opinion by performing procedures to update
certain of such analyses and by reviewing the assumptions and conclusions
contained in the Opinion.
RYAN, BECK'S WRITTEN OPINION DATED OCTOBER 23, 1997 WAS BASED SOLELY UPON
THE INFORMATION AVAILABLE TO IT AND THE ECONOMIC, MARKET AND OTHER CIRCUMSTANCES
AS THEY EXISTED AS OF THE DATE OF SUCH OPINION. RYAN, BECK DID NOT EXPRESS ANY
OPINION AS TO THE PRICE OR RANGE OF PRICES AT WHICH RSFC COMMON STOCK MIGHT
TRADE SUBSEQUENT TO THE MERGER. EVENTS OCCURRING AFTER SUCH DATE COULD
MATERIALLY AFFECT THE ASSUMPTIONS AND CONCLUSIONS CONTAINED IN SUCH OPINION.
RYAN, BECK HAS NOT UNDERTAKEN TO REAFFIRM OR REVISE ITS OPINION OR OTHERWISE
COMMENT UPON ANY EVENTS OCCURRING AFTER THE DATE HEREOF.
The opinion of Ryan, Beck that the Conversion Rate is fair to RSFC's
shareholders from a financial point of view does not include situations in which
CFC elects to terminate the Merger Agreement as a result of a decline in the
price of RSFC Common Stock to $7.65 or less in the absence of a specified
decline in the weighted average price of a group of ten comparable commercial
banking organizations. Under such circumstances, RSFC can override such
termination by increasing the number of shares of RSFC Common Stock issuable for
each share of CFC Common Stock from 4.807 shares to such number of shares of
RSFC Common Stock having an aggregate market value of $36.77 based upon the RSFC
Market Value as of the determination date. Whether or not RSFC would agree to
increase the Conversion Rate would have to be evaluated by RSFC's Board of
Directors at the time of any such termination by CFC based upon the facts and
circumstances existing at that time. In connection with any such evaluation by
RSFC's Board of Directors, RSFC intends to request Ryan, Beck to reevaluate the
transaction to determine whether the revised Conversion Rate was fair to RSFC's
shareholders from a financial point of view. Ryan, Beck has been advised by RSFC
that it would be requested to update its opinion under such circumstances and
that, in the event that Ryan, Beck is unable to deliver an opinion under such
circumstances and RSFC nonetheless elects to override CFC's termination of the
Merger Agreement and proceed with the Merger, RSFC would resolicit its
shareholders to advise them of such facts.
The summary set forth above does not purport to be a complete description,
but is a brief summary of the material analyses and procedures performed by
Ryan, Beck in the course of arriving at its Opinion.
With regard to Ryan, Beck's services in connection with the Merger
Agreement, RSFC has agreed to pay Ryan, Beck an advisory fee of $415,000. A
portion of Ryan, Beck's advisory fee equal to $103,750 was paid upon execution
of the Merger Agreement and the remainder will be paid at the time of the
closing of the Merger. In addition, RSFC has agreed to reimburse Ryan, Beck for
its reasonable out-of-pocket expenses, which shall not exceed $7,500 without the
prior consent of RSFC. RSFC has also agreed to indemnify Ryan, Beck and certain
related persons against certain liabilities, including liabilities under federal
securities law, incurred in connection with its services. The amounts of Ryan,
Beck's fees were determined by negotiation between RSFC and Ryan, Beck.
Ryan, Beck has had an investment banking relationship with RSFC for a
number of years. Within the last four years Ryan, Beck has provided the
following investment banking services to RSFC: In 1993 and 1995 Ryan, Beck was
the sole underwriter of securities offerings totaling $8.1 million and $21.2
million, respectively (including the overallotment
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options). Additionally, Ryan, Beck acted as financial advisor with respect to
RSFC's acquisition of Banyan Bank which was consummated in January 1996.
Furthermore, Ryan, Beck acted as financial advisor to Family Bank with respect
to its acquisition by RSFC which was consummated in June 1997. Ryan, Beck has
also acted as financial advisor to RSFC with respect to various other matters
from time to time for which it has received fees for its services.
Ryan, Beck's research department actively follows RSFC and regularly
produces earnings estimates on RSFC. Ryan, Beck's trading department is a market
maker in RSFC's common and convertible preferred stock and, in such capacity,
may from time to time own RSFC securities.
Ryan, Beck has had no prior relationship with CFC. Ryan, Beck's research
department does not follow CFC and Ryan, Beck is not a market maker in CFC
stock.
As of September 29, 1997, Ryan, Beck did not have a material position in
either RSFC or CFC common stock.
CFC REASONS FOR THE MERGER; POTENTIAL ADVERSE EFFECTS OF THE MERGER; AND
RECOMMENDATION OF CFC'S BOARD OF DIRECTORS
The CFC Board of Directors believes the Merger with RSFC represents an
opportunity to maximize the prospects for the shareholder's intrinsic values
through the benefits of being associated with a larger banking organization, by
expanding CFC's geographic presence, broadening and diversifying its loan and
deposit portfolios, providing for the potential to increase earnings and
earnings per share and profitability over the long-term, enhancing aggregate
capital and share liquidity.
The CFC Board of Directors considered the fact that the Merger represents
an opportunity to maximize the prospects from long-term shareholder value by
merging with a larger banking organization while maintaining the customer
service advantages of a community banking organization and of CFC, in
particular. The CFC Board of Directors believes the Merger will allow the
Combined Company to benefit from and utilize CFC's service orientation and
commercial banking expertise to enhance the performance of CFC and RSFC.
The CFC Board of Directors considered that by being merged with RSFC, CFC
will benefit from becoming part of RSFC with significant operations and market
presence in Palm Beach, Broward and Dade Counties. The recent sales of RSFC's
closest competitors (First United Bancorp., Boca Raton, Florida and Capital
Bancorp, Miami, Florida to leading out of market and state banks) makes RSFC
among the largest remaining independent commercial banking organization in these
markets. The CFC Board of Directors also believes the Merger presents an
opportunity for County to broaden and diversify the composition of its loan and
deposit portfolios.
Sheshunoff has advised CFC that, on a pro forma basis, the Combined Bank's
financial, stock market valuation and capital ratios compare favorably to RSFC's
peers. The Combined Bank's aggregate capital will also increase significantly.
This increase in aggregate capital will also allow RSFC after the Merger to
compete more readily with the region's banks for larger loans.
Furthermore, the CFC Board of Directors considered that the Merger would
provide share liquidity for its holders of CFC Common Stock. Shares of CFC
Common Stock are not traded or listed on any regional or national stock
exchanges. There is not a broad market for shares of CFC Common Stock, and CFC
shares trade on a sporadic, private and negotiated basis. Shares of RSFC Common
stock are listed on the NASDAQ National Market System and several market makers
including Ryan, Beck, trade the RSFC Common Stock. The Merger Agreement also
provides certain Qualifying Affiliates with "Registration Rights," thereby
facilitating the orderly distribution of such shares of RSFC Common Stock,
should these CFC shareholders determine to sell shares received by them in the
Merger. In addition, the CFC Board of Directors considered the potential
appreciation in the Combined Bank's capital stock, both as a result of the
Merger and otherwise.
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The CFC Board of Directors also concluded that RSFC after the Merger would
benefit from certain economies of scale not available to CFC on a "stand alone"
basis. CFC may be required to undertake a systems conversion of its operating
system at a significant cost to CFC during the next several months. These
benefits would include certain operational savings, some of which would be the
result of RSFC's technological expertise and scale of operations.
The Boards of Directors of CFC believe that the Merger will create a
financial services company serving southeastern Florida with assets of
approximately $863 million and financial and managerial resources to compete
effectively in the rapidly changing and consolidating marketplace for banking
and financial services.
The CFC Board of Directors believes that the Merger represents a strategic
fit between two financially sound institutions with similar business strategies
and complementary product capabilities and market coverage. The Board of
Directors of CFC believes that the Combined Company will be a stronger financial
institution than either is individually with product and geographic diversity
and significant market positions in several business lines, including commercial
purpose loans, commercial real estate loans, residential real estate loan, and
various retail and middle-market loans in the Dade, Broward and Palm Beach
County markets. The Boards of Directors of CFC believe that the Combined Company
will have greater financial strength, operational efficiencies and earnings
power than either CFC or RSFC would have on its own. In addition, the CFC Board
of Directors concluded that because of some geographic and operational overlap
between the Republic Security and County and the similarity of their strategic
focus, the Merger presented desirable opportunities for synergies and cost
savings.
In reaching its conclusions, the CFC Board of Directors considered, among
other things, (i) information concerning the financial performance and
condition, business operations, capital levels, asset quality and prospects of
CFC and RSFC and their projected future results and prospects as separate
entities and on a combined basis, (ii) current industry, economic and market
conditions and trends, including the likelihood of continuing consolidation and
increasing competition in the banking and financial services industries (and
corresponding decrease in the number of suitable merger candidates for CFC), the
growing importance of financial resources and market position and economies of
scale to a banking institution's ability to compete successfully in this
changing environment, and the increasing costs of technology, (iii) the
structure of the transaction, (iv) the possibility of achieving certain cost
savings, operating efficiencies and synergies as a result of the Merger that
would not be available to either CFC or RSFC on its own, (v) the terms of the
Merger Agreement, (vi) the opinions of its financial advisors described below as
to the fairness from a financial point of view of the Conversion Rate (which was
determined through arm's-length negotiations between CFC and RSFC), (vii) the
likelihood of obtaining required regulatory approval, (viii) the changing legal
environment for banking and financial services and (ix) the impact of the Merger
on the employees, customers and communities served by County. In reaching their
decision to approve the Merger Agreement and recommend the Merger to
stockholders, the CFC Board of Directors did not assign any relative or specific
weights to the various factors considered, and individual directors of CFC may
have given differing weights to different factors.
In reaching its decision to approve and adopt the Merger Agreement, the CFC
Board of Directors also considered factors that are not favorable to the Merger,
including (i) the potential for future equity, earnings and ownership dilution
arising from RSFC's acquisition strategies or issuance of additional shares of
Common Stock, (ii) the pending operating systems consolidation of Family Bank
with the Bank, (iii) the recent restructuring charges associated with the
acquisition of Family Bank, (iv) the size of the CFC and recent Family Bank
acquisitions, and the significant increase in RSFC's operations within the past
year, (v) the Bank's recent increase in the level of reserves for possible loan
losses, (vi) the potential issues in managing the Combined Bank and (vii) the
market risks of receiving shares of RSFC Common Stock as consideration for the
Merger, instead of cash, and any potential decrease in the market value of such
shares prior to receipt of such shares.
AFTER EVALUATING THE FAVORABLE AND UNFAVORABLE FACTORS DISCUSSED ABOVE, THE
CFC BOARD OF DIRECTORS UNANIMOUSLY DETERMINED TO APPROVE THE MERGER AND
RECOMMENDS THAT THE CFC SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
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OPINION OF ALEX SHESHUNOFF & CO.
CFC retained Alex Sheshunoff & Co. - Investment Banking, Austin, Texas
("Sheshunoff") based upon its qualifications, expertise and reputation among
banks, to develop and implement a sales strategy, assist CFC in its negotiation
of a sale of CFC and to provide its opinion of fairness of the Conversion Rate
to be received by CFC's stockholders in connection with the Merger. At the
August 6, 1997 meeting of CFC's Board of Directors, Sheshunoff rendered its oral
opinion to the Board that, as of such date, the Conversion Rate of 4.807 to be
received in the Merger Agreement was fair from a financial point of view to the
holders of CFC's Common Stock.
The full text of Sheshunoff's opinion which sets forth, among other things,
assumptions made, procedures followed, matters considered, and limitations on
the review undertaken, is attached as Annex C to this Joint Proxy
Statement/Prospectus. CFC's stockholders are urged to read the Sheshunoff
opinion carefully and in its entirety. Sheshunoff's opinion is addressed to
CFC's Board of Directors and does not constitute a recommendation to any
stockholder of CFC as to how such stockholder should vote at the CFC meeting.
In connection with its written opinion dated as of the date of this Joint
Proxy Statement / Prospectus, Sheshunoff, among other things: (i) reviewed a
copy of the Agreement; (ii) reviewed this Joint Proxy Statement / Prospectus;
(iii) reviewed certain publicly available financial statements and other
information of CFC and RSFC, respectively; (iv) discussed the results of
regulatory examinations of CFC, RSFC and Family with executive management; (v)
reviewed and compared certain estimates of cost savings projected by RSFC
arising from their acquisition of CFC with cost savings estimates in certain
precedent transactions; (vi) reviewed the Joint Proxy Statement / Prospectus of
RSFC and Family Bank, Hallandale, Florida, dated May 27, 1997; (vii) reviewed
certain internal financial statements, and other financial and operating data
concerning CFC and RSFC, respectively; (viii) analyzed certain budget and
financial projections of CFC prepared by the management of CFC; (ix) analyzed
certain financial earnings per share projections of RSFC provided by independent
banking industry analysts; (x) analyzed the pro forma impact of the Merger on
the Combined Company's earnings, book value and tangible book value per share,
respectively, and consolidated capitalization and financial ratios; (xi)
reviewed the reported prices and shares trading activity for RSFC; (xii)
discussed the past and current operations and financial condition, and the
prospects of both CFC and RSFC with executive management; (xiii) compared CFC
and RSFC from a financial point of view with certain other companies which
Sheshunoff deemed to be relevant; (xiv) reviewed the financial terms, to the
extent publicly available, of certain comparable merger transactions, (xv)
participated in discussions and negotiations among CFC and RSFC and their
financial and legal advisors, and (xvi) performed such other analyses and
examinations as Sheshunoff deemed appropriate.
In connection with its review, Sheshunoff assumed and relied upon without
independent verification the accuracy and completeness of the information
supplied or otherwise made available to it by CFC and RSFC for the purposes of
its opinion. Sheshunoff did not make an independent evaluation of the assets or
liabilities of CFC, nor was Sheshunoff furnished with any such appraisals. With
respect to budgets and financial forecasts, Sheshunoff assumed that they were
reasonably prepared and reflect the best currently available estimates and
judgments of management of CFC and RSFC, as to the future financial performance
of CFC and RSFC, and Sheshunoff has assumed such forecasts and projections will
be realized in the amounts and at the times contemplated thereby. Sheshunoff has
assumed that obtaining any necessary regulatory approvals and third party
consents for the Merger or otherwise will not have an adverse effect on CFC,
RSFC or the Combined Company pursuant to the Merger Agreement. Sheshunoff is not
an expert in the evaluation of loan portfolios for the purpose of assessing the
adequacy of the allowance for losses with respect thereto and has assumed that
such allowances for each of the companies are in the aggregate, adequate to
provide for such losses. In addition, Sheshunoff has not reviewed any individual
credit files nor made an independent evaluation, appraisal or physical
inspection of the assets or individual properties of CFC or RSFC, nor has
Sheshunoff been furnished with any such evaluations or appraisals.
Sheshunoff's opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us, as of the
date hereof. Events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. Sheshunoff has also assumed that
there are no material changes in
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CFC's or RSFC's assets, financial condition, results of operations, litigation,
business or prospects since the respective dates of their last financial
statements reviewed by us, and that litigation and off-balance sheet activities
of CFC and RSFC will not materially and adversely impact the future financial
position or results of operation of CFC and RSFC. Sheshunoff has also assumed
the Merger will be completed as set forth in the Agreement and that no material
changes will be made or restrictions imposed by regulatory or other parties on
the terms of the Merger Agreement.
In connection with rendering its opinion, Sheshunoff performed a variety of
financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
of summary description. Moreover, the evaluation of the fairness, from a
financial point of view, of the consideration to be received by the holders of
CFC is to some extent a subjective one based on the experience and judgment of
Sheshunoff and not merely the result of mathematical analysis of financial data.
Accordingly, notwithstanding the separate factors summarized below, Sheshunoff
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. The ranges of valuations resulting
from any particular analysis described below should not be taken to be
Sheshunoff's view of the actual value of CFC.
In performing its analyses, Sheshunoff made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of CFC. The analyses performed by
Sheshunoff are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold. In addition, Sheshunoff's analyses
should not be viewed as determinative of CFC's Board or management's opinion
with respect to the value of CFC.
The following is a summary of the analyses performed by Sheshunoff in
connection with its oral and written opinions:
ANALYSIS OF SELECTED TRANSACTIONS: Sheshunoff performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations in the nation with comparable characteristics to the CFC and RSFC
transaction. Five sets of comparable transactions well analyzed by Sheshunoff to
ensure a thorough comparison. The five guideline groups included all banks
nationally, Southeast banks, Florida banks, banks nationwide having total assets
between $150 - 350 million and banks nationwide having a return on equity
between 15% and 20%, from January 1, 1997 to August 6, 1997.
The first set of guideline transactions consisted of 134 banks nationally
which entered into a merger or acquisition of the banking organization. The
analysis yielded multiples of the transactions' purchase price relative to: (i)
book value ranging from 0.99 times to 3.99 times with an average of 2.15 times
and a median of 2.12 times (compared with CFC's reported 2.46 times book value
at June 30, 1997); (ii) tangible book value ranging from 0.99 times to 4.81
times with an average of 2.22 times and a median of 2.17 times (compared with
CFC's reported 2.46 times tangible book value at June 30, 1997); (iii) last
twelve months earnings ranging from 5.72 times to 41.94 times with an average of
19.01 times and a median of 17.65 times (compared with CFC's reported 50.78
times the last twelve months earnings and 17.46 times the last twelve months
normalized earnings for the period ended June 30, 1997); (iv) total deposits
ranging between 11.50% and 58.98% with an average of 23.30% and a median of
22.16% (compared with CFC's reported 26.70% of total deposits as of June 30,
1997); and (v) total assets ranging between 10.59% and 42.44% with an average of
19.76% and a median of 19.36% (compared with CFC's reported 23.83% of total
assets as of June 30, 1997).
The second set of guideline transactions consisted of 36 Southeast banks
which entered into a merger or acquisition of the banking organization. The
analysis yielded multiples of the transactions' purchase price relative to: (i)
book value ranging from 0.99 times to 3.46 times with an average of 2.24 times
and a median of 2.17 times (compared with CFC's reported 2.46 times book value
at June 30, 1997); (ii) tangible book value ranging from 0.99 times to 3.63
times with an average of 2.30 times and a median of 2.25 times (compared with
CFC's reported 2.46 times tangible book value
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at June 30, 1997); (iii) last twelve months earnings ranging from 10.17 times to
34.57 times with an average of 20.36 times and a median of 20.37 times (compared
with CFC's reported 50.78 times the last twelve months earnings and 17.46 times
the last twelve months normalized earnings for the period ended June 30, 1997);
(iv) total deposits ranging between 13.09% and 41.25% with an average of 24.46%
and a median of 25.22% (compared with CFC's reported 24.32% of total deposits as
of June 30, 1997); and (v) total assets ranging between 11.77% and 28.05% with
an average of 20.66% and a median of 21.63% (compared with CFC's reported 21.71%
of total assets as of June 30, 1997).
The third set of guideline transactions consisted of 14 Florida banks which
entered into a merger or acquisition of the banking organization. The analysis
yielded multiples of the transactions' purchase price relative to: (i) book
value ranging from 1.64 times to 3.01 times with an average of 2.24 times and a
median of 2.28 times (compared with CFC's reported 2.24 times book value at June
30, 1997); (ii) tangible book value ranging from 1.65 times to 3.01 times with
an average of 2.26 times and a median of 2.28 times (compared with CFC's
reported 2.24 times tangible book value at June 30, 1997); (iii) last twelve
months earnings ranging from 10.17 times to 30.50 times with an average of 19.39
times and a median of 19.01 times (compared with CFC's reported 50.78 times the
last twelve months earnings and 17.46 times the last twelve months normalized
earnings for the period ended June 30, 1997); (iv) total deposits ranging
between 13.09% and 34.33% with an average of 21.62% and a median of 21.42%
(compared with CFC's reported 24.32% of total deposits as of June 30, 1997); and
(v) total assets ranging between 11.77% and 28.05% with an average of 18.88% and
a median of 19.25% (compared with CFC's reported 21.71% of total assets as of
June 30, 1997).
The fourth set of guideline transactions consisted of 30 banks having
assets of $150 - 350 million nationally which entered into a merger or
acquisition of the banking organization. The analysis yielded multiples of the
transactions' purchase price relative to: (i) book value ranging from 1.33 times
to 3.17 times with an average of 2.27 times and a median of 2.21 times (compared
with CFC's reported 2.24 times book value at June 30, 1997); (ii) tangible book
value ranging from 1.33 times to 3.17 times with an average of 2.32 times and a
median of 2.30 times (compared with CFC's reported 2.24 times tangible book
value at June 30, 1997); (iii) last twelve months earnings ranging from 5.72
times to 29.97 times with an average of 17.47 times and a median of 16.60 times
(compared with CFC's reported 50.78 times the last twelve months earnings and
17.46 times the last twelve months normalized earnings for the period ended June
30, 1997); (iv) total deposits ranging between 15.64% and 34.43% with an average
of 24.35% and a median of 24.24% (compared with CFC's reported 24.32% of total
deposits as of June 30, 1997); and (v) total assets ranging between 11.83% and
29.17% with an average of 20.79% and a median of 21.38% (compared with CFC's
reported 21.71% of total assets as of June 30, 1997).
The fifth set of guideline transactions consisted of 33 banks having a
return on equity of 15% to 20% nationally which entered into a merger or
acquisition of the banking organization. The analysis yielded multiples of the
transactions' purchase price relative to: (i) book value ranging from 1.48 times
to 3.40 times with an average of 2.39 times and a median of 2.43 times (compared
with CFC's reported 2.24 times book value at June 30, 1997); (ii) tangible book
value ranging from 1.58 times to 3.98 times with an average of 2.45 times and a
median of 2.44 times (compared with CFC's reported 2.24 times tangible book
value at June 30, 1997; (iii) last twelve months earnings ranging from 9.62
times to 22.96 times with an average of 15.55 times and a median of 15.73 times
(compared with CFC's reported 50.78 times the last twelve months earnings and
17.46 times the last twelve months normalized earnings for the period ended June
30, 1997); (iv) total deposits ranging between 17.00% and 37.16% with an average
of 25.10% and a median of 25.15% (compared with CFC's reported 24.32% of total
deposits as of June 30, 1997); and (v) total assets ranging between 14.38% and
32.77% with an average of 21.53% and a median of 21.49% (compared with CFC's
reported 21.71% of total assets as of June 30, 1997).
CONTRIBUTION ANALYSIS: Sheshunoff evaluated the contribution by CFC to the
Combined Company's equity and earnings, and CFC's ownership interest in the
Combined Company. Based upon June 30, 1997 total stockholders' equity and
estimated earnings, CFC contributes approximately 26% and 18% of the Combined
Company's equity and 1997 estimated earnings, respectively. CFC earnings were
annualized and normalized for certain tax adjustments, while RSFC estimated
earnings of $0.59 per share were those reported by Zacks Investment Research.
Earnings of the Combined Company do not include any revenue enhancements or
expense savings associated with the Merger. CFC will receive shares of common
stock representing approximately 27% of primary shares (including shares issued
upon
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conversion of the RSFC Convertible Preferred Stock Series "C") of the Combined
Company. Based upon the Conversion Rate in the Agreement and subject to the
attainment of the estimated and normalized earnings, CFC may experience
accretion to its earnings per share and dilution to its book value per share.
DISCOUNTED CASH FLOW ANALYSIS: Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future stream of after-tax cash
flows that CFC could produce through the year 2001, under various circumstances,
assuming that CFC performed in accordance with the earnings/return projections
of management. Sheshunoff estimated the terminal value for CFC at the end of the
period by applying multiples of earnings ranging from 8.0 times to 18.0 times to
terminal earnings and then discounting the cash flow streams, dividends paid to
the stockholders (assuming all earnings in excess of that required to maintain a
tangible equity to tangible asset percentage of 6.0% are paid out in dividends)
and terminal value using discount rates ranging from 12.0% to 16.0% chosen to
reflect different assumptions regarding the required rates of return of CFC and
the inherent risk surrounding the underlying projections. This discounted cash
flow analysis indicated a range of $20.00 per share to $45.00 per share.
Sheshunoff also performed a cash flow analysis using an estimated terminal
value for CFC at the end of the period by applying multiples of book value
ranging from 1.5 times to 2.6 times and then discounting the cash flow streams,
dividends paid to the stockholders (assuming all earnings in excess of that
required to maintain a tangible equity to tangible asset percentage of 6.0% are
paid out in dividends) and terminal value using discount rates ranging from
12.0% to 16.0% chosen to reflect different assumptions regarding the required
rates of return of CFC and the inherent risk surrounding the underlying
projections. This discounted cash flow analysis indicated a range of $27.00 per
share to $51.00 per share.
No company or transaction used in the comparable transaction analyses is
identical to CFC or the Merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of CFC and other factors
that could affect the public trading value of the companies to which they are
being compared. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable transaction
data or comparable company data.
As part of its investment banking business, Sheshunoff is regularly engaged
in the valuation of securities in connection with mergers and acquisitions,
private placements, and valuations for estate, corporate and other purposes.
CFC's Board of Directors retained Sheshunoff based on its experience as a
financial advisor in mergers and acquisitions of financial institutions, and its
knowledge of financial institutions.
In addition, Sheshunoff was engaged by CFC on January 6, 1997 to serve as
CFC's exclusive financial advisor to undertake the following: (a) analyze the
value of CFC in a merger or acquisition transaction; (b) analyze strategies
available to CFC to enhance shareholder value in a merger or acquisition
transaction; (c) solicit potential acquirors' interest in entering into a merger
or acquisition transaction with CFC, and to negotiate the terms, amount and form
of consideration; including the Conversion Rate; (d) present to the Board of
Directors of CFC its findings; (e) consult with the Board of Directors during
the course of this engagement with respect to the strategies employed to enhance
shareholder value of CFC; (f) assist in the structuring and concluding of a sale
of CFC; and (g) provide its opinion of the fairness, from a financial point of
view, of the Conversion Rate to be received by holders of CFC Common Stock in a
transaction. For these services, Sheshunoff will be paid a professional fee of
1% of the value of the transaction upon closing of the Merger with RSFC.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. Such summary is qualified in its
entirety by reference to the Merger Agreement.
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THE MERGER. The Merger Agreement provides that, following the approval and
adoption of the Merger Agreement by the shareholders of RSFC and CFC and the
satisfaction or waiver of the other conditions to the Merger, at the Effective
Time, CFC will be merged with and into RSFC, the separate existence of CFC will
thereupon cease and RSFC will continue as the surviving corporation (the
"Combined Company"). As a result of the Merger and the Conversion Rate, RSFC
will issue approximately 6,081,244 shares as adjusted to holders of CFC Common
Stock (assuming no exercise of the outstnding CFC stock options). CFC
shareholders are entitled to dissenters' rights in connection with the Merger.
See "Dissenters' Rights of Appraisal." If holders of more than 10% of the
outstanding shares of CFC Common Stock exercise their dissenters' rights, RSFC
is not obligated to effect the Merger. See "--Conditions Precedent to the
Merger."
If the Merger Agreement is approved by the shareholders of RSFC and CFC and
the other conditions of the Merger Agreement are satisfied or waived, the Merger
will become effective at 9:00 a.m. on the Effective Date.
The Merger Agreement provides that at 3:00 p.m. on the Effective Date,
County will be merged with and into Republic Security, the separate existence of
County will thereupon cease, and Republic Security will continue as the
resulting corporation (the "Combined Bank").
COMBINED COMPANY. At the Effective Time, each issued and outstanding share
of RSFC Common Stock shall remain issued and outstanding and unaffected by the
Merger. The Articles of Incorporation and Bylaws of RSFC as in effect
immediately prior to the Effective Time will be the Articles of Incorporation
and Bylaws of the Combined Company after the Effective Time, until thereafter
changed or amended as provided therein or by applicable law.
COMBINED BANK. At the Effective Time, each issued and outstanding share of
Republic Security's common stock shall remain issued and outstanding and
unaffected by the Merger. The Articles of Incorporation and Bylaws of Republic
Security as in effect immediately prior to the Effective Time will be the
Articles of Incorporation and Bylaws of the Combined Bank after the Effective
Time, until thereafter changed or amended as provided therein or by applicable
law.
CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger and
without any action by any holder of CFC Common Stock, each outstanding share of
common stock of CFC will be converted into a number of shares of RSFC Common
Stock equal to the Conversion Rate specified by the Merger Agreement (the
"Conversion Rate"). The Conversion Rate will be 4.807, unless: (i) the Average
Closing Price (as defined below) on the Determination Date (as defined below) is
less than $7.65; and (ii) the number obtained by dividing the Average Closing
Price on such Determination Date by $8.76 is less than the number obtained by
dividing an index of comparable bank stocks (the "Index Price") on the
Determination Date by the Index Price on August 6, 1997 and subtracting 0.05
from the resulting quotient. In the event of these two contingencies, CFC will
have the right to terminate the Merger Agreement; provided, however, that RSFC
will have the option of adjusting the Conversion Rate to equal the number equal
to a quotient, the numerator of which is the product of $7.65 and the Conversion
Rate (as then in effect) and the denominator of which is the Average Closing
Price. If RSFC makes this election, no termination will have occurred and the
Merger Agreement will remain in effect in accordance with its terms (except as
the Conversion Rate will have been so modified). For purpose of the foregoing,
capitalized terms have the following definitions:
"Average Closing Price" means the average of the daily last
sale prices of RSFC common stock as reported by the NASDAQ National
Market System for the 20 consecutive full trading days in which such
shares are traded on the NASDAQ National Market System beginning on the
first full trading day following the date on which the registration
statement with respect to the Merger is declared effective by the SEC.
"Determination Date" means the last day of the 20-day trading
period referred to in the definition of Average Closing Price.
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"Index Price" on any given date means the weighted average of
the closing prices of the common stock of 10 unaffiliated bank holding
companies, as listed in the Merger Agreement.
Additionally, at the Effective Time each outstanding option to purchase
shares of CFC Common Stock issued pursuant to CFC's stock option plans will be
assumed by RSFC and will constitute an option to acquire on the same terms and
conditions as were applicable to such CFC stock option, the same number of
shares of RSFC Common Stock into which such shares would have been converted
pursuant to the Merger had such options been exercised immediately prior to the
Effective Time at a price per share equal to the exercise price for the shares
of CFC Common Stock otherwise purchasable pursuant to such options, divided by
the Conversion Rate of 4.807. Based upon the capitalization of CFC and RSFC as
of August 7, 1997 and the Conversion Rate, the holders of the then outstanding
shares of CFC Common Stock would own approximately 6.08 million shares of RSFC
or approximately 27% of the outstanding shares of RSFC Common Stock as a result
of the Merger (assuming no exercise of the outstnding CFC stock options).
At the Effective Time, the stock transfer books of CFC shall be closed and
there shall be no further registration of transfers of CFC Common Stock.
Immediately after the Effective Time, transmittal letters will be mailed to each
holder of record of CFC Common Stock to be used in forwarding his or her
certificates evidencing such shares for surrender and exchange for certificates
evidencing the shares of RSFC Common Stock to which he or she has become
entitled. After receipt of such transmittal form, each holder of certificates
formerly representing CFC Common Stock should surrender such certificates to the
transfer agent, and each such holder will receive in exchange therefor
certificates evidencing the number of shares of RSFC Common Stock to which such
holder is entitled. Such transmittal letters will be accompanied by instructions
specifying other details of the exchange. CFC SHAREHOLDERS SHOULD NOT SEND IN
THEIR STOCK CERTIFICATES TO THE TRANSFER AGENT UNTIL THEY RECEIVE A TRANSMITTAL
LETTER FOLLOWING THE EFFECTIVE TIME.
NO FURTHER RIGHTS. From and after the Effective Time, holders of
certificates representing shares of CFC Common Stock will cease to have any
rights with respect to CFC Common Stock. The sole right of holders of such
certificates shall be the right to receive the number of shares of RSFC Common
Stock which the holder of such certificate is entitled to receive. The holder of
such unexchanged certificate will not be entitled to receive any dividends or
other distributions declared or made after the Effective Time with respect to
RSFC Common Stock until the certificate is surrendered. Subject to applicable
laws, such dividends and distributions, if any, will be accumulated and, at the
time of such surrender, all such unpaid dividends and distributions will be
paid, without interest. None of RSFC, CFC, the transfer agent or any other
person will be liable to any holder of shares of CFC Common Stock for any amount
delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar laws.
If a certificate for CFC Common Stock has been lost, stolen or destroyed,
the transfer agent will issue RSFC Common Stock in accordance with the Merger
Agreement upon receipt of appropriate evidence as to such loss, theft or
destruction, appropriate evidence as to the ownership of such certificate by the
claimant and appropriate and customary indemnification.
For a description of the differences between the rights of the holders of
RSFC Common Stock and CFC Common Stock, see "Comparison of Rights of Holders of
RSFC and CFC Common Stock."
GOVERNANCE OF THE COMBINED COMPANY. The Merger Agreement sets forth certain
matters related to the Board of Directors and the executive officers of the
Combined Company and the Combined Bank, from and after the Effective Time. For a
description of such matters, see "Management Following the Merger."
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains certain
representations and warranties of RSFC, Republic Security, CFC and County,
regarding, without limitation, (i) their respective due organization, good
standing and similar corporate matters, (ii) capital structure, (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters, (iv) documents filed by RSFC with the Commission
and the accuracy of information contained therein, (v) the accuracy of
information supplied by RSFC and CFC in
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connection with this Joint Proxy Statement/Prospectus, (vi) financial statements
of RSFC and CFC, (vii) the loan portfolios and deposits of Republic Security and
County, (viii) undisclosed liabilities and obligations, (ix) the absence of
certain material changes or events, (x) title to and condition of property, (xi)
taxes and fees, (xii) material contracts, (xiii) litigation, (xiv) compliance
with laws and regulations regarding the principal businesses of Republic
Security and County (xv) labor and employment matters and retirement and other
employee plans and matters relating to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), (xvi) accounting practices, (xvii) accuracy
of minute books, (xviii) insurance matters, (xix) agreements with regulators
restricting the conduct of their respective businesses, (xx) compliance with
environmental laws and regulations, (xxi) compliance with the Community
Reinvestment Act, (xxii) the absence of undisclosed transactions with officers,
directors and others, (xxiii) status of fidelity bonds, (xxiv) accuracy of
statements in the Merger Agreement and schedules thereto, (xxv) absence of
regulatory communications and (xxvi) opinions of financial advisors.
CERTAIN COVENANTS.
ALL PARTIES. Pursuant to the Merger Agreement, RSFC, Republic Security, CFC
and County have each agreed that from the date of the Merger Agreement to the
Effective Time, each will, among other things, (i) afford each other reasonable
access to certain information in order to conduct an examination of its
business, (ii) carry on their respective businesses and engage in transactions
only in the ordinary course of business and consistent with their respective
past prudent banking practices, (iii) not take any action that would result in
any of the representations and warranties set forth in the Merger Agreement
becoming untrue at the Effective Time, (iv) confer with and inform the other
party regarding all material developments, transactions and proposals relating
to its financial condition, properties, business or operations, (v) use its best
efforts to obtain all necessary governmental and regulatory approvals required
to consummate the Merger, (vi) provide each other certain financial information
at certain periods as specified in the Merger Agreement, (vii) not knowingly
take any action that would affect the treatment of the Merger as a "pooling of
interests", and (viii) take steps necessary to duly call, give notice of,
convene and hold a meeting of their shareholders for the purpose of securing
their approval of the Merger Agreement.
RSFC AND REPUBLIC SECURITY. In addition to the covenants above, RSFC and
Republic Security have each agreed that from the date of the Merger Agreement to
the Effective Time, except (A) as permitted or required by the Merger Agreement
and (B) as consented to by CFC, that they will not, among other things, (i)
amend their Articles of Incorporation or Bylaws, (ii) take any action, except as
may be required by law, regulation or judicial or regulatory order, which could
prevent the Merger or the Bank Merger, and (iii) make any material change in its
accounting methods or practice. In addition to the covenants above, RSFC and
Republic Security have each agreed that they will, among other things, (i) have
certain designees of CFC elected to their respective boards of directors, (ii)
provide employee benefits and compensation as specified in the Merger Agreement
and (iii) prepare and file with the Securities and Exchange Commission and duly
seek effectiveness of a Registration Statement on Form S-4 containing this Joint
Proxy Statement/Prospectus.
CFC AND COUNTY. In addition to the convents above, CFC and County have each
agreed that from the date of the Merger Agreement to the Effective Time, except
(A) as permitted or required by the Merger Agreement and (B) as consented to by
RSFC, that they will not, among other things, (i) amend their Articles of
Incorporation or Bylaws, (ii) change the number of shares of its issued capital
stock, (iii) issue or grant any option, warrant, call, commitment, subscription,
right to purchase or similar agreement regarding its capital stock, or any
securities convertible into shares of such stock, or split, combine reclassify
or redeem any shares of its capital stock, (iv) declare or pay any dividend or
other distribution in respect of its capital stock, except for quarterly cash
dividends in amounts up to the amount per share paid by RSFC with respect to the
same quarter multiplied by the Conversion Rate, (v) sell or dispose of any
assets or incur any liabilities, in excess of $100,000 in the aggregate, except
in the ordinary course of business, (vi) make any capital expenditure in excess
of $100,000 in the aggregate, (vii) make any loan, commitment therefor, or
direct investment in or with respect to any one party or related group of
parties, or issue any letter of credit, or any renewal thereof, in a single or
series of transactions in an amount in excess of $1,000,000, (viii) enter into,
amend or renew any real estate lease and (ix) enter into, amend, modify or renew
or otherwise change their arrangements with employees, directors or officers,
(x) hire any officer, except in the ordinary course of business, (xi) grant any
severance or
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termination rights to, or enter into or amend any written severance or
employment agreement with, any of their directors, officers or employees or
adopt any new employee benefit plan or arrangement of any type, (xii) file any
applications or make any contract with respect to branching or site location or
relocation, (xiii) engage in any transactions with any of its directors or
officers, (xiv) take any action, except as may be required by law, regulation or
judicial or regulatory order, which could prevent the Merger or the Bank Merger,
(xv) increase the compensation or benefits of any of their employees, officers
or directors or pay any bonuses, directly or indirectly, to any such persons,
except for increases in the ordinary course of business not to exceed 6% of the
aggregate payroll as of June 30, 1997, (xvi) enter into any agreement not
terminable at will by it, which requires the payment by it of an aggregate
amount in excess of $100,000 (other than loan commitments or agreements), (xvii)
waive any material right other than in the ordinary course of business, (xviii)
incur any material indebtedness for money owed, (ixx) mortgage, pledge or
subject to any charge, lien, claim or encumbrance any of its assets, (xx) make
any material change in its accounting methods or practices, or (xxi) amend or
modify any employee retirement plans or increase the amount of contributions to
such plans.
NO SOLICITATION OF TRANSACTIONS. The Merger Agreement restricts the ability
of RSFC and CFC to solicit transactions other than the Merger. RSFC has agreed
that except as required by fiduciary obligations or a court or regulatory agency
with jurisdiction over RSFC or Republic Security, neither RSFC, Republic
Security nor any director, executive officer, representative, agent or other
person controlled by RSFC or Republic Security , shall, and neither RSFC nor
Republic Security shall permit its directors and executive officers to, directly
or indirectly, (i) encourage or hold discussions or negotiations with, or
provide any information to, any person, entity or group (other than CFC)
concerning any merger or acquisition involving RSFC, Republic Security or a
subsidiary of either, other than mergers or acquisitions in which RSFC, Republic
Security or a subsidiary of either is the surviving corporation and which has an
aggregate purchase price of $10,000,000 or less. CFC has agreed that except as
required by fiduciary obligations or by a court or regulatory agency with
jurisdiction over it, neither CFC, County nor any director, executive officer,
representatives, agents or other persons controlled by CFC or County, shall, and
neither CFC nor County shall permit its directors and executive officers to,
directly or indirectly, encourage or hold discussions or negotiations with, or
provide any information to, any person, entity or group (other than RSFC)
concerning any merger, sale of substantially all of the assets, sale of shares
of capital stock or similar transactions involving CFC or County.
INDEMNIFICATION. The Merger Agreement provides that for a period of six
years after the Effective Time, RSFC shall indemnify, defend and hold harmless
the present and former directors, officers, employees and agents of CFC or
County (each, an "Indemnified Party") against all liabilities arising out of
actions or omissions arising out of their employment by or with CFC or County
and occurring at or prior to the Effective Date to the full extent permitted
under Florida law and by the RSFC Articles and Bylaws as in effect on the date
of the Merger Agreement, including provisions relating to advances of expenses
incurred in the defense of any litigation; PROVIDED that no such indemnification
shall be made for actions or omissions which constitute violations of law or
fraud, are intentionally taken or omitted in bad faith, constitute a knowing
breach of the Merger Agreement or constitute violations of criminal law.
REGISTRATION RIGHTS. If the Merger Agreement is approved, RSFC will, within
30 days of the end of the first calendar month after the month which includes
the Effective Date, file with the Commission a report on Form 8-K reporting at
least 30 days of operating results of the Combined Company. After the report on
Form 8-K has been filed, any affiliate of CFC, as defined in Rule 145 of the
Securities Act (including entities controlled by the affiliate and certain
Pledgees), who, after the Effective Date, owns RSFC shares in an aggregate
amount in excess of 200,000 shares (a"Qualifying Affiliate"), will have the
right to require RSFC, at RSFC's expense, to register such Qualifying
Affiliate's shares on Registration Statement Form S-3 or any other such form for
which RSFC qualifies and do any and all other acts and things which may be
reasonably necessary to consummate the disposition of such shares in such
jurisdictions as the Qualifying Affiliate requests. RSFC shall prepare and file
with the Securities and Exchange Commission such amendments and supplements to
such Registration Statement as may be necessary to keep such Registration
Statement effective until all of the shares of the Qualifying Affiliate covered
by such Registration Statement have been sold or one year from the effective
date of such registration. RSFC will indemnify and hold harmless any Qualifying
Affiliate whose shares are registered against any losses, claims, damages, or
liabilities to which such Qualified Affiliate may become subject based upon any
untrue or misleading statements or omissions contained in such Registration
Statement or any other violations by RSFC of federal or state laws or
regulations.
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<PAGE>
EMPLOYEE ARRANGEMENTS. At Republic Security's option, all employees of
County shall become employees of Republic Security. As of the Effective Time,
all County employees who become employees of Republic Security shall be
entitled, to the extent permitted by law, to participate in all benefit plans of
Republic Security to the same extent as Republic Security's employees. To the
extent permitted by applicable law, the period of service with County of all
County employees who become employees of Republic Security at the Effective Time
shall be recognized only for vesting and eligibility purposes under Republic
Security's benefit plans; and for purposes of determining the paid vacation time
to which such employees are entitled.
CONDITIONS PRECEDENT TO THE MERGER. The respective obligations of each
party to the Merger Agreement to effect the Merger are subject to the
fulfillment prior to or at the Effective Time of certain conditions precedent.
ALL PARTIES. The obligations of RSFC, Republic Security, CFC and County are
subject to the fulfillment of each of the following conditions prior to or at
the Effective Time, unless waived by all three parties: (i) all governmental
approvals required to be received to consummate the Merger shall have been
received without the imposition of certain conditions; (ii) such governmental
approvals remain in effect; (iii) all applicable statutory waiting or notice
periods with respect to such governmental approvals shall have expired; (iv) all
conditions and requirements required by law or by such governmental approvals
shall have been satisfied to the extent required prior to the Effective Time;
(v) the Merger shall have been approved by holders of a majority of the
outstanding shares of each of RSFC Common Stock and of CFC Common Stock; (vi)
the consummation of the Merger shall not be restrained, enjoined or prohibited
by any order, judgment, decree, injunction or ruling of a court of competent
jurisdiction; and (vii) RSFC and CFC shall have received the opinion of Morgan,
Lewis & Bockius LLP to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code and that RSFC, Republic Security, CFC and County will each be a party
to such reorganization within the meaning of Section 368(a) of the Code.
RSFC AND REPUBLIC SECURITY. The obligation of RSFC and Republic Security to
effect the Merger is subject to the fulfillment prior to or at the Effective
Time, unless waived by RSFC and Republic Security, of various conditions,
including, among others, (i) CFC and County shall have performed and complied in
all material respects with the obligations required to be performed by it prior
to or at the Effective Time pursuant to the Merger Agreement; (ii) there shall
not have occurred a material adverse change in CFC, its business, financial
condition or prospects, taken as a whole, since June 30, 1997, including but not
limited to any such change arising from or relating to the lawsuit styled DENNIS
BASILE AND JAMES F. THERIAC III, AS CO-RECEIVERS FOR FLORIDA HOME FINDERS, INC.
AND FLORIDA HOME FINDERS REALTY, INC. V. COUNTY NATIONAL BANK OF SOUTH FLORIDA,
or any other lawsuit filed with respect to the same facts; (iii) the fulfillment
by CFC of certain financial criteria listed in the Merger Agreement (including
total deposits of not less than $205,000,000, total loans of not less than
$130,000,000, and tangible equity of not less than $23,000,000); (iv) the
holders of not more than 10% of the outstanding shares of CFC Common Stock shall
have duly delivered proper demands stating an intention to demand appraisal of
and payment for their shares in accordance with Sections 607.1302 and 607.1320
of the FBCA; (v) RSFC and Republic Security shall have received all necessary
consents to the transactions contemplated herein required by any agreement
material to the operation or conduct of business of CFC; (vi) employment
agreements between Republic Security and each of George M. Apelian and Richard
Kuci, entered into on the date of the Merger Agreement and effective at the
Effective Time, shall remain in full force and effect; (vii) RSFC shall have
received from each director of CFC and any other person which would be an
"affiliate" of CFC for purposes of Rule 145 under the Securities Act a duly
executed letter agreement, in form and substance acceptable to CFC and RSFC,
with regard to their Rule 145 and "pooling" obligations; (viii) prior to the
date on which the Registration Statement is filed by RSFC with the Commission,
RSFC shall have received in writing the opinion from Ryan, Beck regarding the
financial fairness of the Merger; (ix) RSFC and Republic Security shall have
received the letter of Deloitte & Touche LLP dated the Closing Date, to the
effect that, based on agreed-upon procedures, nothing has come to their
attention which would cause them to believe that the total assets, total
deposits, total loans, tangible equity, classified assets and non-performing
assets of CFC as of the calendar month ended prior to the Closing Date are not
as reported by CFC and (ix) other customary closing conditions, such as truth in
all material respects of the representation and warranties of CFC and delivery
of officers' certificates.
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CFC AND COUNTY. The obligation of CFC and County to effect the Merger is
subject to the fulfillment prior to or at the Effective Time, unless waived by
CFC, of various conditions, including, among others, (i) RSFC and Republic
Security each shall have performed and complied in all material respects with
the obligations required to be performed by them prior to or at the Effective
Time pursuant to the Merger Agreement; (ii) there shall have been no material
adverse change in RSFC, its business, financial condition or prospects, taken as
a whole, since June 30, 1997; (iii) RSFC and Republic Security shall have
received all necessary consents to the transactions contemplated herein required
by any agreement material to the operation or conduct of business of RSFC and
Republic Security; (iv) prior to the date on which the Registration Statement is
filed by RSFC with the Commission, CFC shall have received in writing the
opinion from Alex Sheshunoff & Co. regarding the financial fairness of the
Merger; (v) CFC and County shall have received the letter of Ernst & Young,
dated the Closing Date, to the effect that, based on agreed-upon procedures,
nothing has come to their attention which would cause them to believe that the
financial condition of RSFC as of the calendar month ended prior to the Closing
Date is not as reported by RSFC or that the accounting treatment of the Merger
would not be a "pooling of interests" in accordance with GAAP; and (vi) other
customary closing conditions, such as truth in all material respects of the
representation and warranties of RSFC and Republic Security and delivery of
officers' certificates.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by RSFC or
CFC shareholders, (i) by mutual consent of RSFC and CFC, (ii) by either RSFC or
CFC if such party is unable to fulfill one of its obligations under the Merger
Agreement and the other party does not waive such nonfulfillment, (iii) by
either RSFC or CFC if the other party has materially breached any
representation, warranty or covenant of the Merger Agreement, (iv) by either
RSFC or CFC if their respective shareholders do not approve the Merger Agreement
and the Merger, (v) by either RSFC or CFC if, in the opinion of Ernst & Young
LLP, any event occurs which would disqualify the Merger from qualifying for
pooling of interests accounting, or (vi) by either RSFC or CFC if all the
conditions precedent to its respective obligations to effect the Merger shall
not have been fulfilled and the Merger shall not have been consummated by
January 31, 1998.
In the event of any termination of the Merger Agreement by either CFC or
RSFC as provided above, the Merger Agreement will become void and there will be
no liability or obligation on the part of RSFC, CFC, Republic Security, County
or their respective directors, officers or shareholders (other than under
certain specified provisions of the Merger Agreement), except to the extent that
such termination results from the breach by a party of its representations,
warranties, covenants or agreements.
TERMINATION FEE. If the Merger Agreement is terminated under certain
circumstances, the Merger Agreement provides for payments by CFC or RSFC of
termination fees. If such termination results from the breach by a party of
representations, warranties or covenants, then it shall pay all of the
reasonable fees and expenses incurred by the other party in connection with the
Merger Agreement. If the Merger Agreement is terminated in contemplation of an
Alternative Acquisition by a third party, then, in the case of a termination by
CFC, CFC would be required to pay the amount of $1,500,000 to RSFC and, in the
case of such a termination by RSFC, RSFC would be required to pay the amount of
$500,000 to CFC.
FEES AND EXPENSES. The Merger Agreement provides that each party will pay
all of its own legal, accounting and other expenses incurred in the preparation
of the Merger Agreement and the performance of the terms and provisions of the
Merger Agreement. In the event of litigation between any of the parties with
respect to the enforcement of the provisions of the Merger Agreement, the Merger
Agreement provides that the prevailing party in such litigation shall be
entitled to recover its legal fees and expenses form the other party to such
litigation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section summarizes certain material federal income tax considerations
of general application that should be considered by shareholders in evaluating
the Merger. This discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Department regulations promulgated thereunder,
court decisions and administrative
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<PAGE>
pronouncements published to date. Any or all of the above are subject to change,
possibly with retroactive effect. Subsequent statutory or administrative changes
or clarifications or court decisions could cause this discussion to become
inaccurate or incomplete. This discussions does not address all tax matters that
may affect RSFC, CFC or their respective stockholders and does not consider
various factual circumstances applicable to any particular shareholder that may
modify or alter the results described herein. In particular, it does not address
federal income tax considerations to investors who are dealers in securities,
mutual funds, insurance companies, nonresident aliens, foreign entities,
tax-exempt entities, or holders who do not hold their shares as capital assets,
and does not address particular situations where shares are received in exchange
for services rendered or for reasons other than in exchange for shares of CFC.
In addition, the following discussions does not address the tax consequences of
the Merger under foreign, state or local tax laws. Holders of CFC Common Stock
are advised and expected to consult their own tax advisors regarding the federal
income tax consequences of the Merger in light of their personal circumstances
and the consequences under state, local and foreign tax laws.
RSFC and CFC have received from Morgan, Lewis & Bockius LLP, an opinion to
the effect that for federal income tax purposes the Merger will constitute a
reorganization within the meaning of Section 368 of the Code and that RSFC and
CFC will each be a party to that reorganization within the meaning of Section
368 of the Code. Such an opinion is not binding on the Internal Revenue Service
(the "IRS") and has no official status of any kind. No assurance can be given
that the IRS will not adopt a contrary position or that a contrary IRS position
would not be sustained by a court.
Neither RSFC nor CFC has requested or received a ruling from the IRS on the
matters discussed herein. The IRS may disagree with some of the conclusions set
forth below, and no assurance can be given that such conclusions would be
sustained by a court if challenged by the IRS. In addition, counsel's opinion is
subject to certain assumptions and qualifications and is conditioned upon the
accuracy of certain factual information and representations provided to such
counsel by RSFC and CFC. Any inaccuracy in those factual matters could adversely
affect the conclusions identified herein and, in particular, could result in a
shareholder, RSFC and CFC recognizing gain in the Merger. Each shareholder is
urged to consult his own tax advisor with respect to the consequences to him of
the Merger and the advisability of obtaining and reviewing the factual
information and representations that Morgan, Lewis & Bockius LLP has relied upon
in rendering its respective opinion.
Assuming the Merger qualifies as a reorganization under Section 368(a) of
the Code, the following federal income tax consequences should occur:
(a) no gain or loss will be recognized by RSFC,
Republic Security, CFC or County by reason of the Merger;
(b) no gain or loss will be recognized by a holder of
CFC Common Stock upon the exchange of all of such holder's
shares of CFC Common Stock solely for shares of RSFC Common
Stock pursuant to the Merger (excluding cash received in lieu
of fractional shares);
(c) the aggregate basis of the shares of RSFC Common
Stock received by a holder of CFC Common Stock will be the
same as the aggregate basis of the shares of CFC Common Stock
surrendered in exchange therefor (except for the reduction in
basis allocable to the fractional share);
(d) the holding period of the shares of RSFC Common
Stock received by a holder of CFC Common Stock will include
the holding period of the shares of CFC Common Stock
surrendered in exchange therefor; provided that such shares of
CFC Common Stock are held as capital assets at the Effective
Time; and
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<PAGE>
(e) a holder of CFC Common Stock who receives cash
pursuant to the exercise of dissenters' right under Section
607.1302 of the Florida Business Corporation Act will
recognize gain or loss equal to the difference, if any,
between such shareholder's basis in the shareholder's CFC
Common Stock and the amount of cash received. Such gain or
loss will be eligible for long-term capital gain or loss
treatment if the CFC Common Stock is held by such shareholder
as a capital asset at the Effective Time and the holding
period for such shares eighteen months.
U.S. Treasury Regulations require that any taxpayer that receives stock in
connection with a corporate reorganization under Section 368 of the Code file
with its U.S. income tax return a complete statement of all facts pertinent to
the transaction including (i) a statement of the basis of the stock transferred
in the transaction, and (ii) a statement of the stock and other property or
money received in the transaction. CFC's shareholders will be required to comply
with these requirements and to maintain permanent records with respect to the
foregoing information.
RESTRICTIONS ON RESALES OF SECURITIES
The shares of RSFC Common Stock to be issued pursuant to the Merger
Agreement have been registered under the Securities Act and, as a result, will
be freely transferable under the Securities Act, except for shares issued to any
CFC shareholder who may be deemed to be an affiliate of RSFC for purposes of
Rule 144 promulgated under the Securities Act ("Rule 144") or an affiliate of
CFC for purposes of Rule 145 promulgated under the Securities Act ("Rule 145")
(each an "Affiliate"). Affiliates will include persons (generally executive
officers, directors and 10% shareholders) who control, are controlled by or are
under common control with (i) RSFC or CFC at the time of the CFC Special Meeting
or (ii) RSFC at or after the Effective Time.
Under present law, any public reoffering or sale of such shares by any
person who is deemed to be an Affiliate of CFC at the time the Merger Agreement
is submitted to a vote of CFC's shareholders will require either (i) the further
registration of such shares under the Securities Act, (ii) compliance with Rule
145 (which permits sales under certain conditions, more fully described below)
or (iii) the availability of some other exemption for the registration
requirements of the Securities Act. In general, under Rule 145, assuming that a
person proposing to resell his or her shares of RSFC Common Stock is not at any
time an affiliate of RSFC, such person may resell such stock if (a) a period of
at least one year has elapsed since the time the shares were acquired from RSFC
or an affiliate of RSFC and such person sells at a time when there is adequate
public information concerning RSFC, (b) a period of at least two years has
elapsed since the time the shares were acquired from RSFC or an affiliate of
RSFC or (c) such person (i) sells during any three-month period no more than the
number of shares permitted under Rule 144(e) (the greater of 1% of the
outstanding shares of RSFC Common Stock or the average weekly trading volume of
RSFC Common Stock for the four calendar weeks prior to the proposed resale),
(ii) sells in a "broker's transaction" where the broker can do no more than
execute the order as agent for the seller, can receive no more than the usual
broker's commission, cannot solicit orders to buy in connection with the
transaction and does not believe that the seller is an underwriter of the
securities being sold, or to a "market maker" (iii) does not solicit orders to
buy in connection with the transaction and does not make any payment in
connection with such sale to anyone other than the selling broker and (iv) sells
at a time when there is adequate current public information concerning RSFC.
Persons who become Affiliates of RSFC prior to or after the Effective Time may
publicly resell the RSFC Common Stock received by them pursuant to the Merger
Agreement subject to the volume, manner of sale and current public information
limitations and certain filing requirements specified in Rule 144.
The ability of Affiliates to resell shares of RSFC Common Stock received
pursuant to the Merger Agreement under Rule 144 or 145 as summarized above
generally will be subject to RSFC having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale. This Joint Proxy
Statement/Prospectus does not cover any resales of RSFC Common Stock received
pursuant to the Merger Agreement by persons who may be deemed to be Affiliates.
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As a condition precedent to the obligation of RSFC and Republic Security to
effect the Merger, RSFC must receive from each CFC director and any other
Affiliate of CFC a letter agreement whereby each such person agrees that he or
she will not sell, assign or transfer any shares of RSFC Common Stock except
pursuant to an effective registration statement or in a transaction not
requiring registration under the Securities Act. Each such person will further
agree in the letter agreement that he or she will not sell, transfer, dispose of
or hedge such person's risk relative to shares of RSFC Common Stock received
pursuant to the Merger until such time as financial results covering at least 30
days of combined operations of RSFC and CFC on a consolidated basis have been
published by RSFC.
If the Merger Agreement is approved, RSFC has agreed, within 30 days of the
end of the first calendar month after the month which includes the Effective
Date, to file with the Commission a report on Form 8-K reporting at least 30
days of operating results of the Combined Company. After the report on Form 8-K
has been filed, any affiliate of CFC, as defined in Rule 145 of the Securities
Act of 1933 (including entities controlled by the Affiliate and certain
Pledgee's), who, after the Effective Date, owns RSFC shares in an aggregate
amount in excess of 200,000 shares (a"Qualifying Affiliate"), will have the
right to require RSFC, at RSFC's expense, to register such Qualifying
Affiliate's shares on a Registration Statement on Form S-3 or any other such
form for which RSFC qualifies and do any and all other acts and things which may
be reasonably necessary to consummate the disposition of such shares in such
jurisdictions as the Qualifying Affiliate requests.
ACCOUNTING TREATMENT
It is contemplated that the Merger will be accounted for as a
pooling-of-interests. The Merger Agreement is subject to termination by either
RSFC or CFC if, in the opinion of Ernst & Young LLP, any event occurs which
would disqualify the Merger from qualifying for pooling of interests accounting.
It is also a condition precedent to the obligation of RSFC, Republic Security,
CFC and County to effect the Merger that RSFC and CFC receive the opinion of
Morgan, Lewis & Bockius LLP to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and that RSFC, Republic Security, CFC and County will each be
a party to such reorganization within the meaning of Section 368(a) of the Code.
As a result of pooling-of-interests accounting, the consolidated financial
statements of RSFC after the Merger will combine the accounts of CFC with those
of RSFC.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the CFC Board of Directors and CFC's management may be
deemed to have certain interests in the Merger which are in addition to their
interests as CFC shareholders, generally. The CFC Board of Directors was aware
of these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby.
CFC DIRECTORS AND OFFICERS. The Merger Agreement provides that at the
Effective Time certain CFC directors and officers will be appointed to the RSFC
Board of Directors, the Combined Company Board and/or as executive officers of
the Combined Company. See "Management Following the Merger."
INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE FOR CFC DIRECTORS
AND OFFICERS. The Merger Agreement provides that for a period of six years after
the Effective Time, RSFC shall indemnify the present and former directors,
officers, employees and agents of CFC against all liabilities arising out of
actions or omissions arising out of their employment by or service with CFC and
occurring at or prior to the Effective Time to the full extent permitted under
Florida law and by RSFC's Articles and Bylaws. See "--The Merger Agreement."
AGREEMENTS WITH CFC DIRECTORS AND OFFICERS. The Merger Agreement provides
that CFC directors George M. Apelian, Thomas F. Carney, Thomas J. Langan and
Mary McCarty will be elected to the Boards of Directors of RSFC and Republic
Security. In addition, George Apelian and Richard Kuci have entered into
employment agreements with
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Republic Security, which will become effective on the Closing Date. The
agreement with Mr. Apelian provides for his employment as Executive Vice
President and Dade County Executive of Republic Security through December 31,
1999 at an annual salary of $100,000 plus performance incentive compensation in
an amount up to 28% of his salary. Additionally, Republic Security has agreed to
pay Mr. Apelian a termination payment of $567,000 in the event that the Merger
is consummated and the holders of more than 75% of the outstanding shares of the
CFC Common Stock (excluding shares held by George M. Apelian and his spouse)
approve the payment after adequate disclosure to the shareholders of all
material facts concerning the payment. The agreement with Richard Kuci provides
for his employment as Executive Vice President Business Banking - Dade County
through December 31, 1999 at an annual salary of $108,000 plus performance
incentive compensation in an amount up to 20% of his salary. The agreements also
provide for severance compensation and contain noncompetition covenants. Mr.
Apelian will also have the right to purchase, for a nominal price, County's
rights in a life insurance policy on Mr. Apelian which had a cash value of
$49,502 on December 31, 1996.
REGULATORY APPROVALS
RSFC, Republic Security, CFC and County have agreed to use their best
efforts to obtain all necessary government and regulatory approvals to effect
the Merger (the "Requisite Regulatory Approvals"). The FRB has approved the
Merger and an application has been filed with the Florida Banking Department. In
addition the Bank Merger is subject to the prior approval of the Florida Banking
Department.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The accompanying unaudited pro forma combined condensed statement of
financial condition presents the combined financial position of RSFC and CFC at
June 30, 1997, assuming that the proposed Merger had occurred as of June 30,
1997. Such pro forma information is based upon the historical statement of
financial condition data of the respective companies, at that date, giving
effect to the proposed Merger using the pooling-of-interests method of
accounting described in the accompanying notes to the unaudited pro forma
combined condensed financial data.
The accompanying unaudited pro forma combined condensed statements of
income give effect to the proposed Merger by combining the results of operations
of RSFC and CFC for six months ended June 30, 1997 and the year ended December
31, 1996, the nine months ended December 31, 1995 and the year ended March 31,
1995 using the pooling-of-interests method of accounting described in the
accompanying notes to the unaudited pro forma combined condensed financial data.
The unaudited pro forma combined condensed statements of income for the
year ended March 31, 1995 includes 12 months of operations of CFC consisting of
operations for the three months ended March 31, 1995 combined with the
operations for the nine months ended December 31, 1994.
The accompanying unaudited pro forma combined condensed financial data
should be read in conjunction with the separate historical financial statements
and notes thereto of RSFC and CFC. The following unaudited pro forma combined
condensed financial data is presented for information purposes only and is not
necessarily indicative of the results of future operations of the combined
entity or the actual results that would have been achieved had the Merger been
consummated on the dates presented.
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF FINANCIAL CONDITION AT JUNE 30, 1997
PRO FORMA AND
RSFC CFC POOLING-OF-INTERESTS PRO FORMA
(AMOUNTS IN THOUSANDS EXCEPT (HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
PER SHARE DATA)
- -------------------------------------------------- --------------- --------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Assets
Cash and amounts due from depository institutions $17,633 $14,705 $1,117 (a) $33,455
Interest-bearing deposits in other financial 28,351 28,351
institutions
Federal funds sold 8,000 14,720 22,720
Investments held to maturity 13,377 13,377
Investments available-for-sale 81,782 58,993 140,775
Loans - net 434,653 139,179 573,832
Property and equipment - net 15,191 4,449 (1,417) (a) 18,223
Other real estate owned 517 2,885 3,402
Goodwill - net 7,391 7,391
Other assets 17,964 3,201 21,165
- -------------------------------------------------- --------------- --------------- -------------------- ---------------
Total $624,859 $238,132 ($300) $862,691
================================================== =============== =============== ==================== ===============
Liabilities:
Deposits $488,206 $209,983 $698,189
Securities sold under agreements to repurchase 13,207 1,753 14,960
Federal Home Loan Bank advances 41,000 41,000
Other liabilities 17,844 3,363 2,054 (a) 23,261
- -------------------------------------------------- --------------- --------------- -------------------- ---------------
Total liabilities $ 560,257 $ 215,099 $2,054 $777,410
- -------------------------------------------------- --------------- --------------- -------------------- ---------------
Shareholders' equity:
Preferred stock 10,350 10,350
Common stock 161 13 48 (b) 222
Additional paid-in capital 38,647 13,568 (48) (b) 52,167
Retained earnings 15,438 9,519 (2,354) (a) 22,603
Unrealized gain (loss) on investments
available for sale, net of taxes 6 (67) (61)
- -------------------------------------------------- --------------- --------------- -------------------- ---------------
Total shareholders' equity 64,602 23,033 (2,354) 85,281
- -------------------------------------------------- --------------- --------------- -------------------- ---------------
Total liabilities and shareholders' equity $624,859 $238,132 ($300) $862,691
================================================== =============== =============== ==================== ===============
Stated book value per share(c) $3.58 $18.21 $3.53
================================================== =============== =============== ==================== ===============
Tangible book value per share(c) $3.14 $18.21 $3.20
================================================== =============== =============== ==================== ===============
Total risk based capital ratio 14.4% 15.5% 14.7%
================================================== =============== =============== ==================== ===============
Tier 1 risk based capital ratio 13.3% 14.3% 13.6%
================================================== =============== =============== ==================== ===============
Leverage capital ratio 9.3% 9.8% 9.4%
================================================== =============== =============== ==================== ===============
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
54
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997
- ------------------------------------------- ----------------------- --------------------------------- ---------------
RSFC CFC PRO FORMA COMBINED
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $19,213 $7,134 $26,347
Interest on investments 3,583 2,159 5,742
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL INTEREST INCOME 22,796 9,293 32,089
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
INTEREST EXPENSE:
----------------------- ---------------- ---------------- ---------------
Interest on deposits 8,227 2,627 10,854
Interest on borrowings 1,081 72 1,153
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL INTEREST EXPENSE 9,308 2,699 12,007
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Net interest income 13,488 6,594 20,082
Provision for loan losses 825 12 837
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Net interest income after provision for loan losses 12,663 6,582 19,245
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL NON-INTEREST INCOME 3,325 1,528 4,853
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
OPERATING EXPENSES:
Employee compensation and benefits 5,588 3,014 8,602
Occupancy and equipment 2,012 1,234 3,246
Professional fees 488 842 1,330
Insurance 160 103 263
Goodwill amortization 284 284
Other 2,684 1,019 3,703
Merger expenses 3,979 3,979
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL 15,195 6,212 21,407
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Income before income taxes 793 1,898 2,691
Income taxes 297 297
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
NET INCOME $496 $1,898 $2,394
=========================================== ======================= ================ ================ ===============
Earnings per common share:
Primary $.01 $1.50 $.09
Fully diluted $.01 $1.50 $.09
=========================================== ======================= ================ ================ ===============
Average common shares and common stock equivalents outstanding:
Primary 16,635 1,265 22,435
Fully diluted 16,635 1,265 22,435
=========================================== ======================= ================ ================ ===============
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
55
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
- ------------------------------------------- ----------------------- --------------------------------- ---------------
RSFC CFC PRO FORMA COMBINED
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $36,793 $14,004 $50,797
Interest on investments 5,438 4,128 9,566
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL INTEREST INCOME 42,231 18,132 60,363
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
INTEREST EXPENSE:
Interest on deposits 15,985 5,094 21,079
Interest on borrowings 444 151 595
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL INTEREST EXPENSE 16,429 5,245 21,674
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Net interest income 25,802 12,887 38,689
Provision for loan losses 355 24 379
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Net interest income after provision for loan losses 25,447 12,863 38,310
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL NON-INTEREST INCOME 6,939 2,783 9,722
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
OPERATING EXPENSES:
Employee compensation and benefits 10,161 5,541 15,702
Occupancy and equipment 3,733 2,200 5,933
Professional fees 963 1,692 2,655
Insurance 1,755 211 1,966
Goodwill amortization 471 471
Provision for litigation settlement 3,000 3,000
Other 4,589 2,078 6,667
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL 21,672 14,722 36,394
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Income before income taxes 10,714 924 11,638
Income taxes 3,874 3,874
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
NET INCOME $6,840 $924 $7,764
=========================================== ======================= ================ ================ ===============
Earnings per common share:
Primary $.37 $.73 $.31
Fully diluted $.37 $.73 $.31
=========================================== ======================= ================ ================ ===============
Average common shares and common stock
equivalents outstanding:
Primary 15,952 1,268 22,085
Fully diluted 15,952 1,268 22,085
=========================================== ======================= ================ ================ ===============
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
56
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
NINE MONTHS ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------- --------------------------------- ---------------
RSFC CFC PRO FORMA COMBINED
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $25,272 $10,446 $35,718
Interest on investments 2,987 3,190 6,177
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL INTEREST INCOME 28,259 13,636 41,895
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
INTEREST EXPENSE:
Interest on deposits 10,677 4,196 14,873
Interest on borrowings 941 110 1,051
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL INTEREST EXPENSE 11,618 4,306 15,924
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Net interest income 16,641 9,330 25,971
Provision for loan losses 241 193 434
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Net interest income after provision for loan losses 16,400 9,137 25,537
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL NON-INTEREST INCOME 4,631 2,185 6,816
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
OPERATING EXPENSES:
Employee compensation and benefits 6,659 4,229 10,888
Occupancy and equipment 2,385 2,084 4,469
Professional fees 773 1,125 1,898
Insurance 456 494 950
Goodwill amortization 165 165
Other 3,022 1,340 4,362
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL 13,460 9,272 22,732
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Income before income taxes 7,571 2,050 9,621
Income taxes 2,697 692 3,389
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
NET INCOME $4,874 $1,358 $6,232
=========================================== ======================= ================ ================ ===============
Earnings per common share:
Primary $.34 $1.07 $.30
Fully diluted $.33 $1.07 $.30
=========================================== ======================= ================ ================ ===============
Average common shares and common stock
equivalents outstanding:
Primary 13,434 1,264 19,546
Fully diluted 14,693 1,264 20,808
=========================================== ======================= ================ ================ ===============
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
57
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED MARCH 31, 1995
- ------------------------------------------- ----------------------- --------------------------------- ---------------
RSFC CFC PRO FORMA COMBINED
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $26,298 $11,922 $38,220
Interest on investments 2,961 3,893 6,854
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL INTEREST INCOME 29,259 15,815 45,074
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
INTEREST EXPENSE:
Interest on deposits 9,859 4,629 14,488
Interest on borrowings 1,267 124 1,391
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL INTEREST EXPENSE 11,126 4,753 15,879
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Net interest income 18,133 11,062 29,195
Provision for loan losses 81 238 319
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Net interest income after provision for loan losses 18,052 10,824 28,876
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL NON-INTEREST INCOME 4,449 3,506 7,955
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
OPERATING EXPENSES:
Employee compensation and benefits 8,007 5,209 13,216
Occupancy and equipment 2,403 1,885 4,288
Professional fees 842 1,238 2,080
Insurance 1,021 804 1,825
Goodwill amortization 73 73
Other 3,882 2,302 6,184
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
TOTAL 16,228 11,438 27,666
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
Income before income taxes 6,273 2,892 9,165
Income taxes 2,119 1,186 3,305
- ------------------------------------------- ----------------------- ---------------- ---------------- ---------------
NET INCOME $4,154 $1,706 $5,860
=========================================== ======================= ================ ================ ===============
Earnings per common share:
Primary $.32 $1.35 $.31
Fully diluted $.32 $1.35 $.31
=========================================== ======================= ================ ================ ===============
Average common shares and common stock
equivalents outstanding:
Primary 11,973 1,264 18,092
Fully diluted 13,097 1,264 19,086
=========================================== ======================= ================ ================ ===============
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
58
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined condensed statement of
financial condition presents the combined financial position of RSFC and CFC as
of June 30, 1997, assuming that the proposed Merger had occurred as of June 30,
1997. The accompanying unaudited combined condensed pro forma statements of
income give effect to the proposed Merger by combining the results of operations
of the respective companies for the six months ended June 30, 1997, the year
ended December 31, 1996, the nine months ended December 31, 1995 and the year
ended March 31, 1995, assuming that the proposed Merger, which is expected to be
accounted for as a pooling of interests, had occurred as of the beginning of
each period presented. No adjustments for cost synergies are reflected in the
pro forma combined condensed statements of income. The following
pooling-of-interests adjustments were made:
(a) Non-recurring costs estimated to be approximately $2.3 million, net of
taxes, will be recorded in connection with the Merger. These costs consist
primarily of electronic data processing and personnel costs to combine the
operations, employee severance payments, employment contract buyouts,
professional fees and miscellaneous expenses, including the $567,000 payment
to be made to George M. Apelian (assuming such payment is approved by
holders of more than 75% of the outstanding shares of CFC Common Stock,
excluding shares held by Mr. Apelian and his spouse) after adequate
disclosure to the shareholders of all material facts concerning the payment.
The adjustment to property and equipment, of $1.4 million, represents the
estimated book value of a branch office that will be consolidated into an
existing RSFC branch upon consummation of the Merger and the write-off of
other fixed assets that will not be useful to the Combined Company. Cash
proceeds from the sale of the branch location are estimated at $1.1 million.
Because such costs are non- recurring, they have not been recorded in the
accompanying unaudited pro forma combined condensed statements of income.
However, such costs will be charged to income in the period in which the
merger is consummated. In addition, upon consummation of the Merger, RSFC
expects to record adjustments of approximately $400,000 to the allowance for
loan losses to conform CFC's accounting and credit policies regarding loan
valuations to those of RSFC and $300,000 to the allowance for other real
estate owned as a result of a change in liquidation strategy for certain CFC
properties.
(b) To reflect issuance of approximately 6.08 million shares of RSFC Common
Stock in exchange for 100% of the outstanding shares of CFC Common Stock
based upon applying the Conversion Rate fixed at 4.807 multiplied by the
number of shares of CFC Common Stock outstanding at June 30, 1997.
(c) Stated book value per share is calculated by dividing common shareholders'
equity plus the proceeds of the assumed conversion of "in the money"
options, warrants and convertible preferred stock by the number of shares of
RSFC Common Stock outstanding plus the equivalent common shares from the
assumed conversion of "in the money" options, warrants and convertible
preferred stock. Tangible book value per share is calculated by dividing
common shareholders' equity plus the proceeds of the assumed conversion of
"in the money" options, warrants and convertible preferred stock less
goodwill by the number of shares of RSFC Common Stock outstanding plus the
equivalent common shares from the assumed conversion of "in the money"
options, warrants and convertible preferred stock.
59
<PAGE>
MANAGEMENT FOLLOWING THE MERGER
Following the consummation of the Merger, the composition of the RSFC Board
of Directors and the Republic Security Board will each consist of 18 members,
initially comprised of the current RSFC and Republic Security Board's members
(Paula Berliner, H. Gearl Gore, Joseph D. Cesarotti, Mary Anna Fowler, Richard
J. Haskins, Eugene W. Hughes, Lennart E. Lindahl, Jr., Carol R. Owen, Richard C.
Rathke, Rudy E. Schupp, Victor H. Siegel, William F. Spitznagel, Bruce E. Wiita
and William Wolfson, Jr.) and four CFC designees, (George M. Apelian, Dr. Thomas
F. Carney, Thomas J. Langan, Jr. and Mary McCarty) to be elected as directors of
RSFC and Republic Security upon consummation of the Merger (the "Designees").
The RSFC Board of Directors and the Republic Security Board are divided into
three classes, each of which have a term of three years. Mr. George M. Apelian
and Ms. Mary McCarty will be elected Class 2 directors for terms expiring in
1998. Mr. Thomas J. Langan, Jr. will be elected a Class 3 director for a term
expiring in 1999 and Dr. Thomas F. Carney will be elected Class 1 director for a
term expiring in 2000.
Certain information with respect to each director and Designee to the RSFC
Board of Directors and the Republic Security Board is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMBINED COMPANY
- ---- --- ----------------------------------
<S> <C> <C>
Rudy E. Schupp 46 Chairman of the Board and Chief Executive Officer
Lennart E. Lindahl, Jr. 53 Vice Chairman of the Board and Director
Carol R. Owen 61 Chairman of the Board - Broward County, and
Director
Richard J. Haskins 47 Executive Vice President and Director
Paula Berliner 53 Director
Joseph D. Cesarotti 68 Director
Mary Anna Fowler 69 Director
H. Gearl Gore 49 Director
Eugene W. Hughes, Jr. 64 Director
Richard C. Rathke 65 Director
Victor H. Siegel 49 Director
William F. Spitznagel 70 Director
Bruce E. Wiita 59 Director
William Wolfson 68 Director
George M. Apelian 66 Executive Vice President-Dade County
and Director
Dr. Thomas F. Carney 70 Director
Thomas J. Langan, Jr. 76 Director
Mary McCarty 42 Director
</TABLE>
60
<PAGE>
DIRECTORS OF THE RSFC AND BANK BOARDS
Paula Berliner, 53, has been a Director of RSFC since June 1997, when RSFC
purchased Family and was a Director of Family since its inception. Ms. Berliner
has been Vice President and Director of Acorn Venture Capital Corp., a public
venture capital company traded on the Nasdaq Small-Cap Market, since June 1992.
During the two years prior to her employment with Acorn Venture Capital Corp.,
Ms. Berliner was Vice President and a director of Broward Window Products, Inc.,
a company specializing in the sale of window-related products.
Joseph D. Cesarotti, 68, has been a Director of RSFC since June 1997, when
RSFC purchased Family and was a Director of Family since its inception. Mr.
Cesarotti has been retired since June 1992. Prior to his retirement and from
1956, Mr. Cesarotti served as President and Chief Executive Officer of Sungraf
Inc., a sign manufacturing company.
Mary Anna Fowler, 69, has been a Director of RSFC since June 1997, when
RSFC purchased Family and was a Director of Family since its inception. Since
1991, Ms. Fowler has been Vice President of Exotic Gardens, Inc., a florist
company.
H. Gearl Gore, 49, has been a Director and the Secretary of RSFC since its
inception. He has been the President of H. Gearl Gore, Inc., a real estate
appraisal firm in Jupiter, Florida since 1983. In 1996, approximately 43% of
that firm's gross revenues were derived from appraisal services provided to
Republic Security. Mr. Gore has been the President and Chief Operating Officer
of Northco Investment Properties, Inc., a real estate brokerage firm in Jupiter,
Florida, from 1981 to present. From 1975 to 1980 he was Florida state sales
director for United Sun Life Insurance Co.
He served as a Councilman for the Town of Jupiter from 1981 to 1983.
Richard J. Haskins, 47, has been Executive Vice President and Chief
Financial Officer of RSFC and Republic Security since 1989, Senior Vice
President of RSFC and Republic Security since August 1984, and a Director of
RSFC and Republic Security since 1986. For ten years prior to 1984, he had been
an accountant with the West Palm Beach, Florida office of Deloitte Haskins &
Sells, certified public accountants, where he held the position of Manager.
Eugene W. Hughes, Jr., 64, has been a Director of RSFC since June 1997,
when RSFC purchased Family and was a Director of Family since its inception. Mr.
Hughes served as Vice President of Family from August 1988 to December 31, 1994
and as Controller from 1992 to December 31, 1994. Mr. Hughes is currently
retired.
Lennart E. Lindahl, Jr., 53, has been a Director of RSFC since its
inception. From 1970 through 1994, he was President of Lindahl, Browning,
Ferrari & Hellstrom, Inc., Consulting Engineers in Jupiter, Florida, and
currently serves as its Chairman of the Board. He is past chairman of the
Economic Council of Palm Beach County and past president of the Palm Beach
County Development Board. Additionally, he currently serves as a member and was
a past Chairman of the Florida Inland Navigation District.
Carol R. Owen, 61, has been a Director of RSFC since June 1997, when RSFC
purchased Family and was a Director, Chief Executive Officer and President of
Family since its inception.
Richard C. Rathke, 65, has been a Director of RSFC since its inception. He
has been the President of RCR Enterprises, Inc., a real estate development firm
in Jupiter, Florida, since 1979. From 1966 to 1979 he was the President and
owner of Trans Pacific Trading Co. of Fort Lauderdale, Florida, a firm engaged
in importing and retail sales.
61
<PAGE>
Rudy E. Schupp, 46, has been President and Chief Executive Officer of RSFC
since 1985, and the President and Chief Executive Officer of Republic Security
since its inception. From 1980 to 1984, Mr. Schupp was employed by AmeriFirst
Bank, FSB, Miami, Florida, where he held the position of Division Vice President
and, previously, was Senior Vice President and Division Manager of the Orlando
Division of AmeriFirst Bank, FSB. Mr. Schupp was a Manager in Consumer Bank
Planning and Marketing at First Union National Bank, Charlotte, North Carolina,
from 1977 to 1980.
Victor Siegel, M.D., 49, has been a Director of RSFC since 1989. He is a
physician and surgeon specializing in Obstetrics and Gynecology and has been
practicing in Palm Beach County since January 1982. Dr. Siegel was a member of
the Florida and Palm Beach County Medical Associations and was Executive
Director of Finance for the Palm Beach County Medical Society in 1986. He has
been Chief of the Department of Obstetrics and Gynecology at Wellington Hospital
since 1993. He is also on the board of directors for the nonprofit Jupiter
Theater of the Performing Arts.
William F. Spitznagel, 70, has been a Director of RSFC since its inception
through December 31, 1986 and from February 21, 1987 to present. He was Chairman
and President of Roadway Services, Inc., a motor freight company, from 1978
until his retirement in 1981. He presently serves as a consultant to that
company.
Bruce E. Wiita, M.D., 59, has been a Director of RSFC since its inception.
He is a surgeon and urologist practicing in Jupiter and Palm Beach Gardens since
1973. He is the former Chief of Staff of the Jupiter Hospital and Chief of
Surgery of the Palm Beach Gardens Hospital and Jupiter Hospital. Currently, he
is a Director of the American Heritage Management and Development Corporation, a
real estate development company, and Chairman of the DevMed Group Inc., a
medical device manufacturing corporation.
William Wolfson, 68, has been a Director of RSFC since 1993. He has been a
certified public accountant since 1960 and in 1994 retired as senior partner in
the accounting firm of Wolfson, Milowsky, Melzer, Ettinger & Wieselthier, P.C.
DESIGNEES OF THE RSFC AND REPUBLIC SECURITY BOARDS
George M. Apelian, 65, has served as President and director of CFC since
1984, and as President, Chief Executive Officer and director of County since
1984. From 1983 to 1984 he was Executive Vice President of both CFC and County.
From 1979 to 1983 Mr. Apelian held various offices with the National Bank of
Florida, Miami, Florida, including the office of President from 1982 to 1983.
Mr. Apelian has been in the banking industry since 1958.
Dr. Thomas F. Carney, 70, has served as a member of the Board of Directors
of County since 1962 and as Chairman of the Board of County since 1967. Dr.
Carney has served as a member of the Board of Directors of CFC since 1984 and
continues now to serve as the Chairman of the Board. Dr. Carney also served as a
director of Carney Bank, Boynton Beach, Florida. His brother, Joseph E. Carney,
Jr., and his son, Peter Carney, also serve as directors of CFC and County. Dr.
Carney also served as Chairman of the Board of the former Dixie National Bank of
Dade County.
Thomas J. Langan, Jr., 76, served as a Director of Carney from 1991 until
the merger with County in 1996. He became a director of CFC following the
consummation of the merger. Mr. Langan was in the banking profession from 1949
to 1983.
Mary McCarty, 42, has served as a Director of CFC since May 1997. She was
Vice Mayor of the City of Delray Beach and a Member of the City Commission in
1987. She was elected to District IV Palm Beach County Commission in November
1990 and continues to serve in such position. She was voted Chair of the Palm
Beach Commission in November of 1992. Mrs. McCarty was self-employed as a
promotional consultant until November 1990.
62
<PAGE>
CERTAIN TRANSACTIONS
Mr. Gore owns a real estate appraisal firm that received fees from Republic
Security for appraisals of real estate relating to loan transactions. During the
year ended December 31, 1996, the nine months ended December 31, 1995 and the
year ended March 31, 1995, such fees aggregated approximately $50,000, $58,000
and $140,000, respectively.
<TABLE>
<CAPTION>
CFC EXECUTIVE COMPENSATION
ANNUAL COMPENSATION
============================================== =================================================== ====================
ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION($)(A)
- ---------------------------------------------- ---------------- ------------------ --------------- --------------------
<S> <C> <C> <C> <C>
George M. Apelian, 1994 $140,000 $12,000 (1)(2)(3)
President and Chief 1995 146,538 15,000
Executive Officer 1996 167,187 18,000
- ---------------------------------------------- ---------------- ------------------ --------------- --------------------
Eileen A. Salsano, 1994 $ 86,885 $ 8,000 (4)(5)(6)
Executive Vice-President 1995 92,923 10,000
1996 101,346 12,000
============================================== =================================================== ====================
</TABLE>
FOOTNOTES:
(1) County pays the premiums on a $400,000 term life insurance policy on the
life on Mr. Apelian. The policy is payable to Mr. Apelian's designee.
During 1996, the premium on this policy was $3,124.
(2) County has entered into an income continuance agreement with Mr. Apelian
under which County has agreed to pay Mr. Apelian's designee the amount of
$100,000 if Mr. Apelian should die while employed by County.
(3) County has entered into a keyman agreement with Mr. Apelian. Under this
agreement, County has agreed to purchase a life insurance policy on the
life of Mr. Apelian with a death benefit of $100,000. The policy is owned
by County and will be payable to County in the event that Mr. Apelian dies
while employed by County. County intends to use the proceeds of this policy
to make the payment described in Note (2). Upon any termination of Mr.
Apelian's employment with County, Mr. Apelian has the right to purchase
County's rights in the policy for nominal value. The policy had a cash
value of $40,659 and $49,582 on December 31, 1995 and December 31, 1996,
respectively. During 1995 and 1996, County paid premiums of $4,000 on this
policy.
(4) County pays the premiums on a $300,000 term life insurance policy on the
life of Ms. Salsano. The policy is payable to Ms. Salsano's designee.
During 1996, the premium on this policy was $1,716.
(5) County has entered into an income continuance agreement with Ms. Salsano
under which County has agreed to pay Ms. Salsano's designee the amount of
$100,000 if Ms. Salsano should die while employed by County.
(6) County has entered into a key person agreement dated January 20, 1988 with
Ms. Salsano. Under this agreement, County has agreed to purchase a life
insurance policy on the life of Ms. Salsano with a death benefit of
$100,000. The policy is owned by County and will be payable to County in
the event that Ms. Salsano dies while employed by County. County will
utilize the proceeds to make the payment described in Note (5). Upon any
termination of Ms. Salsano's employment with County, Ms. Salsano has the
right to purchase County's rights in the policy for $1.00. The policy had a
cash value of $5,445 and $11,521 on December 31, 1995 and December 31,
1996, respectively. During 1995 and 1996, County paid premiums of $3,000 on
this policy. Ms. Salsano expects to acquire this policy upon consummation
of this Merger.
63
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT INDEBTEDNESS
CFC
========================================================== ==================== =================== ======================
BALANCE
OFFICER AND/OR DIRECTOR JUNE 30, 1997 INTEREST RATE
- ---------------------------------------------------------- -------------------- ------------------- ----------------------
<S> <C> <C> <C>
Milton Mamber $ 75,000 Line of credit 9.50%
Mamber Savage & Singer P.A. 100,000 Line of credit 9.50%
Linda Blitz Harris (Julian Blitz-guarantor) 911 12.00%
Joseph E. Carney, Jr. 243,580 9.50%
Barry & Elise Blitz (Julian Blitz-guarantor) 23,900 9.50%
Linda B. Harris (Julian Blitz-guarantor) 26,508 9.50%
C. Bernard Jacobs 350,000 8.50%
Joseph E. Carney, Jr. 56,386 11.00%
Dr. Thomas F. Carney 376,432 10.00%
Dr. Thomas F. Carney 70,000 9.50%
Dr. Thomas F. Carney 26,000 9.50%
========================================================== ==================== =================== ================
</TABLE>
64
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
RSFC
The following table sets forth certain information regarding the beneficial
ownership of the RSFC Common Stock as of August 31, 1997 (including options
exercisable within 60 days) by (1) each nominee for the RSFC Board of Directors,
(2) the RSFC directors remaining in office, (3) each person named in RSFC's
Summary Compensation Table, (4) each of the Designees, (5) all directors
(including Designees) and executive officers of RSFC as a group, and (6) each
person known by RSFC to be the beneficial owner of more than 5% of the
outstanding class of RSFC Common Stock. Subject to applicable community property
and similar statutes and except as otherwise noted in the footnotes below, each
of the persons named in the table has sole voting and dispositive power with
respect to the shares beneficially owned by such person.
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER (B)
PERCENTAGE OF AMOUNT AND NATURE PERCENTAGE OF
AMOUNT AND NATURE OF OUTSTANDING RSFC OF BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK OWNERSHIP COMMON STOCK
------------------------ --------------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Rudy E. Schupp 123,356 (1)(2)(3) .77 125,356 .56%
Carol R. Owen 446,485 (6)(7) 2.75% 446,485 2.00%
Richard J. Haskins 81,550 (1)(2) .50% 81,550 .37%
Paula Berliner 260,793 (6)(7) 1.61% 260,793 1.17%
Joseph D. Cesarotti 160,381 (6)(7) .99% 160,381 .72%
Mary Anna Fowler 94,297 .58% 94,297 .42%
H. Gearl Gore 142,424 (1)(2)(4)(5) .88% 142,424 .64%
Eugene W. Hughes, Jr. 96,707 (6)(7) .60% 96,707 .43%
Lennart E. Lindahl, Jr. 131,193 (1)(2)(4)(5) .81% 131,193 .59%
Richard C. Rathke 140,599 (1)(2)(4)(5) .87% 140,599 .63%
Victor H. Siegel 267,706 (1)(4) 1.66% 267,706 1.20%
William F. Spitznagel 310,964 (1)(2)(4)(5) 1.92% 310,964 1.40%
Bruce E. Wiita 145,325 (1)(2)(4)(5) .90% 145,325 .65%
William Wolfson 9,274 (4) .06% 9,274 .04%
George M. Apelian 37,278 (8) .17%
Dr. Thomas F. Carney 1,459,953 (9) 6.57%
Thomas J. Langan, Jr. 1,687 .01%
Mary McCarty 288 (a)
All directors and executive 2,413,504 (10) 14% 3,933,536 (11) 17%
officers as a group
(14 persons)
</TABLE>
- -----------------------
(a) Less than .01%
(b) Assumes each share of CFC common stock is converted into 4.807 shares of
RSFC common stock.
65
<PAGE>
(1) Includes 12,128 shares issuable upon exercise of options, at an exercise
price of $2.48 per share.
(2) Includes 10,672 shares issuable upon exercise of options, at an exercise
price of $2.62 per share.
(3) Includes 10,146 shares issuable upon exercise of options, at an exercise
price of $2.50 per share.
(4) Includes 5,250 shares issuable upon exercise of options, at an exercise
price of $3.33 per share.
(5) Includes 27,536 shares issuable upon exercise of warrants, at an exercise
price of $5.00 per share.
(6) Includes 75,647 shares issuable upon exercise of options at an exercise
price of $2.08.
(7) Includes 7,150 shares issuable upon exercise of options at an exercise price
of $1.65.
(8) Includes 30,765 shares issuable upon exercise of options at an exercise
price of $2.50.
(9) Includes 26,472 shares owned by a corporation in which Dr. Carney is a
shareholder and director. It does not include shares owned by other members
of his family.
(10) Includes options and warrants for 687,492 shares of RSFC common stock.
Actual RSFC common stock owned is 11% of the total outstanding.
(11) Includes options and warrants for 741,879 shares of RSFC common stock.
Actual RSFC common stock owned is 14% of the total outstanding.
CFC
The following table sets forth certain information with regard to the
beneficial ownership of CFC Common Stock as of August 31, 1997 (including,
options exercisable within 60 days) by (1) each executive officer of CFC, (2)
each director of CFC, (3) all directors and executive officers of CFC as a
group, and (4) each person known by CFC to be the beneficial owner of more than
5% of the outstanding CFC Common Stock. Except as otherwise indicated, each
shareholder listed below has sole voting and investment power with respect to
shares beneficially owned by such person.
PRE-MERGER
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP CFC COMMON STOCK
- -------------------- --------------------- ----------------
George M. Apelian 7,755(1) .6%
Dr. Julian J. Blitz 83,057(2) 6.6%
Joseph E. Carney, Jr. 33,013(3) 2.6%
Daniel C. Carney 203,244(4) 16.1%
Peter H. Carney 220,316(5) 17.7%
Dr. Thomas F. Carney 303,714(6) 24.0%
Thomas F. Carney, Jr. 287,109(7) 22.7%
Morton M. Fisher 21,429(8) 1.7%
C. Bernard Jacobs 26,026 2.1%
Richard Arn Kuci, Jr. 4,426(9) .4%
Roz Kovens 76,234(10) 6.0%
Thomas J. Langan, Jr. 354 --
Milton Mamber 26,278(11) 2.1%
Mary McCarty 60 --
Eileen A. Salsano 3,414(12) .3%
Dr. Morton Terry 99,151(13) 7.8%
All Executive Officers 628,993(14) 49.3%
and Directors as a Group
(1) This amount consists of 1,355 shares which Mr. Apelian owns jointly with
his wife and 6,400 shares which Mr. Apelian may purchase under stock
options which are currently exercisable.
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<PAGE>
(2) This amount consists of 48,274 shares which Dr. Blitz owns jointly with his
wife and 34,783 shares owned solely by his wife.
(3) This amount consists of 27,506 shares owned directly by Mr. Joseph E.
Carney, and 5,507 owned by a corporation in which Mr. Carney is a
shareholder and director. It does not include shares owned by Mr. Carney's
other family members.
(4) This amount consists of 2,290 shares owned directly by Mr. Daniel C.
Carney, 954 shares owned by Mr. Daniel C. Carney as trustee for a family
trust and 200,000 shares owned by Dr. Thomas F. Carney, which may be
acquired by certain family trusts for which Mr. Daniel C. Carney serves as
one of the trustees. See Note (6) below.
(5) This amount consists of 19,362 shares owned directly by Mr. Peter H.
Carney, and 954 owned as trustee for a family trust, and 200,000 shares
owned by Dr. Thomas F. Carney, which may be acquired by certain family
trusts for which Mr. Peter H. Carney serves as one of the trustees. See
Note (6) below.
(6) This amount consists of 298,207 shares owned directly by Dr. Thomas F.
Carney, and 5,507 owned by a corporation in which Mr. Carney is a
shareholder and director. It does not include shares owned by other members
of his family. Dr. Carney has granted an option to acquire 200,000 shares
to certain family trusts for which Mr. Thomas F. Carney, Mr. Peter H.
Carney and Mr. Daniel C. Carney serve as trustees.
(7) This amount consists of 9,789 shares owned directly by Mr. Thomas F.
Carney, Jr., 954 shares owned by Mr. Carney as trustee for a family trust,
14,758 shares owned by a corporation in which Mr. Carney is an officer,
61,608 shares owned by a trust in which Mr. Carney is a trustee and
beneficiary and 200,000 shares owned by Dr. Thomas F. Carney, which may be
acquired by certain family trusts for which Mr. Carney serves as one of the
trustees.
(8) This amount consists of 21,429 shares owned jointly with Mr. Fisher's wife.
(9) This amount consists of 2,800 shares which may be purchased by Mr. Kuci
pursuant to stock option which are currently exercisable, 600 shares owned
by him directly and 1,026 shares that Mr. Kuci owns jointly with his wife.
(10) This amount consists of 20,062 shares owned directly by Ms. Kovens and
56,172 shares owned by the Estate of Cal Kovens, which is controlled by Roz
Kovens as personal representative.
(11) This amount consists of 26,278 shares owned jointly with Mr. Mamber's wife.
(12) This amount consists of 2,114 shares which Ms. Salsano may purchase
pursuant to stock options which are currently exercisable, and 1,300 shares
which Ms. Salsano owns jointly with her husband.
(13) This amount consists of 97,720 shares owned jointly with Dr. Terry's wife
and 1,431 shares owned by Dr. Terry's professional association pension
trust.
(14) This amount includes 11,314 shares which may be purchased by executive
officers of the Company pursuant to options which are currently
exercisable.
67
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF RSFC AND CFC COMMON STOCK
The rights of holders of CFC Common Stock are governed by the CFC Articles
of Incorporation (the "CFC Articles"), the Bylaws of CFC, and the FBCA. As a
result of the Merger, the rights of the holders of CFC Common Stock, which will
be converted into shares of RSFC Common Stock, will be governed by the Articles
of Incorporation of RSFC, the Bylaws of RSFC, the Bank Holding Company Act and
the FBCA.
The following is a summary of the material differences in the rights of
shareholders of RSFC and CFC. This summary does not purport to be a complete
discussion of, and is qualified in its entirety by reference to, the CFC
Articles and Bylaws, the RSFC Articles and Bylaws, the Bank Holding Company Act
and the FBCA.
AUTHORIZED CAPITAL STOCK
RSFC. The RSFC Articles authorize the issuance of up to 100,000,000 shares
of RSFC Common Stock, par value $0.01 per share, of which, as of June 30,1997,
16,147,107 shares were issued and outstanding, 1,604,250 shares were reserved
for issuance upon conversion of RSFC's 7% Cumulative Convertible Preferred
Stock, Series C (the "Series C Preferred"), 2,000,000 shares were reserved for
issuance under the RSFC 1997 Performance Incentive Plan, 396,422 shares were
reserved for issuance pursuant to other RSFC stock options warrants, and 950,000
shares reserved for issuance pursuant to RSFC dividend reinvestment plan and
employee stock purchase plan. Under the RSFC Articles, the RSFC Board of
Directors has the authority to divide the 20,000,000 authorized shares of
preferred stock, par value $.01 per share, into series and to fix the rights and
preferences of any series so established. Of the series of preferred stock
currently authorized: 1,000,000 shares of Series B Junior Participating
Preferred Stock (the "Series B Preferred"), no shares of which are outstanding
and 1,035,000 shares of the Series C Preferred of which 1,035,000 shares were
issued and outstanding. A full description of the RSFC Common Stock and the
Series C Preferred is incorporated herein by reference from the section under
the caption "Description of Securities" in RSFC's Registration Statement on Form
S-1 (No. 33-62847), effective on November 6, 1995. For a description of the
Series B Preferred issuable in connection with the RSFC Rights Plan, see
"Certain Anti-Takeover Provisions--RSFC-RIGHTS PLAN."
CFC. The CFC Articles authorize the issuance of up to 1,500,000 shares of
CFC Common Stock, par value $0.01 per share, of which, as of June 30, 1997,
1,264,328 shares were issued and outstanding, and 19,564 shares were reserved
for issuance upon the exercise of outstanding options pursuant to CFC's stock
option plans.
BOARD OF DIRECTORS
RSFC. The RSFC Bylaws currently provide that the RSFC Board of Directors
will consist of fourteen members. The RSFC Articles divide the RSFC Board of
Directors into three classes of as equal size as possible, with the term of each
class expiring in consecutive years so that only one class is elected in any
given year. Under the RSFC Articles and Bylaws, directors may only be removed
for cause upon the affirmative vote of not less than 80% of the outstanding
shares of RSFC Common Stock. The Bylaws will be amended as of the Effective Time
of the Merger to increase the number of directors to 18.
CFC. The CFC Articles provide that the CFC Board of Directors will be
established by the Bylaws, but shall never be less than one. The Bylaws
currently provide for a board of 11 directors. The CFC Board of Directors is not
divided into classes. Under the CFC Bylaws, directors may be removed, with or
without cause, by the majority vote of the shares of CFC Common Stock at any
meeting of shareholders called for such purpose.
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<PAGE>
VOTING
RSFC. Pursuant to the RSFC Articles, holders of RSFC Common Stock are
entitled to one vote for each share held and do not have cumulative voting
rights in the election of directors.
CFC. Pursuant to the Articles, holders of CFC Common Stock are entitled to
one vote for each share held, and do not have cumulative voting rights in the
election of directors.
PREEMPTIVE RIGHTS
RSFC. Except as provided in the Rights Agreement, the holders of RSFC
Common Stock have no preemptive rights to acquire any additional shares of RSFC
Common Stock or any other shares of RSFC capital stock.
CFC. The holders of CFC's Common Stock have no preemptive rights to acquire
any additional shares of CFC Common Stock or any other shares of CFC capital
stock.
SPECIAL MEETINGS OF SHAREHOLDERS; ACTION WITHOUT A MEETING
RSFC. Under the RSFC Bylaws, a special meeting of RSFC shareholders may
only be called by a majority of the directors for such purposes as determined by
the RSFC Board of Directors at any time or times through the year. The RSFC
Articles deny shareholders the power to call a special meeting and prohibit
actions by shareholders by written consent without a meeting. RSFC shareholders
have no power to call any meetings.
CFC. Under the CFC Bylaws, a special meeting of or CFC shareholders may be
called by (i) the President, (ii) the Chairman of the Board (iii) the Board of
Directors, or (iv) by the holders of not less than 10% of the shares entitled to
vote at the meeting.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
RSFC AND CFC. The FBCA requires that plans of merger and share exchange
must be adopted by the board of directors of each corporation and (except in
certain limited circumstances) approved by a majority of all the votes entitled
to be cast by each voting group of each corporation entitled to vote on the plan
of merger or share exchange, unless the corporation's board of directors
requires, or the articles of incorporation provide for, a greater vote. Neither
the RSFC nor the CFC Articles and Bylaws require a greater vote. In addition,
the FBCA provides that a corporation may sell or otherwise dispose of all or
substantially all of its property, other than in the usual and regular course of
business, if recommended by the board of directors and if the holders of the
majority of all votes entitled to be cast on the transaction approve such
transaction.
The FBCA also provides, however, that the shareholders of the corporation
surviving a merger need not approve the transaction if (i) the corporation's
articles of incorporation will not differ significantly after the Merger and
(ii) the corporation's shareholders will hold the same number of shares with
identical designations, preferences, limitations and relative rights immediately
after the merger as they held before the merger.
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<PAGE>
AMENDMENT OF ARTICLES OF INCORPORATION AND OF BYLAWS
RSFC. Pursuant to the FBCA and the RSFC Articles, amendments to the RSFC
Articles must be recommended by the RSFC Board of Directors and approved by a
majority of votes entitled to be cast by each voting group entitled to vote on
the amendment. Under the RSFC Articles and the RSFC Bylaws, the RSFC Board of
Directors may adopt, alter, amend or repeal the RSFC Bylaws by a majority vote.
CFC. Pursuant to the FBCA and the CFC Articles, amendments to the CFC
Articles must be recommended by the CFC Board of Directors and approved by a
majority of votes entitled to be cast by each voting group entitled to vote on
the amendment. Under the CFC Articles and the CFC Bylaws, the Board of Directors
or shareholders of CFC may adopt, alter, amend or repeal the CFC Bylaws by a
majority vote.
RIGHTS OF DISSENTING SHAREHOLDERS
RSFC and CFC. Shareholders of a Florida corporation have the right, in
certain circumstances, to dissent from certain corporate actions, including the
consummation of a plan of merger to which a Florida corporation is a party and
which requires the approval of such corporation's shareholders. However, this
right to dissent does not apply with respect to a plan of merger to holders of a
security that on the record date is either registered on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by not fewer than 2,000 shareholders. Shareholders who are entitled to
dissent are also entitled to obtain payment in the amount of the fair value of
their shares. The holders of RSFC Common Stock are not entitled to dissenters'
rights because RSFC Common Stock is, and was as of the RSFC Record Date, listed
on the Nasdaq National Market. The holders of CFC Common Stock are entitled to
dissenters' rights and to obtain payment in the amount of the fair value of
their shares. See "Dissenters' Rights of Appraisal"
DIVIDENDS
RSFC and CFC. The FBCA provides that, subject to restrictions in a
corporation's articles of incorporation, a corporation's board of directors may
authorize and the corporation may make a distribution to its shareholders unless
after giving effect to the distribution, (i) the corporation would not be able
to pay its debts as they become due in the usual course of business, or (ii) the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, in the case of the dissolution, to satisfy
the preferential rights of shareholders whose preferential rights are superior
to those receiving the dividend.
CERTAIN ANTI-TAKEOVER PROVISIONS
RSFC AND CFC. Both RSFC and CFC are subject to the "Control Share" and
"Fair Price" provisions of the FBCA. These provisions are anti-takeover
provisions that apply to public corporations organized under Florida law, unless
a corporation has elected to opt out of these provisions in its articles of
incorporation or bylaws. Neither RSFC nor CFC has elected to opt out of those
provisions. The Control Share provisions prohibit a shareholder from voting
shares of RSFC or CFC Common Stock, as the case may be, acquired in excess of
20% (and 33% and 50%) of the outstanding voting shares unless the remaining
uninterested shareholders approve voting rights for such shares by majority vote
at a special meeting called for that purpose. The Fair Price provisions require
that, in any merger of RSFC or CFC with a corporation affiliated with a 10% or
greater shareholder (the "Interested Shareholder"), shareholders receive the
higher of the highest price paid by the Interested Shareholder for shares of
RSFC or CFC Common Stock, as the case may be, during the preceding two years or
the fair market value of the RSFC or CFC Common Stock, unless the merger is
approved by a majority of the directors not affiliated with the Interested
Shareholder or the holders of two-thirds of the RSFC or CFC Common Stock not
affiliated with the Interested Shareholder.
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<PAGE>
RSFC -- RIGHTS PLAN. On March 29, 1995, the RSFC Board of Directors
declared a dividend on the RSFC Common Stock of one right (a "Right") for each
outstanding share of RSFC Common Stock to shareholders of record at the close of
business on April 14, 1995. Each Right entitles the registered holder to
purchase from RSFC a unit consisting of one-hundredth of a share (a "Unit") of
the Series B Preferred, or a combination of securities and assets of equivalent
value, at a purchase price of $18 per Unit, subject to adjustment. Each
fractional share of Series B Preferred is designed to be equivalent in voting
and dividend rights to one share of RSFC Common Stock. A full description and
terms of the Rights are set forth in the Rights Agreement, dated as of April 14,
1995 (the "Rights Agreement"), between RSFC and IBJ Schroder Bank & Trust
Company, as Rights Agent.
The Rights Agreement is designed to protect shareholder interests in the
event that RSFC is confronted with coercive or unfair takeover tactics,
including offers that do not treat all shareholder interests fairly or do not
maximize the value of RSFC. Acquisition offers that reflect RSFC's fair value
and that are made to all shareholders would not be affected by the Rights
Agreement. Initially, ownership of the Rights are evidenced only by the Common
Stock certificates. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the outstanding Common Stock (the "Stock
Acquisition Date"), or (ii) the close of business on such date as may be fixed
by the Board of Directors, which date shall not be more than 65 days following
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 30% or more of the outstanding Common Stock.
The Rights are not exercisable until the Distribution Date and will expire at
the close of business on April 14, 2005, unless earlier redeemed by the Company
or unless certain events have occurred. Except in the circumstances described
below, after the Distribution Date each Right will be exercisable into
one-hundredth of a Preferred Share (a "Preferred Share Fraction"). Each
Preferred Share Fraction carries voting and dividend rights that are intended to
produce the equivalent of one Common Stock. The voting and dividend rights of
the Preferred Shares are subject to adjustment in the event of dividends,
subdivisions and combinations with respect to the Common Stock of the Company.
In the event that any time following the Stock Acquisition Date, (i) the
Company is the surviving corporation in a merger with an Acquiring Person and
its Common Stock remain outstanding, (ii) a Person becomes the beneficial owner
of more than 25% of the then outstanding Common Stock other than pursuant to a
tender offer that provides fair value to all shareholders, (iii) an Acquiring
Person engages in one or more "self-dealing" transactions as set forth in the
Rights Agreement or (iv) during such time as there is an Acquiring Person an
event occurs that results in such Acquiring Person's ownership interest being
increased by more than 1% (e.g., a reverse stock split), each holder of a Right
will thereafter have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of the Company) having
a value equal to two times the exercise price of the Right. Notwithstanding any
of the foregoing, following the occurrence of any of the events set forth in
clauses (i), (ii), (iii) or (iv) of this paragraph, all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person who was involved in the transaction
giving rise to any such event will be null and void. However, Rights are not
exercisable following the occurrence of any of the events set forth above until
such time as the Rights are no longer redeemable by the Company as set forth
below. In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger that is
described in, or that follows a tender offer or exchange offer described in, the
second preceding paragraph), or (ii) 50% or more of the Company's assets or
earning power is sold or transferred, each holder of a Right (except Rights that
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, common shares of the acquiring company having a value
equal to two times the exercise price of the Right. The events set forth in this
paragraph are referred to as the "Triggering Events." At any time until 10 days
following the Stock Acquisition Date, the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right. That 10-day redemption
period may be extended by the Board of Directors so long as the Rights are still
redeemable. Under certain circumstances set forth in the Rights Agreement, the
decision to redeem will require the concurrence of a majority of the continuing
directors. Immediately upon the action of the Board of Directors ordering
redemption of the Rights,
71
<PAGE>
with, where required, the concurrence of the continuing directors, the Rights
will terminate and the only right of the holders of Rights will be able to
receive the $.01 redemption price.
RSFC AND CFC-- BANK HOLDING COMPANY ACT. Under federal law, a person or
group of persons is prohibited from acquiring "control" of a bank holding
company unless the FRB has been given 60 days' prior written notice of such
proposed acquisition and within that time period the FRB has not issued a notice
disapproving the proposed acquisition or extending for up to another 30 days the
period during which such a disapproval may be issued, or unless the acquisition
is subject to FRB approval under the Bank Holding Company Act. An acquisition
may be made prior to the expiration of the disapproval period if the FRB issues
written notice of its intent not to disapprove the action. Under a rebuttable
presumption established by the FRB, the acquisition of more than ten percent of
a class of voting stock of a bank holding company with a class of securities
registered under Section 12 of the Exchange Act, such as RSFC or [CFC], would,
under the circumstances set forth in the presumption, constitute the acquisition
of control.
In addition, any "company" would be required to obtain the approval of the
FRB under the Bank Holding Company Act before acquiring 25 percent (five percent
in the case of an acquiror that is a bank holding company) or more of the
outstanding shares of the RSFC Common Stock, or otherwise obtaining "control"
over RSFC or CFC. Under the Bank Holding Company Act, "control" generally means
(i) the ownership or control of 25 percent or more of any class of voting
securities of the bank holding company, (ii) the ability to elect a majority of
the bank holding company's directors, or (iii) the ability otherwise to exercise
a controlling influence over the management and policies of the bank holding
company.
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<PAGE>
CERTAIN INFORMATION CONCERNING RSFC
BUSINESS
RSFC, incorporated in Florida in 1983, is a commercial bank holding
company, the principal business of which is the operation of a commercial bank
business through Republic Security, its wholly owned subsidiary, a state
chartered commercial bank. Republic Security commenced operations on November
19, 1984, and is a member of the Federal Home Loan Bank ("FHLB") System. Its
deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC")
up to applicable limits. In November 1995, RSFC and Republic Security received
all necessary federal and state regulatory approvals and converted from a thrift
charter to a commercial bank holding company and a State of Florida chartered
commercial bank.
On June 30, 1997, the Company acquired Family Bank, a commercial bank
headquartered in Hallandale, Florida, with six branch locations in Broward
County, Florida. Family Bank was merged into Republic Security on June 30, 1997.
The acquisition was accounted for as a pooling-of-interest and resulted in
Republic Security acquiring assets of $256.0 million, liabilities of $234.2
million and equity of $21.8 million. All information contained herein has been
retroactively restated to include the accounts and results of operations of
Family Bank.
On January 19, 1996, Republic Security acquired Banyan Bank, a commercial
bank headquartered in Boca Raton, Florida, with one branch office located in
Boynton Beach, Florida. In addition to acquiring commercial bank loan and
deposit portfolios, the acquisition provides Republic Security with a geographic
presence in South Palm Beach County. The acquisition was accounted for as a
purchase and resulted in Republic Security acquiring assets of $61.7 million and
liabilities of $57.0 million.
On November 30, 1994, Republic Security acquired Governor's Bank, a
commercial bank headquartered in West Palm Beach, Florida ("Governors"). The
acquisition was accounted for as a purchase and resulted in Republic Security
acquiring assets of $64.3 million, liabilities of $62.3 million and two
additional branch locations.
LENDING ACTIVITIES
GENERAL. Under applicable regulations, Republic Security originates,
purchases and sells loans or participating interests in loans. Republic Security
originates, purchases and participates in loans for its own portfolio and for
sale in the secondary market. Lending activities include the origination and
purchase of long-term adjustable-rate and to a lesser extent fixed-rate
commercial and residential mortgage loans, construction loans, commercial
business loans and consumer loans. During 1996 and 1995, the level of commercial
business, commercial real estate, and consumer loan originations increased from
prior years. Approximately 95% of Republic Security's mortgage loans are secured
by property located in Florida.
The following tables set forth the composition of Republic Security's loan
portfolio by type of loan at the periods indicated:
73
<PAGE>
<TABLE>
<CAPTION>
======================================================== ================ ======= ======== ===========================
DECEMBER 31, MARCH 31,
1996 1995 1995 1994 1993
TYPE OF LOAN AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- -------------------------------------------------------- ---------------- ------- -------- ---------------------------
(in thousands)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
* Commercial real estate $138,674 33% $90,648 24% $82,665 21% $64,490 21% $51,008 20%
* Residential property 150,911 36 164,999 44 175,912 45 153,298 50 120,308 48
* Residential lot 2,224 1 2,873 1 2,989 1 1,972 1 3,115 1
* Construction loans 31,561 8 37,467 10 46,082 12 49,982 16 43,198 17
Total real estate loans 323,370 77 295,987 78 307,648 80 269,742 88 217,629 87
- -------------------------------------------------------- ---------------- ------- -------- ---------------------------
Consumer Loans:
* Home equity lines of credit 7,618 2 5,957 2 6,497 2 5,131 2 4,614 2
* Personal and Other 10,230 2 5,750 2 5,215 1 1,418 0 2,483 1
* Automobile 36,684 9 35,760 9 35,499 9 9,408 3 6,646 3
* Savings accounts 3,795 1 3,817 1 3,139 1 4,641 2 2,730 1
- -------------------------------------------------------- ---------------- ------- -------- ---------------------------
Total consumer loans 58,327 14 51,284 14 50,350 13 20,598 7 16,473 7
- -------------------------------------------------------- ---------------- ------- -------- ---------------------------
Commercial business loans: 37,894 9 30,916 8 28,855 7 17,261 6 17,202 7
- -------------------------------------------------------- ---------------- ------- -------- ---------------------------
TOTAL LOANS 419,591 100% 378,187 100% 386,853 100% 307,601 100% 251,304 100%
- -------------------------------------------------------- ---------------- ------- -------- ---------------------------
Less:
Loans in process 14,462 12,420 21,460 22,876 19,290
Discounts, premiums and deferred
loan fees 679 1,219 1,531 753 687
Allowance for loan losses 3,876 3,745 3,845 2,410 2,450
- -------------------------------------------------------- ---------------- ------- -------- ---------------------------
TOTAL $400,574 $360,803 360,017 $281,562 $228,877
======================================================== ================ ======= ======== ===========================
</TABLE>
The following table sets forth at December 31, 1996, the principal amounts
of Republic Security's loans with contractual maturities during the periods
indicated.
<TABLE>
<CAPTION>
======================================================== ================ ======= ======== ===========================
DECEMBER 31, 1996
MATURING
AFTER 1 YEAR
(IN THOUSANDS) WITHIN 1 YEAR THROUGH 5 YEARS AFTER 5 YEARS TOTAL
<S> <C> <C> <C> <C>
Real Estate:
Residential (1) $8,061 $16,920 $125,930 $150,911
Construction and lot(2) 13,234 3,581 2,508 19,323
Commercial 17,792 31,168 89,714 138,674
COMMERCIAL BUSINESS 18,530 16,018 3,346 37,894
CONSUMER 18,335 31,356 8,636 58,327
- --------------------------------------------------------- ----------------------------------------------------------
TOTAL $75,952 $99,043 $230,134 $405,129
========================================================= ==========================================================
Maturing after one year with:
Variable interest rates 47,656 202,934
Fixed interest rates 51,387 27,200
----------------------------------------------------------
TOTAL(L) $99,043 $230,134
======================================================== ================ ======= ======== ===========================
</TABLE>
(1) Excludes loans held for sale
(2) Net of loans-in-process
74
<PAGE>
Republic Security provides commercial and residential real estate loans,
construction loans, commercial business loans and consumer loans. Loans secured
by real estate generally include commercial and residential real estate,
construction loans, loans to refinance or purchase existing properties, home
equity loans and land acquisition and development loans.
REAL ESTATE MORTGAGE LOANS. Republic Security's real estate mortgage loans
consist of commercial and residential mortgage loans, which are secured by
existing properties. Loans secured by commercial properties generally have terms
ranging from fifteen to twenty years and interest rate adjustment periods
ranging from monthly to five years. Amortization periods for commercial mortgage
loans generally do not exceed 25 years. Commercial real estate loans originated
by Republic Security are primarily secured by income-producing properties such
as office buildings, warehouse buildings and retail space. Generally, in
underwriting commercial real estate loans, Republic Security requires the
personal guaranty of borrowers, a maximum loan to value ratio of 80%, and a cash
flow to debt service ratio of 1.25 to 1.
Republic Security's residential mortgage loans have terms which do not
exceed 30 years and are secured by one-to four-family residences. The majority
of residential mortgages which Republic Security holds in its portfolio provides
for interest rate adjustments every year and such adjustments are limited to 5%
to 6% over the term of the loan. Loans made for 80% to 95% of the appraised
value of the financed residences are primarily originated with private mortgage
insurance, which essentially insures that portion of the loan which is in excess
of 80% of the appraised value of the financed residences. As of December 31,
1996, the loan portfolio includes approximately $9.8 million of residential
loans which have loan to value ratios of greater than 80%, when originated, and
have no private mortgage insurance. RSFC believes that these loans, which RSFC
makes in the normal course of business from time to time, have not resulted in a
significantly greater loss experience than the aggregate residential mortgage
portfolio and these loans have higher yields.
Residential mortgage loans generally are underwritten by Republic Security
in accordance with guidelines of the Federal Home Loan Mortgage Corporation (the
"FHLMC"). Republic Security is an approved seller/servicer for the Federal
National Mortgage Association (the "FNMA") and the FHLMC.
CONSTRUCTION LOANS. Residential real estate construction loans
comprised approximately 2% of Republic Security's total loan portfolio as of
December 31, 1996. The total construction loan portfolio of approximately $4.0
million as of December 31, 1996, are primarily for one- to- four family
residential properties.
Republic Security originates one- to four-family residential loans to
individuals on a pre-sold basis and through developers on a pre-sold and
speculative basis. Republic Security's underwriting guidelines regarding
residential construction loans require an analysis of the financial condition of
the developer or the borrower, the appraised value of the property, and the
marketability of the proposed residence, including location, and overall
portfolio concentrations. Limitations are imposed by Republic Security on the
amount of loans for the purpose of construction of residences that have not been
pre-sold.
Construction loans generally have terms of between six and 12 months and
interest rates which adjust monthly based upon a designated prime rate. Loan
proceeds are advanced as construction progresses and inspections warrant.
Construction loans are structured either to be converted to permanent loans at
the end of the construction phase, or to be paid off upon receipt of financing
from another lender.
Republic Security's construction loans are secured by first mortgages on
the underlying real estate and have loan-to-value ratios which generally do not
exceed 80%. All such loans provide for recourse to the borrower or a related
individual in the event of a default. The loan agreements generally require
Republic Security to advance funds for fees. The amount of the loan generally
provides borrowers with sufficient funds to pay the interest on the loan during
construction since interest is considered part of the total cost of the
property.
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<PAGE>
Construction loans afford Republic Security the opportunity to increase the
interest rate sensitivity of its loan portfolio and to receive yields higher
than those obtainable on adjustable-rate mortgage loans secured by existing
residential properties. These higher yields correspond to the higher credit
risks associated with construction lending. Historically, Republic Security has
obtained its construction loans through its retail loan officer network and also
through the wholesale broker network. These loans are generally made to the
homeowner and may or may not involve an end loan commitment.
Construction loans involve additional risks attributable to the fact that
loan funds are advanced upon the security of a project under construction, which
security is of uncertain value prior to its completion. Because of the
uncertainties inherent in estimating construction costs, as well as the market
value of the completed project (which is often beyond the control of the
borrower), and the effects of governmental regulation on real property, it is
relatively difficult to evaluate accurately the total funds required to complete
a project and the related loan-to-value ratio. As a result of the foregoing,
construction lending often involves the disbursement of substantial funds with
repayment dependent, in part, on the success of the ultimate project rather than
on the ability of the borrower or guarantor to repay principal and interest. If
Republic Security is forced to foreclose on a project prior to or at completion
due to a default, there can be no assurance that Republic Security will be able
to recover all of the unpaid balance of, and accrued interest on, the loan as
well as the related foreclosure and holding costs. In addition, Republic
Security may be required to fund additional amounts to complete a project and
may have to hold the property for an indeterminable period of time. Republic
Security has underwriting procedures designed to identify what it believes to be
acceptable levels of risk.
CONSUMER LOANS. Consumer loans are extended for a variety of purposes
including the purchase of automobiles, home improvement, lines of credit,
unsecured personal loans and education. As of December 31, 1996, consumer loans
were approximately $58.3 million or 14% of total loans. Loans secured by
automobiles are the dominant consumer loans and represented $36.7 million or 63%
of total consumer loans as of December 31, 1996. Automobile loans are obtained
from both the retail branch network and indirectly through referrals from
automobile dealerships. Primarily all of the indirect automobile loans are
obtained from dealerships within Republic Security's market area and are
underwritten to the same standards as those automobile loans acquired through a
retail banking network. Managements believes that the quality and risk are
similar for retail and wholesale automobile loans.
Consumer loan underwriting standards include an examination of the
applicant's payment history on other debts and an evaluation of the applicant's
ability to meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary importance, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. While consumer loans generally involve a
higher element of credit risk than one- to four-family residential loans,
consumer loans are typically made at higher interest rates and for shorter
terms, or at adjustable rates, and are helpful in maintaining a profitable
spread between Republic Security's loan yield and its cost of funds.
COMMERCIAL BUSINESS LOANS. Commercial business loans (excluding Small
Business Administration ("SBA") loans) totaled $32.7 million as of December 31,
1996. Commercial business loan underwriting practices assess the borrower's
creditworthiness and ability to repay, including an evaluation of the value of
any collateral securing the proposed loan. While commercial business loans
generally are made for shorter terms and at a higher yields than one- to
four-family residential loans, such loans generally involve a higher level of
risk than one- to four-family residential loans. In 1996 and 1995, Republic
Security expanded its commercial business lending activities and expects to
continue to pursue the commercial business loan area.
SBA loans which totaled $5.2 million at December 31, 1996 are underwritten
in accordance with the guidelines of the SBA. These loans are made to small
businesses and usually require that significant collateral be assigned to
Republic Security from the borrower. Typically, the SBA guarantees 70% to 90% of
the loan balance with the remaining portion unguaranteed. Although Republic
Security is permitted to sell the SBA-guaranteed portion of the loan in
secondary markets, with Republic Security retaining the portion that is not
guaranteed, Republic Security does not typically sell such portions in secondary
markets. SBA loans are similar to commercial business loans in yield and credit
risk.
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<PAGE>
OTHER LENDING ACTIVITIES. Republic Security may also extend loans for other
purposes from time to time, including land acquisition and development and
residential lot loans.
The following table sets forth total loans and loans held for sale that
were originated, purchased, sold and repaid during the periods indicated:
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<TABLE>
<CAPTION>
=========================================================================== ========================================
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(IN THOUSANDS) 1996 1995 1995
- --------------------------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Real estate loan originations $48,420 $31,334 $90,308
Consumer and commercial loan originations 40,451 30,107 22,045
- --------------------------------------------------------------------------- ----------------------------------------
/bullet/ Total loan originations 88,871 61,441 112,353
Loans purchased 9,787 22,776 6,193
Loans acquired in mergers 36,078 41,682
- --------------------------------------------------------------------------- ----------------------------------------
Total loan originations and purchases 134,736 84,217 160,228
- --------------------------------------------------------------------------- ----------------------------------------
LESS:
/bullet/ Principal repayment on loans and loans held for sale 58,101 57,784 34,624
/bullet/ Sale of loans and loans held for sale 42,359 47,435 53,927
- --------------------------------------------------------------------------- ----------------------------------------
Total repayments and sale of loans 100,460 105,219 88,551
- --------------------------------------------------------------------------- ----------------------------------------
/bullet/ Total increase (decrease) in loan principal balances 34,276 (21,002) 71,677
Net decrease (increase) in deferred loan fees, premiums and discounts 614 386 (816)
Net (decrease) increase in loans in process (809) 9,356 1,416
Net decrease (increase) in allowance for loan losses 158 76 (1,436)
- --------------------------------------------------------------------------- ----------------------------------------
/bullet/ NET INCREASE (DECREASE) IN LOANS AND LOANS HELD FOR SALE $34,239 ($11,184) $70,841
=========================================================================== ========================================
</TABLE>
LENDING PROCEDURES. Loan applications may be approved by Republic Security
Board, the Board Loan Committee, the Management Loan Committee, or the Loan
Officer if the loan is within delegated authority limits. The review of each
loan application includes the applicant's credit history, income level,
financial condition, and the value of any collateral to secure the loan (which,
in the case of real estate loans, utilizes a review of an appraisal report
prepared by an independent appraiser). In the case of major real estate loans,
the loan underwriting process typically involves an analysis of the economic
feasibility of the proposed project.
The Management Loan Committee is currently comprised of the President,
Executive Vice President-Finance, the Executive Vice President-Broward County,
the Senior Vice President-Retail Banking, the Senior Vice President-Commercial
Lending and the Senior Vice President-Loan Administration. The Management Loan
Committee is authorized to approve residential and commercial
mortgage/commercial non-mortgage loans up to $500,000, and residential loans
that are pre-approved for sale to a mortgage conduit, up to $1,000,000. The
committee is also authorized to approve consumer loan applications up to
$100,000. All other loan applications are subject to the approval of the RSFC
Board of Directors or the Board Loan Committee.
With respect to any approved real estate loan, Republic Security issues a
written commitment to the applicant, setting forth the terms under which the
loan will be extended. A title insurance commitment for the mortgaged property
is obtained from an approved title company prior to the closing. Fire, casualty,
and flood insurance (where applicable) are obtained, naming Republic Security as
a mortgagee.
In accordance with Republic Security's policies and applicable law, the
documentation of each real estate loan includes: an application signed by the
applicant, disclosing the purpose for which the loan is sought and the identity
of the property; one or more written appraisal reports disclosing the fair
market value of the security offered by the applicant; a signed financial
statement of the applicant or a written credit report prepared by Republic
Security or by others at its request; documentation showing the date, amounts,
purpose, and recipient of every disbursement of loan proceeds; an opinion of
Republic Security's attorney; a title insurance policy or other documentary
evidence customarily used in the appropriate jurisdiction, affirming the quality
and validity of Republic Security's lien on the relevant real
78
<PAGE>
estate; documentation covering all modifications of the original mortgage
contract showing appropriate approval for each such modification; and
documentation covering all releases of any portion of the collateral supporting
the loan.
SERVICING OF MORTGAGE LOANS
Republic Security services virtually all of its loan portfolio. As of
December 31, 1996, Republic Security was also servicing $277 million in loans
and loan participations for other lenders. Republic Security services both loans
and loan participations it has sold to others, as well as loans pursuant to the
purchase of servicing rights.
From time to time, Republic Security purchases mortgage loan servicing to
generate servicing income and to utilize effectively excess servicing capacity.
Republic Security has such excess servicing capacity due to its regular needs
for a minimum level of personnel and facilities to service Republic Security's
own portfolio. Management believes that it is cost- effective to use its
personnel base to service loans for others and to generate fee income.
Mortgage loan servicing involves collecting principal, interest and escrow
funds for taxes and insurance from mortgage loan borrowers, paying principal and
interest to mortgage loan investors, paying property taxes and insurance
premiums on mortgaged property, supervising foreclosures in the event of
unremedied defaults, and performing all related accounting and reporting
activities. Republic Security sells loans on a non-recourse basis through its
mortgage banking in the secondary market, and generally continues to service
such loans.
With regard to purchased servicing rights, such rights are typically
purchased from thrift institutions and mortgage banking companies. In purchasing
servicing rights, a valuation of the servicing rights and an assessment of the
portfolio is conducted by Republic Security. A computer model is utilized in the
evaluation process which assesses prepayment expectations, costs to establish
servicing files, the on-going costs of servicing, the mortgage loan coupon range
and concentrations, servicing margin, payment remittance cycles and utilization
of escrow funds.
Although the originator or its assignee retains title and reimburses the
servicer for the majority of expenses should foreclosure be required, the
purchase of servicing rights involves risks to the servicer, particularly should
the underlying loans be prepaid faster than that assumed in the servicing rights
valuation process. Should loan prepayments be accelerated, the amortization of
the amount paid for servicing rights (which amount is amortized over the
estimated life of the underlying loan utilizing the interest method) must also
be accelerated thereby reducing income. See Note 8 to Consolidated Financial
Statements. Republic Security seeks to mitigate such risks by diversifying the
servicing portfolio between fixed-rate and adjustable-rate mortgage loans and
among various states, including Florida, California, Iowa and Illinois.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Republic Security's non-performing assets consist of real estate acquired
through foreclosures (other real estate owned) and loans which are 90 days or
more past due. Generally, accrued interest on loans which are more than 90 days
past due is excluded from income and any previously accrued and unpaid interest
is reversed through interest income. Non-performing assets as of December 31,
1996 were approximately $6.2 million, representing 1.00% of Republic Security's
total assets.
79
<PAGE>
The following table details Republic Security's non-performing assets at
December 31, 1996, 1995 and for the three-year period ending March 31, 1995:
<TABLE>
<CAPTION>
======================================================================== ============================= =============
YEAR ENDED NINE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(DOLLARS IN THOUSANDS) 1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C>
LOANS:
Consumer $157 $303 $362 $74 $243
Commercial business 583 101 1,067 392 413
Residential mortgage 2,169 2,307 1,419 631 2,237
Residential construction 183 107 115 84 70
Commercial mortgage 1,380 715 265 541 999
Repossessed automobiles 196 195 118
--------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 4,668 3,728 3,346 1,722 3,962
OTHER REAL ESTATE OWNED:
Residential construction 107 268 26 468
Residential mortgage 1,149 701 450 901 490
Land for residential use 61
Land for commercial use 243 767 764 555 574
Commercial real estate 257 113 952
--------------------------------------------------------------------------
TOTAL OTHER REAL ESTATE OWNED 1,499 1,736 1,497 2,098 2,016
--------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $6,167 $5,464 $4,843 $3,820 $5,978
======================================================================== ============================= =============
</TABLE>
The table above reflects reclassifications of in-substance foreclosures
from other real estate owned to non-performing loans in accordance with SFAS
No.114 for all periods presented. The adoption of SFAS No.114 had no material
impact on the operations of RSFC or the comparability of the tables presented.
Republic Security's non-residential portfolios in excess of $100,000 are
reviewed annually by a committee comprised of three members of Republic
Security's management (the "Committee") for the purpose of determining a loan's
classification as special mention, substandard, doubtful, or loss, as
appropriate. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or the
collateral pledged. "Substandard" assets include those characterized by the
distinct possibility that the insured institution will sustain some loss if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses present make collection or liquidation in
full on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
General allowances represent loss allowances which have been established to
recognize the inherent risk associated with lending activities. Unlike specific
allowances, general allowances have not been allocated to a particular problem
asset. Assets classified as loss are those considered uncollectible and of such
little value that its continuance as assets is not warranted. Republic Security
will charge off 100% of the assets classified as loss. Republic Security's
determination as to the classification of its assets and the amount of its
valuation allowances is subject to review by the FRB and the Florida Banking
Department, which can order the establishment of additional general or specific
loss allowances.
Although Republic Security uses its best judgment in underwriting each
loan, industry experience indicates that a portion of Republic Security's loans
will become delinquent. Regardless of the underwriting criteria utilized by
banks, 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 Republic Security's collateral.
In the normal course of business, Republic Security 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
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<PAGE>
loans. Accordingly, management has established an allowance for loan losses,
which totaled approximately $3.9 million at December 31, 1996, which is
allocated according to the following table:
<TABLE>
<CAPTION>
========================= ================================== ============================================= ===========
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1995 1995 1994 1993
ALLOW % OF ALLOW % OF
FOR LOANS FOR LOANS ALLOW % OF LOANS ALLOW $ OF LOANS ALLOW % OF LOANS
LOAN TO TOTAL LOAN TO TOTAL FOR TO TOTAL FOR TO TOTAL FOR TO TOTAL
LOSS(2) LOANS LOSS LOANS LOAN LOSS LOANS LOAN LOSS LOANS LOAN LOSS LOANS
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate construction and $64 8% $200 10% $283 12% $213 17% $138 18%
lot loans
Residential mortgage 789 36 786 44 457 46 519 51 598 48
Commercial mortgage 931 33 852 24 722 21 523 20 448 19
Commercial business 316 9 575 8 579 8 172 6 208 7
Consumer 551 14 573 14 476 13 216 6 256 8
Unallocated (1) 1,225 759 1,328 767 802
--------------------------------------------------------------------------------------------
TOTAL $3,876 100% $3,745 100% $3,845 100% $2,410 100% $2,450 100%
========================= ================================== ============================================= ===========
</TABLE>
(1) The unallocated portion of the allowance for loan losses decreased from
March 31, 1995 to December 31, 1996 and 1995 due to Republic Security
increasing its required reserve percentage from 10% to 15% of loans
classified substandard. The unallocated balance at March 31, 1995, assuming
a 15% reserve for loans classified substandard, would decrease to $415,000.
(2) Republic Security changed the risk factors applied to the performing loan
portfolio to risk factors more similar to Republic Security's actual three
year loss history (see discussion below).
In evaluating the adequacy of the allowance for loan losses, management has
taken into consideration the loan portfolio, past loan loss experience, current
economic conditions, workout arrangements, pending sales, the financial strength
of the borrowers, and the appraised value of the collateral at the time reserves
were established. Although management believes the allowance for loan losses is
adequate, their evaluation is dependent upon future events. Management's
evaluation of losses is a continuing process which may necessitate adjustments
to the allowance in future periods.
Management's evaluation of the allowance for loan losses includes applying
relevant risk factors to the entire loan portfolio, including non-performing
loans. Risk factors applied to the performing loan portfolio in the year ended
December 31, 1996 are based on Republic Security's past three year loss history
considering the current portfolio's characteristics, current economic conditions
and other relevant factors. Prior to 1996, the risk factors applied to
performing real estate loans and commercial business loans were primarily based
on industry statistics because Republic Security did not have a relevant loss
history for these loans. After several years of transitioning to a commercial
bank, Republic Security has established a three year loss history on commercial
real estate and commercial business loans which has been applied to the
performing loan portfolio at December 31, 1996. Management believes the revised
risk factors are more relevant to the current portfolio than the risk factors
applied in prior years. Non-performing loans are carried at fair value based on
the most recent information available. At December 31, 1996 the following risk
factors are applied to the carrying value of each classified loan: (I)
substandard at 15%, (ii) doubtful at 50%, and (iii) loss charged-off at 100%.
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<PAGE>
The following table details the charge-offs, recoveries, net charge-offs
and ending balance at the allowance for loan losses for the year ended December
31, 1996, the nine months ended December 31, 1995 and the years ended March 31,
1995, 1994, and 1993:
<TABLE>
<CAPTION>
========================================================================================== =========================
AT OR FOR THE
AT OR FOR THE NINE MONTHS AT OR FOR THE
YEAR ENDED, ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(DOLLARS IN THOUSANDS) 1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Beginning balance $3,745 $3,845 $2,410 $2,450 $1,909
Reserves acquired in connection with merger 374 1,399 319
CHARGE-OFFS:
* Real estate mortgage 230 263 344 274 533
* Real estate construction 75 10 11 138
* Consumer 567 459 130 15 108
* Commercial business 98 195 207 552 324
- ------------------------------------------------------------------------------------------ -------------------------
SUBTOTAL - CHARGE-OFFS 895 992 691 852 1,103
Recoveries:
* Real estate mortgage 35 26 166 237 138
* Consumer 82 61 51 15 11
* Commercial 180 564 429 206 36
- ------------------------------------------------------------------------------------------ -------------------------
SUBTOTAL - RECOVERIES 297 651 646 458 185
- ------------------------------------------------------------------------------------------ -------------------------
Net charge-offs 598 341 45 394 918
Provision for loan losses 355 241 81 354 1,140
- ------------------------------------------------------------------------------------------ -------------------------
ENDING BALANCE $3,876 $3,745 $3,845 $2,410 $2,450
========================================================================================== =========================
Ratio of net charge-offs during the period to average loans .15% .09% .01% .15% .46%
outstanding during that period
========================================================================================== =========================
</TABLE>
INVESTMENT ACTIVITIES
Republic Security is required by federal regulations to maintain minimum
levels of liquid assets. See "--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity." Republic Security
considers such factors as liquidity, yields, interest rate exposure and general
economic conditions in determining the composition of its investments portfolio.
As of December 31, 1996, RSFC had cash and cash equivalents of $65.1 million and
investments of $95.4 million representing, in the aggregate, 26% of its total
assets. See Note 3 of Notes to Consolidated Financial Statements.
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<PAGE>
DEPOSITS
Republic Security offers a variety of deposit programs, including NOW
accounts, money market deposit accounts, statement savings accounts, and
variable- or fixed-rate certificates of deposit with maturities ranging from 30
days to five years. The principal differences among certificate accounts relate
to minimum balance, term, interest rate, and method of compounding.
As of December 31, 1996, certificate accounts in the amount of $100,000 or
more amounted to approximately $55.4 million, representing 11% of total
deposits.
The following tables set forth the amounts and the weighted-average
interest rate on each category of Republic Security's deposit accounts as of the
dates indicated:
83
<PAGE>
<TABLE>
<CAPTION>
======================================================== =============================================================
DECEMBER 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED PERCENT
AVERAGE OF TOTAL AVERAGE OF TOTAL AVERAGE OF TOTAL
(DOLLARS IN THOUSANDS) AMOUNT STATED DEPOSITS AMOUNT STATED RATE DEPOSITS AMOUNT STATED RATE DEPOSITS
RATE
- -------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing accounts $85,925 18% $70,519 18% $71,138 18%
NOW accounts 64,198 1.61% 13 55,019 1.71% 14 52,320 1.97% 13
Savings accounts 58,812 3.11 12 42,525 3.04 11 30,596 2.70 8
Money market accounts 63,923 2.98 13 39,730 2.92 10 45,324 2.78 11
Certificates of deposit 216,198 5.37 44 194,655 5.43 48 201,840 5.41 50
- -------------------------------------------------------- -------------------------------------------------------------
TOTAL DEPOSITS $489,056 3.34% 100% $402,448 3.42% 100% $401,218 3.44% 100%
======================================================== =============================================================
</TABLE>
BORROWINGS
Several credit options are made available to banks from time to time by the
FHLB to meet seasonal or other withdrawals of deposits and to permit the
expansion of lending activities. Each credit option has specified maturity and
either a fixed or a variable interest rate determined by the FHLB. Rates offered
for variable interest FHLB borrowings are set from time to time by the FHLB.
FHLB policy prescribes the acceptable use for which the proceeds of such
borrowings may be used. Republic Security has a credit facility from the FHLB in
the amount of $39.0 million. Republic Security also has the ability to draw on
existing line of credit with two commercial banks for an aggregate amount of
$6.5 million. No amounts were drawn on these lines at December 31, 1996 and
1995.
FHLB advances are collateralized by FHLB stock, mortgage loans and mortgage
backed securities pledged in accordance with agreements Republic Security
entered into with the FHLB. In accordance with the agreements, Republic Security
had pledged as collateral loans with an aggregate principal balance of
approximately $35.0 million, $42.0 million, and $44.0 million at December 31,
1996, 1995 and March 31, 1995, respectively. At December 31, 1996, Republic
Security also had pledged mortgage backed securities in the amount of $25.7
million. Republic Security had $30.0 million in outstanding advances at December
31, 1996.
From time to time Republic Security enters into repurchase agreements with
customers, securities dealers and commercial banks. A repurchase agreement is a
form of securities borrowing which involves the sale and delivery of securities
by Republic Security to an independent safekeeping agent, securities broker or
dealer in an amount equal to a percentage of the fair market value of the
securities, coupled with Republic Security's agreement to repurchase the
securities at a later date. Republic Security pays the customer, broker or
dealer a variable rate of interest for the use of the funds for the period
involved which ranges from overnight to two years. At maturity, the loans are
repaid and the securities are returned to Republic Security. The amounts of
securities sold under such agreements vary widely and depend on many factors
which include the terms available for such transactions, the ability of Republic
Security to apply the proceeds to investments having higher returns, the demand
for such transactions, and management's perception of trends in short-term
interest rates. Republic Security, in each such transaction, requires the broker
or dealer to adhere to procedures for the safekeeping of Republic Security's
securities. As of December 31, 1996, Republic Security had $8.6 million
outstanding in repurchase agreements.
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<PAGE>
The following table present selected information on borrowings:
<TABLE>
<CAPTION>
=========================================== ============= =================== ================ ============= ===========
NINE MONTHS
YEAR ENDED ENDED YEARS ENDED
DECEMBER DECEMBER 31, MARCH 31,
31,
(DOLLARS IN THOUSANDS) 1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SHORT TERM BORROWINGS:
FHLB Advances:
Amounts outstanding at end of year $5,000 $25,000 $15,000 $20,000
Weighted average rate at end of year 6.95% 5.63% 6.15% 3.86%
Maximum amount outstanding at any month end $12,000 $25,000 $20,000 $40,000
Approximate average amount outstanding during
year $1,953 $ 7,939 $ 6,000 $15,000
Approximate weighted average rate for year 5.99% 5.78% 4.71% 3.45%
Other Borrowed Money:
Amounts outstanding at end of year $8,633 $7,280 $4,742 $2,865 $1,994
Weighted average rate at end of year 4.88% 5.18% 4.90% 2.10% 2.00%
Maximum amount outstanding at any month end $8,909 $7,581 $4,742 $3,157 $2,982
Approximate average outstanding during year $5,888 $5,000 $3,035 $2,595 $2,080
Approximate weighted average rate for year 4.49% 4.68% 4.05% 2.12% 2.60%
LONG TERM BORROWINGS:
FHLB Advances:
Amounts outstanding at end of year $25,000
Weighted average rate at end of year 5.61%
Maximum amount outstanding at any month end $25,000
Approximate average amount outstanding during
year $690
Approximate weighted average rate for year 5.61%
=========================================== ============= =================== ================ ============= ===========
</TABLE>
COMPETITION
Republic Security experiences strong competition both in attracting
deposits and originating loans in its South Florida market area. Direct
competition for deposits comes from other commercial banks, savings and loan
associations, credit unions, money market funds and other providers of financial
services. Competition is significant largely due to the desire of financial
institutions to access the high proportion of retirees who live in South Florida
and have above average liquid assets. Republic Security competes with other
commercial banks, savings and loan associations, and credit unions for loans. In
addition, mortgage banking companies are competitors for residential real estate
loans. Many of these competitors have greater financial resources, larger branch
networks, better name recognition, greater economies of scale, less regulatory
burdens, less capital requirements and larger employee bases than Republic
Security. The primary methods used to attract deposit accounts include interest
rates, variety and quality of services, convenience
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of branches and advertising and promotions. Republic Security competes for loans
through interest rates, loan fees and efficient, quality service provided to
customers.
EMPLOYEES
RSFC employed approximately 260 persons as of December 31, 1996. RSFC
places a high priority on staff development which involves training in
operational procedures, customer service and regulatory compliance. Extensive
incentive programs that focus on and are dependent on the achievement of certain
financial and customer service goals are in place for employees.
None of RSFC's employees are subject to a collective bargaining agreement,
and RSFC believes that its employee relations are good.
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RSFC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CORPORATE OVERVIEW
Republic Security Financial Corporation is a commercial bank holding
company headquartered in West Palm Beach, Florida. RSFC's principal business is
the operation of Republic Security, a state chartered commercial bank. With nine
full-service branches located in Palm Beach County, Florida, seven full-service
branches located in Broward County, Florida, and one full-service branch in Dade
County, Florida, Republic Security serves primarily Palm Beach and Broward
Counties.
Over the past several years, Republic Security has transitioned its
business from traditional thrift activities to those of a commercial bank. The
new business strategy included a concentration on commercial, consumer and
construction lending while maintaining a residential mortgage banking presence
and a concentration on business and personal transaction accounts and increased
non-interest income from loan and deposit service fees. On November 30, 1994,
Republic Security acquired Governors, a commercial bank headquartered in West
Palm Beach with a concentration on the types of loans and deposits targeted by
Republic Security. Total assets acquired in connection with the merger was
approximately $64.3 million.
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Consistent with Republic Security's shift in business focus, on November 6,
1995, RSFC and Republic Security received all necessary federal and state
regulatory approvals and converted to a commercial bank holding company and a
State of Florida chartered commercial bank. On July 26, 1995, as a consequence
of Republic Security's charter conversion, the Company and Republic Security
changed their fiscal year ends from March 31 to December 31.
On December 15, 1995, Republic Security purchased the West Palm Beach
office of Century Bank, a thrift chartered bank, which provided a larger
customer base when combined with the existing Bank branch in the same vicinity
and other key economic benefits to Republic Security.
On January 19, 1996, Republic Security acquired Banyan Bank, a commercial
bank headquartered in Boca Raton, Florida, with one branch office located in
Boynton Beach, Florida. In addition to acquiring commercial bank loans and
deposit portfolios, the acquisition provides Republic Security with a geographic
presence in South Palm Beach County. Total assets acquired in connection with
the merger was approximately $61.7 million.
On June 30, 1997, the Company acquired Family Bank, a commercial bank
headquartered in Hallandale, Florida, with six branch locations in Broward
County, Florida. Family Bank was merged into Republic Security on June 30, 1997.
The acquisition was accounted for as a pooling-of-interests and resulted in
Republic Security acquiring assets of $256.0 million, liabilities of $234.2
million and equity of $21.8 million. All information contained herein has been
retroactively restated to include the accounts and results of operations of
Family Bank.
Looking forward, Republic Security's business strategy is to continue its
(i) focus in commercial and consumer lending while maintaining a presence in the
residential mortgage market, (ii) emphasis on residential construction lending,
(iii) emphasis on business and personal transaction accounts, (iv) focus on
non-interest income from loan and deposit service fees, (v) development and
implementation of new products and services, and (vi) growth through a
combination of bank and branch acquisitions, as well as de novo expansion of the
branch network and to achieve a higher profile through additional strategically
located banking offices and increased marketing efforts.
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RSFC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
RESULTS OF OPERATIONS
The Company had a net loss of ($1,651,000) or $(.11) per common share for
the three months ended June 30, 1997 compared to net income of $1,630,000 or
$.09 per common share for the three months ended June 30, 1996. Net income for
the six months ended June 30, 1997 was $496,000 or $.01 per common share
compared to net income of $3,331,000 or $.18 per common share for the six months
ended June 30, 1996. The decrease in net income for the three and six months
ended June 30, 1997 is primarily due to the one-time merger expenses of
$3,979,000 ($2,500,000, net of income taxes), associated with the Family Bank
acquisition which closed on June 30, 1997. Net income for the quarter and six
months ended June 30, 1997 was also impacted by an increase of $720,000 and
$670,000, respectively, for the provision for loan losses and an increase of
$480,000 and $510,000, respectively, in Stock Appreciation Rights ("SARs")
accrual compared to the quarter and six months ended June 30, 1996. These
increases in expenses were partially offset by a $367,000 or 6% increase in net
interest income for the three months ended June 30, 1997 compared to the three
months ended June 30, 1996. Net interest income increased $637,000 or 5% and non
interest income increased $202,000 or 7% for the six months ended June 30, 1997
compared to the six months ended June 30, 1996.
NET INTEREST INCOME
Net interest income for the quarter ended June 30, 1997 increased $367,000
compared to the quarter ended June 30, 1996 due to an increase of $73,000,000 in
interest-earning assets offset by a decrease in net interest margin of 42 basis
points. Average outstanding loans increased approximately $40,000,000 and
investments increased approximately $33,000,000 while average interest bearing
deposits increased approximately $25,000,000 and average borrowings increased
approximately $35,000,000 for the three months ended June 30, 1997 compared to
the three months ended June 30, 1996. Republic Security purchased $25,000,000 of
mortgage-backed securities in December 1996 which were funded by a $25,000,000
Federal Home Loan Bank advance. The decrease in net interest margin for the
three months ended June 30, 1997 compared to the three months ended June 30,
1996 is primarily a result of the $25,000,000 leverage transaction and also a
result of a slight decrease in the yield on the loan portfolio.
Net interest income increased $637,000 or 5% for the six months ended June 30,
1997 compared to the six months ended June 30, 1996. The increase is due to a
$61,000,000 or 12% increase in interest earning assets offset by a decrease in
net interest margin of 42 basis points.
PROVISIONS FOR LOAN LOSSES
The provision for loan losses increased $720,000 for the three months ended
June 30, 1997 compared to the three months ended June 30, 1996 due primarily to
(i) the realignment of Family's loan loss reserve policy to that of Republic
Security, (ii) an increase from December 31, 1996 of $1,600,000 in non
performing loans associated with one single family residential loan and (iii) a
downgrade of a $330,000 commercial loan in the quarter ended June 30, 1997. For
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the six months ended June 30, 1997, the provision for loan losses increased
$670,000 compared to the six months ended June 30, 1996.
NON-INTEREST INCOME
Non-interest income increased $202,000 for the six months ended June 30,
1997 compared to the six months ended June 30, 1996 primarily due to an increase
of $144,000 in service charge on deposit accounts and $163,000 in gain on sale
of investments, offset by a decrease of $98,000 in gain on sale of loans. No
significant change occurred in non-interest income for the three months ended
June 30, 1997 compared to the three months ended June 30, 1996.
OPERATING EXPENSES
Operating expenses increased $3,979,000 for the quarter and six months
ended June 30, 1997 compared to the quarter ended June 30, 1996 due to merger
expenses associated with the Family Bank acquisition which closed on June 30,
1997. Operating expenses, excluding the merger expenses, increased $781,000 or
14% for the three months ended June 30, 1997 compared to the three months ended
June 30, 1996. The increase in operating expenses is due primarily to increases
of $280,000 in employee compensation and benefits expenses, $193,000 in
occupancy and equipment expenses and $934,000 in other operating expenses offset
by a decrease of $101,000 in insurance expense. 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 fixed asset write-off
associated with the relocation of a branch. The increase in employee
compensation and benefits expenses is due to the accrual of $480,000 for Stock
Appreciation Rights (SARs) which became "in-the-money" during the quarter ended
June 30, 1997 offset by a non recurring payroll expenses of $80,000 in the
quarter ended June 30, 1996 associated with the absorption of the Banyan Bank
acquisition which closed in January 1996 and employee compensation savings as a
result of the elimination of certain positions which took place in June 1996.
Occupancy and equipment expenses increased for the three months ended June 30,
1997 compared to the three months ended June 30, 1996 due primarily to an
increase in depreciation expense of $100,000 and a one-time payment of $50,000
for early cancellation of a lease. The increase in depreciation expense is due
to an increase in equipment associated with the change in data processing
bureaus which took place in August 1996. Insurance expense decreased $101,000
for the three months ended June 30, 1997 compared to the three months ended June
30, 1996 due primarily to a decrease of approximately $65,000 in Federal Deposit
Insurance Corporation ("FDIC") premiums and $20,000 in other insurance premiums.
The FDIC premiums were reduced for all deposits effective January 1, 1997 after
the one-time special Savings Insurance Association Fund assessment made in
September 1996 to recapitalize the fund.
Operating expenses, excluding merger costs, increased $626,000 or 6% for
the six months ended June 30, 1997 compared to the six months ended June 30,
1996. The increase in operating expenses is due primarily to increases of
$199,000 in employee compensation and benefits, $274,000 increase in occupancy
and equipment expenses and $307,000 in other operating expenses offset by a
decrease of $160,000 in insurance expense. Employee compensation and benefits
increased approximately $510,000 related to SARs accrual offset by $180,000 of
non recurring employee compensation expenses in the six months ended June 30,
1996 associated with the absorption of the Banyan Bank acquisition and employee
compensation savings as a result of the elimination of certain positions which
took place in June 1996. Occupancy and equipment expenses increased for the six
months ended June 30, 1997 compared to the six months ended June 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 fixed asset write-off associated with the
relocation of a branch. Insurance expense decreased for the six months ended
June 30, 1997 compared to the six months ended June 30, 1996 due to an
approximate savings of $130,000 in FDIC premiums, a decrease of approximately
$40,000 in other insurance premiums and a $50,000 FDIC premium refund received
in January 1997 offset by an increase in FDIC premiums associated with an
increased deposit base of approximately $40,000,000.
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PROVISION FOR INCOME TAXES
Income tax expenses decreased $1,793,000 for the three months ended June
30, 1997 compared to the three months ended June 30, 1996 due to a decrease of
$5,074,000 in income before taxes. Income taxes decreased $1,601,000 for the six
months ended June 30, 1997 compared to the six months ended June 30, 1996 due to
a decrease of $4,436,000 in income before taxes. Income before income taxes
decreased for the three and six months ended June 30, 1997 compared to the three
and six months ended June 30, 1996 due primarily to merger expenses of
$3,979,000 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, Republic Security is
subject to regulations which require it to maintain "long term" liquidity
ratios. The majority of the liquid assets of Republic Security are investments
available-for-sale, deposits with the Federal Home Loan Bank of Atlanta and
federal funds sold. Republic Security was in compliance with liquidity
requirements during the six months ended June 30, 1997.
On certain occasions, demand for loan funds may exceed cash available from
deposits. On such occasions, Republic Security 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 $11,000,000 during the
six months ended June 30, 1997. The decrease in cash is due primarily to loan
originations and purchases net of principal paydowns, of approximately
$50,000,000, dividend payments of approximately $3,000,000 and fixed asset
purchases of approximately $2,500,000 offset by approximately $22,500,000 in
loan sales and $15,5000,000 in an increase in FHLB advances and securities sold
under agreements to repurchase. A $16,000,000 purchase of 1-4 family residential
loans was made during the six months ended June 30, 1997 while the majority of
loan originations related to commercial business and commercial real estate
loans.
The following table shows the capital amounts and ratios of Republic
Security at June 30, 1997.
(DOLLARS IN THOUSANDS) AMOUNT RATIO
- ------------------------------------------------- ------------------
Total risk based capital $52,346 12.3%
Tier 1 risk based capital $47,201 11.1%
Leverage capital $47,201 7.8%
- ------------------------------------------------- ------------------
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Republic Security was in compliance with its' capital requirements at June
30, 1997.
FINANCIAL CONDITION
As of June 30, 1997, total assets increased approximately $18,000,000 or 3%
from December 31, 1996. Loans-net increased approximately $34,000,000 which was
funded by a decrease of approximately $11,000,000 in interest bearing deposits
in other institutions and federal funds sold, the sale of approximately
$8,000,000 of loans held for sale, an increase in FHLB advances of $11,000,000
and an increase in securities sold under agreements to repurchase of
approximately $4,000,000. The overall increase in total assets of approximately
$18,000,000 is primarily a result of an increase of $11,000,000 in FHLB advances
and a $4,000,000 increase in securities sold under agreements to repurchase.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
RESULTS OF OPERATIONS
The following is a discussion and analysis of RSFC's consolidated results
of operations . All information has been retroactively restated to include the
accounts and results of operations of Family Bank. In addition, RSFC's operating
results include the results of Banyan Bank since January 19, 1996 and Governors
Bank since November 30, 1994. The discussion and analysis should be read in
conjunction with RSFC's consolidated financial statements and corresponding
notes included elsewhere in this report.
RSFC's net income was $6.8 million for the year ended December 31, 1996
compared to $6.0 million for the year ended December 31, 1995. Net income for
the year ended December 31, 1996 was reduced by $669,000 due to a one-time
Federal Deposit Insurance Corporation ("FDIC") Savings Association Insurance
Fund ("SAIF") assessment to recapitalize the national SAIF (see Note 15 to the
Consolidated Financial Statements). Net income for the year ended December 31,
1996 increased 25% to $7.5 million, excluding the one-time FDIC SAIF assessment,
from $6.0 million for the year ended December 31, 1995. The increase in net
income is due to a $4.0 million increase in net interest income, a $1.1 million
increase in non-interest income partially offset by increases of $2.2 million in
operating expenses, and $659,000 in income taxes. Net income per common share
was $.42 on a primary and fully diluted basis, excluding the one-time FDIC SAIF
assessment, for the year ended December 31, 1996 compared to $.43 on a primary
and fully diluted basis for the year ended December 31, 1995. Earnings per share
was decreased for the year ended December 31, 1996 compared to the year ended
December 31, 1995 due to a 2.7 million increase in the average shares
outstanding during 1996 primarily as a result of the November 1995 secondary
equity offering and the conversion of RSFC's Series "A" preferred stock to
common stock (see Note 11 to the Consolidated Financial Statements). Reported
net income per share for the year ended December 31, 1996 was $.37. The one-time
FDIC SAIF assessment resulted in a reduction of EPS of $.05.
RSFC's net income for the nine months ended December 31, 1995 was $4.9
million compared with net income of $3.1 million for the nine months ended
December 31, 1994. Net income per common share was $.34 on a primary basis and
$.33 on a fully diluted basis for the nine months ended December 31, 1995
compared to $.24 per common share on both primary and fully diluted basis for
the nine months ended December 31, 1994. The increase in net income for the nine
months ended December 31, 1995 compared to the nine months ended December 31,
1994 is primarily due to increases of approximately $3.6 million in net interest
income and $1.4 million in non-interest income partially offset by increases of
approximately $2.0 million in non-interest expense and $1.1 million in income
tax expense.
RSFC's net income decreased by $1.1 million from $5.3 million for the year
ended March 31, 1994 to $4.2 million for the year ended March 31, 1995. Earnings
per share declined to $0.32 in 1995 from $0.47 in 1994 (before the cumulative
effect of a change in accounting principle). Net income for the year ended March
31, 1994 included a
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$500,000 ($.03 per share) cumulative effect of a change in accounting principle
related to the adoption of Statement of Financial Accounting Standards No. 109.
The decrease in earnings for 1995 of $672,000, excluding the cumulative effect
of a change in accounting principle, is primarily due to increases of $2.9
million in net interest income and approximately $800,000 in other non-interest
income and service charges on deposit accounts and a decrease of $273,000 in the
provision for loan losses which were offset by a decrease of $2.5 million in
gain on sale of loans and servicing and mortgage trading income, a $200,000 loss
on trading account investment and an increase of $2.3 million in operating
expenses.
The primary component of earnings for most financial institutions including
RSFC is net interest income. Net interest income is the difference between the
interest income received on its interest-earning assets and the interest paid on
its interest-bearing liabilities. Net interest income is determined primarily by
interest rate spread and the relative amounts of interest-earning assets and
interest-bearing liabilities.
NET INTEREST INCOME
Net interest income increased 17% to $25.8 million for the year ended
December 31, 1996 compared to $22 million for the year ended December 31, 1995.
The increase in net interest income is primarily due to an increase of $31.8
million in average net interest-earning assets as a result of a $62.8 million
increase in average interest-earning assets offset by an increase of $31 million
in average interest-bearing liabilities. Average loans outstanding increased
$36.9 million and average investments, interest-bearing deposits in other
financial institutions and Fed funds sold increased $26.0 million while average
interest-bearing deposits increased $44.7 million and average borrowed money
outstanding decreased $13.7 million. The increases in the loan and deposit
portfolios are primarily due to the Banyan Bank acquisition and internal growth.
In addition, an increase of 17 basis points in Republic Security's net interest
margin contributed $730,000 to the increase in net interest income for the year
ended December 31, 1996 compared to the year ended December 31, 1995.
Net interest income for the nine months ended December 31, 1995 increased
approximately $3.4 million or 26% from the nine months ended December 31, 1994
due primarily to an increase of $6.9 million in interest income on loans,
partially offset by an increase of $3.9 million in interest expense on
certificates of deposit. The average interest-earning assets and average
interest-bearing liabilities increased during the nine months ended December 31,
1995 compared with the nine months ended December 31, 1994 primarily due to the
acquisition of Governors Bank and internal growth as a result of successfully
attracting new customers. In addition Republic Security's net interest margin
increased to 5.20% for the nine months ended December 31, 1995 from 4.84% for
the nine months ended December 31, 1994, primarily as a result of an increase in
the prime rate and a change in the composition of Republic Security's loan
portfolio. The composition of Republic Security's loan portfolio changed as a
result of the Governors merger to reflect an increase in consumer, commercial
business and commercial real estate loans which generally are higher yielding
than residential mortgage loans.
Net interest income increased by 19% to $18.1 million for the year ended
March 31, 1995 compared to $15.2 million for the year ended March 31, 1994,
primarily due to an increase in interest income on loans of $5.6 million as a
result of an increase in loan volume during 1995, partially offset by an
increase in interest expenses of $3.1 million due to an increase in the rate and
volume of interest-bearing liabilities. The increase in loan volume for the year
ended March 31, 1995 compared to the year ended March 31, 1994 is attributable
to an increase in commercial and consumer loan originations as well as the
Governors acquisition on November 30, 1994.
INTEREST INCOME
The increase of $5.1 million in interest income for the year ended December
31, 1996 compared to the year ended December 31, 1995 is due to an increase of
$3.6 million in interest and fees on loans, a $732,000 increase in interest on
interest-bearing deposits in other financial institutions and Fed Funds sold and
a $617,000 increase in interest and dividends on investments. The increase in
interest and fees on loans is primarily due to an increase of $36.9 million in
the average balance of loans outstanding during the year ended December 31, 1996
compared to the year ended
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December 31, 1995. The increase in loans outstanding is primarily a result of
the Banyan Bank acquisition, success in attracting customers through advertising
and referrals and continued improvement in business conditions during 1996.
Interest income increased approximately $7.8 million for the nine months
ended December 31, 1995 compared to the nine months ended December 31, 1994. The
primary contributor to the increase in interest income is a $55.0 million
increase in the average loan balances outstanding for the nine months ended
December 31, 1995 compared to the nine months ended December 31, 1994 which
resulted in an increase in interest income of approximately $4.4 million. The
average loan balances increased as a result of the Governors acquisition as well
as internal growth. Approximately $2.3 million of the increase in interest
income for the nine months ended December 31, 1995 compared to the nine months
ended December 31, 1994 resulted from an increase in the average rate earned on
loans from 7.93% to 9.26%. The rate increase on loans is due to an increase in
the prime rate from 6% at the beginning of 1994 to 8.5% at December 31, 1995.
The average investment balance increased approximately $13.5 million partly as a
result of the Governors acquisition.
Of the $6.0 million increase in interest income for the year ending March
31, 1995 compared to the year ending March 31, 1994, approximately 50% was
attributable to an increase in interest-earning asset volume, and the remaining
50% was due to an increase in average yield. The average yield on
interest-earning assets increased from 7.33% in 1994 to 7.96% in 1995 primarily
as a result of a larger portion of interest-earnings assets representing loans
rather than lower yielding investments.
INTEREST EXPENSE
The increase in interest expense of $1.1 million is due to an increase in
the average balance of interest-bearing liabilities during the year ended
December 31, 1996 compared to the year ended December 31, 1995. The increase in
interest-bearing liabilities is due primarily to increases in savings accounts
of $21.3 million and certificate of deposits of $14.5 million offset by a
decrease in borrowed money of $13.7 million. The increase in savings accounts is
primarily a result of the introduction of a high-yield savings product in 1996
in Broward County. The increase in the average balance of certificates of
deposit is due to the Banyan Bank acquisition in January 1996. Borrowed money
decreased in 1996 as a result of the issuance of additional common and preferred
stock in November 1995 (see Note 11 to Consolidated Financial Statements). The
rate paid on interest-bearing liabilities decreased 5 basis points for the year
ended December 31, 1996 compared to the year ended December 31, 1995 primarily
due to reducing the rates paid on certificates of deposit and a decrease in the
rate paid on borrowed money. Republic Security began lowering interest rates
paid on certificates of deposit in March 1995 to become aligned with the
commercial bank market. Likewise, the average balance of non-interest bearing
deposits increased $15.8 million or 25% for the year ended December 31, 1996
compared to the year ended December 31, 1995.
In line with management's goals, the average balance of
non-interest-bearing deposits increased $11.2 million to $62.6 million for the
nine months ended December 31, 1995 from $51.4 million for the nine months ended
December 31, 1994. However, increases in the volume of certificates of deposit
and the average rate paid on certificates of deposit was the primary contributor
to the $4.2 million increase in interest expense for the nine months ended
December 31, 1995 compared to the nine months ended December 31, 1994. An
increase of $55.6 million in the average balance of certificates of deposit
resulted in an increase of $2.6 million in interest expense while an increase in
the rate paid on certificates of deposit increased interest expense $1.3 million
for the nine months ended December 31, 1995 compared to the nine months ended
December 31, 1994. The Governors acquisition resulted in an increase in average
certificates of deposit of approximately $28.0 million. The remaining increase
in average certificates of deposit was due to internal growth as a result of
special pricing and effective advertising. The increase in the rate paid on
deposits was primarily a result of an increase in market interest rate in 1995
compared to 1994.
Of the $3.0 million increase in interest expense for the year ended March
31, 1995, $1.7 million was a result of an increase in the average volume of
interest-bearing liabilities in 1995 compared to 1994 and $1.3 million was due
to an increase in the average rate on interest-bearing liabilities to 3.72% in
1995 from 3.20% in 1994. The primary contributor to these rates and volume
increases was certificates of deposit.
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<TABLE>
<CAPTION>
NET INTEREST INCOME, AVERAGE BALANCE AND RATES:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995
----------- -----------
AVERAGE YIELD/ AVERAGE YIELD/
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans $402,307 $36,793 9.15% $365,399 $33,198 9.09%
Interest-bearing deposits
and Fed Funds sold 30,100 1,563 5.19 19,741 831 4.21
Taxable investments 46,617 3,182 6.83 37,045 2,677 7.23
Non-taxable investments ** 15,352 928 6.04 9,444 616 6.52
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Total interest-earning assets 494,376 42,466 8.59 431,629 37,322 8.65
Other assets 50,319 37,033
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Total $544,695 $468,662
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts $ 59,227 963 1.63 $ 59,038 1,091 1.85
Money market accounts 54,218 1,874 3.46 45,519 1,358 2.98
Savings deposits 52,313 1,724 3.30 30,999 881 2.84
Certificate of deposits 209,590 11,424 5.45 195,117 10,705 5.49
Borrowed money 8,911 444 4.98 22,613 1,278 5.65
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Total interest-bearing liabilities 384,259 16,429 4.28 353,286 15,313 4.33
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Non-interest-bearing deposits 78,675 62,908
Other liabilities 17,373 10,051
Shareholders' equity 64,388 42,417
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $544,695 $468,662
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Net interest income/
Net interest rate spread $26,037 4.31% $22,009 4.32%
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Net average interest-earning
assets/Net interest margin $110,117 5.27% $78,343 5.10%
- ------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.29x 1.22x
=========================================== =========== =========== ========== =========== =========== ===========
</TABLE>
** Tax equivalent basis based on 37% effective tax rate.
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<TABLE>
<CAPTION>
NET INTEREST INCOME, AVERAGE BALANCE AND RATES:
NINE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
1995 1994
------------- ------------ ------------- ------------- ----------- -----------
AVERAGE YIELD/ AVERAGE YIELD/
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $364,015 $25,272 9.26% $308,982 $18,374 7.93%
Interest-bearing deposits
and Fed Funds sold 19,920 608 4.07 19,961 552 3.69
Taxable investments 37,456 2,048 7.29 20,093 925 6.14
Non-taxable investments ** 9,444 487 6.88 13,291 744 7.46
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
Total interest-earning assets 430,835 28,415 8.79 362,327 20,595 7.58
Other assets 36,107 26,214
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
Total $466,942 $388,541
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts $ 60,347 824 1.82 $ 52,707 658 1.66
Money market accounts 44,263 1,015 3.06 44,982 943 2.80
Savings deposits 30,590 660 2.88 28,829 616 2.85
Certificate of deposits 193,464 8,178 5.64 137,907 4,324 4.18
Borrowed money 21,691 941 5.78 22,808 892 5.21
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
Total interest-bearing liabilities 350,355 11,618 4.42 287,233 7,433 3.45
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
Non-interest-bearing deposits 62,552 51,401
Other liabilities 9,898 15,500
Shareholders' equity 44,137 34,407
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
Total liabilities and
shareholders' equity $466,942 $388,541
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
Net interest income/
Net interest rate spread $16,797 4.37% $13,162 4.13%
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
Net average interest-earning
assets/Net interest margin $80,480 5.20% $75,094 4.84%
- -------------------------------- ------------- ------------ ------------- ------------- ----------- -----------
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.23x 1.26x
================================ ============= ============ ============= ============= =========== ===========
</TABLE>
** Tax equivalent basis based on 37% effective tax rate.
<TABLE>
<CAPTION>
NET INTEREST INCOME, AVERAGE BALANCE AND RATES:
YEAR ENDED MARCH 31,
1995
----------- ------------ ----------
AVERAGE YIELD/
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATE
- -------------------------------- ----------- ------------ ----------
<S> <C> <C> <C>
Assets
Interest-earning assets:
Loans $321,168 $26,299 8.19%
Interest-bearing deposits
and Fed Funds sold 16,065 775 4.82
Taxable investments 20,334 1,554 7.64
Non-taxable investments ** 13,291 873 6.57
- -------------------------------- ----------- ------------ ----------
Total interest-earning assets 370,858 29,501 7.95
Other assets 34,445
- -------------------------------- ----------- ------------ ----------
Total $405,303
- -------------------------------- ----------- ------------ ----------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts $ 45,853 1,111 2.42
Money market accounts 60,442 1,292 2.14
Savings deposits 23,668 668 2.82
Certificate of deposits 147,238 6,788 4.61
Borrowed money 21,981 1,267 5.76
- -------------------------------- ----------- ------------ ----------
Total interest-bearing liabilities 299,182 11,126 3.72
- -------------------------------- ----------- ------------ ----------
Non-interest-bearing deposits 53,703
Other liabilities 17,528
Shareholders' equity 34,890
- -------------------------------- ----------- ------------ ----------
Total liabilities and
shareholders' equity $405,303
- -------------------------------- ----------- ------------ ----------
Net interest income/
Net interest rate spread $18,375 4.23%
- -------------------------------- ----------- ------------ ----------
Net average interest-earning
assets/Net interest margin $71,676 4.95%
- -------------------------------- ----------- ------------ ----------
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.24x
================================ =========== ============ ==========
</TABLE>
** Tax equivalent basis based on 37% effective tax rate.
96
<PAGE>
Net interest income before provision for losses can be analyzed in terms of
the impact of changing rates and changing volumes of interest-earning assets and
liabilities. The following table sets forth certain information regarding
changes in net interest income due to changes in the average balance of
interest-earning assets and interest-bearing liabilities and due to changes in
average rates for the periods indicated. For purposes of this table, rate/volume
changes have been allocated solely to rate changes and non-accrual loans are
included in average balances.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 VERSUS 1995 DECEMBER 31, 1995 VERSUS 1994
------------------------------------------------- ---------------------------------------------
INCREASE (DECREASE) DUE TO CHANGE IN: INCREASE (DECREASE) DUE TO CHANGE IN:
------------------------------------------------- ---------------------------------------------
(DOLLARS IN AVERAGE AVERAGE NET AVERAGE AVERAGE NET
THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
- ------------------------ -------------- ----------------- ---------------- --- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans - net $229 $3,366 $3,595 $2,472 $4,426 $6,898
Interest-bearing deposits 193 539 732 30 26 56
Taxable investments (169) 674 505 (22) 1,145 1,123
Non-taxable investments (72) 384 312 8 (265) (257)
- ------------------------ -------------- ----------------- ---------------- --- -------------- --------------- --------------
181 4,963 5,144 2,488 5,333 7,820
- ------------------------ -------------- ----------------- ---------------- --- -------------- --------------- --------------
INTEREST EXPENSE:
Savings deposits (131) 23 (108) 63 103 166
NOW accounts 109 (157) (48) 91 (19) 72
Money Market accounts 71 1,316 1,387 (1) 45 44
Certificates of deposit (79) 798 719 1,302 2,552 3,854
Borrowed money (81) (753) (834) 110 (61) 49
- ------------------------ -------------- ----------------- ---------------- --- -------------- --------------- --------------
(111) 1,227 1,116 1,565 2,620 4,185
- ------------------------ -------------- ----------------- ---------------- --- -------------- --------------- --------------
Net interest income $292 $3,736 $4,028 $923 $2,712 $3,635
======================== ============== ================= ================ === ============== =============== ==============
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's assessment of the
adequacy of the allowance for loan losses. The provision for loan losses
increased $135,000 or 61% for the year ended December 31, 1996 compared to the
year ended December 31, 1995. The amount of future provisions is a function of
the ongoing evaluation of the allowance for loan losses which considers the
characteristics of the loan portfolio, economic conditions and other relevant
factors. Management's evaluation of the allowance for loan losses includes
applying relevant risk factors to the entire loan portfolio including
non-performing loans. Risk factors applied to the performing loan portfolio are
based, in part, on Republic Security's past 3 year loss history and consider the
current portfolio's characteristics, current economic conditions and other
relevant factors. Non-performing loans are carried at fair value based on the
most recent information available.
The allowance for loan losses as a percent of total loans is approximately
.92% which management believes to be adequate considering Republic Security's
loan composition at December 31, 1996 and Republic Security's historical losses.
In addition to the risk factors applied to the performing loan portfolio, risk
factors as prescribed in the loan policy are applied to the remaining book
balance of classified loans in evaluating the adequacy of the allowance for loan
97
<PAGE>
losses. An evaluation of the adequacy of the overall allowance for loan losses,
including the adequacy of the unallocated portion of the allowance, is
determined by management considering factors such as current and anticipated
future economic conditions, loan concentrations, portfolio mix and other
relevant factors.
The allowance for loan losses as a percent of total loans at December 31,
1996 decreased approximately 7% compared to the ratio of .99% at December 31,
1995. Even though the allowance for loan losses as a percent of total loans
decreased, the unallocated portion of the allowance increased $466,000 or 61%
from December 31, 1995 to 1996 due primarily to a decrease in the amount of
classified loans. Over the past three years, changes in the loan portfolio to
that more similar to a commercial bank have required higher levels of
"allocated" general reserves but have been offset by significant decreases in
classified loans resulting in an increase in the unallocated portion of the
reserve for loan losses. Likewise, the allowance for loan losses to
non-performing loans has decreased from 106% at December 31, 1995 to
approximately 87% at December 31, 1996. The decrease in the allowance for loan
losses to non-performing loans is primarily a result of an increase of $939,000
in non-performing loans of which approximately $330,000 of the increase relates
to one loan which had already been identified as a potential problem and
classified by management at December 31, 1995. The migration of this particular
loan from a classified performing loan to a non-performing loan had a negative
effect on the ratio of the allowance for loan losses to non-performing loans.
For this reason, and others, management does not rely solely on financial ratios
to determine the adequacy of the allowance for loan losses. Because Republic
Security's policy requires the write-down of impaired loans, losses from these
loans should not have a future impact on the allowance for loan losses. The
systematic method prescribed in Republic Security's loan policy (discussed
above) which includes procedures for early detection of potential problem loans
is consistently used to determine the adequacy of the allowance for loan losses
and also considers the characteristics of the loan portfolio, historical
charge-off history, current and anticipated future economic conditions, as well
as other relevant factors. Based on the analysis of the allowance for loan
losses at December 31, 1996, management believes the allowance is adequate.
In accordance with Republic Security's asset classification policy,
non-performing loans (loans contractually past-due 90 days or more) are recorded
at the lesser of the loan balance or estimated fair value of the collateral
underlying the loan, for collateral dependent loans, or the net present value of
estimated future cash flows discounted at the loan's original effective interest
rate. As a result, any expected losses from loans identified at December 31,
1996 as non-performing have been recognized by Republic Security and should not
have a future impact on the allowance for loan losses unless the condition of
the loan further deteriorates.
At December 31, 1996 Republic Security had $4.5 million in non-performing
loans representing 1.11% of total loans compared to $3.5 million representing
0.99% of total loans at December 31, 1995. The increase in non-performing loans
is due partially to an increase in residential mortgage loan delinquencies and
in part to a $330,000 commercial loan.
The provision for loan losses decreased $123,000 for the nine months ended
December 31, 1995 compared to the nine months ended December 31, 1994. However,
the allowance for loan losses as a percent of total loans remained relatively
stable at 1.05% at December 31, 1995 compared to 1.08% at March 31, 1995.
Although the percent of non-performing loans to total loans increased from
.62% at March 31, 1994 to .91% at March 31, 1995, the provision for loan losses
remained relatively stable for the periods. The increase in non-performing loans
was primarily a result of the Governors' loan portfolio acquired. Likewise an
allowance for loan losses was acquired.
NON-INTEREST INCOME
Non-interest income increased $1.1 million or 20% for the year ended
December 31, 1996 compared to the year ended December 31, 1995 primarily due to
an increase in service charges on deposit accounts, an increase in the gain on
sale of loans and an increase in the gain on sale of investments
available-for-sale offset by a decrease in mortgage trading income.
98
<PAGE>
Non-interest income increased approximately 35% to $4.6 million for the
nine months ended December 31, 1995 compared to the nine months ended December
31, 1994 primarily as a result of increases in service charges on deposit
accounts and other income. In addition, the nine months ended December 31, 1994
included a $200,000 loss on the sale of trading investments.
Non-interest income significantly decreased to $4.4 million for the year
ended March 31, 1995 from $6.1 million for the year ended March 31, 1994 due to
the reduction in mortgage banking activities which resulted in a decrease in the
amount of gain on the sale of loans and servicing.
SERVICE CHARGES ON DEPOSIT ACCOUNTS. In line with Republic Security's goal
to increase service fee income on deposit accounts, service charges on deposit
accounts increased approximately 30% to $3.7 million for the year ended December
31, 1996 compared to the year ended December 31, 1995. Average transaction
account balances increased approximately $16.0 million or 13% for the year ended
December 31, 1996 compared to the year ended December 31, 1995 due to an
increase in the volume of transaction accounts. The increase in the number of
transaction accounts in 1996 compared to 1995 is due to the Banyan Bank
acquisition as well as internal growth. In addition, the composition of Republic
Security's deposit portfolio has continued to change to reflect an increase in
commercial customers which typically require services that generate more fee
income than the personal deposit accounts.
Service charges on deposit accounts increased by 46% for the nine months
ended December 31, 1995 compared to the nine months ended December 31, 1994. The
increase in service charges on deposit accounts was due to an increase in the
average number of transaction accounts serviced during the nine months ended
December 31,1995 compared to the nine months ended December 31, 1994 as well as
an overall increase in fee charges. Average transaction account balances
increased approximately $18.8 million for the nine months ended December 31,1995
compared to the nine months ended December 31, 1994. The increase in transaction
accounts is due to the Governors acquisition as well as internal growth. In
addition, the composition of Republic Security's deposit portfolio changed to
reflect an increase in commercial customers which typically require services
that generate more fee income than the personal deposit accounts.
Service charges on deposit accounts increased 27% for the year ended March
31, 1995 compared to the year ended March 31, 1994 primarily as a result of
average transaction accounts increasing from $167.7 million to $184.6 million.
The increase in the number of commercial accounts was due to the acquisition of
Governors on November 30, 1994, as well as Republic Security's initiatives to
attract transaction type deposit accounts.
GAIN ON SALES OF LOANS AND SERVICING RIGHTS. Gain on sale of loans and
servicing increased by $428,000 for the year ended December 31, 1996 compared to
the year ended December 31, 1995 primarily due to an increase in the gains
realized on the sale of loans as the volume of loan sales in both years was
relatively stable. The gain realized on the sale of loans is dependent on market
interest rates relative to the loans' interest rates at the time of sale and
whether loans are sold servicing released or servicing retained. No purchased
loan servicing rights were sold in the years ended December 31, 1996 and 1995.
Gain on the sale of loans increased $175,000 for the nine months ended
December 31, 1995 compared to the nine months ended December 31, 1994 primarily
due to an increase in the amount of gain realized on the sale of loans as a
result of a decrease in market interest rates during the nine months ended
December 31,1995. Gain on the sale of servicing decreased $299,000 as no loan
servicing rights were sold during the nine months ended December 31, 1995.
Due to a decrease in loan production volume, gain on sales of loans and
servicing rights decreased $2.12 million for the year ended March 31, 1995 to
$847,000 compared to $2.97 million for the year ended March 31, 1994. The
decrease in mortgage banking activities was attributable to the increase in
interest rates which decreased the volume of loan originations and refinancings
and an intensely competitive residential construction loan market. Loan
originations and loan purchases related to mortgage banking activities decreased
$107 million or 67% in 1995 compared to 1994. Loan sales decreased 61% during
the year ended March 31, 1995. These decreases were attributable to the decline
in loan refinancing. Similar declines were experienced in the mortgage banking
industry as a whole. In addition, during
99
<PAGE>
1995, Republic Security reduced its mortgage banking operations to a level where
income from mortgage banking activities is less significant to the overall
earnings of Republic Security than in prior years while increasing non-interest
income from "core" banking operations.
MORTGAGE TRADING INCOME. Republic Security's loan trading department
brokers loan packages for a fee and also acts as a principal in buying and
reselling the same loan packages for a gain. Mortgage trading income decreased
$290,000 for the year ended December 31, 1996 compared to the year ended
December 31, 1995 as there was no mortgage trading income recorded in 1996.
Mortgage trading income was stable for the nine months ended December 31, 1995
and 1994. Mortgage trading income decreased $357,000 for the year ended March
31, 1995 compared to the year ended March 31, 1994 primarily due to an overall
decrease in loan activity.
OTHER INCOME. Other income consists of loan servicing income net of the
amortization of loan servicing rights, loan fees, rental income, ATM fees, gains
on the sale of other real estate owned and other miscellaneous fee income.
Other income increased $245,000 for the year ended December 31, 1996
compared to the year ended December 31, 1995 due primarily to a $100,000
increase in other fee income related to loan accounts and other services and an
$84,000 increase in gains on the sale of other real estate owned. The increase
in other fee income associated with loans is primarily due to an increase in the
volume of commercial and consumer loan production. The increase in fees for
other services is a result of increased usage in new services such as PC banking
and merchant deposits.
Other income increased $372,000 for the nine months ended December 31, 1995
compared to the nine months ended December 31, 1994 primarily due to increases
in loan late fees and other loan fees of approximately $100,000, and net loan
servicing income of $115,000. Loan fees increased primarily as a result of an
increase in volume. Net loan servicing income increased due to an increase in
loan servicing income, as a result of an increase in the average loan servicing
portfolio, and a decrease in the amortization of loan servicing rights due to a
decrease in loan prepayment speeds. Other fee income increased due to an overall
increase in loan and deposit account volumes as well as new services offered
during the nine months ended December 31, 1995 to better serve commercial
customers.
Other income increased $664,000 for the year ended March 31, 1995 compared
to the year ended March 31, 1994 primarily due to an increase in net loan
servicing income. Net loan servicing income increased $793,000 for the year
ended March 31, 1995 to $608,000 compared to a loss of $185,000 for the year
ended March 31, 1994. Loan servicing income for the year ended March 31,1995
remained relatively flat in comparison to the year ended March 31, 1994 while
the amortization of loan servicing rights decreased from $1.2 million in 1994 to
$505,000 in 1995 due to the decrease in loan prepayments which resulted
primarily from a rise in interest rates. Republic Security purchased $2.3
million of loan servicing rights in the year ended March 31, 1995. The decrease
in amortization of loan servicing rights in the year ended March 31, 1995 was
due to a decrease in loan prepayment speeds.
While there are many factors that affect prepayment rates on loans,
prevailing loan origination interest rates are the primary factor. Loan
prepayments generally will increase when interest rates decrease and vice versa.
OPERATING EXPENSES
Operating expenses, excluding the one-time FDIC SAIF assessment of $1.2
million, pretax, increased $2.2 million for the year ended December 31, 1996
compared to the year ended December 31, 1995 primarily due to increases in
employee compensation and benefits, occupancy and equipment expenses, data
processing charges and goodwill amortization. Employee compensation and benefits
increased approximately $1.2 million primarily due to an increase in the number
of employees associated with a larger banking center network and $180,000 of
non-recurring costs associated with the absorption of the Banyan Bank
acquisition. Occupancy and equipment expenses increased $528,000 for the year
ended December 31, 1996 compared to the year ended December 31, 1995 due to the
increase of two branches associated with the Banyan Bank acquisition, new
branches which opened in June 1996 and late 1995 and the increased depreciation
expense associated with the $1.5 million increase in furniture and equipment.
Approximately $800,000 of computer equipment and software were purchased during
1996 for the EDP conversion and system
100
<PAGE>
upgrade. Data processing expenses increased $366,000 for the year ended December
31, 1996 compared to the year ended December 31, 1995 primarily due to an
increase in the volume of deposit and loan accounts processed as well as an
increase in the monthly data service bureau charge since August 1996. In
addition, an $80,000 non-recurring expense was incurred associated with the
conversion of data service bureaus. Goodwill amortization increased
approximately $306,000 due to the increase in goodwill of approximately $5.0
million associated with the Banyan Bank acquisition.
Operating expenses increased $2.1 million for the nine months ended
December 31, 1995 compared to the nine months ended December 31, 1994 as a
result of increases in employee compensation, occupancy and equipment expenses,
data processing expenses, professional fees and other operating expenses which
include the amortization of goodwill and a decrease in insurance expenses of
$291,000. Increases in compensation, occupancy and equipment and data processing
expenses are a result of the acquisition of Governors and Republic Security's
overall growth, which resulted in an increase of three branches and additional
departments as well as an increase in the volume of loan and deposit
transactions. Other operating expenses increased $195,000 as a result of
goodwill amortization associated with the Governors acquisition. Additional
increases in other operating expenses are a result of Republic Security's
growth. Professional fees increased $195,000 primarily as a result of legal fees
associated with corporate matters and problem loans. Overall, operating expenses
as a percent of average assets slightly decreased to 2.88% for the nine months
ended December 31, 1995 compared to 2.92% for the nine months ended December 31,
1994.
Operating expenses increased from $13.9 million for the year ended March
31, 1994 to $16.2 million for the year ended March 31, 1995. The increase was
primarily due to increases in employee compensation and benefits, occupancy and
equipment, and data processing. These increases were a result of Republic
Security's growth in 1995 and employee severance costs associated with reducing
staffing levels in the mortgage banking operations. Growth in 1995 included
expansion of the banking center network from ten branches in 1994 to thirteen
branches in 1995 and the addition of item processing and proof-of-deposit
departments as well as growth in the commercial/consumer loan and loan servicing
departments. Other causes of the increase were higher volumes of deposit
transaction accounts and additional expenses associated with operations acquired
as a result of the merger.
INCOME TAXES
Income tax expense increased $659,000 for the year ended December 31, 1996
compared to the year ended December 31, 1995 due to an increase in net income
before taxes. The effective tax rate increased due to an increase in the
amortization of non-deductible goodwill which results in permanent tax
differences.
Income tax expense increased $1.1 million for the nine months ended
December 31, 1995 compared to the nine months ended December 31, 1994 due to an
increase in net income before taxes and an approximate 2% increase in the
effective tax rate to 36%. Income tax expense remained flat for the year ended
March 31, 1995 compared to the year ended March 31, 1994 as a result of an
increase of 6% in the effective tax rate offset by a 10% decrease in income
before income taxes. The increase in the effective tax rate in 1995 as compared
to 1994 was primarily the result of RSFC reducing its deferred tax valuation
allowance by approximately $297,000 in fiscal 1994. The valuation allowance was
reduced in 1994 as RSFC determined the utilization of Republic Security's net
operating loss carryforward was more likely than not based on RSFC's projected
future taxable earnings.
A deferred tax valuation allowance in the amount of $1.1 million was
recorded in the year ended March 31, 1995 primarily to offset the deferred tax
assets relating to net operating loss carryforwards resulting from the Governors
merger. The utilization of these net operating loss carryforwards is limited
annually to specified amounts determined in accordance with the Internal Revenue
Code. The deferred tax valuation allowance was reduced by $320,000 in 1996 due
to the utilization of the Governors net operating loss carryforward.
Accordingly, goodwill was adjusted to offset the reduction of the valuation
allowance.
101
<PAGE>
LIQUIDITY
RSFC's liquid assets consist primarily of interest bearing deposits in the
FHLB, Fed Funds sold and marketable securities. Considerations in managing the
Company's liquidity position include scheduled cash flows from existing assets,
contingencies and liabilities, as well as projected liquidity needs arising from
approved extensions of credit. Furthermore, liquidity position is monitored
daily by management to maintain a level of liquidity conducive to efficient
operations and is continuously evaluated as part of the asset/liability
management process.
RSFC's cash inflows consist primarily of amounts generated from the sale of
loans, the collection of loan principal payments, deposits and cash acquired in
the Banyan Bank merger as well as proceeds from maturities and calls of
investments held to maturity and sales of investments available-for-sale. Uses
of cash consist of originations of loans and purchases of investments
available-for-sale. Primary sources of borrowings include advances from the
FHLB, borrowings under repurchase agreements and held-to-maturity commercial
bank lines of credit.
Access to funds from depositors is affected by the rate Republic Security
pays on certificates of deposit and convenience and service provided to
transaction based account holders. The rate Republic Security pays on
certificates of deposit is dependent on rates paid by other financial
institutions within Republic Security's area. Republic Security manages the cash
inflows and outflows from certificates of deposit by increasing or decreasing
the rates offered in its market area.
RSFC's sources of liquidity are impacted by various matters beyond the
control of RSFC. Scheduled loan payments are a relatively stable source of funds
while loan prepayments and deposit flows vary widely in reaction to market
conditions, primarily prevailing interest rates. Asset sales are influenced by
the availability of loans for sale, general market demand and other unforeseen
market conditions. RSFC's ability to borrow at attractive rates is affected by
its credit ratings and other market conditions.
In order to manage the uncertainty inherent in its sources of funds, RSFC
continually evaluates alternate sources of funds and maintains and develops
diversity and flexibility in the number of such sources. The effect of a decline
in any one source of funds generally can be offset by use of an alternative
source although potentially at a different cost to RSFC.
CAPITAL COMPLIANCE
Republic Security and RSFC are in compliance with regulatory capital
requirements at December 31, 1996. See Note 12 to Consolidated Financial
Statements.
Republic Security and RSFC, as a bank holding company, are subject to the
capital requirements of the FRB. Under FRB guidelines, bank holding companies
such as RSFC are required to maintain capital based on risk-adjusted assets.
Under risk-based capital guidelines, categories of assets with potentially
higher credit risk require more capital than assets with lower risk. In addition
to balance sheet assets, bank holding companies are required to maintain
capital, on a risk-adjusted basis, to support certain off-balance sheet
activities such as loan commitments. The FRB standards classify capital into two
tiers, Tier I and Total. Tier I risk-based capital consists of common
stockholders' equity, noncumulative and cumulative (bank holding companies only)
perpetual preferred stock, and minority interests, less goodwill. Total risk
based capital consists of Tier I capital plus a portion of the general allowance
for loan losses, hybrid capital instruments, term subordinated debt and
intermediate preferred stock. In addition to risk-based capital requirement, the
FRB requires bank holding companies to maintain a minimum leverage capital ratio
of Tier I capital to total assets. Total assets for this purpose do not include
goodwill and any other intangible assets and investments that the FRB determines
should be deducted from Tier I capital. The FRB requires banks and bank holding
companies to maintain Tier I and Total risk-based capital ratios of 4.0% and
8.0%, respectively, and a Tier I leverage capital ratio of 4.0%. The FDIC has
promulgated similar regulations and guidelines regarding capital adequacy of
state-chartered banks which are not members of the Federal Reserve System, which
would apply to Republic Security.
102
<PAGE>
ASSET/LIABILITY MANAGEMENT
Management of interest rate sensitivity involves matching the maturity and
repricing dates of interest-earning assets with those of interest-bearing
liabilities in an effort to manage the impact of fluctuating interest rates on
net interest margins.
Republic Security's Asset/Liability Committee (the "Committee") meets at
least quarterly to establish, communicate, coordinate and control
asset/liability management procedures. The purpose of the Committee is to
monitor the volume and mix of RSFC's interest sensitive assets and liabilities
consistent with RSFC's overall liquidity, capital, growth, risk and
profitability goals.
Interest rate sensitivity is measured as the difference between the
percentage of assets and liabilities in RSFC's existing portfolio that are
subject to repricing within specific time periods. These differences, known as
interest sensitivity gaps, are usually calculated cumulatively for blocks of
time.
Companies that are asset-sensitive (a positive gap) have more assets than
liabilities maturing or repricing within specific time periods and these
companies are likely to benefit in periods of rising interest rates, but to
suffer as rates decrease. Companies that are liability-sensitive (a negative
gap) are likely to benefit in periods of declining rates, but to experience a
negative impact on net interest income as market rates increase.
Republic Security manages its interest rate risk exposure by limiting the
amount of long-term fixed rate loans it holds for investment, increasing
emphasis on shorter-term, higher yield loans for portfolio, increasing or
decreasing the relative amounts of long-term and short-term borrowings and
deposits and/or purchasing commitments to sell loans. The following table
presents Republic Security's exposure to interest rate risk at December 31,
1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------
ONE YEAR 1 TO 3 3 TO 5 OVER 5
OR LESS YEARS YEARS YEARS TOTAL
- ---------------------------------------- --------------------- -------------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest-earning assets $333,018 $115,246 $44,763 $63,142 $556,169
Total interest-bearing liabilities 414,394 41,660 40,738 936 497,728
- ---------------------------------------- --------------------- -------------- ------------- ----------- -------------
Interest rate sensitivity gap $ (81,376) $ 73,586 $ 4,025 $ 62,206 $ 58,441
======================================== ===================== ============== ============= =========== =============
Cumulative interest rate sensitivity gap $ (81,376) $ (7,790) $ (3,765) $ 58,441
======================================== ===================== ============== ============= =========== =============
Cumulative interest rate sensitivity gap as a -13.4% -1.3% -0.6% 9.6%
percent of total assets
======================================== ===================== ============== ============= =========== =============
</TABLE>
In preparing the table above, certain assumptions have been made with
regard to prepayments on fixed rate mortgage and consumer loans and withdrawals
of checking, NOW, Money Market and savings account deposits. These assumptions
are that Republic Security will experience average annual prepayments of 6% on
fixed rate mortgage loans and 10% on consumer loans. Checking, NOW, Money Market
and savings account balances are assumed to reprice immediately and are included
in one year or less. All other assets and liabilities have been repriced based
on the earlier of repricing or contractual maturity. The above assumptions are
annual percentages based on the latest available assumptions and on remaining
balances and should not be regarded as indicative of the actual prepayments and
withdrawals that may be experienced by RSFC. Moreover, certain shortcomings are
inherent in the analysis presented by the foregoing table. For example, although
certain assets and liabilities may have similar maturities or periods for
repricing, they may react in different degrees to changes to market interest
rates. Also, interest rates on certain types of assets and liabilities may
fluctuate in advance of or lag behind changes in market interest rates.
Additionally, certain
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<PAGE>
assets, such as ARM loans, have features that restrict changes in interest rates
on a short-term basis and over the life of the assets. Moreover, in the event of
a change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table.
In addition to the above, Republic Security is committed to fund $47.0
million in new loans and $14.5 million in construction loans-in-process at
December 31, 1996. These loans and commitments are largely protected from
interest rate fluctuations because they are either adjustable rate loans or are
fixed rate loans which Republic Security has obtained commitments to sell in the
secondary market. This relationship is not linear or consistent with other
interest rate assets and liabilities on RSFC's balance sheet and management uses
computer modeling in its efforts to reduce the effects that interest rate
fluctuations have on income.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
information presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or same magnitude as the price of
goods and services.
FINANCIAL CONDITION
RSFC's consolidated total assets increased $98.0 million or 19% to $607.2
million at December 31, 1996 compared to December 31, 1995. As a result of the
Banyan Bank acquisition, assets increased approximately $57.0 million, net, due
to acquiring $61.7 million in assets and recording $5.0 million in goodwill
offset by $9.7 million cash payment. In addition, deposits (excluding
certificates of deposits) increased $37.5 million, FHLB advances increased $5.0
million and shareholders' equity increased $1.0 million as a result of the
exercise of outstanding warrants, $3 million as a result of changes in retained
earnings and $.3 million due to the exercise of stock options. These increases
were offset by $7.3 million in net run-off of certificates of deposit. The
decrease in deposits is attributable to lowering interest rates paid on
certificates of deposit since March 1995 to become aligned with the commercial
bank market. The amount of deposit run-off has significantly decreased during
the year ended December 31, 1996 compared to the run-off amount of $35.7 million
in the nine months ended December 31, 1995. Management expects deposit run-off
to continue to decrease.
Loans receivable, net and loans held for sale increased $47.5 million
primarily due to the acquisition of approximately $35.7 million in connection
with the Banyan Bank acquisition and approximately $11.8 million in internal
growth. Investments increased by $47.3 million due to the purchase of $88.2
million of securities partially funded with a $25.0 million FHLB advance and
partially funded with maturities and sales of investments and cash. The increase
of $1.6 million in property and equipment, net relates primarily to the
acquisition of data processing equipment and software associated with the EDP
conversion, system upgrades and electronic delivery devices (e.g. voice response
system and PC banking system). The increase in other assets of approximately
$1.8 million is primarily due to a $640,000 receivable due from the SBA related
to a loan transaction and $520,000 receivable related to an OREO sale which
closed on December 31, 1996.
Consolidated total assets increased $34.9 million or 7% to $509.2 million
at December 31, 1995 from $474.3 million at March 31, 1995, primarily due to the
acquisition of the West Palm Beach, Century Bank branch purchase, net proceeds
of $19.4 million from the sale of common and preferred stock (see Note 11 to
Consolidated Financial Statements) and a $10.0 million increase in FHLB
advances, offset by $28.4 million in net deposit run-off. Cash and cash
equivalents increased $32.4 million primarily as a result of net proceeds from
the sale of common and preferred stock and $16.9 million received in connection
with the branch acquisition. Increased deposit run-off is attributable to
lowering interest rates paid on certificates of deposit since March 1995 to
become aligned with the commercial bank market. The decrease in deposits as a
result of run-off is offset by $30.3 million of deposits assumed in connection
with
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the Century Bank branch purchase. RSFC's redeemable subordinated debentures were
called for redemption effective May 31, 1995. As a result of the redemption,
634,476 shares of RSFC Common Stock were issued, and shareholders' equity
increased by approximately $1.8 million.
RSFC's consolidated total assets increased $94.9 million or 25% from $379.4
million at March 31, 1994 to $474.3 million at March 31, 1995. Assets increased
$64.3 million as a result of the acquisition of Governors. The remaining
increase was a direct result of increases in loan and deposit demand. Net loans
increased 27% from $276.7 million at March 31, 1994 to $352.3 million at March
31, 1995. Loans acquired in the acquisition of Governors contributed $40.3
million to the net increase in loans while loan originations was the primary
contributor to the remaining increase during the year ended March 31, 1995. Cash
and cash equivalents increased $11.2 as a result of the sale of $24.0 million of
trading investments and $28.2 million increase in deposits offset by increased
loan demand.
In line with RSFC's strategic objective to penetrate the non-residential
consumer and commercial business markets, the composition of Republic Security's
loan portfolio reflects significant increases in commercial real estate,
consumer and commercial business since March 31, 1994. Commercial real estate
and commercial business loans increased $48.0 million and $7.0 million,
respectively, from December 31, 1995 to December 31, 1996. The acquisition of
Banyan Bank contributed approximately $18.0 million in commercial real estate
loans and $7.0 million in commercial business loans while the remaining increase
of $30 million in commercial real estate loans was achieved by Republic
Security's business banking unit targeting high quality commercial businesses.
Consumer loans increased $7.0 million or 14% at December 31, 1996 compared to
December 31, 1995 primarily due to an increase in direct consumer loan
originations. Republic Security's product developments and enhancements, such as
business and consumer PC Banking and cash management, as well as RSFC's
increased emphasis in sales culture have contributed to the success of customer
development. Residential real estate loans decreased $14.1 million from December
31, 1995 to December 31, 1996, which is in line with Republic Security's
strategy to change the loan portfolio composition more similar to the
composition of a traditional commercial bank.
While Republic Security's strategy is to target growth primarily in the
commercial business, commercial real estate and consumer markets, Republic
Security is positioned to maintain its presence in the residential real estate
market and to emphasize residential construction lending. Continued growth in
commercial and consumer business is expected in 1998 with the anticipation of
increasing RSFC's net interest margin through increases in higher
interest-earning assets and reductions in higher interest-bearing liabilities.
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CERTAIN INFORMATION CONCERNING CFC
BUSINESS
CFC is a Florida corporation formed in August 1983 for the purpose of
becoming a bank holding company and acquiring all of the outstanding common
stock of County. County is the only active subsidiary of CFC.
County is a national bank which opened for business in 1962. It offers a
diversified range of commercial banking services for customers located
principally in Dade, Broward, and Palm Beach Counties, Florida. County
classifies itself as a community banking institution. County specifically
targets the deposit and credit needs of small businesses. Its services include
the usual depository products, safe deposit facilities, commercial and personal
banking services, and the making of commercial, interim construction, consumer,
residential real estate, and industrial loans. County's principal sources of
income are interest on loans, investments and service fees. Its principal
expenses are interest paid on deposits and general operating expenses.
In January 1996, CFC acquired Carney Bank ("Carney") pursuant to a merger
in which Carney was merged with and into County. As a result of the merger,
County acquired branches in Boynton Beach, Delray Beach and Sunrise, Florida.
EMPLOYEES
As of June 30, 1997, County had approximately 152 full time equivalent
employees, including 61 officers and 11 part-time employees.
COMPETITION
County's principal market areas are Dade, Broward, and Palm Beach Counties,
Florida. The competition among depository institutions in this area is strong.
County competes for deposits and loans with both commercial banks and savings
and loans associations and a variety of other financial intermediaries such as
credit unions, mutual funds and brokerage firms.
REGULATION AND SUPERVISION OF CFC
CFC is a bank holding company registered under the Bank Holding Company Act
of 1956, as amended (the "BHCA"). As a result, CFC is subject to supervision,
examination and regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve"). The BHCA and the regulations of the Federal
Reserve impose a variety of restrictions on the activities of bank holding
companies such as CFC. The following summarizes certain aspects of those laws
and regulations that affect CFC.
ACQUISITIONS OF FINANCIAL INSTITUTIONS
CFC is generally required to obtain prior approval of the Federal Reserve
before it may acquire more than 5% of the outstanding shares of any Class of
voting securities or substantially all of the assets of any bank or bank holding
company. However, such prior approval is generally not required in the case of a
merger subject to approval by a federal banking agency (such as the OCC) under
the Bank Merger Act. CFC must provide the Federal Reserve with at least 30 days
prior notice of such merger.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking and Branching Act"), a bank holding company is
now permitted to acquire banks in states other than its home state.
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NON-BANKING ACTIVITIES
CFC is prohibited by the BHCA, except in certain statutorily prescribed
instances, from acquiring direct or indirect ownership and control of more than
5% of the outstanding voting shares of any company that is not a bank or a bank
holding company and from engaging directly or indirectly in activities other
than those of banking, managing and controlling banks or furnishing services to
its subsidiaries. However, CFC may, subject to the prior approval of the Federal
Reserve, engage in, or acquire shares of companies engaged in, certain
activities that are deemed by the Federal Reserve to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making any such determination, the Federal Reserve is required to consider
whether the performance of such activities by CFC or an affiliate can reasonably
be expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreases in competition,
conflicts of interest or unsound banking practices. The Federal Reserve may also
require CFC to terminate an activity or terminate control of, liquidate or
divest certain subsidiaries or affiliates when the Federal Reserve believes that
the activity or the control of the subsidiary or affiliate constitutes a
significant risk to the financial safety, soundness or stability of any of its
banking subsidiaries. At the present time, CFC does not engage in any material
non-banking activities and has only one subsidiary other than County, which
currently does not engage in any activities.
CAPITAL STRUCTURE. The Federal Reserve has the authority to regulate provisions
of certain bank holding company debt including authority to impose interest
ceilings and reserve requirements on such debts. Under certain circumstances,
CFC must obtain approval from the Federal Reserve prior to purchasing or
redeeming any of its equity securities. Further, CFC is required by the Federal
Reserve to maintain certain minimum levels of capital.
REGULATION AND SUPERVISION OF COUNTY
National banks and many of their affiliates are extensively regulated under
federal law. The following is a brief summary of certain statutes, rules, and
regulations affecting County. This summary is qualified in its entirety by
reference to the particular statutory and regulatory provisions referred to
below and is not intended to be an exhaustive description of the statutes or
regulations applicable to the business of County. Supervision, regulation and
examination of banks by regulatory agencies are intended primarily for the
protection of depositors, rather than shareholders.
County is chartered under the national banking laws and its deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC") to the extent
provided by law. County is subject to comprehensive regulation, examination and
supervision of the Office of the Comptroller of the Currency (the "OCC") and, to
a limited extent, the supervision of the FDIC and to other laws and regulations
applicable to banks. Such regulations include limitations on loans to a single
borrower and to its directors, officers and employees; restrictions on the
opening and closing of branch offices, the maintenance of required capital and
liquidity ratios, the granting of credit under equal and fair conditions; and
the disclosure of the costs and terms of such credit. County is examined
periodically by the OCC, to which it submits periodic reports regarding its
financial condition and other matters. Both the OCC and the FDIC have a broad
range of powers to enforce regulations under their respective jurisdiction, and
to take discretionary actions determined to be for the protection and safety and
soundness of banks, including the institution of cease and desist proceedings
and the removal of directors and officers. These regulatory agencies also have
the authority to approve or disapprove mergers, consolidations, and similar
corporate actions.
There are various statutory limitations on the ability of County to pay
dividends. The OCC also has the general authority to limit the dividend payment
by a national bank if the bank is undercapitalized or if such payment may be
deemed to constitute an unsafe and unsound practice.
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their
affiliates, on investments in the stock or other securities of affiliates, and
on the taking of such stock or securities as collateral from any borrower. In
addition, national banks are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or the providing of any
property or service.
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The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contains major regulatory reforms, stronger capital standards and
stronger civil and criminal enforcement provisions. FIRREA also provides that a
depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC insured depository
institution, or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC insured institution in danger of default.
The FDIC Improvement Act of 1991 ("FDICIA") makes a number of reforms
addressing the safety and soundness of deposit insurance funds, supervision,
accounting, and prompt regulatory action, and also implements other regulatory
improvement. With certain exceptions, annual full-scope, on-site examinations
are required of all insured depository institutions. The cost for conducting an
examination of an institution may be assessed to that institution, with special
consideration given to affiliates and any penalties imposed for failure to
provide information requested. FDICIA also required the FDIC to establish a
risk-based assessment system for depository institutions. Insured state banks
also are precluded from engaging as principal in any type of activity that is
impermissible for a national bank, including activities relating to insurance
and equity investments. FDICIA also recodified current law restricting
extensions of credit to insiders under the Federal Reserve Act.
FDICIA also requires the FDIC to implement a risk-based federal deposit
insurance premium system. The FDIC imposes deposit insurance premiums from a
range of $.04 to $.31 per $100 of deposits, the exact rate for each insured
institution being dependent upon that institution's capital ratios and the
agency's subjective assessment of risks. The highest-rated institutions pay the
statutory annual minimum of $2,000.
Also important in terms of its effects on banks has been the deregulation
of interest rates paid by banks on deposits and the types of deposit accounts
that may be offered by banks. Most regulatory limits on permissible deposit
interest rates and minimum deposit amounts expired several years ago. The effect
of the deregulation of deposit interest rates generally has been to increase the
costs of funds to banks and to make their cost of funds more sensitive to
fluctuations in money market rates. As a result of the pressure on banks'
interest margins due to deregulation, there has been a trend toward expansion of
services offered by banks and an increase in the emphasis placed on fee or
non-interest income.
CAPITAL REQUIREMENTS
The Federal Reserve, the OCC and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to United States banking
organizations. In addition, those regulatory agencies may from time to time
require that a banking organization maintain capital above the minimum levels,
whether because of its financial condition or actual or anticipated growth.
The Federal Reserve risk-based guidelines define a two-tier capital
framework. Tier 1 capital consists of common and qualifying preferred
shareholders' equity, less certain intangibles and other adjustments. Tier 2
capital consists of subordinated and other qualifying debt, and the allowance
for credit losses up to 1.25 percent of risk-weighted assets. The sum of Tier 1
and Tier 2 capital less investments in unconsolidated subsidiaries represents
qualifying total capital, at least 50 percent of which much consist of Tier 1
capital. Risk-based capital ratios are calculated by dividing Tier 1 and total
capital by risk-weighted assets. Assets and off-balance sheet exposures are
assigned to one of four categories of risk-weights, based primarily on relative
credit risk. The minimum Tier 1 capital ratio is 4 percent and the minimum total
capital ratio is 8 percent. CFC's Tier 1 and total risk-based capital ratios
under these guidelines at December 31, 1996 were 12.7 percent and 14.0 percent,
respectively.
The leverage ratio is determined by dividing Tier 1 capital by average
total assets. Although the stated minimum ratio is 3 percent, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3 percent. CFC's leverage ratio at December 31, 1996 was 9.2
percent. CFC's management believes that CFC meets all of its capital
requirements.
FDICIA contains "prompt corrective action" provisions pursuant to which
banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which
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require (subject to certain exceptions) the appropriate federal banking agency
to take prompt corrective action with respect to an institution which becomes
"significantly undercapitalized" or "critically undercapitalized."
The FDIC has issued regulations to implement the "prompt corrective action"
provisions of FDICIA. In general, the regulations define the five capital
categories as follows: (i) an institution is "well capitalized" if its has a
total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater; (iii) an
institution is "undercapitalized" if it has total risk-based capital ratio of
less than 8%, has a Tier 1 risk-based capital ratio that is less than 4% or has
a leverage ratio that is less than 4%; (iv) an institution is "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6%, a Tier 1 risk-based capital ratio that is less than 4% or a leverage ratio
that is less than 3%; and (v) an institution is "critically undercapitalized" it
its "tangible equity" is equal to or less than 2% of its total assets. The FDIC
also has authority to downgrade an institution from "well capitalized" to
"adequately capitalized" or to subject an "adequately capitalized" or
"undercapitalized" institution to the supervisory actions applicable to the next
lower category, for supervisory concerns.
Additionally, FDICIA requires, among other things, that (i) only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and (ii) the appropriate federal banking agency annually
examine all insured depository institutions, with some exceptions for small,
"well capitalized" institutions and state-chartered institutions examined by
state regulators. FDICIA also contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts.
ENFORCEMENT POWERS
Congress has provided the federal bank regulatory agencies with an array of
powers to enforce laws, rules, regulations and orders. Among other things, the
agencies may require that institutions cease and desist from certain activities,
may preclude persons from participating in the affairs of insured depository
institutions, may suspend or terminate deposit insurance, and may impose civil
money penalties against institution-affiliated parties for certain violations.
BANK BRANCHING
Banks in Florida are permitted to branch state-wide. Such branch banking as
to national banks, however, is subject to prior approval by the OCC. Any
approval by the OCC would take into consideration several factors, including the
bank's level of capital, the prospects and economics of the proposed branch
office, the past performance of the bank in meeting the credit needs of its
local communities, and other conditions deemed relevant by the OCC for purposes
of determining whether approval should be granted to open a branch office.
EFFECTS OF GOVERNMENTAL POLICIES
The earnings and business of County are affected by the policies of various
regulatory authorities of the United States, especially the Federal Reserve. The
Federal Reserve, among other things, regulates the supply of credit and deals
with general economic conditions within the United States. The instruments of
monetary policy employed by the Federal Reserve for those purposes influence in
various ways the overall level of investments, loans, other extensions of
credit, and deposits, and the interest rates paid on liabilities and received on
assets.
INTERSTATE BANKING AND BRANCHING
Legislation recently enacted by Congress and the State of Florida
authorizes interstate banking and interstate branching without geographic
restrictions. Among other things, this legislation will increase competition by
allowing
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financial institutions, regardless of location, to acquire and operate banks in
any state (including Florida). Generally, the legislation allows interstate
banking beginning September 29, 1995, and interstate branching beginning June 1,
1997.
The Florida legislation requires the acquired Florida bank to have been in
existence for at least three years.
ACQUISITION OF CARNEY BANK
On January 12, 1996, CFC and County completed the acquisition of Carney.
The acquisition was accomplished through the merger of Carney with and into
County, with County as the surviving corporation in the merger. The acquisition
was consummated pursuant to the terms of a certain agreement and plan of
reorganization dated as of May 10, 1995, as amended, between CFC, County and
Carney (the "Carney Merger Agreement"). Under the terms of the Carney Merger
Agreement, all the outstanding shares of the common stock of Carney were
canceled and, in exchange therefor, the holder of each share of Common Stock of
Carney became entitled to receive .22029 shares of the common stock of CFC, or
an aggregate of 282,860 shares (except for those persons properly exercising
their right to dissent under 12 U.S.C. ss. 215(a)). Additionally all outstanding
options and warrants to acquire shares of the Common Stock of Carney were
canceled and, in exchange therefor, the holder of each option or warrant became
entitled to receive 0.4886 shares of the common stock of CFC, for an aggregate
of 5,240 shares. As a result of the merger, CFC issued a total of 284,564 shares
of its common stock and paid or set aside $60,926 for the payment of fractional
shares and payments to dissenting shareholders.
Information with respect to the merger is included in the Registration
Statement on Form S-4 (File No. 33-97422) filed by CFC with the Securities and
Exchange Commission which was declared effective by the Commission on November
29, 1995.
SETTLEMENT OF PREMIUM LITIGATION
On October 9, 1996, County settled certain litigation involving the Premium
Group. Under the terms of the proposed settlement, County agreed to pay the
amount of $3,000,000 in exchange for a release of all outstanding claims. This
amount, which was accrued on CFC's balance sheet as of December 31, 1996, was
paid in January 1997.
PROPERTIES
The executive offices of CFC are located at 801 N.E. 167th Street, North
Miami Beach, Florida, which is also the main office of County. This facility,
which is owned by County, consists of a three story office building of
approximately 45,000 square feet and 140 parking spaces. CFC and County utilize
approximately 30,850 square feet of this facility. The remaining space is leased
to nine tenants. The building is subject to a mortgage with a balance of
approximately $800,000 as of June 30, 1997.
County currently operates 14 branches at the following locations in
Florida: Bay Point, Miami; California Club Mall, Miami; Coral Way, Miami;
Hialeah; Miami Lakes; Aventura; Main, North Miami Beach; Fort Lauderdale; Coral
Springs; Sunrise; Delray Beach; Boynton Beach; Boca Raton; and Pembroke Pines.
These branches range in size from 1,400 square feet (at California Club Mall) to
5,934 square feet (at Miami Lakes). The leases on such properties, with the
exception of the Boynton Beach branch, which is owned by County, and the Sunrise
branch, the building and improvements on which are owned by County, expire
between November 1998 and July 2007 and generally give County the right to renew
for an option period. County also operates a stand-alone ATM machine at
Aventura, Florida.
The Boynton Beach branch consists of an approximately 14,457 square foot
building and approximately 1.06 acres of land. The facility has 2 inside teller
stations and 1 drive-through teller station operated from the main building.
County occupies approximately 7,972 square feet and leases approximately 5,708
square feet to others.
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LEGAL PROCEEDINGS
PREMIUM LITIGATION
County has been a party to several legal proceedings arising out of the
failure of the food "diverting" business owned and operated by Premium Sales
Corporation, Plaza Trading Corporation and certain of their affiliates and
associates (the "Premium Group"). In June 1993, the Premium Group was forced
into bankruptcy and a receiver was appointed for the principal members of the
Premium Group. It appears that the Premium Group financed a major portion of its
operations by attracting funds from private investors. Many of the investors in
the Premium Group have alleged that the Premium Group was involved in a "Ponzi"
scheme in which the Premium Group paid high rates of return to early investors
from funds raised from later investors.
WALCO INVESTMENTS ET AL. V. KENNETH THENEN, ET AL.
In June 1994, certain investors in the Premium Group filed a class action
complaint in the United States District Court for the Southern District of
Florida seeking in excess of $250 million in damages for losses sustained by
them by investing in the Premium Group.
The plaintiffs alleged that County, primarily through the actions of one of
its officers, Larry Robinette, facilitated the scheme and is liable for the
plaintiff's losses due to violations of federal and state RICO statutes and
common law fraud. The plaintiffs sought to recover their alleged damages of more
than $250 million as well as treble damages and punitive damages. County and
Larry Robinette filed answers to the complaint denying all allegations.
On October 9, 1996, the class plaintiffs, County, and Harley Tropin as
Trustee and Receiver for certain Premium Group companies agreed to settle all
claims against County and Larry Robinnette for $3,000,000. CFC expensed the
entire amount of the settlement for accounting purposes during the fiscal year
ending December 31, 1996 although the cash payment was not made until January
1997. The amount of the payment will be treated as a deduction for income tax
purposes during 1997. Accordingly, this payment will reduce a large part of
CFC's anticipated taxable income during 1997. CFC funded the settlement from its
existing cash reserves, which were purposefully maintained at relatively high
levels. As a result, the settlement did not have a significant impact on CFC's
liquidity levels.
IN RE: PREMIUM SALES CORPORATION ET AL., DEBTOR; HARLEY S. TROPIN, TRUSTEE V.
COUNTY NATIONAL BANK OF SOUTH FLORIDA AND LARRY ROBINETTE
In July 1995, Harley S. Tropin, as the Chapter 11 trustee for the estates
of Premium Sales Corporation, Plaza Trading Corporation and the designated
corporate representative of Windsor Wholesale Corporation (the "Premium
Debtors"), commenced an adversary proceeding against County and Larry Robinette
in the United States Bankruptcy Court for the Southern District of Florida.
In his complaint, the trustee alleged that various transactions between
County and the Premium debtors represented avoidable transfers under federal
bankruptcy and federal and state fraudulent conveyance laws. He requested a
judgment against County for all amounts involved in these transactions. The
trustee further alleged that County extended unsecured credit to the Premium
Debtors by providing access to uncollected funds and permitting certain
overdrafts. He also alleged that County should be required to return the profits
which it received from servicing of the Premium Group accounts under a theory of
unjust enrichment. County filed an answer denying all of the trustee's
allegations.
In October 1996, County and Harley S. Tropin, as trustee, agreed to settle
this case as part of the settlement for the WALCO case described above.
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HARLEY S. TROPIN, AS RECEIVER, V. KENNETH THENEN, ET AL.
On December 23, 1993, Harley S. Tropin, as receiver for certain members of
the Premium Group, filed a complaint in the United States District Court for the
Southern District of Florida against various parties seeking to recover
unspecified damages suffered by the Premium Group from the defendant's
participation and assistance in the allegedly fraudulent scheme conducted by the
Premium Group. In October 1995, the receiver amended its complaint to add County
as an additional defendant in the litigation. In its complaint, the receiver
alleged that County aided, abetted and participated in the fraudulent scheme
and, therefore, was liable to the receiver for the damages suffered by these
corporations as a result of the "Ponzi" scheme.
In October 1996, County and Harley S. Tropin, as receiver, agreed to settle
this case as part of the settlement for the WALCO case described above.
GRAND JURY INVESTIGATION
County is aware that the U.S. Attorney convened a grand jury to investigate
possible criminal violations with respect to the Premium Group matter. This has
been under investigation for several years. To date, several directors and
officers of County have appeared as witnesses before the grand jury. In August
1996, a federal grand jury indicted several of the principals of Premium for
fraud. One officer of County, Larry Robinette, has also been indicted for
complicity in the fraud. Mr. Robinette has vigorously denied the charges and is
entitled to the constitutional presumption of innocence. None of the other
officers or directors of County nor County itself was named either as a target
of the investigation nor charged with any wrongdoing.
RELATED MATTERS
County expended approximately $1,400,000 through June 30, 1997 in legal
fees and other expenses in connection with the legal proceedings related to the
failure of the Premium Group. The Premium Group matter has been highly
publicized in South Florida and widely reported by the local media. This
resulted in adverse publicity for County and may have caused a loss of business
for County in the form of deposit withdrawals and the loss of other customer
relationships.
LITIGATION INVOLVING FLORIDA HOME FINDERS, INC.
In June 1995, County made a loan in the amount of $2,000,000 to the
principals of Florida Home Finders, Inc. ("FHF"). The loan was utilized to pay
part of the purchase price of FHF owed by the principals to the former owners
of FHF. The loan was secured by a pledge of a $2,000,000 certificate of deposit
established by FHF at the time of the loan. FHF is a property management
company. As part of its business, it apparently received security deposits from
tenants at properties managed by FHF. It has been alleged that FHF utilized
these tenant security deposits to establish the certificate of deposit at
County.
In September, 1995, the Florida Department of Business Regulation (the
"DBR") filed an action in the Circuit Court for St. Lucie County against FHF and
its principals based on the alleged misuse of the tenant security deposits and
other items. As part of this proceeding, the DBR sought a temporary injunction
preventing County from offsetting the $2,000,000 certificate of deposit against
the amount of the loan. In seeking the injunction, the DBR alleged that the
certificate of deposit represented tenants' security deposits and that such
funds should have been held in segregated accounts by FHF. The court granted the
temporary injunction without notice to County. County subsequently intervened in
the proceeding and requested the court to dissolve the injunction because: (i)
County had a valid and perfected security interest in the certificate of
deposit, (ii) FHF had the right under Florida law to utilize the security
deposits to establish the certificate of deposit because it had posted a
$250,000 bond with the State of Florida; and (iii) certain other reasons. The
court subsequently held that the injunction would dissolve within 10 days unless
the DBR either posted a bond in the amount of $25,000,000 with the court, or
filed a motion with the appellate court with respect to its obligation to post
the bond. The DBR failed to take either action within the required time period.
112
<PAGE>
In October 1995, County took the position that the injunction against
County was dissolved because the DBR had failed to take either of the required
actions within the required time period. Accordingly, County applied the
certificate of deposit against the outstanding balance of the loan. The receiver
for FHF subsequently notified County that the set off of the certificate of
deposit was improper, and demanded that the certificate of deposit be
reestablished.
In August 1996, the receiver for FHF filed an amended complaint against a
variety of Defendants, including County, with respect to the activities of FHF,
including County. In the amended complaint, the receiver sought, among other
things, the return of the $2,000,000 certificate of deposit set off by County
based upon theories of fraudulent transfer, negligence and unjust enrichment. In
January 1997, the receiver of FHF voluntarily dismissed (without prejudice) its
complaint against assets of the estate of FHF. The Court subsequently determined
that county was entitled to an award of costs and fees incurred in the defense
of this action.
In June 1997, the receivers for FHF filed a new complaint against County
with the Circuit Court for St. Lucie County, Florida. In the new complaint, the
receivers are seeking a judgment against County in the amount of $2,000,000,
plus punitive and treble damages, interest and costs. The receivers' complaint
contains counts based on common law conversion, statutory conversion, unjust
enrichment, fraud, fraudulent transfer, money lent, negligence, rescission of
negotiable instruments and Civil RICO. The receivers have subsequently indicated
that they intend to amended this complaint to add an additional count for civil
theft. County has filed a motion to dismiss.
Pursuant to Court direction, in early October 1997, the receiver through
counsel accepted in writing an offer of judgment filed by County in the amount
of $10,000 to fully resolve the litigation. Others who purport to act on behalf
of the plaintiffs have moved the Court to reconsider its direction that the
receivers accept the offer of judgment. The motion to reconsider has yet to be
heard by the Court.
In the event that challenge to the acceptance of the offer of judgment is
successful, County believes that it has valid defense to the complaint and
intends to vigorously defend its position. Nevertheless, there can be no
assurance as to the outcome of this matter.
EMPLOYMENT DISCRIMINATION LITIGATION
In May 1997, a complaint was filed by John Doe against County in the
United States District Court for the Southern District of Florida. In the
complaint, the plaintiff alleged that he was wrongfully terminated by County
because he was suffering from human immunodeficiency virus ("HIV"). The
plaintiff has asserted claims of discrimination under the Americans with
Disabilities Act, the Rehabilitation Act and the Florida Civil Rights Act. The
plaintiff is seeking compensatory damages, punitive damages, costs, and
attorney's fees. It is the position of County that the plaintiff was terminated
during his probationary period for failing to meet County's employment criteria
and that his dismissal was not related to any disability. County has filed a
motion to dismiss the compliant and is vigorously defending this litigation.
CERTAIN ENVIRONMENTAL MATTERS
In 1993, Carney took title to the premises of a former dry cleaner
located in Coral Springs, Florida pursuant to a foreclosure sale. Carney then
arranged to sell the property to a third party. The purchaser required that an
environmental study be performed after the closing and that Carney indemnify the
purchaser against any expenses that might result from the presence of hazardous
substances on the property. After the sale, Carney engaged an independent
consultant to perform an environmental study of the property. This study
indicated that hazardous substances were located at the property. Based on this
study, Carney's environmental consultant prepared a remedial action plan (the
"RAP") and submitted it to the Broward County Department of Natural Resource
Protection ("Broward County"). The RAP sets forth a plan to clean up the
hazardous substances over a period of two years. Carney's consultant has
estimated that the cost of the plan of clean up will not exceed the estimate
made by Carney's consultant. The RAP has received final approval from Broward
County.
In 1994, the State of Florida established a Dry Cleaning Solvent
Superfund program (the "Program") under which the State of Florida will pay for
the clean-up of certain contaminated dry cleaning sites. In May 1996, the site
was accepted by the State of Florida for inclusion of the Program. The Program
preempts local government and private enforcement actions to compel the cleanup
of contaminated sites which have been determined to be eligible to participate
in the Program.
113
<PAGE>
During 1995, Broward County requested Carney to proceed with the RAP at
Carney's expense. Carney resisted this request because it would jeopardize its
right to receive benefits of the Program. In October 1995, Carney met with
officials of Broward County to discuss this matter. Based on these discussions,
Carney concluded that it was unlikely that Broward County would institute an
enforcement action with respect to the property.
If Broward County institutes enforcement action against CFC with
respect to the property, CFC intends to vigorously defend such actions based on
applicable provisions of Florida law. Although there can be no assurance that
those defenses would be successful or that CFC would not be required to pay for
the clean up of the Property, CFC believes that any enforcement action against
CFC will not have a material adverse effect on the business or financial
position of CFC.
CFC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
RESULTS OF OPERATIONS
CFC's consolidated net income for the first six months of 1997 was
$1,898,000 or 11.5% more than the $1,702,000 earned in the same period in 1996.
Net income per common share was $1.50 in 1997 compared to $1.35 in 1996.
CFC's performance in the first six months of 1997 resulted in a return
on average stockholders' equity of 17.6%, compared to 16.5% in 1996. The return
on average assets was 1.62% in 1997, compared to 1.49% in 1996.
The improvement in CFC's performance is due to increased net interest
income, higher non-interest income (which was primarily from the sale of OREO),
and the tax benefit resulting from payment of a litigation settlement. The
positive impact of these items was partially offset by increased operating
expenses.
NET INTEREST INCOME
Net interest income is defined as the total of interest income on
earning assets less interest expense on deposits and other interest-bearing
liabilities. Earning assets, which consist of loans, investment securities and
federal funds sold are financed by a large base of interest-bearing funds in the
form of money-market, NOW, savings and time deposits. Earning assets are also
funded by the net amount of non-interest related funds, which consist of
non-interest bearing demand deposits, the allowance for loan losses and
stockholders' equity, reduced by non-interest bearing assets such as cash and
due from banks, and premises and equipment, and other real estate owned
("OREO").
The following table sets forth CFC's average balance sheets and related
interest, yield and rate information for the first six months of 1997 and 1996.
114
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
JUNE 30,
1997 1996
--------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
ANNUALIZED ANNUALIZED
<S> <C> <C> <C> <C> <C> <C>
ASSETS
EARNING ASSETS:
Loans, net of unearned income $142,286 $ 7,134 10.11% $ 136,543 $6,746 9.94%
Investment Securities 60,156 1,861 6.24% 63,300 1,857 5.90%
Federal funds sold 11,105 298 5.41% 9,656 254 5.29%
--------- ------- ----- --------- ------ ----
Total earning assets 213,547 9,293 8.78% 209,499 8,857 8.50%
--------- ------- ----- --------- ------ ----
NON-INTEREST EARNING
ASSETS:
Cash and due from banks 13,490 12,785
Premises and equipment, net 4,299 4,223
Other Real Estate Owned, net 3,603 3,317
Other assets 3,069 2,688
Allowance for loan losses (2,258) (2,647)
--------- ---------
Total non-interest
earning assets 22,203 20,366
--------- ---------
TOTAL ASSETS $235,750 $229,865
========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Savings accounts $ 23,915 $ 355 2.99% $23,815 $ 338 2.85%
Money market/NOW accounts 69,269 785 2.29% 72,897 854 2.36%
Time deposits 54,701 1,487 5.48% 51,451 1,370 5.35%
Repurchase agreements 1,938 31 3.23% 1,862 34 3.67%
Other borrowings 813 41 10.17% 913 46 10.13%
--------- ------- ----- --------- ------ ----
Total interest
bearing liabilities 150,636 2,699 3.61% 150,938 2,642 3.52%
--------- ------- ----- --------- ------ ----
NON-INTEREST BEARING
LIABILITIES:
Demand deposits 61,344 56,473
Other liabilities 2,033 1,767
--------- ---------
Total non-interest
bearing liabilities 63,377 58,240
--------- ---------
Total liabilities 214,013 209,178
STOCKHOLDERS' EQUITY 21,737 20,687
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $235,750 $229,865
========= ========= ------ ----
Net interest Income/Spread $ 6,594 5.17% $6,215 4.98%
======= ------ ====== ----
Net Interest Yield 6.23% 5.97%
</TABLE>
115
<PAGE>
Notes:
- - The amounts set forth as average balances are based on daily averages
for each period.
- - Loan fees, which are included in interest income and in the calculation
of average yields, were $323,000 and
$124,000 in the first six months of 1997 and 1996, respectively.
- - Tax exempt income is not calculated on a tax equivalent basis.
- - Non-accruing loans are included in average loans.
- - Net interest income is primarily affected by changes in the amounts and
types of earning assets, interest-bearing funds and net non-interest
related funds, as well as their relative sensitivity to interest rate
movements.
Net interest income for the six months of 1997 was $6,594,000, up 6.1%
from $6,215,000 in 1996. This increase was due to higher yields on all earning
assets, as well as higher balances for loans and federal funds sold (which
offset a slight decline in investment securities). In this connection, average
loans increased from $136,543,000 in 1996 to $142,286,000 in 1997, or
$5,743,000. The increase in average loans was also accompanied by an increase in
the yield, which grew from 9.94% in 1996 to 10.11% in 1997. Federal funds sold
increased from $9,656,000 in 1996 to $11,105,000 in 1997 or $1,449,000. The
yield on these earning assets rose from 5.29% in 1996 to 5.41% in 1997. In
contrast to other earning assets, investment securities declined from
$63,300,000 in 1996 to $60,156,000 in 1997, or $3,144,000. During the same
period, the yield on investment securities increased from 5.90% to 6.24%. In
general, the higher yields on CFC's earning assets were a reflection of
increasing interest rates in the economy at large. The effect of the foregoing
items was to increase the yield on CFC's earnings assets from 8.50% for the
first six months of 1996 to 8.78% for the first six months of 1997.
CFC's net interest margin for the first six months of 1997 was
positively impacted by the relatively small increase in CFC's interest expense
during the first six months of 1996. Interest expense grew from $2,642,000 in
1996 to $2,699,000 in 1997, or only $57,000. This modest increase was
attributable to a drop in the total amount of interest bearing liabilities,
which declined from $150,938,000 in 1996 to $150,636,000 in 1997. The positive
impact of this decline was offset by a small increase in the average rate for
interest bearing liabilities, which grew from 3.52% to 3.61%.
The improvement in CFC's net interest margin was also supported by the
increase in CFC's non-interest bearing demand deposits, which grew from
$56,473,000 in 1996 to $61,344,000 in 1997.
The cumulative effect of the foregoing changes was to increase CFC's
net interest spread from 4.98% in 1996 to 5.17% in 1997.
NON-INTEREST INCOME
Non-interest income in the first six months of 1997 totaled $1,528,000,
compared with $1,405,000 in 1996. Gains on the sale of O.R.E.O. for the first
six months of 1997 totaled $130,000 as compared to $1,000 in gains for 1996.
INVESTMENT SECURITIES GAINS AND LOSSES
At June 30, 1997, CFC held investment securities with a market value of
$58,993,000, which was $107,000 lower than the amortized cost of the portfolio.
This difference consisted of $182,000 of gross unrealized gains and $289,000 of
gross unrealized losses. There were net losses of $12,000 from the sale of
securities in the first six months of 1997, versus net losses of $7,000 for the
same period of 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses totaled $12,000 in both the first six
months of 1997 and 1996. See "Allowance and Provision for Loan Losses."
116
<PAGE>
NON-INTEREST EXPENSES
Non-interest expenses for the first six months of 1997 totaled
$6,212,000, which was up 6.2% from $5,852,000 in 1996. Non-interest expenses are
discussed below in more detail.
PERSONNEL. Personnel expense (which includes salaries and benefits)
represented 48.5% of total non-interest expenses in 1997. Personnel expenses
increased 4.8% to $3,014,000 in 1997 from $2,874,000 in 1996. Staff on a
full-time equivalent basis averaged 170 in 1997 compared to 161 in 1996. The
increase in personnel expenses was the result of salary increases, bonuses and
additional staffing for a new branch, which opened in February, 1997.
OCCUPANCY EXPENSE. Net occupancy expense in 1997 totaled $898,000, up
12.1% from $801,000 in 1996. The increase was due to the opening of a new branch
in Boca Raton, Florida in February 1997, and higher maintenance and rent at
existing branch locations due to inflation increases.
PREMISES AND EQUIPMENT EXPENSE. Premises and equipment expense, which
includes furniture and equipment depreciation, rental and maintenance, totaled
$336,000 in 1997, up 16.3% from $289,000 in 1996. The increase is due to
additional depreciation and maintenance costs on computer equipment, equipment
furniture and fixture purchases together with technological upgrades.
OTHER NON-INTEREST EXPENSES. Other non-interest expenses for the first
six months of 1997 totaled $1,964,000, up 4.0% from $1,888,000 in 1996. The
principal reasons for the increase were reductions in the carrying value for
OREO, higher management expenses for existing OREO properties and higher
pre-foreclosure expenses. These items increased from $108,000 in 1996 to
$508,000 in 1997. CFC also incurred increases in other expense categories due to
the growth of County. The foregoing increases were partially offset by a drop in
legal and professional fees, which decreased from $748,000 for the first six
months of 1996 to $333,000 for the same period of 1997. This decrease was due to
the settlement of several legal proceedings related to the Premium Sales matter.
CAPITAL EXPENDITURES
CFC's capital expenditures are reviewed by its Board of Directors. CFC
makes capital expenditures in order to improve its ability to provide quality
services to its customers. Capital expenditures for the first six months of 1997
equaled $560,000 compared to $187,000 in 1996, and were principally related to
expenditures for two new branch offices and changes in equipment due to
technological advances. Capital expenditures through June 30, 1997 for the new
branch opened February 1997 in Boca Raton, Florida totaled $109,000. On August
30, 1997, CFC received approval from the OCC for the opening of a new branch in
Pembroke Pines, Florida. CFC opened this branch on September 8, 1997 at a cost
of approximately $481,000. CFC also expects to incur other start up costs and
expenses in connection with the opening of this branch.
ASSET QUALITY AND CREDIT RISK
INVESTMENT SECURITIES. CFC maintains a high quality investment
portfolio including U.S. Treasury securities, securities of other U.S.
government entities and other securities such as Federal Reserve Bank stock.
Securities issued by the U.S. Treasury or other U.S. government entities
constitute approximately 99.1% of CFC's investment portfolio at June 30, 1997.
CFC believes that these securities have very little risk of default. At June 30,
1997, 100% of the securities held in CFC's investment portfolio were classified
available for sale. Of those securities, 99.9% were rated "AAA", the highest
assigned rating. A rating of "A" or better means that the bonds are of "upper
medium grade, with strong ability to repay, possibly with some susceptibility to
adverse economic conditions or changing circumstances." Ratings are assigned by
independent rating agencies and are subject to the accuracy of reported
information concerning the issuers and the subjective judgment and analysis of
the rating agencies. They are not a guarantee of collectibility. Approximately
29.3% of these securities mature or reprice in one year or less and 93.5% in
five years or less. As a result, the risk of significant fluctuations in value
due to changes in the general level of interest rates is limited.
117
<PAGE>
The following table sets forth information regarding the composition of
the investment portfolio at June 30, 1997 and 1996 (amounts in thousands).
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
(amounts in thousands)
<S> <C> <C>
U.S. Treasury Securities $34,028 $ 34,353
Securities of other U.S. Government
agencies and corporations 24,440 25,112
Obligations of states and political
subdivisions -0- 96
Other Securities 525 525
------------------ -------------------
Total investments $58,993 $60,086
================== ===================
</TABLE>
CFC's investment portfolio decreased by 1.8% from the period of June
30, 1996 to June 30, 1997, primarily due to principal repayment on U.S.
government agency mortgage backed securities.
LOANS. CFC maintains a portfolio of real estate, commercial and
consumer loans. All loans are reviewed and approved by CFC's loan committee,
which ensures that loans comply with applicable credit standards. In most cases,
CFC requires collateral from the borrower. The type and amount of collateral
varies but may include residential or commercial real estate, deposits held by
financial institutions, U.S. Treasury securities, other marketable securities
and personal property. Collateral values are monitored to ensure that they are
maintained at proper levels.
As of June 30, 1997, approximately 74% of all CFC's loans were real
estate loans secured by real estate in South Florida. This level of
concentration could present a potential credit risk to CFC because the ultimate
collectibility of these loans are susceptible to adverse changes in real estate
market conditions in this market. CFC has addressed this risk by limiting most
loans to a maximum of 70% of the appraised value of the underlying real estate
and maximum amortization schedules of 20 years.
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<PAGE>
Most of the loans have a stated maturity of five to ten years and may
be renewed or rolled over at maturity. At that time, CFC undertakes a complete
review of the borrower's credit worthiness and the value of any collateral. If
these items are satisfactory, CFC will generally renew the loan at prevailing
interest rates. The following table divides CFC's loan portfolio into five
categories.
<TABLE>
<CAPTION>
TYPES OF LOANS
JUNE 30,
-----------------------------------------
1997 1996
---- ----
(amounts in thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 34,755 $ 35,387
Real estate - construction 9,031 9,714
Real estate - mortgage 95,744 98,000
Installment loans 1,531 1,640
Overdrafts 238 226
-------- --------
Total loans $141,299 $144,967
======== ========
</TABLE>
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS. CFC makes commercial,
financial and agricultural loans to businesses located in South Florida. The
credit risk associated with business lending is influenced by general economic
conditions, deterioration in a borrower's capital position resulting in
increasing debt to equity ratios, deterioration in a borrower's cash position
resulting in a liquidity problem, and decreasing revenues due to inefficient
operations of the borrower. These loans are generally secured by corporate
assets, marketable securities or other liquid financial instruments. These loans
totaled approximately $34,755,000 at June 30, 1997, and $35,387,000 at June 30,
1996. Legally binding commitments to extend credit and letters of credit for
these borrowers totaled $16,512,000 at June 30, 1997 compared to $15,663,000 at
June 30, 1996.
119
<PAGE>
REAL ESTATE CONSTRUCTION LOANS. CFC makes real estate construction
loans from time to time for real estate projects located in South Florida. CFC
generally requires security in the form of a mortgage on the underlying real
property and the improvements constructed thereon and personal guarantees. CFC
attempts to limit its credit exposure to 70% of the appraised value of the
underlying real property. On June 30, 1997, construction loans totaled
$9,031,000. Risks associated with construction loans include variations from
vacancy projections, delays in construction, environmental factors, reliability
of subcontractors and timing and reliability of inspections, and costs overruns.
REAL ESTATE MORTGAGE LOANS. CFC makes both commercial and residential
real estate loans. These loans were $95,744,000 at June 30, 1997. Risks
associated with real estate mortgage loans include reliability of appraisals,
deterioration of market value, environmental contamination, and accelerated
depreciation of property due to deferred maintenance.
CFC makes real estate loans secured by commercial real estate,
including loans to acquire or refinance office buildings, warehouses and
apartments. At June 30, 1997, these loans totaled $78 million, or 55.3% of total
loans. Most of these loans have a maturity of five years or less. Almost all of
these loans are secured by real property located in South Florida. These loans
generally require a loan-to-collateral value of not more that 70%. At June 30,
1997, CFC had $2.9 million in legally binding commitments to extend credit or
standby letters of credit involving commercial real estate borrowers, compared
to $1.6 million at June 30, 1996.
Residential real estate loans totaled $18 million, or 12.6% of total
loans at June 30, 1997, compared with $21 million, or 14.8% at June 30, 1996.
Residential real estate loans are predominately adjustable rate home mortgages
which generally require a loan-to-collateral value of not more than 70% and
equity credit lines, which generally limit the loan-to-collateral value to not
more than 70% to 80%. Most loans have a maximum term of five to seven years. CFC
does not ordinarily charge any points on its real estate loans. Almost all of
the residential real estate loans are secured by homes in South Florida. Legally
binding commitments to extend credit secured by residential mortgages totaled
$2,000,000 as of June 30, 1997 compared to $2,068,000 as of June 30, 1996.
INSTALLMENT LOANS. CFC offers consumer loans and personal and secured
loans. The security for these loans ordinarily consists of automobiles, consumer
goods, marketable securities, certificates of deposit and similar items. These
loans totaled approximately $1.5 million, or 1.1% of total loans, on June 30,
1997, compared with $1.6 million, or 1.1% of total loans, on June 30, 1996.
Risks associated with installment loans include loss of employment of borrowers,
declines in the financial condition of borrowers resulting in delinquencies, and
rapid depreciation of loan collateral.
120
<PAGE>
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets consist of non-accrual loans and residential and
commercial properties acquired in partial or total satisfaction of problem
loans, which are known as "other real estate owned", or "OREO." Past due loans
are loans that are delinquent 30 days or more, which are still accruing
interest.
Maintaining a low level of non-performing assets is important to the
ongoing success of any financial institution. CFC's credit review and approval
process is critical to CFC's ability to minimize non-performing assets on a
long-term basis. In addition to the negative impact on interest income,
non-performing assets also increase operating costs due to the expense of
collection efforts. It is CFC's policy to place all loans which are past due 90
days or more on non-accrual status, subject to exceptions made on a case by case
basis.
The following table presents CFC's non-performing assets and past due
loans for 1997 and 1996.
NON-PERFORMING ASSETS AND 90 DAY PAST DUE LOANS
JUNE 30,
----------------------
1997 1996
------ ------
(amounts in thousands)
Non-Accrual Loans $1,122 $1,988
OREO, net 2,885 3,394
------ ------
Total Non Performing Assets $4,007 $5,382
====== ======
Accruing Loans Past Due-90 Days $ 0 $ 0
====== ======
Of the total loan portfolio of $141.3 million at June 30, 1997, $4.0
million or 2.8%, was non-performing, a decrease of $1,375,000 from June 30,
1996. Non-performing loans at June 30, 1997 consisted of commercial and
residential real estate loans. The decrease in non-accrual loans of $866,000 was
the result of a reduction in the carrying value of three real estate loans in
the process of foreclosure and one commercial loan pending restructure.
121
<PAGE>
Other real estate owned at June 30, 1997 consisted of $1,152,000 of
residential real estate and $1,821,000 of commercial real estate, net of an
$88,000 general reserve. OREO at June 30, 1996 consisted of $1,092,000 of
residential real estate and $2,302,000 of commercial real estate. CFC believes
that the carrying value of its OREO portfolio is realizable. The decrease in
OREO was due to the sale of two properties in the first six months of 1997.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
CFC evaluates the adequacy of its allowance for loan losses as part of
its ongoing credit review and approval process. The review process is intended
to identify, as early as possible, customers who may be facing financial
difficulties. Once identified, the extent of the client's financial difficulty
is carefully monitored by CFC's loan review officer, who recommends to the
directors loan committee the portion of any credit that needs a specific reserve
allocation or should be charged off. Other factors considered by the loan
committee in evaluating the adequacy of the allowance include overall loan
volume, historical net loan loss experience, the level and composition of
non-accrual and past due loans, local economic conditions, and value of any
collateral. From time to time, specific amounts of the reserve are designated
for certain loans in connection with the loan committee's and review officer's
analysis of the adequacy of the allowance for loan losses.
While the largest portion of this allowance is typically intended to
cover specific loan losses, it is considered a general reserve, which is
available for all credit-related purposes. The allowance is not a precise
amount, but is derived based upon the above factors and represents management's
best estimate of the amount necessary to adequately cover probable losses from
current credit exposures. The provision for loan losses is a charge against
current earnings and is determined by management as the amount needed to
maintain an adequate allowance.
The overall credit quality of the loan portfolio has improved in recent
years as evidenced by CFC's relatively low level of non-performing loans and net
charge-offs. Management relied on these factors, as well as its assessment of
the financial condition of specific clients facing financial difficulties, in
deciding to permit the level of the allowance for loan losses to drop to
$2,120,000 at June 30, 1997, from $2,587,000 at June 30, 1996. CFC's allowance
for loan losses at June 30, 1997 represents approximately 1.50% of total loans.
For the six months ended June 30, 1996, and the six months ended June
30, 1997, charge-offs decreased from 0.32% to 0.29% of the entire loan
portfolio. Net charge-offs declined from $465,000 for the first six months of
1996 to $416,000 for 1997. The net amounts charged off in 1997 were: $405,000 in
commercial loans, $12,000 in real estate loans and recoveries of $1,000 in
installment loans.
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<PAGE>
FINANCIAL CONDITION
CFC's goal is to maintain a high quality and liquid balance sheet. CFC
seeks to achieve this objective through increases in collateralized loans, a
strong portfolio of real estate loans and a stable portfolio of investment
securities of high quality.
INVESTMENT SECURITIES. For the six months ended June 30, 1997,
investment securities averaged $60.2 million or 28.5% of total earning assets.
CFC's management strategy for its investment account is to maintain a very high
quality portfolio with generally short-term maturities. The average investment
portfolio, all of which has been classified as available for sale, decreased
4.9% from $63.3 million for the six months ended June 30, 1996 to $ 60.2 million
for the six months ended June 30, 1997.
LOANS. Loans averaged $ 142.3 million in the first six months of 1997
compared to $136.5 million for the same period of 1996, or an increase of 4.2%.
See "Asset Quality and Credit Risk - Loans," above.
INTEREST-BEARING LIABILITIES. Average total interest-bearing
liabilities decreased slightly from $151.0 million for the first six months of
1996 to $150.6 million for the same period in 1997. The composition of
interest-bearing liabilities changed as funds shifted from money market/NOW
accounts to higher yielding time deposits. As a result, average time deposits
increased from 34.1% of total interest-bearing liabilities in 1996 to 36.3% in
1997. The yield on savings and time deposit increased while the yield on money
market/NOW accounts deceased slightly. The effect of the changes in deposit mix
and rates was to increase the rate on total interest bearing liabilities from
3.52% in the first six months of 1996 to 3.61% for the same period in 1997.
LIQUIDITY AND RATE SENSITIVITY
The principal functions of asset and liability management are to
provide for adequate liquidity, to manage interest rate exposure by maintaining
a prudent relationship between rate sensitive assets and liabilities and to
manage the size and composition of the balance sheet so as to maximize net
interest income.
Liquidity is the ability to provide funds at minimal cost to meet
fluctuating deposit withdrawals or loan demand. These demands are met by
maturing assets and the capacity to raise funds from internal and external
sources. CFC primarily utilizes cash, federal funds sold and securities
purchased under repurchase agreements to meet its liquidity needs. Although not
utilized in managing daily liquidity needs, the sale of investment securities
provides a secondary source of liquidity.
Fluctuating interest rates, increased competition and changes in the
regulatory environment continue to significantly affect the importance of
interest rate sensitivity management. Rate sensitivity arises when interest
rates on assets change in a different period of time or a different proportion
than that of interest rates on liabilities. The primary
123
<PAGE>
objective of interest rate sensitivity management is to prudently structure the
balance sheet so that movements of interest rates on assets and liabilities are
highly correlated and produce a reasonable net interest margin even in periods
of volatile interest rates.
Regular monitoring of assets and liabilities that are rate sensitive
within 30 days, 90 days, 180 days and one year is an integral part of CFC's
rate-sensitivity management process. It is CFC's policy to maintain a reasonable
balance of rate-sensitive assets and liabilities on a cumulative one year basis,
thus minimizing net interest income exposure to changes in interest rates. CFC's
sensitivity position at June 30, 1997 was such that net interest income would be
expected to increase modestly if there were an increase in short-term interest
rates.
CFC monitors the interest rate risk sensitivity with traditional gap
measurements. The gap table has certain limitations in its ability to portray
interest sensitivity accurately; however, it does provide a static reading of
CFC's interest rate risk exposure.
As of June 30, 1997, CFC remained asset sensitive (interest sensitive
assets subject to repricing exceeded interest sensitive liabilities subject to
repricing) on a 365-day basis to the extent of $5.0 million. This positive gap
at June 30, 1997 was 2.1% of total assets compared with 1.4% at June 30, 1996.
The primary cause for this increase in the gap was the increase in the
percentage of variable rate loans to total loans, from 48.5% at June 30, 1996 to
61.8% at June 30, 1997, which represented an increase in the amount of interest
sensitive loans maturing within one year of $8.0 million.
CFC's targeted gap position is in the range of negative 5 percent to
positive 10 percent. Therefore, the 2.1% interest sensitive gap position for
June 30, 1997 is within established parameters. CFC measures its gap position as
a percentage of its total assets.
While the absolute level of gap is a measurement of interest rate risk,
the quality of the assets and liabilities in the balance sheet must be analyzed
in order to understand the degree of interest rate risk taken by CFC. CFC does
not invest in any derivative products in order to manage or hedge its interest
rate risk.
CAPITAL
One of management's primary objectives is to maintain a strong capital
position to merit the confidence of customers, bank regulators and stockholders.
A strong capital position helps CFC withstand unforeseen adverse developments
and take advantage of attractive lending and investment opportunities when they
arise. During the first six months of 1997, stockholders' equity increased by
$1,894,000, or 9.0%, from December 31, 1996.
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<PAGE>
Under the Federal Reserve's rules pertaining to risk-based capital, at
June 30, 1997, CFC's tier one capital was 14.3% and the total capital was 15.5%
of risk-based assets. These risk-based capital ratios are well in excess of the
minimum requirements of 4% for tier one and 8% for total risk-based capital
ratios. Both of these capital ratios increased during the second quarter of 1997
as equity capital increased by 4.1% and risk-based assets only increased by
0.7%. CFC's leverage ratio (tier one capital to total average quarterly assets)
of 9.8% at June 30, 1997, is also well in excess of the minimum 4% requirement.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
RESULTS OF OPERATIONS
CFC's consolidated net income for 1996 was $924,000, or 50% less than the
$1,845,000 earned in 1995. Net income per common share was $.73 in 1996 and
$1.46 in 1995. In 1996, CFC settled the Premium litigation for $3,000,000.
Without this settlement, net income would have been $3,924,000, and net income
per share would have been $3.10.
CFC's performance in 1996 resulted in a return on average stockholders'
equity ("ROE") of 4.3%, compared to 9.5% in 1995. The return on average assets
("ROA") was 0.40% in 1996, compared to 0.81% in 1995. In the absence of the
Premium settlement, ROE would have been 18.2% and ROA 1.70%.
CFC's average assets, which declined from $243 million in 1994 to $227
million in 1995, grew in 1996 to $231 million. Average liabilities followed this
same pattern, with average liabilities declining from $226 million in 1994 to
$208 million in 1995, and then increasing to $209 million in 1996. The decrease
from 1994 to 1995 was caused by customers moving funds out of deposit accounts
at County to other higher yield investment opportunities, such as mutual funds.
The growth in 1996 was due to CFC's increase in its loan portfolio.
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<PAGE>
The following ratios reflect CFC's operating results for 1996 and 1995.
DECEMBER 31
1996 1995
---- ------
Return on Assets 0.40% 0.81%
Return on Equity 4.28% 9.47%
Equity to Assets 9.34% 8.56%
NET INTEREST INCOME
Net interest income is defined as the total of interest income on
earning assets less interest expense on deposits and other interest-bearing
liabilities. Earning assets, which consist of loans, investment securities,
federal funds sold and securities purchased under agreements to resell, are
financed by a large base of interest-bearing funds in the form of money market,
NOW, savings and time deposits. Earning assets are also funded by the net amount
of non-interest related funds, which consist of non-interest bearing demand
deposits, the allowance for loan losses and stockholders' equity, reduced by
non-interest earning assets such as cash and due from banks.
The following table sets forth CFC's average balance sheets and related
interest, yield and rate information for the last two fiscal years.
<TABLE>
<CAPTION>
CFC'S AVERAGE BALANCE SHEETS
1996 1995
-------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
EARNING ASSETS:
Loans, net of unearned
income $133,726 $13,822 10.34% $140,854 $14,004 9.94%
Investment Securities 64,431 3,565 5.53% 59,649 3,580 6.00%
Federal funds sold 9,402 552 5.87% 10,366 548 5.29%
--------- -------- --------- --------
Total earning assets $207,559 $17,939 8.64% $210,869 $18,132 8.60%
-------- ------- -------- --------
NON-INTEREST EARNING
ASSETS:
Cash and due from banks 11,978 12,589
Premises and equipment, net 4,289 4,224
Other Real Estate Owned, net 3,891 3,295
Other assets 2,672 2,646
Allowance for loan losses (2,874) (2,591)
-------
Total non-interest
earning assets 19,956 20,163
--------- ---------
TOTAL ASSETS $227,515 $231,032
======== ========
LIABILITIES AND
STOCKHOLDERS EQUITY
INTEREST BEARING LIABILITIES:
Savings accounts $ 25,666 754 2.94% $23,697 679 2.87%
Money market/NOW accounts 73,266 1,949 2.66% 73,617 1,689 2.29%
Time deposits 51,301 2,738 5.34% 51,026 2,725 5.34%
Repurchase agreements 951 45 4.73% 785 63 8.03%
Other borrowings 1,000 99 9.90% 889 89 10.01%
-------- ------ --------
Total interest bearing liabilities $152,184 5,585 3.67% $150,014 5,245 3.50%
-------- ------ -------- -----
NON-INTEREST BEARING LIABILITIES:
Demand deposits $53,993 $57,207
Other liabilities 1,855 2,229
-------- -------
Total non-interest bearing
liabilities 55,848 59,436
-------- ------
Total liabilities $208,032 $209,450
STOCKHOLDERS' EQUITY 19,483 21,582
-------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $227,515 $231,032
======== ========
Net Interest Income/Spread $ 12,354 4.97% $12,887 5.10%
======== ======
Net Interest Yield 5.95% 6.11%
</TABLE>
Notes:
- The amounts set forth as average balances are based on daily averages for
each fiscal year.
- Loan fees, which are included in
interest income and in the
calculation of average yields, were
$318,000 and $299,000 in 1995 and
1996, respectively.
- Tax exempt income is not calculated on a tax equivalent basis.
- Non-accruing loans are included in average loans.
126
<PAGE>
Net interest income is primarily affected by changes in the amounts and
types of earning assets, interest-bearing funds and net non-interest related
funds, as well as their relative sensitivity to interest rate movements. The
following chart reflects these factors:
<TABLE>
<CAPTION>
CHANGES IN NET INTEREST INCOME
1994 VERSUS 1995 1995 VERSUS 1996
-------------------------------------------- ------------------------------------------
CHANGE DUE TO: CHANGE DUE TO:
VOLUME RATE TOTAL VOLUME RATE TOTAL
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Interest Income:
Loans $ 303 $1,082 $ 1,385 $717 $(535) $182
Investment Securities (505) 584 79 (288) 303 15
Federal funds sold (90) 144 54 50 (54) (4)
------- ------ ------- --- ---- ---
Total interest income (292) 1,810 1,518 479 (286) 193
------- ------ ------- --- ------ ---
Increase (Decrease) in
Interest Expense:
Savings accounts (171) 129 (42) (57) (18) (75)
Money market/NOW accounts (253) 343 90 11 (271) (260)
Time deposits 393 286 679 (13) --- (13)
Repurchase agreements 16 7 23 (13) 31 18
Other borrowings (10) 0 (10) (10) --- (10)
------- ------ ------- ---- --- ----
Total Interest Expense (25) 765 740 (82) (258) (340)
------- ------ ------ ---- ----- -----
Increase (Decrease) in
Net Interest Income $ (267) $ 1,045 $ 778 $ 561 $(28) $ 533
======= ====== ====== === ==== ===
</TABLE>
Notes:
- - To calculate volume change, multiply the change in volume from current year
to prior year times the prior year's rate.
- - To calculate rate change, multiply the change in rate from current year to
prior year times the prior year's dollar volume.
- - Changes which are not due only to volume changes or rate changes are included
in the changes due to volume column.
Net interest income for 1996 was $12,887,000 up 4.3% from $12,354,000
in 1995. The growth in net interest income in 1996 was attributable to an
increase of $3,310,000 in average earning assets as well as a small improvement
in CFC's net interest margin, which grew from 5.0% in 1995 to 5.1% in 1996.
Average loans (which are County's highest yielding earning assets) grew 5.3%,
while investment securities dropped 7.4%.
127
<PAGE>
NON-INTEREST INCOME
Non-interest income in 1996 totaled $2,783,000, compared with
$2,925,000 in 1995. Customer service charges totaled $2,425,000 in 1996, down
4.2% from $2,526,000 in 1995 due to declining deposit balances.
INVESTMENT SECURITIES GAINS AND LOSSES
At December 31, 1996, CFC held investment securities with a market
value of $56,460,000, which was $91,000 lower than the amortized cost of the
portfolio. This difference consisted of $198,000 of gross unrealized gains and
$289,000 of gross unrealized losses. There were net losses of $11,000 from sales
of securities available for sale in 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses totaled $24,000 in 1996 and $259,000 in
1995. See "Allowance and Provision for Loan Losses."
NON-INTEREST EXPENSES
Non-interest expenses for 1996 totaled $14,722,000, which was up 20.7%
from $12,195,000 in 1995. The increase in 1996 was primarily due to the
establishment of a $3,000,000 provision related to the settlement of the Premium
litigation. Non-interest expenses are discussed below in more detail.
PERSONNEL. Personnel expense (which includes salaries and benefits)
represented 37.6% of total non- interest expenses in 1996. Personnel expenses
decrease 2.7% to $5,541,000 in 1996 from $5,693,000 in 1995. Staff on a
full-time equivalent basis averaged 158 in 1996 compared to 138 in 1995.
OCCUPANCY EXPENSE. Net occupancy expense in 1996 totaled $1,604,000,
down 5.0% from $1,689,000 in 1995. The principal reason for the decrease was due
to a reduction in maintenance and utilities expenses.
PREMISES AND EQUIPMENT EXPENSE. Premises and equipment expense, which
includes depreciation, and rental, totaled $596,000 in 1996, down 33.7% from
$899,000 in 1995. The decrease was due to a reduction in depreciation expense on
equipment fully depreciated in 1995.
OTHER NON-INTEREST EXPENSES. Other non-interest expenses for 1996
totaled $3,981,000, up 1.7% from $3,914,000 in 1995. Other non-interest expenses
in 1996 were impacted by relatively high legal and professional services fees.
Legal fees for the Premium Group matter were $671,000 in 1996, compared to
$340,000 in 1995. In 1996, losses on the sale of OREO were $13,000, compared to
$148,000 in 1995, while the write-down of OREO was $50,000 in 1996 compared to
$100,000 in 1995.
PROVISION FOR INCOME TAXES
The income tax provision totaled $-0- in 1996 compared with $980,000 in
1995. The absence of a provision in 1996 was primarily due to utilization of
Carney's $2,997,000 of net operating losses. See Note 11 to the Consolidated
Financial Statements for CFC for more information regarding the income tax
provision.
CAPITAL EXPENDITURES
CFC's capital expenditures are reviewed by its Board of Directors. CFC
makes capital expenditures in order to improve its ability to provide quality
services to its customers. Capital expenditures for 1996 equaled $406,000
compared to $661,000 in 1995, and were principally related to equipment
purchased for various branch sites and changes in equipment due to technological
advances.
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<PAGE>
ASSET QUALITY AND CREDIT RISK
INVESTMENT SECURITIES. CFC maintains a high quality investment
portfolio including U.S. Treasury securities, securities of other U.S.
government entities, state and municipal securities, and other securities such
as Federal Reserve Bank stock. Securities issued by the U.S. Treasury, other
U.S. government entities and states constitute approximately 99% of CFC's
investment portfolio. CFC believes that the securities have very little risk of
default. At December 31, 1996, all of the securities held in CFC's investment
portfolio were classified available for sale and were rated "A" or better (with
a majority rated triple "A"). A rating of "A" or better means that the bonds are
of "upper medium grade, with strong ability to repay, possibly with some
susceptibility to adverse economic conditions or changing circumstances."
Ratings are assigned by independent rating agencies and are subject to the
accuracy of reported information concerning the issuers and the subjective
judgment and analysis of the rating agencies. Approximately 42.0% of these
securities mature in one year or less and 96.4% in five years or less. As such,
the risk of significant fluctuations in value due to changes in the general
level of interest rates is limited.
The following table sets forth information regarding the composition of
the investment portfolio for the last two years, (amounts in thousands).
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
DECEMBER 31,
------------
1995 1995 1996
---- ---- ----
(HELD TO MATURITY) (AVAILABLE FOR SALE)
<S> <C> <C> <C>
U.S. Treasury Securities $41,554 $32,602
Securities of other U.S. Government
agencies and corporations $938 14,711 23,238
Obligations of states and political
subdivisions 95 2,197 95
Other securities 602 257 525
-------- --------- ---------
Total investments $1,635 $58,719 $56,460
====== ======= =======
</TABLE>
During 1996, CFC's investment portfolio dropped by 6.3% due to a
decline in CFC's deposits. In recent years, CFC has adjusted the mix of its
investment securities from U.S. Treasury securities to securities of U.S.
Government agencies and municipals to obtain higher yields. U.S. Treasury
securities represented 57.7% in 1996, and 70.8% in 1995, while securities of
U.S. Government agencies and municipals represented 41.2% in 1996, and 25.9% in
1995.
LOANS. CFC maintains a portfolio of real estate, commercial and
consumer loans. All loans are reviewed and approved by CFC's loan committee,
which ensures that loans comply with applicable credit standards. In most cases,
CFC requires collateral from the borrower. The type and amount of collateral
varies but may include residential or commercial real estate, deposits held by
financial institutions, U.S. Treasury securities, other marketable securities
and personal property. Collateral values are monitored to ensure that they are
maintained at proper levels.
As of December 31, 1996, approximately 75% of CFC's loans were real
estate loans secured by real estate in South Florida. This level of
concentration could present a potential credit risk to CFC because the ultimate
collectible of these loans is susceptible to adverse changes in real estate
market conditions in this market. CFC has addressed this risk by limiting most
loans to a maximum of 70% of the appraised value of the underlying real estate
and maximum amortization schedules of twenty (20) years.
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<PAGE>
The following table divides CFC's loan portfolio into four categories.
Most of the loans are short-term and may be renewed or rolled over at maturity.
At that time, CFC undertakes a complete review of the borrower's credit
worthiness and the value of any collateral. If these items are satisfactory, CFC
will generally renew the loan at prevailing interest rates.
<TABLE>
<CAPTION>
TYPES OF LOANS
DECEMBER 31,
------------
1995 1996
-------- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural $ 35,804 $35,203
Real estate - construction 8,508 9,868
Real estate - mortgage 92,522 99,415
Installment loans 2,344 1,572
Overdrafts 107 213
--------- ---------
Total loans $139,285 $146,271
======= =======
</TABLE>
The following table sets forth information regarding the maturities of
CFC's commercial and real estate construction loans. For purposes of the table,
loans are treated as maturing on the final maturity date provided for in the
loan agreement, regardless of whether payments are amortized over a period of
time. Thus, for example, all amounts payable under a three year loan which is
amortized on a monthly basis will be shown in the table as being payable in the
Over One to Five Years column even though some payments will be made in the
first year. Demand loans are shown as being payable in one year or less. The
entire amount of a balloon loan is treated as maturing in the year that the
balloon payment is due.
<TABLE>
<CAPTION>
MATURITIES OF SELECTED LOANS
DECEMBER 31, 1996
ONE YEAR OVER ONE TO OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
COMMERCIAL, FINANCIAL AND AGRICULTURAL:
FIXED $ 2,876 $ 2,796 $ 9 $ 5,681
VARIABLE 16,464 11,804 1,254 29,522
REAL ESTATE - CONSTRUCTION:
FIXED - 1,805 - 1,805
VARIABLE $ 4,251 $ 3,812 - $ 8,063
</TABLE>
Commercial, financial and agricultural loans are segmented by fixed and
variable interest rates. At December 31, 1996, the amount of such loans with a
maturity of more than one year which had fixed interest terms was $2,805,000 and
the amount which had variable interest terms was $13,058,000.
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<PAGE>
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS. CFC makes commercial,
financial and agricultural loans to businesses located in South Florida. The
credit risk associated with business lending is influenced by general economic
conditions, deterioration in a borrower's capital position resulting in
increasing debt to equity ratios, deterioration in a borrower' cash position
resulting in a liquidity problem, and decreasing revenues or profitability due
to inefficient operations of the borrower. These loans are generally secured by
corporate assets, marketable securities or other liquid financial instruments.
These loans totaled approximately $35,203,000 at December 31, 1996, and
$35,804,000 at December 31, 1995. Legally binding commitments to extend credit
and letters of credit for these borrowers totaled $16,588,000 on December 31,
1996.
REAL ESTATE CONSTRUCTION LOANS. CFC makes real estate construction
loans from time to time for real estate projects located in South Florida. CFC
generally requires security in the form of a mortgage on the underlying real
property and the improvements constructed thereon and personal guarantees. It
attempts to limit its credit exposure to 70% of the appraised value of the
underlying real property. On December 31, 1996, construction loans totaled
$9,868,000 to thirty borrowers, including experienced residential builders, and
other financially strong borrowers. Risks associated with construction loans
include variations from vacancy projections, delays in construction,
environmental factors, reliability of subcontractors and timing and reliability
of inspections, and costs overruns.
REAL ESTATE MORTGAGE LOANS. CFC makes both commercial and residential
real estate loans. These loans totaled $99,415,000 at December 31, 1996. Risks
associated with real estate mortgage loans include reliability of appraisals,
deterioration of market values, environmental contamination, and accelerated
depreciation of property due to deferred maintenance.
CFC makes real estate loans secured by commercial real estate,
including loans to acquire or refinance office buildings, warehouses and
apartments. At December 31, 1996, these loans totaled $81,000,000, or 55.0 % of
total loans. Most of these loans have a maturity of five years or less. Almost
all of these loans are secured by real property located in South Florida. These
loans generally require a loan-to-collateral value of not more than 70%. At
December 31, 1996, CFC had $4.0 million in legally binding commitments to extend
credit or standby letters of credit involving commercial real estate borrowers,
compared to $1.6 million at December 31, 1995.
Residential real estate loans totaled $19 million, or 12.8% of total
loans at December 31, 1996, compared with $23 million, or 16.2% at December 31,
1995. Residential real estate loans are predominately adjustable rate home
mortgages which generally require a loan-to-collateral value of not more than
70% and equity credit lines which generally limit the loan-to-collateral value
to not more than 70% to 75%. Most loans have a maximum term of five to seven
years. CFC does not ordinarily charge any points on its real estate loans.
Almost all of the residential real estate loans are secured by homes in South
Florida. Legally binding commitments to extend credit secured by residential
mortgages totaled $2,064,000 as of December 31, 1996 and $964,000 as of December
31, 1995.
INSTALLMENT LOANS. CFC offers consumer loans and personal and secured
loans. The security for these loans ordinarily consists of automobiles, consumer
goods, marketable securities, certificates of deposit and similar items. These
loans totaled approximately $1.6 million, or 1.1% of total loans, on December
31, 1996, compared with $2.3 million, or 1.7% of total loans, on December 31,
1995. Risks associated with installment loans include loss of employment of
borrowers, declines in the financial condition of borrowers resulting in
delinquencies, and rapid depreciation of loan collateral.
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<PAGE>
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets consist of non-accrual loans and residential and
commercial properties acquired in partial or total satisfaction of problem loans
which are known as "other real estate owned" or "OREO." Past due loans are loans
that are delinquent 30 days or more which are still accruing interest.
Maintaining a low level of non-performing assets is important to the
ongoing success of any financial institution. CFC credit review and approval
process is critical to CFC's ability to minimize non-performing assets on a long
term basis. In addition to the negative impact on interest income,
non-performing assets also increase operating costs due to the expense of
collection efforts. It is CFC's policy to place all loans which are past due 90
days or more on non-accrual status, subject to exceptions made on a case by case
basis.
The following table presents CFC's non-performing assets and past due
loans for 1995 and 1996.
NON-PERFORMING ASSETS AND 90 DAY PAST DUE LOANS
DECEMBER 31,
------------
1995 1996
-------- ----
(AMOUNTS IN THOUSANDS)
Non-Accrual Loans $2,441 $2,670
OREO, net 3,329 3,338
------ ------
Total Non-Performing Assets $5,770 $6,008
====== ======
Accruing Loans Past Due
90 Days $ 104 $ 0
====== =======
Of the total assets of $245,946,000 at December 31, 1996, $6,008,000 or
2.4%, was non-performing, or an increase of $238,000 from year end 1995.
Non-performing loans at December 31, 1996 consisted of commercial and
residential real estate loans. Non-accrual loans increased by $229,000 and are
comprised of five mortgage loans in foreclosure and one past due commercial
loan.
Other real estate owned at December 31, 1996 consisted of $1,147,000 of
residential real estate and $2,191,000 of commercial real estate. OREO at
December 31, 1995 consisted of $1,367,000 of residential real estate and
$1,962,000 of commercial real estate. CFC believes that the carrying value of
its OREO portfolio is realizable.
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<PAGE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
CFC evaluates the adequacy of its allowance for loan losses as part of
its ongoing credit review and approval process. The review process is intended
to identify, as early as possible, customers who may be facing financial
difficulties. Once identified, the extent of the client's financial difficulty
is carefully monitored by CFC's loan review officer, who recommends to the loan
committee of the Board of Directors the portion of any credit that needs a
specific reserve allocation or should be charged off. Other factors considered
by the loan committee in evaluating the adequacy of the allowance include
overall loan volume, historical net loan loss experience, the level and
composition of non-accrual and past due loans, local economic conditions, and
value of any collateral. From time to time, specific amounts of the reserve are
designated for certain loans in connection with the loan committee's review of
the officer's analysis of the adequacy of the allowance for loan losses.
While the largest portion of this allowance is typically intended to
cover specific loan losses, it is considered a general reserve which is
available for all credit-related purposes. The allowance is not a precise
amount, but is derived based upon the above factors and represents management's
best estimate of the amount necessary to adequately cover probable losses from
current credit exposures. The provision for loan losses is a charge against
current earnings and is determined by management as the amount needed to
maintain an adequate allowance.
Management relied on its assessment of the overall quality of the loan
portfolio, as well as its assessment of the financial condition of specific
clients facing financial difficulties, in permitting the allowance for loan
losses to decline to $2,524,000 at December 31, 1996, from $3,040,000 at
December 31, 1995. The major part of this decline was the result of $761,000 in
charge offs (which primarily relate to former Carney loans)
Under the provisions of these standards, individually identified
impaired loans are measured based on the present value of payment expected to be
received, using the historical effective loan rate as the discount rate.
Alternatively, measurement may also be based on observable market prices or for
loans that are solely dependent on the collateral for repayment, measurement may
be based on the fair value of the collateral. Loans that are to be foreclosed
are measured based on the fair value of the collateral. If the recorded
investment in the impaired loan exceeds the measure of fair value, a valuation
allowance is required as a component of the allowance for loan losses. Changes
to the valuation allowance are recorded as a component of the provision for loan
losses.
At December 31, 1996 and 1995, the recorded investment in loans that
are considered impaired under SFAS No. 114 was approximately $2,449,000 and
$1,780,000, respectively. These impaired loans required a SFAS No. 114 allowance
for loan losses of approximately $364,000 and $368,000, respectively. The
average recorded investment in impaired loans during the years December 31, 1996
and 1995 was approximately $1,908,000 and $909,000, respectively. For the years
ended December 31, 1996 and 1995, Republic Security recognized interest income
on these impaired loans of approximately $166,000 and $153,000, respectively.
133
<PAGE>
The following table summarizes the allowance for loan losses for 1995
and 1996:
ALLOWANCE FOR LOAN LOSSES
DECEMBER 31,
------------
1995 1996
-------- -----
(AMOUNTS IN THOUSANDS)
Balance at beginning of period $2,791 $3,040
Charge-offs:
Commercial, financial and agricultural 11 547
Real estate - nonfarm, nonresidential 132 0
Real estate - residential 40 211
Installment loans 7 3
------- --------
Total charge-offs 190 761
----- ------
Recoveries:
Commercial, financial and agricultural 161 124
Real estate - construction 3 18
Real estate - nonfarm, nonresidential 11 16
Real estate - residential 2 62
Installment loans 3 1
--------- ---------
Total recoveries 180 221
------ -------
Net charge-offs 9 540
Provision charged to operations 259 24
------ -------
Balance at end of period $3,040 $2,524
===== =====
Ratio of net charge-offs during
period to average loans outstanding
during period .01% 0.38%
====== ======
In 1996, net charge offs were $540,000 representing .38% of the average
loan portfolio. In 1995, net charge-offs were $9,000, representing .01% of the
average loan portfolio.
CFC's allowance for loan losses decreased to $2,524,000 in 1996 which
was approximately 1.7% of total loans ($146.3 million).
During 1996, CFC experienced a higher level of charge-offs than in
prior years due to the Carney Bank merger. The net amounts charged-off were
$758,000 in commercial and real estate loans and $3,000 in installment loans. In
addition, CFC had net recoveries of $124,000 in commercial loans, and $96,000 in
real estate loans.
134
<PAGE>
The following table further summarizes the allocation of the allowance
for loan losses by type of loan.
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ------------------------
PERCENT PERCENT
OF LOANS OF LOANS
IN EACH IN EACH
CATEGORY CATEGORY
TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $262 25.8% $175 24.2%
Real Estate - Construction 29 6.1% 183 6.7%
Real Estate - Mortgage 729 66.4% 522 68.0%
Installment loans and overdrafts 1 1.7% 0 1.1%
Unallocated general reserves 2,019 N/A 1,644 N/A
----- ------ ----- --------
Total allowance for
loan losses $3,040 100% $2,524 100%
===== ==== ====== ====
</TABLE>
FINANCIAL CONDITION
CFC's goal is to maintain a high quality and liquid balance sheet. CFC
seeks to achieve this objective through increases in collateralized loans, a
strong portfolio of real estate loans and a stable portfolio of investment
securities of high quality.
135
<PAGE>
INVESTMENT SECURITIES. In 1996, investment securities averaged $60.0
million or 28.3% of total earning assets. CFC's management strategy for its
investment account is to maintain a very high quality portfolio with generally
short-term maturities. To maximize after tax income, investments in municipal
securities are utilized but with somewhat longer maturities. The investment
portfolio, all of which has been classified as available for sale in 1996,
decreased 6.5% from $60.4 million in 1995 to $56.5 million at December 31, 1996.
The decrease, resulting primarily from maturities, which were not reinvested,
was due to cash requirements arising from a decrease in deposits. The following
table sets forth information regarding the investment portfolio at December 31,
1996, all of which is available for sale.
<TABLE>
<CAPTION>
REMAINING MATURITY AND AVERAGE YIELD OF INVESTMENT SECURITIES
(DECEMBER 31, 1996)
($ AMOUNTS IN THOUSANDS)
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS OVER TEN YEARS
BOOK YIELD BOOK YIELD BOOK YIELD BOOK YIELD TOTAL YIELD
---- ----- ---- ----- ---- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Securities $12,555 6.41% $20,048 5.94% $32,603 6.12%
Securities of
other U.S.
Governmental
agencies and
corporations 11,080 6.46% 10,653 6.07% 1,504 6.97% 23,237 6.31%
Obligations of
states and
political
subdivisions 95 8.12% -- -- -- -- -- -- 95 8.12%
Other securities $525 5.19 % 525 5.19%
-------- -------- -------- -------- ------- -------- ---- ------ ------- -----
Total $23,730 6.44% $30,701 5.99% $1,504 6.97% $525 5.19% $56,460 6.19%
====== ===== ====== ===== ===== ===== === ===== ====== =====
</TABLE>
Note: Yield on tax exempt bonds has not been computed on a equivalent basis.
LOANS. Loans averaged $140.9 million in 1996 and increased 5.3% from
the prior year. The increase in the loan portfolio reflects an expanded customer
base, favorable economic conditions and increased business development.
See "Asset Quality and Credit Risk -- Loans," above.
INTEREST-BEARING LIABILITIES. Total interest-bearing liabilities
averaged $150.0 million in 1996, down from $152.2 million in 1995. The decline
in average savings of $2.0 million or 7.7% was due to lower interest rates which
resulted in customers shifting their funds into higher yielding investments, and
increased competition from mutual funds and credit unions.
136
<PAGE>
The following table sets forth information regarding CFC's average
deposits for the last two years.
<TABLE>
<CAPTION>
AVERAGE DEPOSITS
1995 1996
------------------------------------- -----------------------
AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ---- ------- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits-
non-interest bearing $53,993 $57,207
Savings accounts 25,666 2.94% 23,697 2.87%
Money market and
NOW accounts 73,266 2.66% 73,617 2.29%
Time deposits 51,301 5.34% 51,026 5.34%
------ ------
Total deposits $204,226 2.66% $205,547 2.48%
======== ========
</TABLE>
The following table summarizes the maturity of time deposits over
$100,000:
SUMMARY OF TIME DEPOSITS OVER $100,000 BY MATURITY
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
Three months or less $3,698
Three to Six months 2,456
Six to Twelve months 4,668
Over Twelve months 3,615
-------
Total $14,437
=======
LIQUIDITY AND RATE SENSITIVITY
The principal functions of asset and liability management are to
provide for adequate liquidity, to manage interest rate exposure by maintaining
a prudent relationship between rate sensitive assets and liabilities and to
manage the size and composition of the balance sheet so as to maximize net
interest income.
Liquidity is the ability to provide funds at minimal cost to meet
fluctuating deposit withdrawals or loan demand. These demands are met by
maturing assets and the capacity to raise funds from internal and external
sources. CFC primarily utilizes cash, federal funds sold and securities
purchased under repurchase agreements to meet its liquidity needs. Although not
utilized in managing daily liquidity needs, the sale of investment securities
provides a secondary source of liquidity.
137
<PAGE>
Fluctuating interest rates, increased competition and changes in the
regulatory environment continue to significantly affect the importance of
interest-rate sensitivity management. Rate sensitivity arises when interest
rates on assets change in a different period of time or a different proportion
than interest rates on liabilities. The primary objective of interest-rate
sensitivity management is to prudently structure the balance sheet so that
movements of interest rates on assets and liabilities are highly correlated and
produce a reasonable net interest margin even in periods of volatile interest
rates.
Regular monitoring of assets and liabilities that are rate sensitive
within 30 days, 90 days, 180 days and one year is an integral part of CFC's
rate-sensitivity management process. It is CFC's policy to maintain a reasonable
balance of rate-sensitive assets and liabilities on a cumulative one year basis,
thus minimizing net interest income exposure to changes in interest rates. CFC's
sensitivity position at December 31, 1996 was such that net interest income
would decline modestly if there were an increase in short-term interest rates.
CFC monitors the interest rate risk sensitivity with traditional gap
measurements. The gap table has certain limitations in its ability to accurately
portray interest sensitivity; however, it does provide a static reading of CFC's
interest rate risk exposure.
CFC's gap table at December 31, 1996 is shown on the following table.
This table shows the repricing structure of CFC's balance sheet with each
maturity interval referring to the earliest repricing opportunity (i.e., the
earlier of scheduled contractual maturities or next reset date) for each asset
and liability. As of that date, CFC remained asset sensitive (interest sensitive
assets subject to repricing exceeded interest sensitive liabilities subject to
repricing) on a 365- day basis to the extent of $25.2 million. This positive gap
at December 31, 1996 was 10.3 percent of total assets compared with 7.5 percent
at December 31, 1995. The primary cause for this increase in the gap was the
amount of federal funds sold at December 31, 1996, which were up $7.5 million
from 1995. CFC's targeted gap position is in the range of negative 5 percent to
positive 15 percent. CFC measures its gap position as a percentage of its total
assets.
While the absolute level of gap is a measurement of interest rate risk,
the quality of the assets and liabilities in the balance sheet must be analyzed
in order to understand the degree of interest rate risk taken by CFC. CFC does
not invest in any derivative products in order to manage or hedge its interest
rate risk.
138
<PAGE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY TABLE
AS OF DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
OVER ONE
TOTAL YEAR AND
0-30 30-90 90-180 180-365 INTEREST NON-INTEREST
DAYS DAYS DAYS DAYS SENSITIVE SENSITIVE TOTAL
-------- -------- -------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans $92,837 $1,646 $3,944 $5,635 $104,062 $42,209 $146,271
Investment Securities 6,285 2,035 4,167 9,250 21,737 34,723 56,460
Federal funds sold 19,585 0 0 0 19,585 0 19,585
------- ------- ------- -------- ------- --------- --------
$118,707 $3,681 $8,111 $14,885 $145,384 $76,932 $ 222,316
======= ===== ===== ====== ======= ====== ========
Interest Earning
Liabilities:
Deposits and Repos $87,139 $8,055 $10,406 $14,484 $120,084 $33,026 $153,110
Borrowings 25 0 25 50 100 750 850
--------
$87,164 $ 8,055 $10,431 $14,534 $120,184 $33,776 $153,960
====== ====== ====== ====== ======= ====== =======
Gap 31,543 (4,374) (2,320) 351 25,200
Cumulative Gap 31,543 27,169 24,849 25,200 25,200
Gap as % of Total Assets 12.83% 11.05% 10.10% 10.25% 10.25%
</TABLE>
CAPITAL
One of management's primary objectives is to maintain a strong capital
position to merit the confidence of customers, bank regulators and stockholders.
A strong capital position helps CFC withstand unforeseen adverse developments
and take advantage of attractive lending and investment opportunities when they
raise. During 1996, stockholders' equity increased by $652,000, or 3.2% over
1995.
Under the Federal Reserve's rules pertaining to risk-based capital at
December 31, 1996, CFC's Tier I capital was 12.73% and the Total capital was
13.98% of risk-based assets. These risk-based capital ratios are well in excess
of the minimum requirements of 4% for Tier I and 8% for Total risk-based capital
ratios.
CFC's leverage ratio (Tier I capital to total average adjusted
quarterly assets) of 9.2% on December 31, 1996, is also well in excess of the
minimum 4% requirement. During 1996, equity capital increased 3.2% and assets
increased by 5.1%.
139
<PAGE>
The following table sets forth CFC's required and actual capital
amounts and ratios for 1996 and 1995.
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------- ------------------------------------------
REQUIRED ACTUAL REQUIRED ACTUAL
----------------- ------------------- ------------------ -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 Capital
(to Risk Weighted
Assets) $6,660,000 4.0% $21,196,000 12.7% $6,251,000 4.0% $20,265,000 13.0%
Total Capital
(to Risk Weighted
Assets) $13,320,000 8.0% $23,283,000 14.0% $12,502,000 8.0% $22,232,000 14.2%
Tier 1 Capital
(to Average
Assets) $9,241,000 4.0% $21,196,000 9.2% $9,025,000 4.0% $20,265,000 9.0%
</TABLE>
In October 1996, CFC agreed to settle all of the outstanding litigation
arising from the failure of the Premium Sales Corporation and certain of its
affiliates (the "Premium Group"). Under the terms of the settlement, County paid
$3,000,000 to the plaintiffs in January 1997.
CFC has expensed the entire amount of the settlement for accounting
purposes during the fiscal year ended December 31, 1996. As a result, most of
CFC's net income for 1996 was entirely offset by the amount of the settlement.
The settlement is also expected to reduce interest income in 1997 due to the
decrease in earning assets of CFC. However, this drop is expected to be
substantially offset by reduced legal and professional fees resulting from the
settlement of the case.
For income tax purposes, CFC expects to expense the settlement at the
time of payment (i.e., in January 1997). Assuming that CFC continues its current
level of operating profitability, the $3 million settlement will, for tax
purposes, offset a substantial portion of CFC's anticipated taxable income for
1997.
CFC funded the settlement from its existing cash reserves, which have
been maintained at relatively high levels. As a result, the settlement did not
have a significant impact on CFC's liquidity level.
140
<PAGE>
PROPOSAL 2
TERMINATION PAYMENT TO GEORGE M. APELIAN
At the CFC Special Meeting, the shareholders of CFC will be asked to
approve a payment in the amount of $567,000, the Termination Payment to be made
by Republic Security to George M. Apelian, the President and Chief Executive
Officer of CFC and County. Republic Security's obligation to make the
Termination Payment is contingent upon the consummation of the Merger and the
approval of the payment by the holders of more than 75% of the shares of CFC
Common Stock (excluding shares held by Mr. Apelian and his spouse) after
adequate disclosure to the shareholders of all material facts concerning the
payment. If the Termination Payment is not approved by the shareholders of CFC,
the Termination Payment will not be made.
BACKGROUND
Republic Security's obligation to make the Termination Payment is set
forth in the New Employment Agreement dated August 8, 1997 between Republic
Security and Mr. Apelian, as amended. Under this agreement, Republic Security
has agreed to make the Termination Payment (if certain conditions are met, as
described below), in consideration of the termination of the Prior Employment
Agreement dated June 15, 1988 between CFC, County and Mr. Apelian and the waiver
by Mr. Apelian of his right to certain severance benefits under the Prior
Employment Agreement.
CFC and County originally entered into the Prior Employment Agreement
with Mr. Apelian for the purpose of providing for the continuation of Mr.
Apelian's services after a change of control of CFC or County. The Prior
Employment Agreement provided that it would become effective on the date
immediately preceding any change of control of CFC or County. On that date, CFC
and County would become obligated to employ Mr. Apelian as President and Chief
Executive Officer for a period of three years. During this period, CFC and
County would be obligated to pay Mr. Apelian a salary which equaled or exceeded
the salary which he had received prior to the change of control. In the event
that the person acquiring a controlling interest in either CFC or County refused
to abide by the terms of the Prior Employment Agreement, then Mr. Apelian would
be entitled to receive a termination payment on the date of the change of
control equal to three times his current annual salary. Based upon Mr. Apelian's
current annual salary of $189,000, this payment would be equal to $567,000.
Under the Prior Employment Agreement, this payment was not subject to the
approval of CFC's shareholders.
During the negotiation of the Merger Agreement, Republic Security
indicated that it would not assume the Prior Employment Agreement. In lieu
thereof, Republic Security and Mr. Apelian agreed to enter into the New
Employment Agreement, pursuant to which Republic Security agreed to employ Mr.
Apelian as Executive Vice President and Dade County Executive. The New
Employment Agreement provides that Republic Security will make the Termination
Payment to Mr. Apelian in consideration of the termination of the Prior
Employment Agreement (and his waiver of all benefits under such agreement) upon
the approval of the shareholders after adequate disclosure, as described herein.
The New Employment Agreement will become effective upon the consummation of the
Merger.
Under the New Employment Agreement, the Termination Payment is
contingent upon the approval by CFC Shareholders, holding, immediately before
the consummation of the Merger, more than 75% of the outstanding CFC Common
Stock (and, for this purpose, the shares of CFC Common Stock owned by Mr.
Apelian and his spouse are not counted as outstanding) after adequate disclosure
to the shareholders of all material facts concerning the payment. If the
Termination Payment was not contingent upon shareholder approval, (i) under
Section 280G of the Internal Revenue Code, as amended (the "Code"),
approximately $417,000 of the Termination Payment would be treated as an "excess
parachute payment", (ii) under Code Section 4999, Mr. Apelian would be obligated
to pay a non-deductible excise tax of 20% on the excess parachute payment and
(iii) under Code Section 280G, Republic Security would not be able to deduct the
amount of the excess parachute payment.
141
<PAGE>
The term "excess parachute payment" is defined in Section 280G. This
definition is based upon the term "parachute payment" which (in the absence of
certain conditions) means any payment in the nature of compensation to an
officer of a corporation, when such payment is contingent upon (and would not be
made except for) a change in the ownership or effective control of such
corporation. A "parachute payment" exists if the proposed parachute payment
equals or exceeds an amount equal to three times the recipient's average annual
compensation for the immediately preceding five years (the "Base Amount"). In
the case of Mr. Apelian, the Base Amount for the preceding five years is
approximately $150,000. Accordingly, the proposed Termination Payment of
$567,000 is a parachute payment because it exceeds three times Mr. Apelian's
Base Amount. In such instance, the "excess parachute payment" is an amount equal
to the excess of the parachute payment ($567,000) over the Base Amount
(approximately $150,000), or $417,000.
Notwithstanding the foregoing, under Section 280G, a payment to an
officer of a corporation (such as Mr. Apelian) will not be considered a
parachute payment if the following conditions are met:
(a) Immediately before the change of control, no stock in the
corporation was readily tradeable on an established securities market or
otherwise; and
(b) The payment is approved by persons who hold, immediately before the
change of control, more than 75% of the voting power of all outstanding stock of
such corporation after adequate disclosure to the shareholders of all material
facts concerning the payment. For purposes of this vote, the shares of CFC
Common Stock owned by Mr. Apelian and his spouse will not be counted as
outstanding.
As such, having made adequate disclosure of all material facts
concerning the payment to the shareholders of CFC, approval of the Termination
Payment by shareholders holding the requisite number of shares will be sought
at the special meeting of shareholders.
There is no established trading in the shares of CFC Common Stock. See
"Market Price and Dividend Data."
RECOMMENDATION OF CFC BOARD OF DIRECTORS REGARDING TERMINATION PAYMENT
The Board of Directors of CFC recommends that the shareholders of CFC
vote in favor of the approval of the Termination Payment to be made to Mr.
Apelian. In this connection, the Board believes that Mr. Apelian is entitled to
receive the Termination Payment due to his faithful service to CFC and County.
The directors and executive officers have informed CFC that they intend
to vote the shares of CFC Common Stock which they are entitled to vote
(presently 628,993 shares or approximately 49.7% of the total outstanding) for
the approval of the Termination Payment for Mr. Apelian. See "Management of CFC
- - Beneficial Ownership Management."
CONFLICT OF INTEREST
The shareholders of CFC should be aware that Mr. Apelian, a member of
the Board of Directors of CFC, has a conflict of interest with respect to the
Termination Payment. The Board of Directors of CFC was aware of this conflict
and considered it in making its recommendation to the shareholders of CFC to
vote in favor of the Termination Payment. Mr. Apelian abstained from voting as a
director on the recommendation regarding the Termination Payment.
142
<PAGE>
PROXY SOLICITATION
Proxies are being solicited from RSFC and CFC shareholders by and on
behalf of the respective Boards of Directors of each of RSFC and CFC. Each of
RSFC and CFC will bear their own expenses for the solicitations, including the
costs of preparing and mailing this Joint Proxy Statement/Prospectus to their
respective shareholders. In addition to solicitation by mail, proxies may be
solicited from RSFC and CFC shareholders by directors, officers and regular
employees of RSFC and CFC, respectively, in person, by telecopy or by telephone.
Such directors, officers and employees will not receive any additional
compensation for such services but may be reimbursed for reasonable expenses
incurred by them in forwarding the proxy soliciting materials to the beneficial
owners of RSFC Common Stock and CFC Common Stock. Although there is no formal
agreement to do so, RSFC and CFC, respectively, will reimburse banks, brokerage
firms and other custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of RSFC Common Stock and CFC Common
Stock held of record by such persons.
LEGAL MATTERS
The validity of the RSFC Common Stock issuable in the Merger will be
passed upon by Morgan, Lewis & Bockius LLP, Miami, Florida. The opinion of
counsel as described under "The Merger--Certain Federal Income Tax Consequences"
is being rendered by Morgan, Lewis & Bockius LLP, which opinion is subject to
various assumptions and is based on current law.
EXPERTS
The consolidated financial statements of RSFC at December 31, 1996, and
for the year then ended, at December 31, 1995, and for the nine-month transition
period then ended, and at March 31, 1995, and for the year then ended, appearing
in this Joint Proxy Statement/Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent certified public accountants, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of CFC at December 31, 1996 and
1995 and for each of years then ended, included in this Joint Proxy
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
143
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
FINANCIAL STATEMENTS
F-1
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
REPUBLIC SECURITY FINANCIAL CORPORATION
<S> <C>
Condensed Consolidated Statements of Financial Condition at
June 30, 1997 (unaudited) and December 31, 1996...............................................................F-4
Condensed Consolidated Statements of Income for the three
months ended June 30, 1997 and 1996 (unaudited)...............................................................F-5
Condensed Consolidated Statements of Income for the six
months ended June 30, 1997 and 1996 (unaudited)...............................................................F-6
Condensed Consolidated Statements of Shareholders' Equity
for the six months ended June 30, 1997 (unaudited)
and the year ended December 31, 1996..........................................................................F-7
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 (unaudited)...........................................................F-8
Notes to Condensed Consolidated Financial Statements (unaudited)................................................F-9
Report of Independent Certified Public Accountants.............................................................F-12
Consolidated Statements of Financial Condition at
December 31, 1996 and 1995...................................................................................F-13
Consolidated Statements of Income for the year ended December 31, 1996, the
nine-month transition period ended December 31, 1995 and for the year ended
March 31, 1995...............................................................................................F-14
Consolidated Statements of Shareholders' Equity for the year ended December 31,
1996, the nine-month transition period ended December 31, 1995 and for the
year ended March 31, 1995...................................................................................F-15
Consolidated Statements of Cash Flows for the year ended December 31, 1996, the
nine-month transition period ended December 31, 1995 and for the
year ended March 31, 1995...................................................................................F-16
Notes to Consolidated Financial Statements.....................................................................F-17
COUNTY FINANCIAL CORPORATION
Consolidated Balance Sheets at June 30, 1997
(unaudited) and December 31, 1996............................................................................F-45
Consolidated Statements of Income for the three and six months ended
June 30, 1997 and 1996 (unaudited)............................................................................F-46
Consolidated Statements of Stockholders' Equity for the three and six
months ended June 30, 1997 (unaudited).......................................................................F-47
Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 (unaudited)...........................................................................F-48
Notes to Unaudited Consolidated Financial Statements...........................................................F-49
Independent Auditors' Report...................................................................................F-50
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets at December 31, 1996 and 1995......................................................F-51
Consolidated Statements of Income for the years ended
December 31, 1996 and 1995 ..................................................................................F-52
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996 and 1995 ............................................................................F-53
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1995 ............................................................................F-54
Notes to Consolidated Financial Statements.....................................................................F-55
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
======================================================================================================================
JUNE 30, DECEMBER 31,
1997 1996
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Cash and amounts due from depository institutions $17,633 $17,642
Interest-bearing deposits in other financial institutions 28,351 34,430
Federal funds sold 8,000 13,025
----- ------
Cash and cash equivalents 53,984 65,097
Investments available-for-sale 81,782 49,670
Investments held-to-maturity (market value of $13,348 and $46,003 at
June 30, 1997 and December 31, 1996, respectively) 13,377 45,818
Loans receivable - net 434,653 400,574
Loans held for sale (market value of $7,850) 7,773
Property and equipment - net 15,191 14,289
Other real estate owned - net 517 1,499
Goodwill - net 7,391 7,675
Loan servicing rights - net 1,776 2,032
Accrued interest receivable 3,661 3,572
Other assets 12,527 9,160
- ----------------------------------------------------------------------------------------------------------------------
Total $624,859 $607,159
======================================================================================================================
Liabilities and Shareholders' Equity
Liabilities:
Deposits $488,206 $489,056
Federal Home Loan Bank Advances 41,000 30,000
Securities Sold Under Agreements to Repurchase 13,207 8,633
Advances from Borrowers for Taxes And Insurance 4,055 1,613
Bank Drafts Payable 5,300 3,778
Other Liabilities 8,489 7,915
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 560,257 540,995
- ----------------------------------------------------------------------------------------------------------------------
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 June 30, 1997
and December 31, 1996 10,350 10,350
Common Stock $.01 Par Value; 100,000,000 And 20,000,000 Shares Authorized
at June 30, 1997 And December 31, 1996, respectively;
16,147,107 and 15,532,664 Shares Issued and Outstanding At
June 30, 1997 and December 31, 1996, respectively 161 155
Additional Paid-in Capital 38,647 37,350
Retained Earnings 15,438 18,306
Unrealized Gain on Investments Available-for-sale, Net of Taxes 6 3
- ----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 64,602 66,164
- ----------------------------------------------------------------------------------------------------------------------
Total $624,859 $607,159
======================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
===================================================================================================================
THREE MONTHS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME: (Unaudited)
Interest and fees on loans $9,872 $9,282
Interest and dividends on investments 1,769 1,194
- -------------------------------------------------------------------------------------------------------------------
11,641 10,476
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 4,156 3,911
Interest on borrowings 622 69
- -------------------------------------------------------------------------------------------------------------------
4,778 3,980
- -------------------------------------------------------------------------------------------------------------------
Net interest income 6,863 6,496
Provision for loan losses 800 80
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 6,063 6,416
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain on sale of loans 137 266
Service charges on deposit accounts 1,043 1,014
Other income 536 397
- -------------------------------------------------------------------------------------------------------------------
1,716 1,677
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 3,085 2,805
Occupancy and equipment 1,073 880
Professional fees 274 308
Advertising and promotions 187 170
Communications 201 153
Data processing 191 207
Insurance 99 200
Other 1,159 765
Merger expenses 3,979
- -------------------------------------------------------------------------------------------------------------------
10,248 5,488
- -------------------------------------------------------------------------------------------------------------------
(Loss) income before taxes (2,469) 2,605
(Benefit) provision for income taxes (818) 975
- -------------------------------------------------------------------------------------------------------------------
Net (loss) income $(1,651) $1,630
===================================================================================================================
PER SHARE DATA:
Primary (loss) earnings per common share $(.11) $.09
Dividends per common share $ .04 $.03
Avg. common shares and common stock equivalents outstanding 16,008 15,526
===================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
===================================================================================================================
SIX MONTHS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME: (Unaudited)
Interest and fees on loans $19,213 $18,295
Interest and dividends on investments 3,583 2,556
- -------------------------------------------------------------------------------------------------------------------
22,796 20,851
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 8,227 7,818
Interest on borrowings 1,081 182
- -------------------------------------------------------------------------------------------------------------------
9,308 8,000
- -------------------------------------------------------------------------------------------------------------------
Net interest income 13,488 12,851
Provision for loan losses 825 155
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,663 12,696
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain on sale of loans 183 281
Gain on sale of investments available-for-sale 163
Service charges on deposit accounts 2,003 1,859
Other income 976 983
- -------------------------------------------------------------------------------------------------------------------
3,325 3,123
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 5,588 5,389
Occupancy and equipment 2,012 1,738
Professional fees 488 556
Advertising and promotions 323 316
Communications 380 339
Data processing 382 356
Insurance 160 320
Other 1,883 1,576
Merger expenses 3,979
- -------------------------------------------------------------------------------------------------------------------
15,195 10,590
- -------------------------------------------------------------------------------------------------------------------
Income before taxes 793 5,229
Provision for income taxes 297 1,898
- -------------------------------------------------------------------------------------------------------------------
Net income $496 $3,331
===================================================================================================================
PER SHARE DATA:
Primary earnings per common share $.01 $.18
Dividends per common share $.09 $.06
Avg. common shares and common stock equivalents outstanding 16,635 15,493
===================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
===================================================================================================================================
UNREALIZED
ADDITIONAL GAIN ON INVESTMENTS
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--Note 2) $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 (847)
Cash dividends paid by
pooled company - common stock (2,063)
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 options - 614,228 shares 6 1,270
Issuance of stock grants - 3,000 shares 27
Cash dividends - common stock (546)
Cash dividends paid by pooled company - common stock (2,456)
Cash dividends - preferred stock series "C" (362)
Net income 496
Change in unrealized gain on investments
available-for-sale, net of taxes 3
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 $10,350 $161 $38,647 $15,438 $6
===================================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
===================================================================================================================
SIX MONTHS JUNE 30,
(UNAUDITED)
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $496 $3,331
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 825 155
Depreciation 624 528
Amortization of goodwill 284 180
Gain on sale of loans -trading, loans and servicing (183) (281)
Loan costs deferred 166 145
Loans originated for sale (7,808) (7,014)
Sale of loans and loan participation certificates 22,583 15,313
Other - net 3,568 (2,070)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,555 10,287
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Cash and cash equivalents acquired in merger-net 15,235
Purchases of investments available-for-sale (11,665) (2,086)
Proceeds from sale and maturities of investments available-for-sale 17,305 1,457
Maturities and calls of investments held-to-maturity 3,492 12,020
Purchases of investments held-to-maturity (8,944) (13,768)
Net increase in loans (41,787) (4,903)
Purchases of property and equipment (2,531) (1,139)
Other - net (201) 1,217
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (44,331) 8,033
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts,
Money Market accounts and savings accounts (824) 9,401
Net decrease in certificates of deposit (26) (17,942)
Increase (decrease) in FHLB advances 11,000 (20,000)
Increase (decrease) in securities sold under agreements to repurchase 4,574 (2,265)
Cash dividend payments (3,364) (2,945)
Other - net 1,303 1,274
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 12,663 (32,477)
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (11,113) (14,157)
Cash and cash equivalents at beginning of period 65,097 69,647
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $53,984 $55,490
===================================================================================================================
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 $1,678,000 and
$1,880,000 in income taxes during the six months ended June 30, 1997 and 1996,
respectively. The Company paid $9,220,000 and $6,256,000 in interest on deposits
and other borrowings during the six months ended June 30, 1997 and 1996,
respectively. The Company had $895,000 and $736,000 of transfers from loans to
OREO during the six months ended June 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 six months ended June 30, 1996.
===================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 1997 and December 31, 1996, and the results
of operations for the three and six months ended June 30, 1997 and
1996, and changes in cash flows for the six 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 six months
ended June 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 of Republic Security Financial Corporation for the year
ended December 31, 1996 included elsewhere herein.
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. 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.
<TABLE>
<CAPTION>
===========================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE: (Unaudited) (Unaudited)
RSFC $7,796 $7,310 $15,351 $14,429
Family 5,561 4,843 10,770 9,545
- -----------------------------------------------------------------------------------------------------------
Combined $13,357 $12,153 $26,121 $23,974
===========================================================================================================
NET INCOME (LOSS):
RSFC (1) $(2,911) $655 $(2,045) $1,324
Family 1,260 975 2,541 2,007
- -----------------------------------------------------------------------------------------------------------
Combined $(1,651) $1,630 $496 $3,331
===========================================================================================================
</TABLE>
(1) The three and 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.
F-9
<PAGE>
3. POTENTIAL MERGER
On August 8, 1997, the Company and the Bank entered into a
definitive agreement with County Financial Corporation ("CFC") and
County National Bank of South Florida ("County") whereby 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 $238 million, $139 million, $210 million and $23 million,
respectively, at June 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 June 30, 1997, the Bank had $6.2 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 $825,000 and
$155,000 for the six months ended June 30, 1997 and 1996, respectively.
The increase in the provision for loan losses from the six months ended
June 30, 1996 compared to the six months ended June 30, 1997 is due to
the realignment of Family's loan loss reserve policy to that of the
Bank, an increase from December 31, 1996 of $1.6 million in non
performing loans associated with one single family residential loan and
a downgrade of a $330,000 commercial loan in the quarter ended June 30,
1997.
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 $4.8 million at
June 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
F-10
<PAGE>
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 June 30, 1997, the Bank had adjustable rate commitments to
extend credit of approximately $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
June 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.
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- -------------------------------------------------------------------------------
The Board of Directors and Shareholders
Republic Security Financial Corporation
We have audited the accompanying consolidated statements of financial
condition of Republic Security Financial Corporation and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the year ended December 31, 1996 , the
nine-month transition period ended December 31, 1995 and for the year ended
March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Republic Security Financial Corporation and subsidiaries at December 31, 1996
and 1995, and the consolidated results of their operations and their cash flows
for the year ended December 31, 1996, the nine-month transition period ended
December 31, 1995, and for year ended March 31, 1995, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
March 28, 1997, except for paragraph 1 of Note 2 as to
which the date is June 30, 1997 and
Note 20 as to which the date is August 8, 1997
F-12
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
======================================================================================================================
DECEMBER 31, DECEMBER 31,
(amounts in thousands except share and per share data) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $17,642 $12,435
Interest-bearing deposits in other financial institutions 34,430 51,162
Federal funds sold 13,025 6,050
------ -----
Cash and cash equivalents 65,097 69,647
Investments available-for-sale 49,670 12,550
Investments held to maturity (Market value of $46,003 and $36,066 at
December, 31, 1996 and 1995, respectively) 45,818 35,600
Loans receivable - net 400,574 360,803
Loans held for sale (Market value of $7,850) 7,773
Property and equipment - net 14,289 12,733
Other real estate owned - net 1,499 1,736
Goodwill - net 7,675 2,994
Loan servicing rights, net 2,032 2,546
Accrued interest receivable 3,572 3,216
Other assets 9,160 7,337
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $607,159 $509,162
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $489,056 $402,448
Federal Home Loan Bank advances 30,000 25,000
Securities sold under agreements to repurchase 8,633 7,280
Advances from borrowers for taxes and insurance 1,613 2,105
Bank drafts payable 3,778 3,155
Other liabilities 7,915 7,198
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 540,995 447,186
- ----------------------------------------------------------------------------------------------------------------------
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 December 31, 1996 and 1995, 10,350 10,350
respectively
Common stock $.01 par value; 20,000,000 shares authorized; 15,531,664 and
14,153,523 shares issued and outstanding at
December 31, 1996 and 1995, respectively 155 141
Additional paid-in capital 37,350 32,058
Retained earnings 18,306 15,262
Unrealized gain on investments available for sale, net of taxes 3 150
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 66,164 61,976
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $607,159 $509,162
======================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
=======================================================================================================================
YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1996 1995 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $36,793 $25,272 $26,298
Interest and dividends on investments 5,438 2,987 2,961
- -----------------------------------------------------------------------------------------------------------------------
42,231 28,259 29,259
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 15,985 10,677 9,859
Interest on borrowings 444 941 1,267
- -----------------------------------------------------------------------------------------------------------------------
16,429 11,618 11,126
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 25,802 16,641 18,133
Provision for loan losses 355 241 81
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 25,447 16,400 18,052
- -----------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 3,714 2,378 2,285
Gain on sale of loans and servicing 1,053 625 847
Mortgage trading income 290 329
Net gain (loss) on sale of investments available-for-sale 179 (12) (13)
Loss on sale of investments - trading (200)
Other income 1,993 1,350 1,201
- -----------------------------------------------------------------------------------------------------------------------
6,939 4,631 4,449
- -----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 10,161 6,659 8,007
Occupancy and equipment 3,733 2,385 2,403
Professional fees 963 773 842
Advertising and promotion 603 389 469
Communications 678 463 515
Data processing 731 359 541
Insurance 1,755 456 1,021
Other real estate owned - net 268 187 123
Goodwill amortization 471 165 73
Other 2,309 1,624 2,234
- -----------------------------------------------------------------------------------------------------------------------
21,672 13,460 16,228
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,714 7,571 6,273
Income taxes 3,874 2,697 2,119
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $6,840 $4,874 $4,154
- -----------------------------------------------------------------------------------------------------------------------
Income applicable to common stock $5,954 $4,545 $3,852
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Primary earnings per common share $.37 $.34 $.32
Fully diluted earnings per common share $.37 $.33 $.32
Dividends $.12 $.07 $.07
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES AND COMMON STOCK EQUIVALENTS OUTSTANDING:
Primary 15,952 13,434 11,973
Fully diluted 15,952 14,693 13,097
=======================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
==========================================================================================================================
UNREALIZED
APPRECIATION
ADDITIONAL ON 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>
BALANCE, MARCH 31, 1994 $4,025 $104 $18,962 $10,653
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 1 39
401(k) plan - 7,744 shares 35
Stock dividends - 686,621 shares 7 1,274 (1,281)
Cash dividends - common stock (217)
Cash dividends paid by pooled company - common (533)
stock
Cash dividends - preferred stock (302)
Net income 4,154
change in appreciation on investments
available-for-sale, net of taxes $(137)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 4,025 112 20,385 12,474 (137)
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 paid by pooled company - common (1,455)
stock
Cash dividends - preferred stock series "A" and "C" (329)
Net income for nine months ended
December 31, 1995 4,874
Change in appreciation on investments
available-for-sale, net of taxes 287
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 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 - 115,434 shares 1 238
Cash redemption of preferred stock series "A" (35)
Cash dividends - common stock (847)
Cash dividends paid by pooled company - common (2,063)
stock
Cash dividends - preferred stock series "A" and "C" (886)
Net income 6,840
Change in appreciation on investments available for
sale, net of taxes (147)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $10,350 $155 $37,350 $18,306 $3
==========================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
===================================================================================================================
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(AMOUNTS IN THOUSANDS) 1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $6,840 $4,874 $4,154
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects of purchase
Provision for loan losses 355 241 81
Depreciation and amortization 2,145 1,224 1,280
Deferred income taxes 73 324 336
Amortization of deferred loan fees and costs (329) (438) (320)
Gain on sale of loans and servicing (1,053) (625) (847)
Loans originated for sale (10,372) (28,280) (48,157)
Purchase of loans for sale (7,773) (8,572) (5,140)
Sale of loans and loan participation certificates 43,040 48,192 55,102
Proceeds from the sale of investments - trading 24,000
Loss on sale of investments - trading 200
Gain on sale of investments available-for-sale (191)
Other - net (1,676) (798) 1,471
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 31,059 16,142 32,160
- -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Cash and cash equivalents acquired in branch purchase, net 16,917
Cash and cash equivalents acquired in merger-net 15,235 1,819
Purchase of investments available-for-sale (60,974) (2,589) (7,729)
Proceeds from sale of investments available- for- sale 23,613 1,696 1,664
Maturities and calls of investments held to maturity 17,102 8,766 8,863
Purchases of investments held to maturity (27,248) (7,254) (8,089)
Loans purchased for investment (2,014) (1,861) (1,053)
Net increase in loans (35,274) (312) (38,727)
Purchase of property and equipment (2,474) (1,985) (5,145)
Purchase of loan servicing rights (2,322)
Other - net 2,421 493 1,596
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (69,613) 13,871 (49,123)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase in demand deposits, now accounts,
Money market accounts and savings accounts 37,455 7,258 (2,649)
Net (decrease) increase in time deposits (7,286) (35,660) 37,211
Proceeds from common and preferred stock offering - net of stock
issuance 19,404
Costs
Increase (decrease) in fhlb advances 5,227 10,000 (5,000)
Cash dividends (3,796) (2,086) (1,052)
Other - net 2,404 3,422 (396)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 34,004 2,338 28,114
- -------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (4,550) 32,351 11,151
Cash and cash equivalents at beginning of period 69,647 37,296 26,145
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $65,097 $69,647 $37,296
===================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Republic Security Financial Corporation (the "Company" or
"RSFC") is a commercial bank holding company, the principal business of
which is the operation of a commercial bank business through Republic
Security Bank (the "Bank"), its wholly owned subsidiary, a State
chartered commercial bank. The Bank is a member of the Federal Reserve
Bank and the Federal Home Loan Bank System ("FHLB"). Its deposits are
insured by the FDIC up to applicable limits. The Bank has seventeen
full-service branches, nine of which are located in Palm Beach County,
seven located in Broward County and one in Dade County, Florida. The
Bank's main business activities are attracting deposits, originating
loans, making investments and servicing loans for the Bank and for
others.
The accounting and reporting policies of Republic Security
Financial Corporation and its subsidiary conform to generally accepted
accounting principles. In preparing the consolidated financial
statements, management is required to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, and have been retroactively
restated to include the accounts and results of operations of Family
Bank that merged with the Bank on June 30, 1997 (See Note 2).
The following is a summary of the significant accounting
policies:
CHANGE IN FISCAL YEAR
During 1995, the Company changed its fiscal year end from
March 31 to December 31. Accordingly, the accompanying consolidated
financial statements present the audited consolidated statements of
income and cash flows for the nine month transition period ended
December 31, 1995, as well as for the years ended December 31, 1996 and
March 31, 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Republic Security Financial Corporation (the "Company" or "RSFC") and
its wholly-owned subsidiary, Republic Security Bank, (the "Bank"). All
significant intercompany balances and transactions have been eliminated
in consolidation.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, federal funds
sold and interest-bearing deposits in other financial institutions. The
Company paid income taxes of $3,734,000 during the year ended December
31, 1996, $2,513,000 during the nine months ended December 31, 1995,
and $1,995,000 during the year ended March 31, 1995. The Company paid
interest on deposits and other borrowings of $16,601,000 for the year
ended December 31, 1996, $12,752,000 for the nine months ended December
31, 1995 and $9,737,000 for the year ended March 31, 1995.
Approximately $1,396,000, $1,435,000 and $1,681,000 was transferred
from loans to OREO during the year ended December 31, 1996, the nine
months ended December 31, 1995 and the year ended March 31, 1995,
respectively. Assets of approximately $62,000,000 were acquired and
approximately $57,000,000 of liabilities were assumed related to the
merger of Banyan Bank during the year ended December 31, 1996 (see Note
2). As a result of the conversion of the redeemable subordinated
debentures, equity increased $1,751,000 in the nine months ended
December 31, 1995. During the nine months ended December 31, 1995, the
Bank received $12,300,000 in loans and assumed $30,300,000 in deposits
related to the Century Bank branch purchase (see Note 2). In addition,
assets of $64,307,000 were acquired and $62,310,000 liabilities assumed
related to the merger of Governors Bank during the year ended March 31,
1995 (see Note 2). As a result of the redemption of the Company's 7.5%
cumulative convertible preferred stock, Series "A", 982,995 shares of
the Company's common stock were issued in exchange for 398,000 shares
of the Series "A" preferred stock in the amount of $3,980,000.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVESTMENTS-TRADING
During the year ended March 31, 1995, certain investments were
held for resale in anticipation of short-term market movements. These
investments, which consisted of adjustable rate mortgage funds, were
stated at fair value and were all sold in the year ended March 31,
1995. Realized gains and losses on trading securities were included in
other non-interest income.
INVESTMENTS
Management determines the appropriate classification of debt
securities at the time of purchase. Debt securities are classified as
held to maturity when the Company has the positive intent and ability
to hold the securities to maturity. Held to maturity securities are
stated at amortized cost. Securities classified as available-for-sale
are to be held for indefinite periods of time and may be sold in
response to movements in market interest rates, changes in the maturity
mix of bank assets and liabilities or demand on liquidity. Securities
classified as available-for-sale are carried at fair value. Unrealized
gains and losses on these securities are excluded from earnings and are
reported as a separate component of shareholders' equity net of tax.
Interest income on debt securities is included in income using
the level yield method. Gains and losses on sales of securities are
determined on a specific identification basis.
LOANS RECEIVABLE-NET AND LOANS HELD FOR SALE
Loans receivable-net are stated at the principal amount
outstanding and are net of unearned purchased premiums or discounts,
deferred loan origination fees and costs, and the allowance for loan
losses. Certain loans are held for sale and are carried at the lower of
cost or market.
Interest on loans is accrued as earned. Amortization of
premiums and accretion of discounts are recognized as adjustments to
interest income over the lives of the related loans. The Bank defers
substantially all loan fees and direct costs associated with loan
originations. Deferred loan fees and costs are amortized as a yield
adjustment over the life of the loans.
NON-ACCRUAL LOANS
Generally, loans contractually past due 90 days or more are
placed on non-accrual and any previously accrued and unpaid interest is
charged against interest income. Loans remain on non-accrual status
until the obligation is brought current and has performed in accordance
with the terms of the loan for a reasonable period of time. In
addition, accrual of interest on loans less than 90 days past due is
discontinued when, in the opinion of management, reasonable doubt
exists as to the full, timely collection of interest or principal.
Interest income, at the effective rate of the loan, is recognized when
cash is received on impaired loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established by provision for
loan losses charged against earnings. Loans deemed to be uncollectible
are charged against the allowance for loan losses and subsequent
recoveries, if any, are credited to the allowance.
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
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Effective April 1, 1995, the Company adopted Financial
Accounting Standards Board Statement No. 114, "Accounting by Creditors
for Impairment of a Loan" (SFAS No. 114). This standard requires
impaired loans within the scope of SFAS No.114 be measured based on
discounted cash flows using the loan's effective interest rate or the
fair value of the collateral for collateral dependent loans. The
adoption of this statement did not have a material impact on the
operations of the Company.
All non-accrual loans, excluding smaller balance, homogeneous
loans (defined as consumer loans less than $100,000 and residential
mortgage loans), are considered to be impaired. In addition, management
may determine a performing loan to be impaired if, based on current
information and events, it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan
agreement.
In accordance with the Bank's classification policy, impaired
loan amounts in excess of the fair market value of the underlying
collateral for collateral dependent loans or the net present value of
future cash flows are charged off against the allowance for loan
losses.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets ranging from five to
twelve years for furniture and equipment and twenty-five years for
office buildings. Leasehold improvements are amortized over the lesser
of the remaining lease term or the estimated useful lives of the
assets. Repairs and maintenance are charged to expense and gains or
losses on disposals are credited or charged to earnings.
OTHER REAL ESTATE OWNED
In accordance with Statement No. 114, a loan is classified as
foreclosure when the Company has taken possession of the collateral
regardless of whether formal foreclosure proceedings take place.
Property acquired by foreclosure, or deed in lieu of foreclosure, is
recorded at the lower of the loan balance or estimated fair value less
estimated disposal costs at the time of foreclosure. Costs related to
the development and improvement of the property are capitalized,
whereas costs related to maintaining the property, net of income
received, are charged to other real estate owned expense. In addition,
any subsequent reductions in the valuation of the property is included
in other real estate owned expense.
The Bank follows the practice of reducing the carrying value
of individual properties in other real estate owned for any amounts in
excess of the fair value of properties less estimated disposal costs.
Provision for other real estate owned losses during the year ended
December 31, 1996, totaled $98,000, and is included in other real
estate owned expense in the consolidated statement of income. No
provisions for other real estate owned was recorded during the nine
months ended December 31, 1995 and $141,000 was recorded during the
year ended March 31, 1995.
GOODWILL
The Company assesses long lived assets and related goodwill
for impairment under FASB Statement No. 121. "ACCOUNTING FOR THE
IMPAIRMENT OF LONG LIVED ASSETS AND FOR LONG LIVED ASSETS TO BE
DISPOSED OF". Under those rules, goodwill associated with assets
acquired in a purchase business combination is included in impairment
evaluations when events or circumstances exist that indicate the
carrying amount of those assets may not be recoverable. The Company
amortizes goodwill over 15 years using the straight-line method.
Accumulated amortization was $739,000 and $268,000 at December 31, 1996
and 1995, respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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, if
dilutive, into 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.
INCOME TAXES
Income taxes have been provided using the liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes".
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option
grants in accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and, accordingly, recognizes no compensation
expense for the stock option grants.
RECLASSIFICATION
Certain amounts presented in the consolidated financial
statements for prior periods have been reclassified for comparative
purposes.
NEW ACCOUNTING PRONOUNCEMENTs
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.
The Financial Accounting Standards Board issued Statement
No.125, "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES"(SFAS No. 125), which requires an entity
to recognize the financial and servicing assets it controls and the
liabilities it has incurred and to derecognize financial assets when
control has been surrendered in accordance with the criteria provided
in the Statement. In accordance with SFAS No. 125, the Company will
apply the new rules prospectively to transactions beginning in the
first quarter of 1997. Based on current circumstances, the Company
believes the application of the new rules will not have a material
impact on the consolidated financial statements.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1995, the Financial Accounting Standard Board
issued Statement No. 123, "ACCOUNTING FOR STOCK BASED COMPENSATION"
(SFAS No. 123). The effect of applying the SFAS No. 123 fair value
method to the Company's stock options issued after December 15, 1994,
results in net income and earnings per share that are not materially
different from the amounts reported.
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (SFAS No. 121), which is
effective for fiscal years beginning after December 15, 1995. SFAS No.
121 requires losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the asset's carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of.
The Company adopted SFAS No. 121 in the first quarter of 1996. The
adoption of this statement did not have a material impact on the
financial condition, operations or cash flows of the Company.
2. MERGERS AND BRANCH ACQUISITION
On June 30, 1997, the Company acquired Family Bank, a
commercial bank headquartered in Hallandale, Florida, with six branch
locations in Broward County, Florida. Family Bank was mergered into the
Bank on June 30, 1997. The acquisition was accounted for as a
pooling-of-interest and resulted in the Bank acquiring assets of $256.0
million, liabilities of $234.2 million and equity of $21.8 million. All
information contained herein has been retroactively restated to include
the accounts and results of operations of Family Bank.
The results of operations previously reported by the separate
companies and the combined amounts presented in the accompanying
consolidated financial statements are summarized below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
(in thousands) DECEMBER 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
RSFC $29,480 $19,463 $19,287
Family 19,690 13,427 14,421
- -----------------------------------------------------------------------------------------------------
Combined $49,170 $32,890 $33,708
- -----------------------------------------------------------------------------------------------------
NET INCOME:
RSFC $2,400 $1,977 $1,167
Family 4,440 2,897 2,987
- -----------------------------------------------------------------------------------------------------
Combined $6,840 $4,874 $4,154
- -----------------------------------------------------------------------------------------------------
</TABLE>
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 shareholders' 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, with one full service branch located in Boynton
Beach, Florida.
The acquisition was accounted for as a purchase. Accordingly,
operations of Banyan Bank are included since the acquisition date.
Approximately $5,000,000 in goodwill was recorded, representing the
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchase price in excess of the fair value of the net assets acquired, and is
being amortized over 15 years using the straight-line method.
The following summarizes the fair value of the Banyan assets
acquired and liabilities assumed:
<TABLE>
<CAPTION>
==========================================================================================================
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Cash $24,936
Loans, net 35,704
Other assets 1,061
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 61,701
Deposits 56,439
Other liabilities 527
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 56,966
- ----------------------------------------------------------------------------------------------------------
NET ASSETS ACQUIRED $4,735
==========================================================================================================
</TABLE>
Pro forma financial information for Republic Security Financial Corporation
including the pre-merger results of operation of Family Bank for the nine months
ended December 31, 1995 and the year ended March 31, 1995, as if the Banyan Bank
merger had taken place as of January 1, 1995 and April 1, 1994 for income and
per share data is as follows:
<TABLE>
<CAPTION>
=========================================================================================================
NINE MONTHS ENDED YEAR ENDED
(IN THOUSANDS EXCEPT PER SHARE DATA) DECEMBER 31, 1995 MARCH 31, 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total interest income $31,376 $32,144
=========================================================================================================
Net interest income after provision for loan losses $18,061 $19,901
=========================================================================================================
Income before taxes $8,555 $6,955
=========================================================================================================
Net income $5,292 $4,494
=========================================================================================================
Net income per common share $.37 $.35
=========================================================================================================
</TABLE>
The pro forma data is for information purposes only and may not be
indicative of the results that actually would have occurred if the transaction
had been consummated on the dates indicated and should not be construed as being
representative of future periods.
In December, 1995 the Bank acquired the West Palm Beach branch office
of Century Bank, an unaffiliated thrift. In connection with the acquisition, the
Bank assumed approximately $30,300,000 of deposit liabilities and acquired
$29,200,000 of assets, including $12,300,000 of adjustable rate single family
residential loans and $16,900,000 in cash, net of $1,125,000 paid to the seller
for the transfer of such assets and liabilities to the Bank. The amount paid to
the seller is included in other assets in the consolidated statement of
financial condition at December 31, 1995 and is being amortized over seven years
using the straight-line method.
On November 30, 1994, the Bank acquired Governors Bank Corporation
(Governors) for $5,154,000, plus $153,000 in merger related costs. Governors was
a state chartered commercial bank headquartered in West Palm Beach, Florida. The
acquisition was accounted for as a purchase and approximately $3,300,000 in
goodwill was recorded, representing the purchase price in excess of the fair
value of the net assets acquired, and is being amortized over 15 years using the
straight-line method.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarizes the fair value of the Governors'
assets acquired and liabilities assumed:
<TABLE>
<CAPTION>
===========================================================================================================
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Cash $6,973
Investment securities 15,160
Loans, net 40,283
Other assets 1,891
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 64,307
- -----------------------------------------------------------------------------------------------------------
Deposits 58,140
Securities sold under repurchase agreements 2,515
Other liabilities 1,655
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 62,310
- -----------------------------------------------------------------------------------------------------------
NET ASSETS ACQUIRED $1,997
===========================================================================================================
</TABLE>
Pro forma financial information for RSFC, including
the pre-merger results of operation of Family Bank for the
year ended March 31, 1995, as if the merger had taken place as
of April 1, 1994, for income and per share data is as follows:
<TABLE>
<CAPTION>
==========================================================================================================
YEAR ENDED MARCH 31,
(IN THOUSANDS EXCEPT PER SHARE DATA) 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Total interest income $32,447
==========================================================================================================
Net interest income after provision for loan losses $19,761
==========================================================================================================
Income before taxes and cumulative effect of accounting change $6,800
==========================================================================================================
Net income $4,494
==========================================================================================================
Net income per common share $.35
==========================================================================================================
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The following is a summary of available-for-sale and held to
maturity securities at December 31, 1996 and 1995 and March 31, 1995:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
================================================================================================================
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED GAINS UNREALIZED LOSSES MARKET VALUE
COST
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency $11,179 $104 $58 $11,225
securities
Corporate and other debt 2,500 2,500
securities
Foreign Government securities 150 150
Mortgage backed securities 35,835 81 121 35,795
- ----------------------------------------------------------------------------------------------------------------
Total at December 31, 1996 $49,664 $185 $179 $49,670
- ----------------------------------------------------------------------------------------------------------------
U.S. Government and agency $10,279 $251 $36 $10,494
securities
Corporate and other debt
securities
Foreign Government securities 75 75
Mortgage backed securities 1,969 18 6 1,981
- ----------------------------------------------------------------------------------------------------------------
Total at December 31, 1995 $12,323 $269 $42 $12,550
- ----------------------------------------------------------------------------------------------------------------
U.S. Government and agency $10,112 $10 $86 $10,036
securities
Other Equity securities 189 189
Mortgage backed securities 1,234 33 1,201
- ----------------------------------------------------------------------------------------------------------------
Total at March 31, 1995 $11,535 $10 $119 $11,426
================================================================================================================
</TABLE>
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
HELD-TO-MATURITY
================================================================================================================
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED GAINS UNREALIZED LOSSES MARKET VALUE
COST
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency $24,901 $148 $71 $24,978
securities
Foreign Government securities 500 500
State and Municipal Securities 16,818 112 32 16,898
Mortgage backed securities 3,599 59 31 3,627
- ----------------------------------------------------------------------------------------------------------------
Total at December 31, 1996 $45,818 $319 $134 $46,003
- ----------------------------------------------------------------------------------------------------------------
U.S. Government and agency $18,077 $348 $11 $18,414
securities
Foreign Government securities 500 500
State and Municipal Securities 12,267 82 26 12,323
Mortgage backed securities 4,756 83 10 4,829
- ----------------------------------------------------------------------------------------------------------------
Total at December 31, 1995 $35,600 $513 $47 $36,066
- ----------------------------------------------------------------------------------------------------------------
U.S. Government and agency $21,533 $78 $10 $21,601
securities
Foreign Government securities 500 500
State and Municipal Securities 9,678 54 164 9,568
Other debt securities 500 2 498
Mortgage backed securities 4,536 15 87 4,464
- ----------------------------------------------------------------------------------------------------------------
Total at March 31, 1995 $36,747 $147 $263 $36,631
================================================================================================================
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated market value of debt
securities at December 31, 1996 by contractual maturity are shown
below:
<TABLE>
<CAPTION>
HELD TO MATURITY
==============================================================================================================
AMORTIZED MARKET
(IN THOUSANDS) COST VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in 1 year or less $7,626 $7,635
Due after 1 through 5 years 27,378 27,473
Due after 5 years through 10 years 7,116 7,165
Due after 10 years 99 103
- --------------------------------------------------------------------------------------------------------------
$42,219 $42,376
- --------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 3,599 3,627
- --------------------------------------------------------------------------------------------------------------
Total $45,818 $46,003
==============================================================================================================
AVAILABLE-FOR-SALE
==============================================================================================================
AMORTIZED MARKET
(IN THOUSANDS) COST VALUE
- --------------------------------------------------------------------------------------------------------------
Due in 1 year or less $8,045 $8,032
Due after 1 through 5 years 5,634 5,693
Due after 5 years through 10 years 75 75
Due after 10 years 75 75
- --------------------------------------------------------------------------------------------------------------
$13,829 $13,875
- --------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 35,835 35,795
- --------------------------------------------------------------------------------------------------------------
TOTAL AT DECEMBER 31, 1996 $ 49,664 $ 49,670
==============================================================================================================
</TABLE>
The anticipated maturities for mortgage-backed securities are
not readily determinable since they may be prepaid without penalty.
At December 31, 1996 and 1995 securities with a book value of
$49,737,000 and $21,779,000 respectively, were pledged to collateralize
Federal Home Loan Bank advances, repurchase agreements, public deposits
and other items.
Realized losses on trading securities for the year ended March
31, 1995, amounted to $200,000 and is included in other non-interest
income. Gross realized gains on securities available-for-sale amounted
to $191,000 for the year ended December 31, 1996. Gross realized losses
on securities available-for-sale amounted to $12,000, $12,000 and
$13,000 for the year ending December 31, 1996, the nine months ended
December 31, 1995, and the year ended March 31, 1995, respectively.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LOANS RECEIVABLE - NET
Loans receivable - net is summarized as follows:
<TABLE>
<CAPTION>
=============================================================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Residential mortgage $150,911 $164,999
Commercial mortgage 138,674 90,648
Real estate construction 33,785 40,340
Installment loans to individuals 58,326 51,284
Commercial and financial 37,895 30,916
- -------------------------------------------------------------------------------------------------------------
TOTAL LOANS 419,591 378,187
- -------------------------------------------------------------------------------------------------------------
Deferred loan fees (679) (1,219)
Undisbursed portion of loans-in-process (14,462) (12,420)
Allowance for loan losses (3,876) (3,745)
- -------------------------------------------------------------------------------------------------------------
LOANS RECEIVABLE - NET $400,574 $360,803
=============================================================================================================
=============================================================================================================
</TABLE>
5. NON-PERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 1996, 1995 and March 31, 1995, the Bank had
$4,472,000, $3,533,000, and $3,228,000, respectively, in non-performing
loans. Interest income not recognized on non-performing loans was
$173,000 during the year ended December 31, 1996, $221,000 during the
nine months ended December 31, 1995 and $74,000 for the year ended
March 31, 1995, respectively.
At December 31, 1996, 1995, and March 31, 1995 the recorded
investment in loans that are considered to be impaired under SFAS No.
114 was $2,569,000, $1,674,000, and $2,372,000, respectively. The
related allowance for credit losses for such loans is $175,000,
$85,000, and $146,000 at December 31, 1996, 1995 and March 31, 1995,
respectively. The average recorded investment in impaired loans during
the year ended December 31, 1996 was approximately $2,500,000. The
average recorded investment in impaired loans for the nine months ended
December 31, 1995 and year ended March 31, 1995 is $2,476,000 and
$1,668,000, respectively. For the year ended December 31, 1996, the
nine months ended December 31, 1995 and the year ended March 31, 1995,
the Company recognized $137,500, $105,600, and $100,000, respectively,
in interest income on impaired loans.
Although management uses its best judgement in underwriting
each loan, industry experience indicates that a portion of the Bank's
loans will become delinquent. Regardless of the underwriting criteria
utilized by financial institutions, losses may be experienced as a
result of many factors beyond their control including, among other
things, changes in market conditions affecting the value of security
and unrelated problems affecting the credit of the borrower. Due to the
concentration of loans in South Florida, adverse economic conditions in
this area could result in a decrease in the value of a significant
portion of the Bank's collateral.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
An analysis of changes in the allowance for loan losses is
summarized as follows:
<TABLE>
<CAPTION>
==============================================================================================================
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $3,745 $3,845
Reserves acquired in connection with merger 374
Provision for losses 355 241
Recoveries 297 651
Charge-offs (895) (992)
- -------------------------------------------------------------------------------------------------------------
ENDING BALANCE $3,876 $3,745
==============================================================================================================
</TABLE>
6. CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS
The Bank is required to maintain a non-interest-bearing
reserve balance with the Federal Reserve Bank. The average reserve
balance requirement was approximately $4,113,000 for the year ended
December 31, 1996.
7. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
==============================================================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $10,572 $9,871
Furniture and equipment 5,932 4,310
Leasehold improvements 1,703 1,411
- --------------------------------------------------------------------------------------------------------------
TOTAL 18,207 15,592
Less accumulated depreciation and amortization 3,918 2,859
- --------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT-NET $14,289 $12,733
==============================================================================================================
</TABLE>
Rent expense for the year ended December 31, 1996 was
$1,050,000. Rent expense for the nine months ended December 31, 1995
and the year ended March 31, 1995 was $635,000 and $634,000,
respectively. (See Note 14 for rent expense to related parties).
8. MORTGAGE BANKING ACTIVITIES
The Bank is engaged in the business of acquiring the rights to
service mortgage loans for others. The costs incurred to acquire such
rights are capitalized and amortized in proportion to, and over the
period of, the estimated net servicing income (servicing revenue in
excess of servicing costs) and are reflected on the consolidated
statements of financial condition as loan servicing rights.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 as of April 1, 1995, for the
nine months ended December 31, 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. To
determine the fair value of servicing rights created after the adoption
of Statement No. 122, the Company used 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 year ended December 31,
1996 and the nine months ended December 31, 1995 as mortgage banking
activities during the period were insignificant.
In determining servicing value impairment at December 31, 1996
and 1995, the mortgage servicing rights were disaggregated into
predominant risk characteristics. The company has determined those risk
characteristics to be loan interest rate, loan type and investor type.
These segments of the portfolio were then valued using a valuation
model that calculates the present value of future cash flows to
determine the fair value of the servicing rights using current
assumptions. The calculated value was then compared with the book value
of each segment to determine if a reserve for impairment was required.
The fair value of mortgage servicing rights at December 31, 1996 and
1995 is $2,253,000 and $2,670,000, respectively.
At December 31, 1996 and 1995, the Bank serviced mortgage
loans for others in the amount of $277,000,000 and $307,000,000,
respectively. Accumulated amortization relating to loan servicing
rights was $5,740,000, $5,226,000, and $4,976,000 at December 31, 1996,
1995, and March 31, 1995, respectively.
The amount capitalized and amortized relating to loan
servicing rights for the year ended December 31, 1996, the nine months
ended December 31, 1995 and the year ended March 31, 1995, are shown
below:
<TABLE>
<CAPTION>
===========================================================================================================
(in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
BALANCE MARCH 31, 1994 $ 775
Amount capitalized 2,322
Amortization (301)
- -----------------------------------------------------------------------------------------------------------
BALANCE MARCH 31, 1995 2,796
Amortization (250)
- -----------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 2,546
Amortization (514)
- -----------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 $2,032
===========================================================================================================
</TABLE>
There were no sales of servicing during the year and nine
months ended December 31, 1996 and December 31, 1995. The amount of
aggregate gains on sales of servicing included in operations for the
year ended March 31, 1995 was $299,000.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DEPOSITS
Components of deposits were as follows:
<TABLE>
<CAPTION>
=============================================================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-interest bearing accounts $ 85,925 $ 70,519
NOW and money market accounts 128,121 94,749
Saving deposits 58,812 42,525
Time certificates less than $100,000 160,779 158,391
Time certificates $100,000 or more 55,419 36,264
- -------------------------------------------------------------------------------------------------------------
TOTAL $489,056 $402,448
=============================================================================================================
</TABLE>
The Bank incurred interest on deposits as follows:
<TABLE>
<CAPTION>
==============================================================================================================
YEAR ENDED, NINE MONTHS YEAR ENDED
ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(IN THOUSANDS) 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings accounts $1,724 $660 $838
NOW accounts 962 825 923
Money market deposit accounts 1,875 1,015 1,310
Certificate accounts 11,424 8,177 6,788
- --------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $15,985 $10,677 $9,859
==============================================================================================================
</TABLE>
The amounts and maturities of certificate accounts at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
==============================================================================================================
(IN THOUSANDS):
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Within 12 months $183,213
12 to 24 months 20,864
24 to 36 months 4,165
36 to 48 months 6,791
Over 48 months 1,165
- --------------------------------------------------------------------------------------------------------------
TOTAL $216,198
==============================================================================================================
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amounts and scheduled maturities of certificate accounts
in the amount of $100,000 or more at December 31, 1996 are as follows
(IN THOUSANDS):
<TABLE>
<CAPTION>
===========================================================================================================
<S> <C>
Within 3 months $31,103
3 to 6 months 7,935
6 to 12 months 11,579
Over 12 months 4,802
- -----------------------------------------------------------------------------------------------------------
TOTAL $55,419
===========================================================================================================
</TABLE>
10. BORROWED MONEY
The Bank has entered into an agreement with the Federal Home
Loan Bank ("FHLB") which enables the Bank to obtain advances that are
collateralized by FHLB stock and mortgage loans. In accordance with the
agreement, the Bank has pledged, as collateral, loans with principal
balances of approximately $35,000,000 and $42,000,000 at December 31,
1996 and 1995, respectively and mortgage-backed securities of
$25,600,000 at December 31, 1996. Based on the current pledged loan
amount, the Bank's borrowing limit is approximately $39 million with a
remaining borrowing capacity of $9,000,000 at December 31, 1996. The
Bank also has the ability to draw on existing lines of credit with two
commercial banks for an aggregate amount of $6.5 million. No amounts
were drawn on these lines at December 31, 1996 and 1995. Outstanding
advances from the Federal Home Loan Bank consisted of the following:
<TABLE>
<CAPTION>
========================================================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995 INTEREST RATE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
MATURE DURING
1996 $25,000 5.91% variable
1997 $5,000 6.95% variable
2001 25,000 5.61% fixed
- --------------------------------------------------------------------------------------------------------
Total $30,000 $25,000
========================================================================================================
</TABLE>
Effective December 20, 1999 and each quarter thereafter, the
FHLB has the option to convert the $25,000,000 fixed rate advance to a
three month LIBOR-based floating rate advance at the then current three
month LIBOR. If the FHLB elects to convert the advance, then the Bank
will have the option to terminate the advance without a prepayment fee.
Notes payable of $380,000 included in other liabilities
consists of capital notes, bearing interest at 9% per annum, payable
semi-annually. The notes become due and payable on January 1, 2004 and
are subordinate to existing and future indebtedness of the Bank.
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%
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the principal amount of the Debenture. As a result of the
conversion, 634,476 shares of Common Stock were issued, and
shareholders' equity increased by $1,751,000.
The Bank enters into sales of securities under agreements to
repurchase. Variable rate reverse repurchase agreements are treated as
financings, and the obligations to repurchase securities sold are
reflected as liabilities in the consolidated statement of financial
condition at December 31, 1996 and 1995. Securities sold under
agreements to repurchase are collateralized by U.S. Government Treasury
notes and U.S. Government agency notes with an aggregate carrying value
of $12,434,000, accrued interest of $199,000, and a market value of
$13,068,000 at December 31, 1996. The aggregate carrying value of
securities pledged at December 31, 1995 was $11,558,000, accrued
interest of $99,000 with a market value of $11,797,000. All agreements
mature daily and have a weighted interest rate of 4.49% at December 31,
1996. All securities underlying agreements are held by an independent
safekeeping agent and all agreements are to repurchase the same
securities. Securities sold under agreements to repurchase averaged
$5,887,000 during the year ended December 31, 1996 and $4,979,000
during the nine months ended December 31, 1995. The maximum amount
outstanding at any month-end during the year ended December 31, 1996
was $8,909,000 and the maximum outstanding at any month-end during the
nine months ended December 31, 1995 was $7,581,000.
11. SHAREHOLDERS' EQUITY
The Company's ability to pay cash dividends on its Common
Stock is limited to the amount of dividends it could receive from the
Bank plus its own cash and cash equivalents. At December 31, 1996,
these amounts were $15,644,000 and $9,068,000, respectively. The amount
of dividends the Bank is permitted to pay to the Company is restricted
by regulation to 100% of its calendar year to date net income plus net
profits for the preceding two years. With the approval of the Florida
Department of Banking and Finance (the "Department"), the Bank may
declare a dividend from retained net profits which accrued prior to the
preceding two years, but, first, 20% of the net profits for the
preceding period as is covered by the dividend must be transferred to
the surplus fund of the Bank until the fund at least equals the amount
of the Bank's Common Stock then issued and outstanding. In addition,
the Bank shall not declare any dividend if its net income from the
current year, combined with the retained net income for the preceding
two years, is a loss or if the dividend would cause the capital account
of the Bank to fall below the minimum amount required by law,
regulation, order, or any written agreement with the Department or a
federal regulatory agency. The Bank paid $3,796,000, and $2,086,000 in
dividends to the Company during the year ended December 31, 1996 and
nine months ended December 31, 1995, respectively.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The balance, activity, exercise price, and expiration dates of
the Company's options for the year ended December 31, 1996, the nine
months ended December 31, 1995 and the year ended March 31, 1995 are as
follows:
<TABLE>
<CAPTION>
===================================================================================================================================
OPTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE MARCH 31, 1994 1,334 80,707 97,024 35,750 57,200 42,000 19,390
Issued 6,000 1,199,627
Expired (3,622)
Exercised (1,334) (2,003) (1,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE MARCH 31,
1995 6,000 0 78,704 97,024 35,750 57,200 42,000 1,199,627 14,768
Issued
Exercised (2,668)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31,
1995 6,000 0 76,036 97,024 35,750 57,200 42,000 1,199,627 14,768
Issued 95,810
Exercised (7,150) (103,662) (4,622)
Forfeited (9,880)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31,
1996 6,000 0 76,036 97,024 35,750 50,050 42,000 1,086,085 95,810 10,146
===================================================================================================================================
Exercise Price $5.00 $2.08 $2.62 $2.48 $1,14 $1.65 $3.33 $2.08 $2.46 $2.50
Expiration
Date 12/31/97 2/24/98 2/24/98 9/25/01 10/24/01 3/14/03 6/1//03 4//14/0414 9/266/06 *
- -----------------------------------------------------------------------------------------------------------------------------------
* 4,622 options expire annually
===================================================================================================================================
</TABLE>
The balance, activity, exercise price, and expiration dates of
the Company's warrants, and equity contracts for the year ended
December 31, 1996, the nine months ended December 31, 1995 and the year
ended March 31, 1995 are as follows:
<TABLE>
<CAPTION>
===============================================================================================================
EQUITY
WARRANTS CONTRACTS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE MARCH 31, 1994 165,216 511,153 674,754
Issued
Expired
Exercised (13,786)
- ---------------------------------------------------------------------------------------------------------------
BALANCE MARCH 31, 1995 165,216 511,153 660,968
Issued
Exercised (211,300) (634,476)
Canceled (26,492)
- ---------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 165,216 299,853 0
Expired (31,727)
Exercised (268,126)
- ---------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 165,216 0 0
===============================================================================================================
Exercise Price $5.00 $3.90 $2.90
Expiration Date 11/1/00 1/22/96 5/1/96
===============================================================================================================
</TABLE>
In addition to the stock options listed above, options to
purchase 10,000 shares at $6.50 per share are outstanding at December
31, 1996 for which the vesting terms had not been met.
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All the warrants and equity contracts listed in the table
above were exercisable from the date issued. Options with exercise
prices of $2.48, $2.62, $2.08 and $3.33 were exercisable from the date
issued. Options with an exercise price of $2.50 are exercisable at
various dates in accordance with an employment contract.
Options with exercise prices of $1.14, $1.65, $2.08 (expiration 2004)
and $2.46 were exercisable one year from the date issued.
The price of all options, warrants and equity contracts issued
was equal to the market value of the stock at the time of issuance.
Accordingly, no compensation expense was recognized.
The Company issued 10%, 5% and 10% stock dividends in June
1994, January 1994, and April 1993, respectively. All references in the
consolidated financial statements and notes to amounts per common share
and to number of common shares have been restated to give retroactive
effect for these stock dividends.
As of December 20, 1995, the Company awarded stock
appreciation rights ("SARs") to two executives and to its non-employee
directors. The SARs vest and become exercisable as follows:
<TABLE>
<CAPTION>
===================================================================================================================================
BASE PRICE
DATE SARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JANUARY 1, 1997 220,000 $5.75
JANUARY 1, 1998 620,000 $8.00
===================================================================================================================================
</TABLE>
All unexercised SARs expire on January 1, 2006. Compensation
expense, equal to the difference in the market price of the Company's
common stock and the base price of the SARs, will be recognized on the
vesting date and adjusted in subsequent periods for changes in the
market price.
In November 1995, the Company issued 2,070,000 and 1,035,000
shares of Common and non-voting Series C Preferred Stock, respectively.
Each share of Series C Preferred Stock can be converted at any time, at
the option of the holder, into 1.55 shares of the Company's Common
Stock at a conversion price of $6.45 per common share. The Series C
Preferred Stock bears a dividend rate of 7.0% on its stated value of
$10.00 per share. The Series C Preferred Stock can be redeemed at the
Company's option any time after November 30, 1999 at a redemption price
ranging from $10.00 per share to $10.42 per share, subject to certain
events. The Series C Preferred Stock can also be redeemed by the
Company prior to November 30, 1999 if the Common Stock has a closing
bid price which is at least 140% of the conversion price for 20
consecutive trading days prior to the date of the notice of redemption.
On June 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.
In the year ended March 31, 1995, the Company adopted a
shareholder rights plan. Under the terms of the plan, preferred share
purchase rights will be distributed as a dividend at the rate of one
right for each share of Common Stock. Each right will entitle the
holder to buy 1/100th of a share of Series B Junior Participating
Preferred Stock at an exercise price of $18.00 per share. Each
preferred share fraction will have voting and dividend rights
equivalent to one common share. The rights become exercisable upon the
occurrence of certain events as defined in the Shareholder Rights Plan
and expire April 4, 2005. As of December 31, 1996, the Shareholder
Rights Plan requires 6,587,653 shares of Common Stock.
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CAPITAL COMPLIANCE
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possible
additional discretionary, action by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to quantitative judgements by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain minimum
amounts and ratios of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1
capital (as defined) to average assets (as defined). As of December 31,
1996, the Company and the Bank exceeded all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from the
Federal Reserve Bank categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total risk-based, Tier
1 risk-based, and Tier 1 leverage ratios as set forth in the following
table. There are no actual conditions or events since that notification
that management believes have changed the Bank's category.
The following table shows the actual capital amounts and
ratios of the Bank, minimum capital requirements and well capitalized
requirements:
<TABLE>
<CAPTION>
=====================================================================================================================
MINIMUM FOR MINIMUM FOR
ACTUAL CAPITAL ADEQUACY WELL CAPITALIZED
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total risk based $52,729 13.4% $31,440 8.0% $39,300 10.0%
capital
Tier 1 risk based 48,472 12.3 15,720 4.0 23,580 6.0
capital
Leverage capital 48,472 9.0 21,485 4.0 26,855 5.0
As of December 31, 1995:
Total risk based 44,902 13.1 27,455 8.0 34,320 10.0
capital
Tier 1 risk based 40,846 11.9 13,725 4.0 20,590 6.0
capital
Leverage capital 40,846 8.7 18,705 4.0 23,380 5.0
=====================================================================================================================
</TABLE>
The following table shows the capital amounts and ratios of the Company:
<TABLE>
<CAPTION>
===============================================================================================================
ACTUAL
(DOLLARS IN THOUSANDS) AMOUNT RATIO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
As of December 31, 1996:
Total risk based capital $61,530 14.8%
Tier 1 risk based capital 57,276 13.8
Leverage capital 57,276 10.7
As of December 31, 1995:
Total risk based capital 62,966 18.3
Tier 1 risk based capital 54,302 15.8
Leverage capital 54,302 11.6
===============================================================================================================
</TABLE>
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments primarily include commitments to
extend credit.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments is represented by
the contractual notional amount of those instruments. The Bank uses the
same credit policies in making commitments as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require 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 December 31, 1996, the Bank had adjustable rate commitments to extend
credit and standby letters of credit of $52,244,000, excluding the
undisbursed portion of loans-in-process. These commitments are primarily
for commercial lines of credit secured by commercial real estate or other
business assets and one-to-four family residential properties.
The Company and its subsidiaries have entered into noncancellable
operating leases (See Note 14 for related party transactions) with future
minimum lease payments of the following:
<TABLE>
<CAPTION>
===============================================================================================================
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
1997 $1,051
1998 817
1999 545
2000 345
2001 310
THEREAFTER 2,231
- --------------------------------------------------------------------------------------------------------------
$5,299
===============================================================================================================
</TABLE>
Certain leases contain provisions for renewal and for rents to
adjust with the consumer price index. In addition, the Company
subleases portions of the leased space. Future minimum lease payments
to be received by the Company amounts to $54,000, $54,000 and $22,000
in 1997, 1998 and 1999, respectively.
The Company has a non-qualified unfunded retirement plan for
three present executives and one former executive of the Company.
Pension costs, consisting of service costs and interest costs, amounted
to $141,000, $90,000, and $90,000, for the year ended December 31,
1996, the nine months ended December 31, 1995 and for the year ended
March 31, 1995, respectively. The retirement benefit to the employee
will range between 30% to 70% of his or her average base salary for the
last three years of employment and will commence no earlier than age 55
nor later than age 62. A discount rate of 7% and a rate of compensation
increase of 4% is used to measure the projected benefit obligation. The
net pension liability (all vested) at December 31, 1996 and 1995 was
$821,000 and $645,000, respectively.
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1991, the Company established a 401(k) plan
covering substantially all employees. The employer contribution to the
401(k) plan is determined annually by the Board of Directors. Expense
under the plan for the year ended December 31, 1996, the nine months
ended December 31, 1995 and the year ended March 31, 1995 amounted to
$228,000, $134,000, and $174,000, respectively.
The Company has employment agreements with two executives
which provide for severance arrangements in the event of involuntary
termination from a change in control (as defined) of the Company.
In addition to the above commitments and contingencies, there
are various matters of litigation pending against the Company that
management has reviewed with legal counsel. In the opinion of
management of the Company, 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.
14. RELATED PARTY TRANSACTIONS
A Director of the Company and the Bank owns an appraisal firm
which receives fees from the Bank for appraisals of real estate
relating to various residential loan transactions. During the year
ended December 31, 1996, the nine months ended December 31, 1995 and
the year ended March 31, 1995, such fees aggregated approximately
$50,000, $58,000, and $140,000, respectively.
The Bank leases two of its branch locations from entities with
which board members are directly affiliated. The leases have been
accounted for as operating leases. These leases provide for agreed-upon
rent increases over the lease terms, expire through 2018, and generally
contain renewal options. During the year ended December 31, 1996, the
nine months ended December 31, 1995, and the year ended March 31, 1995,
the Bank paid the related parties approximately $165,000, $115,000 and
$150,000, respectively, under the terms of the leases. The Bank leases
one other branch under a lease which has been accounted for as an
operating lease. This lease provides for scheduled rent increases over
the lease term, expires in 2000, and contains a renewal option.
An analysis of the activity of the aggregate loans to officers
and directors is as follows:
<TABLE>
<CAPTION>
============================================================================================================
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Balance March 31, 1994 $2,307
Additions 567
Principal Reductions (463)
- -----------------------------------------------------------------------------------------------------------
Balance March 31, 1995 $2,411
Additions 796
Principal Reductions (473)
- -----------------------------------------------------------------------------------------------------------
Balance December 31, 1995 $2,734
Additions 470
Principal Reductions (1,098)
- -----------------------------------------------------------------------------------------------------------
Balance December 31, 1996 $2,106
===========================================================================================================
</TABLE>
15. FEDERAL DEPOSIT INSURANCE CORPORATION SPECIAL SAVINGS ASSOCIATION
INSURANCE FUND ASSESSMENT
On September 30, 1996, President Clinton signed into law a
bill which called for a one-time Federal Deposit Insurance Fund (FDIC)
premium for deposits insured by the Savings Association Insurance Fund.
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Republic Security Bank's one-time premium expense associated with the
bill was $1,154,000, which is reflected in insurance expense in the
December 31, 1996 consolidated statement of income.
16. INCOME TAXES
Net deferred tax assets are included in other assets on the
consolidated balance sheets at December 31, 1996 and 1995. Significant
components of the Company's deferred tax assets and liabilities as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
=============================================================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Net Operating Loss $878 $993
Loan Loss Provision 594 399
Deferred Compensation 165 128
Accrued Expenses 9
Investment Basis 33
Oreo Expenses 90 149
Other 13 42
- -------------------------------------------------------------------------------------------------------------
1,740 1,753
Valuation Allowance (699) (1,136)
- -------------------------------------------------------------------------------------------------------------
Deferred Tax Assets, Net Of Allowance 1,041 617
Deferred Tax Liabilities:
Excess Servicing Rights 107 197
Depreciation 106 56
Deferred Loan Fees 49 24
- -------------------------------------------------------------------------------------------------------------
Total 262 277
- -------------------------------------------------------------------------------------------------------------
Net Deferred Tax Asset $779 $340
=============================================================================================================
</TABLE>
Significant components of the provision for income taxes for
the year ended December 31, 1996, the nine months ended December 31,
1995 and the year ended March 31, 1995, are as follows:
<TABLE>
<CAPTION>
==============================================================================================================
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(IN THOUSANDS) 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $3,256 $2,036 $1,576
State 545 337 207
- --------------------------------------------------------------------------------------------------------------
3,801 2,373 1,783
- --------------------------------------------------------------------------------------------------------------
Deferred (benefit):
Federal 63 308 298
State 10 16 38
- --------------------------------------------------------------------------------------------------------------
73 324 336
$3,874 $2,697 $2,119
==============================================================================================================
</TABLE>
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of income tax expense with the amount
computed by applying the statutory federal income tax rate of 34% to
income before income taxes is as follows for the year ended December
31, 1996, the nine months ended December 31, 1995 and the year ended
March 31, 1995:
<TABLE>
<CAPTION>
==============================================================================================================
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(IN THOUSANDS) 1996 1995 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Taxes At Federal Rate $3,642 $2,574 $2,133
Differences Resulting From:
State Income Taxes, Net Of Federal Tax Benefit 360 263 163
Amortization Of Goodwill 160 56 10
Tax Exempt Investment Income (253) (153) (234)
Other, Net (35) (43) 47
- -------------------------------------------------------------------------------------------------------------
Income Taxes $3,874 $2,697 $2,119
==============================================================================================================
</TABLE>
As of December 31, 1996, the Company had net operating loss
carryforwards, acquired in connection with mergers, of approximately
$2,334,000 for income tax purposes that expire over various time
periods through the year 2008. As a result of the ownership changes,
the utilization of these net operating loss carryforwards is limited
annually to specified amounts determined in accordance with the
Internal Revenue Code. At December 31, 1996, a valuation allowance of
approximately $699,000 is recorded primarily to offset the deferred tax
assets related to the net operating loss carryforwards resulting from
the Governors merger. If realized, the tax benefit for these operating
loss carryforwards will be applied to reduce goodwill related to this
merger. Goodwill was reduced $320,000 in 1996 due to the tax benefit
from the utilization of the Governors net operating loss carryforward.
F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. PARENT COMPANY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
=============================================================================================================
STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments In And Advances To Subsidiaries $57,335 $43,705
Cash And Cash Equivalents 9,068 18,505
Other Assets 81 45
- -------------------------------------------------------------------------------------------------------------
Total $66,484 $62,255
- -------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity:
Accounts Payable And Accrued Expenses $323 $429
Shareholders' Equity:
Preferred Stock 10,350 14,365
Common Stock 155 141
Additional Paid-in-capital 37,350 32,058
Retained Earnings 18,306 15,262
- -------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 66,161 61,826
- -------------------------------------------------------------------------------------------------------------
TOTAL $66,484 $62,255
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================================
STATEMENTS OF INCOME YEAR ENDED NINE MONTHS YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31, MARCH 31,
(IN THOUSANDS) 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest $447 $196 $410
Other 123 134 96
- --------------------------------------------------------------------------------------------------------------
Total 570 330 506
- --------------------------------------------------------------------------------------------------------------
Expenses:
Interest 31 240
General And Administrative 293 207 278
- --------------------------------------------------------------------------------------------------------------
Total 293 238 518
Income (Loss) Before Equity In Undistributed
Earnings Of Subsidiaries And Income Tax
Expense (Benefit) 277 92 (12)
Income Tax Expense (Benefit) 101 33 (5)
- --------------------------------------------------------------------------------------------------------------
Income (Loss) Before Equity In Undistributed Earnings
Of Subsidiaries 176 59 (7)
Equity In Undistributed Earnings Of
Subsidiaries 6,664 4,815 4,161
- --------------------------------------------------------------------------------------------------------------
Net Income $6,840 $4,874 $4,154
==============================================================================================================
</TABLE>
F-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
====================================================================================================================
STATEMENTS OF CASH FLOWS YEAR ENDED NINE MONTHS ENDED YEAR ENDED
(in thousands) DECEMBER 31, DECEMBER 31, 1995 MARCH 31, 1995
1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $6,840 $4,874 $4,154
Adjustments to reconcile net income to net
cash provided by operating activities:
Dividends received from Bank 3,673 1,985 1,068
Other (104) 472 (256)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,409 7,331 4,966
- --------------------------------------------------------------------------------------------------------------------
Investing Activities:
Additional investment in subsidiary (17,082) (7,815) (5,661)
Purchase of Governors Bank subsidiary (5,154)
Other, net (148)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (17,082) (7,815) (10,963)
- --------------------------------------------------------------------------------------------------------------------
Financing Activities:
Sale of common and preferred
stock, net of stock issuance costs 19,404
Cash dividends (3,796) (2,086) (1,052)
Other, net 1,032 653 113
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing (2,764) 17,971 (939)
activities
- --------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash (9,437) 17,487 (6,936)
equivalents
Cash and cash equivalents at beginning of 18,505 1,018 7,954
period
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $9,068 $18,505 $1,018
====================================================================================================================
</TABLE>
18. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following is a disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet
for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. Certain financial
instruments and all non-financial instruments are excluded from its
disclosure requirements. Accordingly, the aggregate fair value amount
presented does not represent the underlying value of the Company.
F-41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following methods and assumptions were used by the
Company in estimating its fair value disclosures for financial
instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance
sheet for these assets approximate their fair values.
INVESTMENTS AVAILABLE-FOR-SALE AND HELD TO MATURITY: Fair value for
investments are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
LOANS: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for certain fixed rate mortgage loans (e.g.,
one-to-four family residential), and other consumer loans are based on
quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. The fair values for other loans (e.g., commercial real
estate and rental property mortgage loans) are estimated using
discounted cash flow analysis, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. The fair values of mortgage-backed securities are based on
quoted market prices.
LOANS HELD FOR SALE: The fair value represents the anticipated proceeds
from sale of the loans.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's loan
commitments are based on estimated market prices of comparable
instruments taking into account the remaining terms of the agreements
and the counterparties' credit standing. The aggregate fair value of
loan commitments is not material.
DEPOSITS: The fair value disclosed for demand deposits (e.g., interest
and non-interest checking, statement savings, and certain types of
money market accounts) are, by definition, equal to the amount payable
on demand at the reporting date (e.g., their carrying amounts). The
carrying amounts for variable-rate, fixed-term money market accounts
and certificates of deposits approximate their fair values at the
reporting date. Fair value for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated contractual monthly maturities on time deposits. The fair
value of demand deposits is the amount payable on demand, without
adjusting for any value derived from retaining those deposits for an
expected future period of time. That component, commonly referred to as
a deposit base intangible, is not considered in the above fair value
amount nor is it recorded as an intangible asset in the balance sheet.
OTHER BORROWINGS: The fair values of FHLB advances, securities sold
under agreement to repurchase and notes payable are estimated using
discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
BANK DRAFTS PAYABLE: The fair value of bank drafts payable is assumed
to equal its carrying value due to its short maturity.
F-42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
=================================================================================================================
1996 1995
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash And Cash Equivalents $65,097 $65,097 $69,647 $69,647
Investments Available-for-sale 49,670 49,670 12,550 12,550
Investments Held For Maturity 45,818 46,003 35,600 36,066
Loans Receivable - Net 400,574 401,223 360,803 364,000
Loans Held For Sale 7,773 7,850
Financial Liabilities:
Deposits $489,056 $492,206 $402,448 $403,244
Other Borrowings 39,013 39,053 32,660 32,701
Bank Drafts Payable 3,778 3,778 3,155 3,155
=================================================================================================================
</TABLE>
19. SEGMENT INFORMATION
As of April 1, 1995 all mortgage banking activities were
included as part of banking activities. Mortgage banking related
activities are considered incidental to the Bank's strategic plan and
are performed in order to accommodate banking customer and market
needs.
During the year ended March 31, 1995, the Company operated in
two industry segments (as defined by Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise"). The two industry segments were banking and mortgage
banking. However, due to the significant decline in the mortgage
banking industry, the Company significantly reduced its operations in
mortgage banking activities. As a result of the Company's reduction in
mortgage banking activities, the Company no longer operates in the
mortgage banking industry segment (as defined by SFAS No. 14).
Revenues in the banking segment consisted primarily of
interest on mortgage loans and investment securities. Mortgage banking
activities derive revenues primarily from interest on loans held for
sale, sales of loans in the secondary mortgage market, sale of loan
servicing rights, and fees on loans serviced. Intercompany transactions
have been eliminated from the industry segments and consolidated
financial data presented below. The following is a presentation of the
revenues and operating income (losses) for the year ended March 31,
1995:
F-43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
==================================================================================================================
(IN THOUSANDS) BANKING MORTGAGE BANKING CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Income After
Provision For Loan Losses $16,755 $1,297 $18,052
Non-interest Income 2,661 2,661
Mortgage Banking Income 1,788 1,788
Depreciation 549 179 728
Non-interest Expense 11,464 4,036 15,500
- ------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes $7,403 $(1,130) $6,273
==================================================================================================================
</TABLE>
20. SUBSEQUENT EVENT
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, subject to adjustment as defined in the Merger
Agreement. 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 $238 million, $139 million, $210 million and $23 million,
respectively, at June 30, 1997. The transaction is subject to
regulatory approvals and approval by the Companies' shareholders.
F-44
<PAGE>
COUNTY FINANCIAL CORPORATION
FINANCIAL STATEMENTS
<PAGE>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ASSETS JUNE 30, DECEMBER 31,
1997 1996
(UNAUDITED)
----------- ------------
<S> <C> <C>
EARNING ASSETS: $ 141,299 $ 146,271
Loans (1)
Less: Unearned Income (2,120) (2,524)
----------------------- ---------------------
Allowance for loan losses
Total loans, net 139,179 143,746
Securities available for sale 58,993 56,460
Federal funds sold 14,720 19,585
---------------------- ---------------------
Total earning assets 212,892 219,791
CASH AND DUE FROM BANKS 14,705 15,617
PREMISES AND EQUIPMENT, Net 4,449 4,186
OTHER REAL ESTATE OWNED, Net 2,885 3,338
INTEREST RECEIVABLE 1,478 1,450
OTHER ASSETS 1,723 1,564
---------------------- ---------------------
TOTAL $ 238,132 $ 245,946
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES
Savings accounts $ 24,456 $ 24,360
Interest checking, interest checking plus and moneyfund accounts 68,266 71,288
Certificate of deposit, $100,000 and over 19,542 14,437
Other certificates of deposit 38,967 38,275
---------------------- ---------------------
Total interest bearing deposits 151,231 148,360
Securities sold under repurchase agreement 1,753 4,750
Other borrowings 800 850
---------------------- ---------------------
Total interest bearing liabilities 153,784 153,960
Demand deposits 58,752 64,950
----------------------- ---------------------
Total 212,536 218,910
Interest payable 928 775
Other liabilities 1,635 5,122
---------------------- ---------------------
Total liabilities 215,099 224,807
---------------------- ---------------------
STOCKHOLDERS' EQUITY:
Common stock $0.01 par value; 1,500,000 shares
authorized; 1,265,081, issued and outstanding 13 13
Capital Surplus 13,568 13,562
Retained earnings 9,519 7,621
Net unrealized loss on securities available for sale,
net of taxes (67) (57)
----------------------- ---------------------
Total stockholders' equity 23,033 21,139
----------------------- ---------------------
TOTAL $ 238,132 $ 245,946
===================== ====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-45
<PAGE>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 3,568 $ 3,457 $ 7,134 $ 6,746
Interest on investment securities:
Taxable 931 986 1,861 1,846
Non-taxable 2 11
Interest on federal funds sold 167 76 298 254
--------------- ----------------- ---------------- ---------------
Total interest income 4,666 4,521 9,293 8,857
INTEREST EXPENSE:
Savings 180 166 355 338
Interest checking, interest checking plus
and moneyfund accounts 390 413 785 854
Certificates of deposit, $100,000 and over 248 191 467 360
Other certificates of deposit 518 505 1,020 1,010
Interest on other borrowings 35 34 72 80
--------------- ----------------- ---------------- ---------------
Total interest expense 1,371 1,309 2,699 2,642
--------------- ----------------- ---------------- ---------------
NET INTEREST INCOME 3,295 3,212 6,594 6,215
Provision for loan losses 6 6 12 12
--------------- ----------------- ---------------- ---------------
Net interest income after provision for loan losses 3,289 3,206 6,582 6,203
--------------- ----------------- ---------------- ---------------
NON-INTEREST OPERATING INCOME:
Service charges on deposit accounts 617 601 1,228 1,220
Net loss on sale of investment securities (16) (20) (12) (7)
Other 199 91 312 192
--------------- ----------------- ---------------- ---------------
Total non-interest operating income 800 672 1,528 1,405
--------------- ----------------- ---------------- ---------------
NON-INTEREST OPERATING EXPENSE:
Personnel expense 1,523 1,385 3,014 2,874
Occupancy expense, net 460 417 898 801
Premises and equipment expense 172 149 336 289
Other 973 1,033 1,964 1,888
--------------- ----------------- ---------------- ---------------
Total non-interest operating expense 3,128 2,984 6,212 5,852
--------------- ----------------- ---------------- ---------------
INCOME BEFORE INCOME TAXES 961 894 1,898 1,756
PROVISION OR INCOME TAXES 54
--------------- ----------------- ---------------- ---------------
NET INCOME $ 961 $ 894 $ 1,898 $ 1,702
================ ================ ============== =============
NET INCOME PER COMMON SHARE
AND COMMON EQUIVALENT $ 0.76 $ 0.71 $ 1.50 $ 1.35
================ ================ ============== =============
AVERAGE SHARES OUTSTANDING 1,264,048 1,263,617 1,264,895 1,263,617
================ ================ ============== =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-46
<PAGE>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
NET
UNREALIZED
LOSS ON
SECURITIES
COMMON CAPITAL RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
------ ------- -------- ---------- ----
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 13 $ 13,562 $ 7,621 $ (57) $ 21,139
EMPLOYEE STOCK OPTION 6 6
NET CHANGE IN UNREALIZED LOSS
ON SECURITIES AVAILABLE FOR SALE,
NET OF TAXES. (10) (10)
NET INCOME FOR THE SIX MONTHS 1,898 1,898
ENDED.
------------- -------------- --------- ------------- ---------
BALANCE JUNE 30, 1997
(UNAUDITIED) $ 13 $ 13,568 $ 9,519 $ (67) $23,033
============ ============= ========= ============ ========
</TABLE>
See accompanying notes to unaudited financial statements.
F-47
<PAGE>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For the Six Months Ended
June 30,
1997 1996
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,898 $ 1,702
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Provision for loan losses 12 12
Depreciation and Amortization 304 224
Deferred income tax benefit 0 (17)
Net loss on sale of investment securities 12 7
(Increase) Decrease in interest receivable (28) 39
(Increase) decrease in other assets (153) 10
Increase (Decrease) in interest payable 153 (46)
(Decrease) Increase in other liabilities (3,487) 686
-------------------- -------------------
Net cash (used) provided by operating activities (1,289) 2,617
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities available for sale 9,732 22,133
Purchase of securities available for sale (12,299) (22,710)
Decrease in loans, net 4,971 (6,099)
Proceeds from sale of other real estate owned 37 29
Purchases of premises and equipment, net (560) (187)
-------------------- -------------------
Net cash provided (used) in provided by investing activities 1,881 (6,834)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) Increase in savings accounts 96 1,150
(Decrease) in interest checking, checking plus
and money fund (3,023) (3,415)
Increase (Decrease) in certificate of deposit 5,797 (1,446)
Decrease in securities sold under repurchase agreements (2,997) (845)
(Decrease) Increase in demand deposits (50) (50)
Proceeds from Employee Stock Options (6,198) (2,542)
6 0
-------------------- -------------------
Net cash used in financing activities (6,369) (7,148)
-------------------- -------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,777) (11,365)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,302 26,868
-------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,425 $ 15,503
==================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 2,695 $ 2,596
=================== ===================
Income Taxes $ 185 0
=================== ===================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-48
<PAGE>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
County Financial Corporation ("C.F.C."), a one Bank holding company, its
wholly-owned banking subsidiary, County National Bank of South Florida (the
"Bank") and its inactive wholly-owned non-banking subsidiary, Carnco Corporation
("Carnco") are primarily engaged in the traditional banking practices of
gathering deposits and investing in loans and investment securities. The Bank
offers these services through its main office and twelve branches located in
Dade, Broward, and Palm Beach County, Florida. Substantially all of the Bank's
activities are conducted with customers in South Florida.
The accounting and reporting policies and practices of C.F.C., the Bank, and
Carnco conform to the practices in the banking industry and generally accepted
accounting principles.
The accounting policies followed for quarterly reporting purposes are the same
as those disclosed in the 1996 Annual Report to Stockholders of County Financial
Corporation. In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the information
provided. These statements have been prepared by C.F.C. without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnotes have been omitted pursuant to such rules and
regulations. Although C.F.C. believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these unaudited
consolidated financial statements be read in conjunction with C.F.C.'s audited
1996 consolidated financial statements and the notes thereto.
2. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 128, Earnings Per Share. This
statement is effective for financial statement for periods ending after December
15, 1997, and changes the method in which earnings per share will be determined.
Adoption of SFAS No. 128 by C.F.C. will not have a material impact on earnings
per share.
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
County Financial Corporation:
We have audited the accompanying consolidated balance sheets of County Financial
Corporation and subsidiaries (the "Company"), as of December 31, 1996 and 1995,
and the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Miami, Florida
February 21, 1997
F-50
<PAGE>
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 (In thousands)
- -----------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
EARNING ASSETS:
Loans $ 146,271 $ 139,285
Less: Unearned income (1) (8)
Allowance for loan losses (2,524) (3,040)
--------- ---------
Total loans, net 143,746 136,237
Securities available for sale 56,460 58,719
Securities held to maturity 1,635
Federal funds sold 19,585 12,136
--------- ---------
Total earning assets 219,791 208,727
CASH AND DUE FROM BANKS 15,617 14,732
PREMISES AND EQUIPMENT, Net 4,186 4,369
OTHER REAL ESTATE OWNED, Net 3,338 3,329
INTEREST RECEIVABLE 1,450 1,865
OTHER ASSETS 1,564 1,000
--------- ---------
TOTAL $ 245,946 $ 234,022
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Savings accounts $ 24,360 $ 23,479
Interest checking, interest checking plus and
moneyfund accounts 71,288 74,247
Certificates of deposit, $100,000 and over 14,437 12,928
Other certificates of deposit 38,275 40,904
--------- ---------
Total interest-bearing deposits 148,360 151,558
Securities sold under repurchase agreements 4,750 1,777
Other borrowings 850 950
--------- ---------
Total interest-bearing liabilities 153,960 154,285
Demand deposits 64,950 57,687
--------- ---------
Total 218,910 211,972
Interest payable 775 730
Other liabilities 5,122 833
--------- ---------
Total liabilities 224,807 213,535
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 7,9)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 1,500,000 shares
authorized; 1,264,328 issued and outstanding 13 13
Capital surplus 13,562 13,555
Retained earnings 7,621 6,697
Net unrealized (loss) gain on securities available
for sale, net of taxes (57) 222
--------- ---------
Total stockholders' equity 21,139 20,487
--------- ---------
TOTAL $ 245,946 $ 234,022
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-51
<PAGE>
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
1996 1,995
---- -----
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 14,004 $ 13,822
Interest on investment securities:
Taxable 3,565 3,472
Non-taxable 15 93
Interest on federal funds sold 548 552
----------- -----------
Total interest income 18,132 17,939
----------- -----------
INTEREST EXPENSE:
Savings 679 754
Interest checking, interest checking plus and
moneyfund accounts 1,690 1,949
Certificates of deposit, $100,000 and over 725 639
Other certificates of deposit 2,000 2,099
Interest on other borrowings 151 144
----------- -----------
Total interest expense 5,245 5,585
----------- -----------
NET INTEREST INCOME 12,887 12,354
PROVISION FOR LOAN LOSSES 24 259
----------- -----------
Net interest income after provision for
loan losses 12,863 12,095
----------- -----------
NON-INTEREST OPERATING INCOME:
Service charges on deposit accounts 2,425 2,526
Net loss on sale of investment securities (11) (12)
Other 369 411
----------- -----------
Total non-interest operating income 2,783 2,925
----------- -----------
NON-INTEREST OPERATING EXPENSE:
Personnel expense 5,541 5,693
Occupancy expense, net 1,604 1,689
Premises and equipment expense 596 899
Other 3,981 3,914
Provision for litigation settlement 3,000
----------- -----------
Total non-interest operating expense 14,722 12,195
----------- -----------
INCOME BEFORE INCOME TAXES 924 2,825
PROVISION FOR INCOME TAXES 980
----------- -----------
NET INCOME $ 924 $ 1,845
=========== ===========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.73 $ 1.46
=========== ===========
AVERAGE SHARES OUTSTANDING 1,268,316 1,263,617
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-52
<PAGE>
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS)
- --------------------------------------------------------------------------------
NET
UNREALIZED
GAIN (LOSS)
ON SECURITIES
AVAILABLE FOR
COMMON CAPITAL RETAINED SALE, NET
STOCK SURPLUS EARNINGS OF TAXES TOTAL
------ ------- --------- ------------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 (as reported) $ 10 $ 4,679 $10,362 $15,051
Merger with Carney Bank 3 8,876 (5,510) 3,369
------ ------- ------- -------
BALANCE, DECEMBER 31, 1994 (as restated) 13 13,555 4,852 18,420
Net change in unrealized gain on
securities available for sale $222 222
Net income 1,845 1,845
------ ------- ------- ------ -------
BALANCE, DECEMBER 31, 1995 13 13,555 6,697 222 20,487
Net change in unrealized gain on
securities available for sale (279) (279)
Employee stock options exercised 7 7
Net income 924 924
------ ------- ------- ------ -------
BALANCE, DECEMBER 31, 1996 $ 13 $13,562 $ 7,621 $ (57) $21,139
====== ======= ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-53
<PAGE>
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 924 $ 1,845
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 24 259
Provision for litigation settlement 3,000
Depreciation and amortization 687 800
Deferred income tax benefit (486) (27)
Net loss on sale of assets 11 36
Net loss on sale of investment securities 11 12
Provision for other real estate owned losses 50 102
Decrease (increase) in interest receivable 415 (1)
Decrease (increase) in other assets 59 (8)
Increase in interest payable 45 213
Increase (decrease) in other liabilities 1,289 (229)
-------- ---------
Net cash provided by operating activities 6,029 3,002
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities held
to maturity 18,306
Proceeds from sales and maturities of securities
available for sale 31,117 12,016
Purchase of securities held to maturity (7,990)
Purchase of securities available for sale (27,692) (12,837)
Increase in loans, net (7,659) (4,526)
Proceeds from sale of other real estate owned 56 1,457
Purchases of premises and equipment, net (406) (661)
-------- ---------
Net cash (used in) provided by investing
activities (4,584) 5,765
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in savings 881 (5,144)
Decrease in interest checking, interest checking
plus and moneyfund (2,959) (3,329)
(Decrease) increase in certificates of deposit (1,120) 9,101
Increase in securities sold under repurchase agreements 2,973 1,407
Repayment of long-term borrowings (100) (129)
Increase (decrease) in demand deposits (7,263) (1,122)
Proceeds from employee stock options exercised 7
Payments to dissenting shareholders from merger (56)
-------- ---------
Net cash provided by financing activities 6,889 784
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,334 9,551
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,868 17,317
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35,202 $ 26,868
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest $ 4,865 $ 5,398
======== =========
Income taxes $ 1,187
=========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Other real estate owned received through foreclosure $ 233 $ 1,113
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-54
<PAGE>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
County Financial Corporation ("C.F.C."), a one Bank holding company, its
wholly-owned banking subsidiary, County National Bank of South Florida
(the "Bank") and its inactive wholly-owned non-banking subsidiary, Carnco
Corporation ("Carnco") are primarily engaged in the traditional banking
practices of gathering deposits and investing in loans and investment
securities. The Bank offers these services through its main office and
eleven branches located in Dade, Broward and Palm Beach counties, Florida.
Substantially all of the Bank's activities are conducted with customers in
South Florida.
MERGER - On January 12, 1996, Carney Bank was merged with and into the
Bank with the Bank being the surviving corporation. The merger was made
pursuant to an Agreement and Plan of Reorganization and related Agreement
to Merge (the "Merger Agreement"), dated May 10, 1995. Under the terms of
the Merger Agreement, the Company issued approximately 285,000 shares of
its common stock in exchange for all outstanding common stock, stock
options, and warrants of Carney Bank. The merger was accounted for as a
pooling of interests and, accordingly, the consolidated financial
statements for periods prior to the merger have been restated to include
the financial position and results of operations of Carney Bank.
The following summarizes amounts previously reported by C.F.C. and Carney
Bank prior to the merger:
YEAR ENDED
DECEMBER 31,
1995
-----------
Net interest income:
C.F.C. $ 9,794
Carney Bank 2,560
----------
Combined $ 12,354
==========
Net income:
C.F.C. $ 1,620
Carney Bank 225
----------
Combined 1,845
==========
Net income per common and common equivalent share:
C.F.C. $ 1.28
Carney Bank 0.18
----------
Combined $ 1.46
==========
The accounting and reporting policies and practices of C.F.C., the Bank,
and Carnco conform to the practices in the banking industry and generally
accepted accounting principles. The following is a description of the more
significant accounting policies.
F-55
<PAGE>
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as the
date of the financial statements and the reported amounts of revenues and
expense during the reporting period. Actual results could differ from
those estimates.
CONSOLIDATION - The consolidated financial statements include the accounts
of C.F.C., the Bank, and Carnco (inactive). All significant intercompany
transactions and balances have been eliminated in consolidation.
STATEMENT OF CASH FLOWS - For purposes of reporting cash flows, cash and
cash equivalents includes cash on hand, amounts due from banks and federal
funds sold. Generally, federal funds are sold for one-day periods.
LOANS AND ALLOWANCE FOR LOAN LOSSES - Loans are stated at principal
amounts outstanding. Interest on loans is accrued at the applicable
interest rate on the principal amount outstanding.
The allowance for loan losses is established by charges to income through
the provision for loan losses. Loans or portions thereof which are
considered by management to be uncollectible are charged to the allowance
and recoveries of amounts previously charged off are credited to the
allowance. The allowance represents the amount which, in management's
judgment, is adequate to absorb charge-offs of existing loans which may
become uncollectible. The adequacy of the allowance is determined by
management's continuing evaluation of the loan portfolio in light of past
loan loss experience, regulatory examinations, present economic conditions
and other factors considered relevant by management. Anticipated changes
in economic factors which may influence the level of the allowance are
considered in the evaluation by management when the likelihood of the
changes can be reasonably determined. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary as a result of future economic and other
conditions that may be beyond management's control.
On January 1, 1995, C.F.C. adopted Financial Accounting Standards Board
Statements of Financial Accounting Standards ("SFAS") No. 114, ACCOUNTING
BY CREDITORS FOR IMPAIRMENT OF A LOAN, and SFAS No. 118, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN - RECOGNITION AND DISCLOSURES, an
amendment of SFAS No. 114. These standards address the accounting for
impairment of certain loans when it is probable that all amounts due
pursuant to the contractual terms of the loan will not be collected.
Adoption of these standards entailed the identification of commercial,
industrial, real estate commercial and real estate construction loans
which are considered impaired under the provisions of SFAS No. 114.
Under the provisions of these standards, individually identified impaired
loans are measured based on the present value of payments expected to be
received, using the historical effective loan rate as the discount rate.
Alternatively, measurement may also be based on observable market prices
or for loans that are solely dependent on the collateral for repayment,
measurement may be based on the fair value of the collateral. Loans that
are to be foreclosed are measured based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is required as a component of
the allowance for loan losses. Changes to the valuation allowance are
recorded as a component of the provision for loan losses.
Commercial loans that are past due 90 days or more as to principal or
interest or where reasonable doubt exists as to timely collection,
including loans that are individually identified as being impaired under
SFAS No. 114, are generally classified as nonperforming loans unless based
on the evaluation of management the loan is well secured and in the
process of collection.
F-56
<PAGE>
Interest collections on nonperforming loans, including impaired loans, for
which the ultimate collectibility of principal and interest is uncertain
are applied as reductions in book value. Otherwise, such collections are
credited to income when received.
Installment loans that are past due 90 days or more are not generally
classified as nonperforming assets. Generally, installment loans are
liquidated or charged-off soon after becoming 90 days past due. Income is
generally recognized on past due installment loans until the loan is
charged-off.
At December 31, 1996 and 1995, the recorded investment in loans that are
considered impaired under SFAS No. 114 was approximately $2,449,000 and
$1,780,000, respectively. These impaired loans required a SFAS No. 114
allowance for loan losses of approximately $364,000 and $368,000,
respectively. The average recorded investment in impaired loans during the
years December 31, 1996 and 1995 was approximately $1,908,000 and
$909,000, respectively. For the years ended December 31, 1996 and 1995,
the Bank recognized interest income on these impaired loans of
approximately $166,000 and $153,000, respectively.
LOAN FEES - Loan origination and commitment fees and costs are deferred
and recognized as a yield adjustment.
INVESTMENT SECURITIES - Investment securities are accounted for under
Statement of Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under SFAS No. 115,
investment securities must be classified and accounted for under the
following conditions:
TRADING ACCOUNT SECURITIES - Trading account securities are held in
anticipation of short-term sales or market movements. Trading account
securities are stated at fair value. Gains or losses on the sale of
trading account securities, as well as unrealized fair value
adjustments, are included in operating income. At December 31, 1996
and 1995, the Bank held no trading account securities.
SECURITIES AVAILABLE FOR SALE - Securities to be held for unspecified
periods of time including securities that management intends to use
as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, or
other similar factors are classified as available for sale and are
carried at fair value. Unrealized gains or losses are reported as a
net amount in a separate component of stockholders' equity until
realized.
SECURITIES HELD TO MATURITY - Securities that management has a
positive intent and the ability to hold to maturity are carried at
cost, adjusted for amortization of premiums and accretions of
discounts over the life of the securities using a method which
approximates the level yield method. At December 31, 1996, the Bank
held no securities classified as securities held to maturity.
OTHER REAL ESTATE OWNED - Real estate acquired through actual foreclosure
is recorded at the fair value of the property. Subsequently, the property
is carried at the lower of cost as determined above or fair value less
disposal cost.
Costs relating to the development and improvement of other real estate
owned are capitalized, whereas those relating to holding the property are
charged to expense in the period incurred.
The amount the Bank will ultimately recover from other real estate owned
could differ from the amounts used in arriving at the net carrying value
of the property due to future market factors beyond the Bank's control.
Allowance for losses on other real estate owned were approximately
$283,000 and $233,000 at December 31, 1996 and 1995.
F-57
<PAGE>
PREMISES AND EQUIPMENT - Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
by the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized by the straight-line method
over the remaining term of the applicable leases or their useful lives,
whichever is shorter. Maintenance and repairs are charged to operating
expenses as incurred; improvements and betterments are capitalized. When
items are retired or otherwise disposed of, the related costs and
accumulated depreciation are removed from the accounts and any resulting
gains or losses are credited or charged to operating income.
INCOME TAXES - In accordance with SFAS No. 109, ACCOUNTING FOR INCOME
TAXES, the Bank provides for deferred taxes under the liability method.
Under such method, deferred taxes are adjusted for tax rate changes as
they occur. Deferred income tax assets and liabilities are computed
annually for differences between the financial statements and tax bases of
assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Provision for income taxes
is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
STOCK-BASED COMPENSATION - SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair
value. C.F.C. has chosen to continue to account for stock-based
compensation to employees using the intrinsic value method as prescribed
by Accounting Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and related interpretations. Accordingly,
compensation cost for stock options issued to employees are measured as
the excess, if any, of the fair value of C.F.C.'s stock at the date of
grant over the amount an employee must pay for the stock.
RECLASSIFICATIONS - Formats and certain amounts in the 1995 consolidated
financial statements have been reclassified to conform to the 1996
presentation.
NEW ACCOUNTING PRONOUNCEMENT - In June 1996, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS No.
125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on consistent application of a FINANCIAL-COMPONENTS
APPROACH that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets
it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities
when extinguished. SFAS No. 125 also provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively. C.F.C. is in
the process of evaluating the impact of SFAS No. 125.
F-58
<PAGE>
2. LOANS OUTSTANDING AND LOANS TO RELATED PARTIES
The distribution of loans outstanding, by type, is as follows (in
thousands):
1996 1995
---- ----
Real estate loans $ 110,094 $ 97,455
Commercial and industrial loans 34,392 39,379
Instalment loans 1,572 2,344
Overdrafts 213 107
--------- --------
Total $ 146,271 $139,285
========= ========
Substantially all of the Bank's loan activity is with borrowers located
within South Florida. A substantial portion of the Bank's real estate loan
portfolio is secured by various types of commercial real estate and land.
A concentration of the Bank's commercial and industrial loans are to
companies and individuals in the service and trade-related industries,
with approximately 6% of these being unsecured. The collectibility of
these loans is dependent to a large degree on the economic conditions
within South Florida and these industries.
Loans on which the accrual of interest has been discontinued amounted to
$2,670,000 and $2,441,000 at December 31, 1996 and 1995, respectively. The
unrecorded related interest on loans classified as non-accrual for the
years ended December 31, 1996 and 1995 was $285,000 and $36,000,
respectively. There are no commitments to lend additional funds to these
borrowers.
Included in loans at December 31, 1996 and 1995 are approximately $551,000
and $1,270,000, respectively, in loans to executive officers, directors,
principal shareholders and their affiliates of C.F.C. and the Bank. In
addition, legal fees totaling $379,000 and $371,000 for the years ended
1996 and 1995, respectively, were paid to the Bank's law firm, in which
the principal owner is a director and shareholder of C.F.C.
3. ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses for the years ended December
31, 1996 and 1995 are as follows (in thousands):
1996 1995
---- ----
Balance, beginning of period $ 3,040 $ 2,791
Provision charged to operations 24 259
Loan recoveries 221 180
Loan charge-offs (761) (190)
------- --------
Balance, end of period $ 2,524 $ 3,040
======= ========
F-59
<PAGE>
4. INVESTMENT SECURITIES
The amortized cost and approximate fair values of investment securities at
December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996
-------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury securities $ 32,553 $ 125 $ 76 $ 32,602
U.S. Government agencies 23,378 73 213 23,238
Municipals 95 95
Other 525 525
---------- --------- ------- ----------
Total $ 56,551 $ 198 $ 289 $ 56,460
========== ========= ======= ==========
1995
-------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury securities $ 41,278 $ 346 $ 70 $ 41,554
U.S. Government agencies 14,654 74 17 14,711
Municipals 2,186 20 9 2,197
Other 257 257
---------- --------- ------- ----------
Total $ 58,375 $ 440 $ 96 $ 58,719
========== ========= ======= ==========
1995
-------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Government agencies $ 938 $ 14 $ 4 $ 948
Municipals 95 2 97
Other 602 103 499
---------- --------- ------- ----------
Total $ 1,635 $ 16 $ 107 $ 1,544
========== ========= ======= ==========
</TABLE>
In December 1995, the Bank transferred approximately $51,702,000 of
securities held to maturity with net unrealized holding gains of
approximately $277,000 to securities available for sale. This transfer was
a result of the Bank adopting the provisions of FASB's Special Report, A
GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES - QUESTIONS AND ANSWERS, issued
in November 1995.
In addition, in January 1996, the Bank transferred approximately
$1,635,000 of securities held to maturity with net unrealized holding
losses of approximately $91,000 to securities available for sale. The
transfer was a result of the merger with Carney Bank as discussed in Note
1.
U.S. Government agencies at December 31, 1996 and 1995 are GNMA (including
FNMA and FHLMC in 1995) mortgage-backed securities and U.S. Government
sponsored agency securities.
At December 31, 1996 and 1995, investment securities with an approximate
book value of $13,739,000 and $13,239,000, respectively, were pledged as
collateral for repurchase agreements, letters of credit, public and
bankruptcy deposits, federal funds purchased and U.S. Treasury tax and
loan deposits as required by law.
F-60
<PAGE>
As of December 31, 1996, the amortized cost and fair value of investment
securities, by contractual maturity, was as follows (in thousands):
AMORTIZED FAIR
COST VALUE
--------- ------
Within one year $ 23,672 $ 23,730
One to five years 30,845 30,701
Five to ten years 1,509 1,504
Over ten years 525 525
-------- --------
Total $ 56,551 $ 56,460
======== ========
Proceeds from the sales of securities available for sale for the year
ended December 31, 1996 were $14,346,000. Proceeds from the sales of
securities held to maturity for the year ended December 31, 1995 were
approximately $3,990,000. For the years ended December 31, 1996 and 1995,
there were gross losses of $34,000 and $12,000, respectively, and for the
year ended December 31, 1996, there were gross gains of $23,000 from sales
of these securities. There were no gross gains in 1995. All securities
held to maturity sold were within three months of their respective
maturity date.
5. CASH AND DUE FROM BANKS
Included in cash and due from banks are required federal reserves of
approximately $6,351,000 and $5,506,000 at December 31, 1996 and 1995,
respectively. The required reserves are computed by applying prescribed
ratios to the various classes of average deposit balances. These funds are
held in the form of cash on hand and balances maintained directly with the
Federal Reserve Bank.
6. PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows (in thousands):
1996 1995
---- ----
Land $ 925 $ 925
Bank building and improvement 3,631 3,564
Furniture and equipment 5,893 5,632
Leasehold improvements 1,733 1,709
-------- --------
Total 12,182 11,830
Less accumulated depreciation and amortization (7,996) (7,461)
-------- --------
Total $ 4,186 $ 4,369
======== ========
As of December 31, 1996 and 1995, certain land, building and improvements
with an approximate net book value of $1,258,000 and $1,325,000,
respectively, have been pledged as collateral for certain mortgages (see
Note 8).
Depreciation and amortization expense related to premises and equipment
for the years ended December 31, 1996 and 1995 was $589,000 and $682,000,
respectively.
F-61
<PAGE>
7. LEASE AND SUBLEASE COMMITMENTS
The Bank leases certain premises and equipment under various operating
lease agreements. Certain lease agreements provide for renewals and
purchase options and rental escalations based upon the consumer price
index, at specific intervals. Substantially all leases provide that the
Bank pay executory costs such as insurance, maintenance, and taxes
applicable to the lease properties.
As of December 31, 1996, future minimum lease payments for all
non-cancelable operating leases with initial or remaining terms of more
than one year are as follows (in thousands):
DECEMBER 31,
1996
-----------
1997 $ 1,190
1998 1,232
1999 915
2000 745
2001 580
2002 and thereafter 1,423
--------
Total $ 6,085
========
Lease expense amounted to $1,022,000 and $1,016,000 for the years ended
December 31, 1996 and 1995, respectively.
As of December 31, 1996, future minimum lease and sublease rental income
for all non-cancelable leases and subleases with initial or remaining
terms of more than one year are as follows (in thousands):
DECEMBER 31,
1996
------------
1997 $ 175
1998 82
1999 51
2000 10
-------
Total $ 318
=======
Sublease and rental income for the years ended December 31, 1996 and 1995
amounted to $178,000 and $173,000, respectively.
8. OTHER BORROWINGS
In March 1990, the Bank obtained permanent financing of $1,500,000 in the
form of a 15-year first mortgage loan with an unaffiliated financial
institution, at an interest rate of ten percent (10%) payable monthly and
with quarterly principal reductions of $25,000. The mortgage loan is
collateralized by certain Bank premises and contains certain prepayment
restrictions. The proceeds from this borrowing were used to pay off the
C.F.C. long-term credit agreement dated April 1985 and amended in 1989.
Interest expenses on long-term borrowings for the years ended December 31,
1996 and 1995 amounted to $89,000 and $99,000, respectively.
Securities sold under repurchase agreements generally mature within one
day from the transaction date.
F-62
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank utilizes various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These off-balance sheet activities include commitments to fund
loans and to extend letters of credit. The credit and market risks
associated with these instruments are generally managed in conjunction
with the Bank's balance sheet activities and are subject to normal credit
policies and monitoring procedures. The Bank's exposure to loss is
represented by the contractual amount of the commitments. Commitments to
fund loans and standby letters of credit amounted to approximately
$32,123,000 and $28,207,000 as of December 31, 1996 and 1995. Management
does not anticipate any significant losses as a result of these
transactions.
The Bank was a party to several legal proceedings arising out of the
alleged failure due to fraud of the food "diverting" business owned and
operated by former deposit customers of the Bank, Premium Sales
Corporation, Plaza Trading Corporation, and certain of their affiliates
and associates (the "Premium Group"). These proceedings had been brought
by the Chapter 11 trustee for certain members of the Premium Group and
others as class actions on behalf of investors in the Premium Group. On
October 9, 1996, the Bank reached a settlement in the case and agreed to
pay $3,000,000 without any admission of fault. Such amount has been
accrued as of December 31, 1996 and is included in other liabilities in
the accompanying consolidated balance sheet.
10. STOCK OPTION PLAN
C.F.C. maintains an Employee Stock Option Plan (the "Plan") whereby 25,000
shares of C.F.C.'s common stock, which consists of authorized but
previously unissued common stock, may be issued to certain key management
employees pursuant to options granted under the Plan. The option price is
the book value per share as of the end of C.F.C.'s fiscal year immediately
preceding the date of exercise. Options are exercisable after one year and
up to ten years after the date of grant. In July 1985, C.F.C. granted the
first options of 18,200 shares which became exercisable during 1986. On
January 18, 1995, the Board of Directors granted an extension of three (3)
additional years to exercise the options at a fixed price of $12.00 per
share which become effective January 1, 1996.
During 1996, 5,400 stock options were granted, and 700 shares were
exercised. During 1995, no stock options were granted and no shares were
exercised. At December 31, 1996 and 1995, 21,064 and 16,364 options were
outstanding and exercisable at an option price of $12.00 and $15.37,
respectively.
The Company applies APB No. 25 and related interpretations in accounting
for its stock options plan to employees as described in Note 1.
Accordingly, no compensation expense has been recognized in the year ended
December 31, 1996, related to the granting of options during the current
year. Compensation costs would have been increased by approximately
$34,000 in 1996 had the fair value of stock options granted been
recognized as compensation expense as prescribed by SFAS No. 123. The fair
value of the stock option at the date of grant were estimated using the
minimum value method prescribed by SFAS No. 123.
F-63
<PAGE>
11. INCOME TAXES
The consolidated provision for income taxes is as follows (in thousands):
1996 1995
---- ----
Federal:
Current $ 456 $ 903
Deferred (456) (25)
----- -----
Total - 878
===== =====
State:
Current 30 104
Deferred (30) (2)
----- -----
Total - 102
===== =====
Total $ - $ 980
===== =====
Deferred income taxes are provided for the temporary differences between
financial reporting basis and tax basis of the Company's assets and
liabilities under SFAS No. 109. Temporary differences are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
DEFERRED TAX DEFERRED TAX
ASSET LIABILITY ASSET LIABILITY
<S> <C> <C> <C> <C>
Net operating loss $ 1,027 $ (53)
Securities available for sale $ 34 $ - (122)
Depreciation 123 159
Deferred loan fees 323 217
Other real estate owned 104 251
Provision for litigation settlement 1,186
Other 290 242
--------- ------ --------- -------
Total 2,060 - 1,896 (175)
Less valuation allowance (1,078) - (1,381) -
--------- ------ --------- -------
Total 982 $ - 515 $ (175)
--------- ====== --------- =======
Net deferred tax asset $ 982 $ 340
========= =========
</TABLE>
A reconciliation of the income tax provision to the amount obtained by
applying the effective federal tax rates is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income tax at statutory rate $ 314 $ 960
Tax-exempt interest, net of related expenses (5) (31)
State taxes net of benefit 67
Change in valuation allowance (303)
Other (6) (16)
------ -----
Total taxes $ - $ 980
====== =====
</TABLE>
F-64
<PAGE>
12. "401(K)" SAVINGS PLAN
The Bank maintains a contributory "401(k)" savings plan for substantially
all of its employees. Employees are eligible to begin participating in the
plan after one year of active employment. Employees participating in the
plan may contribute from one to fifteen percent of their gross wages
effective January 1, 1996. During 1995, employee contributions of up to
five percent of their gross wages were matched by a contribution by the
Bank of approximately fifty percent of the employees contribution.
Starting July 1, 1996, the first one percent of the employee contribution
has been matched by a Bank's contribution of one hundred percent of the
employees contribution. The Bank will contribute fifty percent of employee
contribution for contributions between two and six percent of the employee
gross wages.
The Bank's contribution to the "401(k)" savings plan for the years ended
December 31, 1996 and 1995 were $101,000 and $78,000, respectively.
Participants vest in the plan funds contributed by the Bank at a
cumulative rate of 25% per year of active service after initial
participation in the plan. Funds contributed by participants are 100%
vested.
13. REGULATORY MATTERS
C.F.C. and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on C.F.C.'s consolidated financial
statements. Under capital adequacy guidelines, C.F.C. and the Bank must
meet specific capital guidelines that involve quantitative measures of
C.F.C.'s and the Bank's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. C.F.C.'s and
the Bank's capital amounts and the Bank's classification under the
regulatory framework for prompt corrective action are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require C.F.C. and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1996, that C.F.C. and the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institution's category.
C.F.C.'s consolidated and the Bank's actual capital amounts and ratios are
also presented in the table (in thousands):
F-65
<PAGE>
<TABLE>
<CAPTION>
TO BE CONSIDERED WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------ ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
C.F.C.
Total Capital (to Risk Weighted Assets) $ 23,283 14.0 % $ 13,320 8.0 %
========= ==== ========= ===
Tier I Capital (to Risk Weighted Assets) $ 21,196 12.7 % $ 6,660 4.0 % Not Applicable
========= ==== ========= ===
Tier I Capital (to Average Assets) $ 21,196 9.2 % $ 9,241 4.0 %
========= ==== ========= ===
BANK
Total Capital (to Risk Weighted Assets) $ 23,283 14.0 % $ 13,320 8.0 % $ 16,650 10.0 %
========= ==== ========= === ========= ====
Tier I Capital (to Risk Weighted Assets) $ 21,196 12.7 % $ 6,660 4.0 % $ 9,990 6.0 %
========= ==== ========= === ========= ====
Tier I Capital (to Average Assets) $ 21,196 9.2 % $ 9,241 4.0 % $ 11,551 5.0 %
========= ==== ========= === ========= ====
AS OF DECEMBER 31, 1995:
C.F.C.
Total Capital (to Risk Weighted Assets) $ 22,232 14.2 % $ 12,502 8.0 %
========= ==== ========= ===
Tier I Capital (to Risk Weighted Assets) $ 20,265 13.0 % $ 6,251 4.0 % Not Applicable
========= ==== ========= ===
Tier I Capital (to Average Assets) $ 20,265 9.0 % $ 9,025 4.0 %
========= ==== ========= ===
BANK
Total Capital (to Risk Weighted Assets) $ 22,232 14.2 % $ 12,502 8.0 % $ 15,627 10.0 %
========= ==== ========= === ========= ====
Tier I Capital (to Risk Weighted Assets) $ 20,265 13.0 % $ 6,251 4.0 % $ 9,376 6.0 %
========= ==== ========= === ========= ====
Tier I Capital (to Average Assets) $ 20,265 9.0 % $ 9,025 4.0 % $ 11,282 5.0 %
========= ==== ========= === ========= ====
</TABLE>
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At December 31,
1996, approximately $4,495,000 of retained earnings were available for
dividend declaration without prior regulatory approval. No dividends were
declared and/or paid during the years ended December 31, 1996 and 1995.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Bank using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Bank
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
F-66
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31 (IN THOUSANDS)
------------------------------------------------
1996 1995
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 35,202 $ 35,202 $ 26,868 $ 26,868
Securities available for sale 56,460 56,460 58,719 58,719
Securities held to maturity 1,635 1,544
Loans, net 143,746 135,813 136,237 132,261
Liabilities:
Savings, demand deposits and other deposits 160,598 160,598 155,413 155,413
Time deposits 52,712 52,028 53,832 53,103
Securities sold under repurchase agreements 4,750 4,750 1,777 1,777
Other borrowings 850 723 950 808
Off-balance-sheet unrealized gains:
Standby letters of credit 20 15
Unused commitments 23 20
</TABLE>
The fair value of investment securities is based on quoted market prices
obtained from independent pricing services. The fair value of fixed-rate
loans, time deposits, and other financial instruments is estimated based
on the present value method using current entry-value rates applicable to
each category of such financial instruments with maturities more than one
year. No adjustment entry was made to the entry-value interest rates for
changes in credit of performing commercial loans for which there are no
known credit concerns. The fair value of nonperforming loans with a
recorded book value of $6,000,000 was not estimated because it is not
practicable to reasonably assess the credit adjustment that would be
applied in the marketplace for such loans. Demand deposits are shown at
their face value. The fair value of commitments is estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements.
The fair value estimates presented herein are based on pertinent
information available to management. Although management is not aware of
any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
15. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheets as of December 31, 1996 and 1995,
and condensed statements of income and cash flows for the years ended
December 31, 1996 and 1995, for County Financial Corporation should be
read in conjunction with the consolidated financial statements and the
notes herein:
F-67
<PAGE>
DECEMBER 31,
1996 1995
---- ----
PARENT COMPANY ONLY
BALANCE SHEETS
(IN THOUSANDS):
ASSETS:
Cash $ 31 $ 80
Investments in subsidiaries 21,108 20,407
--------- --------
Total $ 21,139 $ 20,487
========= ========
STOCKHOLDERS' EQUITY:
Common stock $ 13 $ 13
Capital surplus 13,562 13,555
Retained earnings 7,621 6,697
Net unrealized gains on securities
available for sale (57) 222
--------- --------
Total $ 21,139 $ 20,487
========= ========
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
PARENT COMPANY ONLY
STATEMENTS OF INCOME
(IN THOUSANDS):
Equity in undistributed earnings of the
Bank and net income $ 924 $ 1,845
PARENT COMPANY ONLY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS):
Operating activities:
Net income $ 924 $ 1,845
Less equity in earnings of the bank (924) (1,845)
-------- --------
Net cash provided by operating - -
activities ======== ========
Financing activities:
Proceeds from issuance of common stock 7
Payments to dissenting shareholders from
merger (56)
-------- --------
Net cash used in financing activities (49)
-------- --------
Net decrease in cash (49) -
Cash at beginning of year 80 80
-------- --------
Cash at end of year $ 31 $ 80
======== ========
* * * * * *
F-68
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
(as amended, October 16, 1997)
by and among
REPUBLIC SECURITY FINANCIAL CORPORATION,
REPUBLIC SECURITY BANK,
COUNTY FINANCIAL CORPORATION
and
COUNTY NATIONAL BANK OF SOUTH FLORIDA
AUGUST 8, 1997
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE PARENT MERGER
1.1 Articles of Merger.....................................................................2
1.2 Conversion of Shares...................................................................2
1.3 Conversion Rate........................................................................2
1.4 CFC Options............................................................................4
1.5 The Closing............................................................................5
1.6 Stock Certificates.....................................................................5
1.7 Shares of Dissenting Holders...........................................................5
ARTICLE II
THE BANK MERGER
2.1 Plan of Merger and Merger Agreement....................................................6
2.2 Conversion of Shares...................................................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CFC AND COUNTY
3.1 Corporate Organization.................................................................7
3.2 Authorization and Enforceability; No Violation.........................................7
3.3 Capitalization; Stock Ownership........................................................8
3.4 Investments; No Subsidiary.............................................................8
3.5 County Corporate Organization..........................................................8
3.6 County Capitalization; Stock Ownership.................................................8
3.7 County Authorization and Enforceability; No Violation..................................9
3.8 Financial Statements..................................................................10
3.9 Loan Portfolio........................................................................10
3.10 Deposits..............................................................................11
3.11 No Undisclosed Liabilities, Etc.......................................................11
3.12 Absence of Certain Changes............................................................11
3.13 Real Properties.......................................................................13
3.14 Taxes and Fees........................................................................13
3.15 Contracts.............................................................................14
3.16 Litigation............................................................................15
3.17 Compliance with Laws and Regulations..................................................15
3.18 Employment Benefit Plans and Arrangements; Labor Matters..............................16
3.19 Accounting Practices..................................................................17
3.20 Minute Books..........................................................................17
3.21 Insurance.............................................................................17
3.22 Agreements with Regulators............................................................17
3.23 Environmental.........................................................................18
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C> <C>
3.24 Community Reinvestment Act............................................................18
3.25 Transactions with Insiders............................................................18
3.26 Fidelity Bond.........................................................................18
3.27 Proxy Statement.......................................................................19
3.28 Brokers...............................................................................19
3.29 No Untrue Statements..................................................................19
3.30 Absence of Regulatory Communications..................................................19
3.31 Opinion of Financial Advisor..........................................................19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RSFC AND REPUBLIC
4.1 RSFC Corporate Organization...........................................................19
4.2 RSFC Authorization and Enforceability; No Violation...................................20
4.3 RSFC Capitalization; Stock Ownership..................................................20
4.4 Investments; No Subsidiary............................................................21
4.5 Republic Corporate Organization.......................................................21
4.6 Republic Capitalization; Stock Ownership..............................................21
4.7 Republic Authorization and Enforceability; No Violation...............................22
4.8 SEC Filings...........................................................................22
4.9 Registration Statement................................................................23
4.10 Financial Statements..................................................................23
4.11 Loan Portfolio........................................................................23
4.12 Deposits..............................................................................24
4.13 No Undisclosed Liabilities, Etc.......................................................24
4.14 Absence of Certain Changes............................................................24
4.15 Real Properties.......................................................................26
4.16 Taxes and Fees........................................................................27
4.17 Contracts.............................................................................27
4.18 Litigation............................................................................28
4.19 Compliance with Laws and Regulations..................................................29
4.20 Employment Benefit Plans and Arrangements; Labor Matters..............................29
4.21 Accounting Practices..................................................................30
4.22 Minute Books..........................................................................30
4.23 Insurance.............................................................................31
4.24 Agreements with Regulators............................................................31
4.25 Environmental.........................................................................31
4.26 Community Reinvestment Act............................................................31
4.27 Transactions with Insiders............................................................31
4.28 Fidelity Bond.........................................................................31
4.29 Brokers...............................................................................32
4.30 No Untrue Statements..................................................................32
4.32 Opinion of Financial Advisor..........................................................32
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V
COVENANTS OF CFC
5.1 Access, Information and Documents.....................................................32
5.2 No Other Transactions.................................................................33
5.3 Conduct of Business Prior to the Effective Time.......................................33
5.4 Negative Covenants....................................................................34
5.5 Current Information...................................................................35
5.6 Pursuit of Approvals..................................................................35
5.7 Meeting of CFC's Shareholders; Proxy Statement........................................36
5.8 CFC Future Financial Statements.......................................................36
5.9 Observer at Meetings..................................................................36
5.10 Pooling...............................................................................37
5.11 Coral Way Branch......................................................................37
ARTICLE VI
COVENANTS OF RSFC AND REPUBLIC
6.1 Access, Information and Documents.....................................................37
6.2 No Other Transactions.................................................................38
6.3 Conduct of Business Prior to the Effective Time.......................................38
6.4 Negative Covenants....................................................................38
6.5 Current Information...................................................................39
6.6 Pursuit of Approvals..................................................................39
6.7 Registration Statement; Meeting of RSFC's Shareholders................................39
6.8 Boards of Directors Election..........................................................40
6.9 Pooling...............................................................................40
6.10 County Employees......................................................................40
6.11 Indemnification.......................................................................40
6.12 Future Financial Information..........................................................42
6.13 Observer at Meetings..................................................................42
6.14 Pooling and Securities Law Matters....................................................43
6.15 Registration Rights...................................................................43
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF RSFC, REPUBLIC, CFC AND COUNTY
7.1 Government Approvals..................................................................46
7.2 Shareholder Approval..................................................................46
7.3 No Litigation.........................................................................46
ARTICLE VIII
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF CFC AND COUNTY
8.1 Representations, Warranties and Covenants.............................................47
</TABLE>
A-iv
<PAGE>
<TABLE>
<S> <C> <C>
8.2 Material Change.......................................................................47
8.3 Accountants' Comfort Letter...........................................................47
8.4 Officers' Certificates................................................................47
8.5 Consents..............................................................................47
8.6 Tax Opinion...........................................................................48
8.7 Fairness Opinion......................................................................48
ARTICLE IX
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF RSFC AND REPUBLIC
9.1 Representations, Warranties and Covenants.............................................48
9.2 Material Change.......................................................................48
9.3 Financial Conditions..................................................................48
9.4 Demands for Appraisal.................................................................49
9.5 Accountants' Comfort Letter...........................................................49
9.6 Officers' Certificates................................................................49
9.7 Consents..............................................................................49
9.8 Employment Agreements.................................................................49
9.9 Tax Opinion...........................................................................49
9.10 CFC Affiliate Letters.................................................................50
9.11 Fairness Opinion......................................................................50
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination by Mutual Consent.........................................................50
10.2 Termination by CFC....................................................................50
10.3 Termination by RSFC...................................................................50
10.4 Effect of Termination.................................................................51
10.5 Alternate CFC or County Transaction...................................................51
10.6 Alternate RSFC or Republic Transaction................................................52
10.7 Extension or Waiver...................................................................52
ARTICLE XI
MISCELLANEOUS
11.1 Certain Terms.........................................................................52
11.2 Expenses..............................................................................53
11.3 Legal Fees............................................................................53
11.4 Entire Agreement; Amendment; Waiver...................................................53
11.5 Notices...............................................................................53
11.7 Rights Under this Agreement; Nonassignability.........................................55
11.8 Form of This Agreement................................................................55
11.9 Governing Law.........................................................................55
11.10 Public Announcements..................................................................55
</TABLE>
A-v
<PAGE>
<TABLE>
<S> <C> <C>
11.11 Counterparts..........................................................................55
Schedules
</TABLE>
A-vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
(as amended October 16, 1997)
This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of August 8, 1997, by and among REPUBLIC SECURITY FINANCIAL CORPORATION,
a Florida corporation ("RSFC"), REPUBLIC SECURITY BANK, a Florida state bank
("Republic"), COUNTY FINANCIAL CORPORATION, a Florida corporation ("CFC"), and
COUNTY NATIONAL BANK OF SOUTH FLORIDA, a national bank ("County").
RECITALS
WHEREAS, each of the parties desires to provide for the acquisition of
CFC and County by RSFC and RSFC's wholly owned subsidiary, Republic, by means of
the merger of CFC into RSFC (the "Parent Merger") and the merger of County into
Republic (the "Bank Merger"), for the consideration and upon the terms and
conditions set forth herein; and
WHEREAS, the Boards of Directors of RSFC, CFC, Republic and County
believe that the Parent Merger and the Bank Merger, upon the terms and
conditions set forth herein, are in the best interest of their respective
shareholders and the Boards of Directors of RSFC and CFC have each unanimously
approved the Parent Merger and the Boards of Directors of Republic and County
have each unanimously approved the Bank Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the
Parent Merger qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"); and, for
accounting purposes, it is intended that the Parent Merger be accounted for as a
"pooling of interests"; and
WHEREAS, the parties desire to use their best efforts to consummate the
Parent Merger and the Bank Merger prior to January 1, 1998;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are conclusively
acknowledged, the parties do represent, warrant, covenant and agree as follows:
<PAGE>
ARTICLE I
THE PARENT MERGER
1.1 ARTICLES OF MERGER. Subject to and in accordance with the terms and
conditions of this Agreement and the Florida Business Corporation Act, at the
Closing (hereinafter defined) RSFC and CFC shall execute and deliver for filing
Articles of Merger (the "Articles of Merger") to the Department of State of
Florida. The Articles of Merger shall provide that the Parent Merger be
effective at 9:00 a.m. (the "Effective Time") on a designated date (the
"Effective Date"). Pursuant to the terms of this Agreement, CFC shall be merged
with and into RSFC, which shall be the surviving corporation. The Plan of Merger
set forth in the Articles of Merger shall be as provided in this Agreement and
the Florida Business Corporation Act.
1.2 CONVERSION OF SHARES. At the Effective Time, each issued and
outstanding share of the common stock of CFC, par value $0.01 per share ("CFC
Common Stock"), shall, by virtue of the Parent Merger and without any action by
the holder thereof, be converted into a number of shares of the common stock of
RSFC, par value $.01 per share ("RSFC Common Stock"), equal to the Conversion
Rate (as defined in Section 1.3 hereof). No fractional shares of RSFC Common
Stock shall be issued. In lieu thereof, each holder of CFC Common Stock shall be
entitled to be paid an amount in cash determined by multiplying the holder's
fractional interest by the closing price of RSFC Common Stock on the
NASDAQ-National Market System on the Effective Date. At the Effective Time, each
issued and outstanding share of RSFC Common Stock shall remain issued and
outstanding and unaffected by the Parent Merger. In the event that, prior to the
Effective Time, RSFC's Common Stock shall be changed to a different number of
shares or a different class of shares by reason of any recapitalization or
reclassification, stock dividend, combination, stock split or reverse stock
split, an appropriate and proportionate adjustment shall be made in the
Conversion Rate.
1.3 CONVERSION RATE. The "Conversion Rate" shall be 4.807; provided,
however, if:
(A) the Average Closing Price on the Determination Date of shares
of RSFC Common Stock shall be less than $7.65; and
(B) (1) the number obtained by dividing the Average Closing Price
on such Determination Date by $8.76 (such number being
referred to herein as the "RSFC Ratio") shall be less than (2)
the number obtained by dividing the Index Price on the
Determination Date by the Index Price on the Starting Date and
subtracting 0.05 from the quotient in this clause (B)(2) (such
number being referred to herein as the "Index Ratio");
then CFC shall have the right to terminate this Agreement, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, at any time during the five-day period
A-2
<PAGE>
commencing on the Determination Date; subject, however, to the following three
sentences. If CFC elects to exercise its termination right pursuant to the
immediately preceding sentence, it shall give prompt written notice to RSFC
(provided that such notice of election to terminate may be withdrawn at any time
within the aforementioned five-day period). During the five-day period
commencing with its receipt of such notice, RSFC shall have the option of
adjusting the Conversion Rate to equal the number equal to a quotient (rounded
to the nearest one-thousandth), the numerator of which is the product of $7.65
and the Conversion Rate (as then in effect) and the denominator of which is the
Average Closing Price. If RSFC makes an election contemplated by the preceding
sentence, within such five-day period, it shall give written notice to CFC of
such election and the revised Conversion Rate, whereupon no termination shall
have occurred pursuant to this Section 1.3 and this Agreement shall remain in
effect in accordance with its terms (except as the Conversion Rate shall have
been so modified), and any references in this Agreement to "Conversion Rate"
shall thereafter be deemed to refer to the Conversion Rate as adjusted pursuant
to this Section 1.3.
For purposes of this Section 1.3, the following terms shall have the
meanings indicated:
"Average Closing Price" means the average of the daily last sales
prices of RSFC Common Stock as reported by the NASDAQ National Market System (as
reported in THE WALL STREET JOURNAL or, if not reported therein, in another
mutually agreed upon authoritative source) for the twenty consecutive full
trading days in which such shares are traded on the NASDAQ National Market
System beginning on the first full trading day following the date on which the
Registration Statement referred to in Section 6.7 is declared effective by the
SEC.
"Determination Date" means the last day of the twenty-day trading
period referred to in the preceding paragraph.
"Index Group" means the group of each of the ten bank holding companies
listed below, the common stock of all of which shall be publicly traded and as
to which there shall not have been, since the Starting Date and before the
Determination Date, an announcement of a proposal for the acquisition or sale of
such company. In the event that the common stock of any such company ceases to
be publicly traded or any such announcement is made with respect to any such
company, such company will be removed from the Index Group, and the weights
(which have been determined based on the number of outstanding shares of common
stock) redistributed proportionately for purposes of determining the Index
Price. The ten bank holding companies and the weights attributed to them are as
follows:
BANK HOLDING COMPANY WEIGHTING
-------------------- ---------
ABC Bancorp (ABCB) 12.50
American Bancorp (AMBC) 2.90
Anchor Financial Corp. (AFSC) 4.74
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Century South Banks Inc. (CSBI) 14.40
First Charter Corp. (FCTR) 14.03
George Mason Bankshares Inc. (GMBS) 9.42
Hamilton Bancorp Inc. (HABK) 17.55
Peoples Holding Co. (PHCO) 7.24
Republic Bancshares Inc. (REPB) 7.75
Seacoast Banking Corp. Florida (SBCFA) 9.47
----
100.00%
"Index Price" on a given date means the weighted average (weighted in
accordance with the factors listing above) of the closing prices of the
companies composing the Index Group.
"Starting Date" means August 6, 1997.
If any company belonging to the Index Group or RSFC declares or effects
a stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between the Starting Date and the
Determination Date, the prices for the common stock of such company or RSFC
shall be appropriately adjusted for the purposes of applying this Section 1.3.
1.4 CFC OPTIONS. At the Effective Time, each outstanding option to
purchase shares of CFC Common Stock listed on Schedule 3.3 hereof ("CFC Stock
Options") shall be automatically converted into an option to acquire, on the
same terms and conditions as were applicable under such CFC Stock Option, the
same number of shares of RSFC Common Stock as the holder of such CFC Stock
Option would have been entitled to receive pursuant to the Parent Merger had
such holder exercised such option in full immediately prior to the Effective
Time, at a price per share equal to (i) the aggregate exercise price for the
shares of CFC Common Stock otherwise purchasable pursuant to such CFC Stock
Option divided by (ii) the Conversion Rate.
1.5 THE CLOSING. The closing of the transactions described herein (the
"Closing") shall take place at the offices of Morgan, Lewis & Bockius LLP, 5300
First Union Financial Center, 200 South Biscayne Boulevard, Miami, Florida, at
10:00 a.m., local time, on such date as the parties shall mutually agree not
more than 30 days nor less than ten days after the calendar month end first
occurring after the later of (i) the CFC shareholders meeting referred to in
Section 5.7 hereof, (ii) the RSFC shareholders meeting referred to in Section
6.5 hereof, (iii) the date of the letter of preliminary approval of the
Department approving the Bank Merger or (iv) such later date on which all
conditions precedent to such Closing contained in Articles VII, VIII and IX
hereof have been satisfied or duly waived; or at such other date, time and place
as the parties shall agree, but in no event later than January 31, 1998.
1.6 STOCK CERTIFICATES. At the Effective Time, the stock transfer books
of CFC shall be closed and there shall be no further registration of transfers
of CFC Common Stock
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thereafter. At and after the Effective Time, holders of certificates
representing shares of CFC Common Stock immediately prior to the Effective Time
shall cease to have any rights with respect to CFC Common Stock. The sole right
of holders of CFC Common Stock shall be to receive the RSFC Common Stock and
cash in lieu of fractional shares to which they are entitled by virtue of the
Parent Merger. Immediately after the Effective Time, RSFC agrees to provide
Letters of Transmittal and instructions regarding the tender of CFC stock
certificates for exchange for RSFC stock certificates to each former CFC
shareholder at the shareholder's address of record on the books of CFC. No
dividends or other distributions declared or made after the Effective Time with
respect to RSFC Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered CFC Common Stock certificate with
respect to the shares of RSFC Common Stock represented thereby until the holder
of record of such certificate shall surrender the certificate. Subject to the
effect of applicable laws, following surrender of any such certificate, there
shall be paid to the holder, without interest, such unpaid dividends or other
distributions.
1.7 SHARES OF DISSENTING HOLDERS. Notwithstanding anything to the
contrary contained in this Agreement, any holder of CFC Common Stock with
respect to which dissenters' rights are duly exercised in accordance with
Section 607.1320 of the Florida Business Corporation Act ("CFC Dissenting
Shares") shall not be entitled to receive shares of RSFC Common Stock pursuant
to Section 1.2 hereof, unless such holder fails to perfect, effectively
withdraws or loses his right to dissent from the Parent Merger under Section
607.1320. Such holder shall be entitled to receive only the payment provided for
by Section 607.1320. If any such holder so fails to perfect, effectively
withdraws or loses his dissenters' rights, his CFC Dissenting Shares shall
thereupon be deemed to have been converted, as of the Effective Time, into the
right to receive shares of RSFC Common Stock (and cash in lieu of fractional
shares) pursuant to Section 1.2 hereof.
ARTICLE II
THE BANK MERGER
2.1 PLAN OF MERGER AND MERGER AGREEMENT. Subject to and in accordance
with the terms and conditions of this Agreement and Chapter 658, Florida
Statutes, Republic and County agree to enter into a Plan of Merger and Merger
Agreement (the "Plan of Merger") in accordance with the requirements of Section
658.42, Florida Statutes, and submit the Plan of Merger to the Florida
Department of Banking and Finance (the "Department") for approval. Subject to
and in accordance with the terms and conditions of this Agreement, at the
Closing, Republic and County shall again execute the Plan of Merger, if it
differs in any respect from the counterpart thereof theretofore filed with the
Department, and shall execute certified copies of the resolutions approving the
Plan of Merger by the shareholders of each bank. The Plan of Merger and
certified resolutions shall be delivered for filing with the Department. The
Plan of Merger shall provide that County shall be merged with and into Republic
(which shall be the resulting bank in the Bank Merger) at 3:00 p.m. on the
afternoon of the Effective Date.
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2.2 CONVERSION OF SHARES. Upon effectiveness of the Bank Merger, all of
the issued and outstanding shares of the common stock of County, par value $3.00
per share ("County Common Stock"), shall be extinguished and canceled, and RSFC,
as the parent corporation of County upon effectiveness of the Parent Merger,
shall be issued a number of shares of the common stock of Republic in such
amount as agreed on or before such date by RSFC and Republic. The shares of
common stock of Republic, par value $5.00 per share, issued and outstanding
immediately prior to effectiveness of the Bank Merger shall remain issued and
outstanding and unaffected by the Bank Merger.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CFC AND COUNTY
CFC and County hereby represent and warrant to Republic and RSFC as
follows:
3.1 CORPORATE ORGANIZATION. CFC is a Florida corporation, duly
organized, validly existing and in good standing under the laws of the State of
Florida. CFC has the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate its properties and
assets as now owned and being operated by it. CFC is qualified or licensed to do
business and is in good standing in each jurisdiction in which it operates,
except where the failure to do so will not have a material adverse effect on
CFC. CFC is a bank holding company, duly registered and in good standing as such
under the Bank Holding Company Act of 1956, as amended.
3.2 AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION. CFC's Board of
Directors has duly authorized the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. Subject to approval of
the Parent Merger by shareholders of CFC owning not less than a majority of the
outstanding shares of CFC Common Stock, this Agreement is a legal, valid and
binding obligation of CFC, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and except that the availability of equitable remedies is within the
discretion of the appropriate court. The execution, delivery and performance of
this Agreement do not, and the consummation of the Parent Merger and the Bank
Merger will not, (a) violate or conflict with any provision of the Articles of
Incorporation or Bylaws of CFC; (b) except as set forth in Schedule 3.2, require
any third party consent pursuant to or result in any breach of or default under
any provision of any contract or agreement of any kind to which CFC is a party
or by which CFC is bound or to which any of its property or assets of CFC is
subject; (c) result in any breach or violation of, or default under, or any
event which with due notice or lapse of time or both would constitute a default
under, result in the termination of, or accelerate the performance required by,
or require CFC to obtain or make any consent, authorization, approval,
registration or filing (other than as described in this Agreement), under any
statute, law, bylaw, ordinance, regulation, rule, judgment, decree, order,
license, waiver, variance or other requirement of any court or agency, board,
bureau, body or department of the United States or any state thereof which is
applicable to CFC or any of the properties or assets of CFC; (d) cause any
acceleration of maturity of any note, instrument or other obligation to which
CFC is a party or by which it is bound or with respect to which it is an obligor
or guarantor; or (e) result in the creation or imposition of any lien, pledge,
claim, charge, restriction, equity or encumbrance of any kind whatsoever upon or
give to any other person any interest or right, including any right of
termination or cancellation, in or with respect to any of the business,
operations, properties, assets, agreements or contracts of CFC.
3.3 CAPITALIZATION; STOCK OWNERSHIP. As of the date hereof, the
authorized
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capital stock of CFC consists of 1,500,000 shares of common stock, par value
$0.01 per share, of which 1,265,081 shares are issued and outstanding. All of
the issued and outstanding shares of CFC Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable, and none of them were
issued in violation of any preemptive or other right. Except as described on
Schedule 3.3, CFC is not a party to or bound by any contract, agreement or
arrangement to issue, sell or otherwise dispose of or redeem, purchase or
otherwise acquire any of its capital stock and there is no outstanding option,
warrant or other right to subscribe for or purchase, or contract, agreement or
arrangement with respect to, any capital stock of CFC or any other security
exercisable or convertible into any capital stock of CFC, or any stock
appreciation rights.
3.4 INVESTMENTS; NO SUBSIDIARY. Except as set forth on Schedule 3.4,
CFC does not own, directly or indirectly, any shares of capital stock of any
corporation or any equity investment in any partnership, association or other
business organization, other than County.
3.5 COUNTY CORPORATE ORGANIZATION. County is a national bank, duly
organized and validly existing under the laws of the United States and in good
standing with the Office of the Comptroller of the Currency (the "OCC") and the
Federal Deposit Insurance Corporation (the "FDIC"). County has the corporate
power and authority to carry on its business and operations as now being
conducted and to own and operate its properties and assets as now owned and
being operated by it. County's deposit accounts are duly insured by the FDIC to
the maximum extent permitted under applicable law. County has delivered to RSFC
complete and correct copies of County's Articles of Incorporation and Bylaws, as
amended to date, which are in full force and effect on the date hereof. County
is qualified or licensed to do business and is in good standing in each
jurisdiction in which it operates, except where the failure to do so will not
have a material adverse effect on County.
3.6 COUNTY CAPITALIZATION; STOCK OWNERSHIP. As of the date hereof, the
authorized capital stock of County consists of 832,928 shares of common stock,
par value $3.00 per share, of which 807,928 shares are issued and outstanding
(none of which are held by County as treasury stock), all of which are owned by
CFC. All of the issued and outstanding shares of County Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable, and
none of them were issued in violation of any preemptive or other right. County
is not a party to or bound by any contract, agreement or arrangement to issue,
sell or otherwise dispose of or redeem, purchase or otherwise acquire any of its
capital stock and there is no outstanding option, warrant or other right to
subscribe for or purchase, or contract, agreement or arrangement with respect
to, any capital stock of CFC or any other security exercisable or convertible
into any capital stock of CFC, or any stock appreciation rights.
3.7 COUNTY AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION. The County
Board of Directors and the sole shareholder, by unanimous vote, have duly
authorized the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby with respect to County. This Agreement is a
legal, valid and binding obligation of County
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enforceable against County in accordance with its terms, except as
enforceability may be limited by regulatory authorities having jurisdiction or
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and except that the
availability of equitable remedies is within the discretion of the appropriate
court. Except for required regulatory approvals, the execution, delivery and
performance of this Agreement do not, and the consummation of the Bank Merger
will not, (a) violate or conflict with the Articles of Association or Bylaws of
County; (b) except as set forth in Schedule 3.7, require any third-party consent
pursuant to or result in any breach of or default under any provision of any
contract or agreement of any kind to which County is a party or by which it is
bound or to which any of its property or assets is subject; (c) result in any
breach or violation of, or default under, or any event which with due notice or
lapse of time or both would constitute a default under, result in the
termination of, or accelerate the performance required by, or require County to
obtain or make any consent, authorization, approval, registration or filing
(other than as described in this Agreement), under any statute, law, bylaw,
ordinance, regulation, rule, judgment, decree, order, license, waiver, variance
or other requirement of any court or agency, board, bureau, body or department
of the United States or any state thereof which is applicable to County or any
of the properties or assets of County; (d) cause any acceleration of maturity of
any note, instrument or other obligation to which County is a party or by which
either is bound or with respect to which it is an obligor or guarantor; or (e)
result in the creation or imposition of any lien, pledge, claim, charge,
restriction, equity or encumbrance of any kind whatsoever upon or give to any
other person any interest or right, including any right of termination or
cancellation, in or with respect to any of the business, operations, properties,
assets, agreements or contracts of County.
3.8 FINANCIAL STATEMENTS. County has delivered to RSFC copies of its
statements of financial condition as of December 31, 1994, 1995 and 1996, and
statements of changes in shareholders' equity, statements of cash flows and
statements of operations for each of the years then ended, together with
supporting schedules and notes thereto, audited by Deloitte & Touche LLP (the
"Annual Statements"), and its statements of financial condition as of June 30,
1997 and statements of operations for the six-month period then ended (such
statements as of and for the period ended June 30, 1997 are hereinafter referred
to as the "Interim Statements"). The Annual Statements and the Interim
Statements (and the CFC Future Financial Statements, to be delivered to RSFC in
accordance with Section 5.8 hereof) including, without limitation, the
allowances for loan losses, fairly present (or will fairly present) the
financial position and results of operations of County as of the respective
dates of such financial statements and for the respective periods then ended in
conformity with GAAP, consistently applied throughout the periods involved;
except, with respect to the Interim Statements, for year-end adjustments and
footnote disclosure.
3.9 LOAN PORTFOLIO. With respect to each loan owned by County in whole
or in part (each, a "Loan"), except as described on Schedule 3.9 hereto:
(a) the note and any related security documents are each
legal, valid and binding obligations of the maker or obligor thereof,
enforceable against such maker or
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obligor in accordance with their terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditor's rights generally, and to general equitable
principles;
(b) neither County nor, to the knowledge of County, any prior
holder of a Loan has modified the note or any of the related security
documents in any material respect or satisfied, canceled or
subordinated the note or any of the related security documents, except
as otherwise disclosed by documents in the applicable Loan file;
(c) County is the sole holder of legal and beneficial title to
each Loan (or County's applicable participation interest, as
applicable);
(d) the note and the related security documents, copies of
which are included in the Loan files, are true and correct copies of
the documents they purport to be and have not been superseded, amended,
modified, canceled or otherwise changed in any material respect, except
as otherwise disclosed by documents in the applicable Loan file;
(e) to the knowledge of County, there is no pending or
threatened condemnation proceeding or similar proceeding affecting the
property which serves as security for a Loan;
(f) to the knowledge of County, there is no litigation or
proceeding pending or threatened relating to the property which serves
as security for a Loan which would have a material adverse effect upon
the related Loan;
(g) with respect to a Loan held in the form of a
participation, the participation documentation is legal, valid, binding
and enforceable and County's interest in such Loan created by such
participation would not be a part of the insolvency estate of the Loan
originator or other third party upon the insolvency thereof; and
(h) each Loan secured by a mortgage on residential property
(except for construction loans) was originated by a bank, thrift or
other HUD-approved lender.
3.10 DEPOSITS. Except as set forth in Schedule 3.10, none of
the deposits of County is a "brokered" deposit or subject to any encumbrance,
legal restraint or other legal process.
3.11 NO UNDISCLOSED LIABILITIES, ETC. Since June 30, 1997, CFC
has not incurred or become aware of any material liability or obligation
(absolute, accrued, contingent or otherwise) of any nature which should properly
have been reflected or reserved for in the Interim Statements.
3.12 ABSENCE OF CERTAIN CHANGES. Since June 30, 1997 (except
for the
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transactions contemplated by this Agreement), neither CFC nor County:
(a) had any change in financial condition, properties,
business or operations which would have a material adverse effect;
(b) suffered any damage, destruction or loss of physical
property or assets (whether or not covered by insurance), in the
aggregate in excess of $100,000 in value;
(c) issued, sold or otherwise disposed of, or agreed to issue,
sell or otherwise dispose of, any of its capital stock, except upon
exercise of outstanding stock options;
(d) incurred or agreed to incur any material indebtedness for
borrowed money, other than in the ordinary course of business;
(e) made or obligated itself to make any capital expenditure
in excess of $100,000 in the aggregate;
(f) waived any material right;
(g) sold, transferred or otherwise disposed of, or agreed to
sell, transfer or otherwise dispose of, any material assets, or
canceled, or agreed to cancel, any material debts or claims, in each
case, other than in the ordinary course of business;
(h) mortgaged, pledged or subjected to any charge, lien, claim
or encumbrance, or agreed to mortgage, pledge or subject to any charge,
lien, claim or encumbrance, any of its material properties or assets,
other than in the ordinary course of business;
(i) except as provided in Section 5.4(b), declared, set aside
or paid any dividend (whether in cash, property or stock) with respect
to any of its capital stock, or redeemed, purchased or otherwise
acquired, or agreed to redeem, purchase or otherwise acquire, any of
its capital stock;
(j) except as disclosed on Schedule 3.12(j) or contemplated in
Section 5.4(l), increased the compensation or bonuses or special
compensation of any kind of any of its directors, officers, employees
or agents over the rate being paid to them on June 30, 1997 or adopted
or increased any benefits under any insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with any
such director, officer, employee or agent;
(k) made or permitted any amendment or termination of any
material contract, agreement or license to which it is a party, other
than in the ordinary course of business;
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(l) made any material change in its accounting methods or
practices with respect to its financial condition, properties, business
or operations;
(m) repaid any outstanding loans, other than repayments in the
ordinary course of business;
(n) entered into any other material transaction not in the
ordinary course of business;
(o) become aware of the need to make additional specific
provisions for reserves for loan losses which would have a material
adverse effect on its financial condition, properties, business or
operations;
(p) hired any new officers, other than in the ordinary course
of business, consistent with past practice;
(q) entered into any real estate or equipment lease, requiring
aggregate rental payments in excess of $100,000;
(r) entered into any agreement not terminable at will by it
which requires the payment by it of an aggregate amount in excess of
$100,000, other than loan commitments or agreements; or
(s) agreed to or otherwise become obligated to do any of the
foregoing.
3.13 REAL PROPERTIES. Schedule 3.13 hereto describes all real
estate owned or leased by CFC or County, exclusive of "other real estate owned"
acquired by CFC or County as a result of foreclosure or "deed in lieu"
settlements and held by CFC or County for resale. All such real property, if
owned by CFC or County, is owned under good, clear and marketable title, free
and clear of all claims, liens, charges, security interests or encumbrances of
any nature whatsoever except (i) statutory liens securing payments not yet due,
(ii) liens which are incurred in the ordinary course of its business and (iii)
such imperfections or irregularities of title, claims, liens, charges, security
interests or encumbrances as do not materially impair business operations at
such property. CFC or County is the lessee of all leasehold estates described in
Schedule 3.13 and is in possession of the properties purported to be leased
thereunder and each such lease is valid, without material default thereunder by
the lessee or, to lessee's knowledge, the lessor. True and complete copies of
all leases listed in Schedule 3.13 have been delivered by CFC to RSFC.
3.14 TAXES AND FEES. With respect to CFC and each member of
any affiliated group, within the meaning of Section 1504 of the Internal Revenue
Code of 1986, of which CFC is or has been a member (CFC as used hereafter in
this Section 3.14 shall refer to CFC and each such other company) (i) except as
described in Schedule 3.14, all reports, returns, statements (including
estimated reports, returns or statements), and other similar filings required to
be filed
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on or before the Effective Time by CFC or County (the "Tax Returns") with
respect to any Taxes (as defined below) have been or will be timely filed with
the appropriate governmental agencies in all jurisdictions in which such Tax
Returns are required to be filed, and all such Tax Returns correctly reflect the
liability of CFC for Taxes for the periods, properties, or events covered
thereby; (ii) except as described in Schedule 3.14, all Taxes payable with
respect to the Tax Returns referred to in the preceding clause, and all Taxes
accruable or otherwise attributable to events occurring prior to the close of
business on the last day of the calendar month ending immediately prior to the
Closing Date (the "Test Date"), whether disputed or not, whether or not shown on
any Tax Return, and whether or not currently due or payable, will have been paid
in full prior to the Test Date, or an adequate accrual in accordance with
generally accepted accounting principles will be provided with respect thereto
on the balance sheet dated as of the Test Date; (iii) except as described in
Schedule 3.14, CFC has no knowledge of any unassessed Tax deficiencies or of any
audits or investigations pending or threatened against CFC with respect to any
Taxes; (iv) no Tax Returns of CFC have been examined by the Internal Revenue
Service for fiscal years ending within the last 15 years; (v) except as
described in Schedule 3.14, there is in effect no extension for the filing of
any Tax Return and CFC has not extended or waived the application of any statute
of limitations of any jurisdiction regarding the assessment or collection of any
Tax; (vi) no claim has ever been made by any Tax authority in a jurisdiction in
which CFC does not file Tax returns that it is or may be subject to taxation by
that jurisdiction; (vii) there are no liens for Taxes upon any asset of CFC
except for liens for current Taxes not yet due; (viii) CFC has timely made all
deposits required by law to be made with respect to employees' withholding and
other payroll, employment, or other withholding taxes, including the portions of
such taxes imposed upon CFC.
3.15 CONTRACTS. Except as set forth on Schedule 3.15 hereto,
neither CFC nor County is a party to any written or oral:
(a) contract or agreement, other than contracts or agreements
made in the ordinary course of business, involving more than $100,000;
(b) contract or agreement with any governmental authority,
other than contracts or agreements made in the ordinary course of
business;
(c) contract or agreement providing for the settlement of any
material action, suit, proceeding or investigation involving it;
(d) employment or consulting agreement of any kind with any
officer, director, employee or consultant, or any policy, program,
agreement or understanding (whether or not in the form of an agreement)
obligating it to pay any amount to any officer or employee on account
of severance or termination of employment;
(e) contract or collective bargaining agreement with any labor
union or representative of its employees; or
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(f) contract or agreement which is material to its financial
condition, properties, business or operations.
Except as set forth in Schedule 3.15 hereto, each contract or other agreement
listed on such schedule to which CFC or County is a party is in full force and
effect and is valid and enforceable by it in accordance with its terms, subject
to applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally, and, as to enforceability, to general principles of equity.
Neither CFC nor County is in default in any material respect in the observance
or the performance of any term or obligation to be performed by it under any
such contract or other agreement. CFC has delivered or made available to RSFC
true and complete copies of all contracts and agreements listed on such
schedule.
3.16 LITIGATION. Except as set forth in Schedule 3.16 hereto
and except for actions in which County is the plaintiff where the amount in
controversy is less than $100,000, there are no actions, suits, proceedings or
investigations before any court or administrative authority in the United
States, any state thereof, or any other jurisdiction, of any kind now pending
or, to the best of the knowledge of CFC, threatened, involving CFC or County or
any of its businesses, operations, properties, assets or liabilities. There is
no arbitration proceeding involving CFC or County which is pending or, to CFC's
knowledge, threatened under any collective bargaining agreement or otherwise.
Except as set forth in Schedule 3.16 hereto, neither CFC, County nor any of
their properties, assets or liabilities, is subject to any judicial or
administrative judgment, order, decree or restraint which adversely affects its
business, operations or financial condition.
3.17 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth
as Schedule 3.17, the business and operations of CFC and County have been and
are in all material respects conducted in accordance with all applicable laws,
rules and regulations (including, without limitation, the Equal Credit
Opportunity Act, the Consumer Credit Protection Act, the Truth in Lending Act,
the Community Reinvestment Act and the Real Estate Settlement Procedures Act),
and neither CFC nor County is subject to or, to CFC's knowledge, being
threatened with, any material fine, penalty, liability or legal disability to
its business as the result of its failure to comply with any requirement of any
governmental body or agency having jurisdiction over it, the conduct of its
business, the use of its assets and properties, or any premises occupied by it.
CFC and County have filed all reports and maintained all material records
required to be filed or maintained during the past five fiscal years and the
current fiscal year under applicable rules and regulations of the Federal
Reserve, the OCC and the FDIC. Each such filing contains the information
required to be stated therein and such information was true and correct in all
material respects as of the time such report was filed.
3.18 EMPLOYMENT BENEFIT PLANS AND ARRANGEMENTS; LABOR MATTERS.
(a) Schedule 3.18 hereto lists all employee benefits plans,
contracts, programs or arrangements, including but not limited to
pension, profit-sharing, stock option, stock
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bonus, deferred compensation, supplemental retirement, severance,
health care, hospitalization, medical, dental, disability, life
insurance and salary continuation, which are currently maintained,
contributed to or required to be contributed to by CFC or County or
which otherwise cover or provide benefits to any employee or former
employee of CFC or County or any beneficiary thereof (collectively, the
"Plans"). CFC has delivered to RSFC true and complete copies of all of
the Plans and all material documents relating thereto, including, but
not limited to, summary plan descriptions, annual reports (IRS Form
5500 Series), actuarial reports, and accountant or trustee reports, if
any, and such reports are accurate in all material respects and there
has been no material change in the financial or funding status of any
such Plan since the dates of the most recent of such reports. Each Plan
has been maintained and administered in all material respects in
accordance with its terms and with all applicable laws, including the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code and the regulations promulgated thereunder, and in a
manner which will not result in any material charge or assessment
against or liability of CFC or County. Except as set forth on Schedule
3.18 hereto, any Plan that is intended to qualify under Section 401(a)
of the Code has been determined by the Internal Revenue Service to be
so qualified, and nothing has occurred since the date of such
determination that could adversely affect such qualification. The fair
market value of the assets of each Plan that is subject to Title IV
equals or exceeds the present value of all benefit liabilities (as
defined in Title IV of ERISA) under the Plan, with such present value
being determined by application of the actuarial methods and
assumptions applied by the Plan's enrolled actuary at the most recent
annual valuation of the Plan. Neither CFC nor County has engaged in any
transaction which may result in imposition on it of any material excise
tax under Sections 4971 through 4980, inclusive, of the Code, or
otherwise incurred a liability for any excise tax, other than excise
taxes which have heretofore been paid or have been accrued, and, in
either case are fully reflected in the Interim Statements. There does
not exist any accumulated material funding deficiency (within the
meaning of Section 302 of ERISA or Section 412 of the Code), whether or
not waived, with respect to any Plan. There are no circumstances
pursuant to which CFC or County could be liable to the Pension Benefit
Guaranty Corporation or a multi-employer plan (as defined in Section
3(37) of ERISA) with respect to any plan not listed on Schedule 3.18.
Except as set forth in Schedule 3.18 hereto, no Plan provides hospital,
medical or health care benefits (other than those mandated by the
Consolidated Omnibus Budget Reconciliation Act of 1986) or any life
insurance or death benefit protection (other than under a Plan that
qualifies under Section 401(a) of the Code) to any retired employees.
(b) As of the date hereof, no association of employees has
petitioned or applied for labor union certification with respect to all
or any part of the business or operations of CFC or County, nor is
there any organized campaign to obtain any such certification; and
there have been no negotiations with any labor union or association of
employees with respect to any future or amended agreements by CFC or
County involving its business or operations, and neither CFC nor County
has made or received any offers or proposals with respect thereto.
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3.19 ACCOUNTING PRACTICES. The books, records and accounts
maintained by CFC and County accurately and fairly reflect in reasonable detail
its businesses, operations, properties, assets and liabilities, and CFC and
County maintain internal accounting controls that provide reasonable assurances
that transactions are executed only with management's authorization and
transactions are recorded as necessary to permit preparation of accurate
financial statements and to maintain accountability for its properties and
assets.
3.20 MINUTE BOOKS. The minute books of CFC and County are in
all material respects complete and accurate records of all meetings and other
corporate actions of their respective shareholders and Board of Directors and
CFC has made available to RSFC for inspection the originals thereof or delivered
true copies thereof.
3.21 INSURANCE. All of the insurance policies in force on the
date hereof insuring CFC and County, and their assets, business, employees,
officers and directors, are described in Schedule 3.21 hereto. CFC has delivered
or made available to RSFC true and complete copies of all such policies.
3.22 AGREEMENTS WITH REGULATORS. Neither CFC nor County is a
party to any written agreement or memorandum of understanding with, nor a party
to any commitment letter or similar undertaking to, nor subject to any order or
directive by, nor a recipient of any extraordinary supervisory letter from, any
Agency which restricts the conduct of its business, or in any manner relates to
its capital adequacy, its credit policies or its management. Neither CFC nor
County has been advised by any Agency or is aware that such Agency is
contemplating issuing or requesting any such agreement, memorandum, commitment,
understanding, order or supervisory letter.
3.23 ENVIRONMENTAL. Except as set forth in Schedule 3.23,
neither CFC nor County is (i) in violation of any law, regulation, order,
permit, license or decree regulating emissions into the environment and the
proper disposal of wastes, petroleum products or other materials; or (ii) liable
or responsible for any cleanup, fines, liability or expense arising under any
environmental law, regulation or order as a result of the disposal of wastes,
petroleum products or other materials in or on its property (whether owned or
leased or in which either has acquired an interest by way of mortgage or
foreclosure) by it, its predecessors in title, or any other person, or in or on
any other property, including property no longer owned, leased or used by it.
There are no asbestos or petroleum products or any hazardous or waste material
of any kind located under, on or in the property (owned or leased) of CFC or
County, and such property has never been used for the handling, treatment,
storage or disposal of any petroleum products or any hazardous or toxic
substances as defined under any applicable state or federal law. RSFC intends to
obtain Phase 1 environmental audits on properties listed on Schedule 3.13. In
the event that such audits (or subsequent Phase 2 assessments) indicate
necessary remediation which would cost in excess of $100,000, RSFC, at its
option, may, upon notice to CFC, terminate this Agreement. In the event of such
a termination, neither party shall have any further obligations or liability to
the other, notwithstanding Section 10.4 hereof, unless CFC or County had
knowledge of the circumstances
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which indicated such necessary remediation and failed to disclose such
circumstances in Schedule 3.23.
3.24 COMMUNITY REINVESTMENT ACT. Except as set forth on
Schedule 3.24, County has complied in all material respects with its obligations
under the Community Reinvestment Act.
3.25 TRANSACTIONS WITH INSIDERS. Except as set forth on
Schedule 3.25, all of the loans, transactions, agreements and dealings between
County and any "Insider," as defined in Regulation O, comply in all respects
with the provisions of Regulation O.
3.26 FIDELITY BOND. County has obtained all fidelity bonds
that are required by law or regulation. All such fidelity bonds are currently in
force and County has no reason to anticipate that the issuers thereof will fail
to renew them or plan to revoke and/or cancel them.
3.27 PROXY STATEMENT. The proxy statement referred to in
Section 4.9 hereof will not, with respect to CFC and County, contain any untrue
statements of material fact or omit to state any material fact necessary in
order to make the statements made, in the light of the circumstances under which
they were made, not misleading; provided, however, that this Section 3.27 shall
not apply to information included in the proxy statement with respect to RSFC or
Republic, including financial information and statements.
3.28 BROKERS. Except as described in Schedule 3.28, neither
CFC, County nor any director, officer, employer, agent or other representative
of CFC or County, has paid or is obligated to pay to any party any finder's fee,
brokerage commission, fairness opinion fee or like payment in connection with
the transactions contemplated by this Agreement.
3.29 NO UNTRUE STATEMENTS. No statement by CFC or County
contained in this Agreement or any of the Schedules hereto or CFC or County
financial statements referred to herein contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.30 ABSENCE OF REGULATORY COMMUNICATIONS. Except as set forth
in Schedule 3.30, neither CFC nor County is subject to, or has received during
the past three years, any written communication directed specifically to it from
any Agency to which it is subject or pursuant to which such Agency has imposed
or has indicated it may impose any material restrictions on the operations of it
or the business conducted by it or in which such Agency has raised a material
question concerning the condition, financial or otherwise, of such company.
3.31 OPINION OF FINANCIAL ADVISOR. CFC has been advised by
Alex Sheshunoff & Co. that the Conversion Rate is fair to the holders of CFC
Common Stock from a financial point of view.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RSFC AND REPUBLIC
RSFC and Republic hereby represent and warrant to CFC and County as
follows:
4.1 RSFC CORPORATE ORGANIZATION. RSFC is a Florida
corporation, duly organized, validly existing and in good standing under the
laws of the State of Florida. RSFC has the corporate power and authority to
carry on its business and operations as now being conducted and to own and
operate its properties and assets as now owned and being operated by it. RSFC is
qualified or licensed to do business and is in good standing in each
jurisdiction in which it operates, except where the failure to do so will not
have a material adverse effect on RSFC. RSFC is a bank holding company, duly
registered as such and in good standing under the Bank Holding Company Act of
1956, as amended.
4.2 RSFC AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION.
RSFC's Board of Directors has duly authorized the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. Subject
to approval of the Parent Merger by shareholders of RSFC owning not less than a
majority of the outstanding shares of RSFC Common Stock, this Agreement is a
legal, valid and binding obligation of RSFC, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and except that the availability of equitable
remedies is within the discretion of the appropriate court. The execution,
delivery and performance of this Agreement do not, and the consummation of the
Parent Merger and the Bank Merger will not, (a) violate or conflict with any
provision of the Articles of Incorporation or Bylaws of RSFC, (b) require any
third party consent pursuant to or result in any breach of or default under any
provision of any contract or agreement of any kind to which RSFC is a party or
by which RSFC is bound or to which any property or asset of RSFC is subject, (c)
result in any breach or violation of, or default under, or any event which with
due notice or lapse of time or both would constitute a default under, result in
the termination of, or accelerate the performance required by, or require RSFC
to obtain or make any consent, authorization, approval, registration or filing
(other than as described in this Agreement), under any statute, law, bylaw,
ordinance, regulation, rule, judgment, decree, order, license, waiver, variance
or other requirement of any court or agency, board, bureau, body or department
of the United States or any state thereof which is applicable to Republic or any
of the properties or assets of RSFC, (d) cause any acceleration of maturity of
any note, instrument or other obligation to which RSFC is a party or by which it
is bound or with respect to which it is an obligor or guarantor, or (e) result
in the creation or imposition of any lien, pledge, claim, charge, restriction,
equity or encumbrance of any kind whatsoever upon or give to any other person
any interest or right, including any right of termination or cancellation, in or
with respect to any of the business, operations, properties, assets, agreements
or contracts of RSFC.
4.3 RSFC CAPITALIZATION; STOCK OWNERSHIP. As of the date
hereof, the
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authorized capital stock of RSFC consists of 100,000,000 shares of common stock,
par value $.01 per share, of which 16,147,107 shares are issued and outstanding,
and 20,000,000 shares of preferred stock, $10.00 stated value per share, of
which no shares of Series A, no shares of Series B and 1,035,000 shares of
Series C are issued and outstanding. All of the issued and outstanding shares of
RSFC Common Stock and preferred stock have been duly authorized and validly
issued and are fully paid and nonassessable, and none of them were issued in
violation of any preemptive or other right. Except as described on Schedule 4.3,
RSFC is not a party to or bound by any contract, agreement or arrangement to
issue, sell or otherwise dispose of or redeem, purchase or otherwise acquire any
of its capital stock and there is no outstanding option, warrant or other right
to subscribe for or purchase, or contract, agreement or arrangement with respect
to, any capital stock of RSFC or any other security exercisable or convertible
into any capital stock of RSFC, or any stock appreciation rights.
4.4 INVESTMENTS; NO SUBSIDIARY. Except as set forth on
Schedule 4.4, RSFC does not own, directly or indirectly, any shares of capital
stock of any corporation or any equity investment in any partnership,
association or other business organization.
4.5 REPUBLIC CORPORATE ORGANIZATION. Republic is a Florida
state bank, duly organized, validly existing and in good standing under the laws
of the State of Florida. Republic has the corporate power and authority to carry
on its business and operations as now being conducted and to own and operate its
properties and assets as now owned and being operated by it. Republic has
delivered to CFC complete and correct copies of Republic's Articles of
Incorporation and Bylaws, as amended to date, which are in full force and effect
on the date hereof. Republic is qualified or licensed to do business and is in
good standing in each jurisdiction in which it operates, except where the
failure to do so will not have a material adverse effect on Republic.
4.6 REPUBLIC CAPITALIZATION; STOCK OWNERSHIP. As of the date
hereof, the authorized capital stock of Republic consists of 5,000,000 shares of
common stock, par value $5.00 per share, of which 1,539,490 shares are issued
and outstanding (none of which are held by Republic as treasury stock), all of
which are owned by RSFC or Governors Bank Corporation (RSFC's wholly owned
subsidiary). All of the issued and outstanding shares of Republic Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, and none of them were issued in violation of any preemptive or
other right. Republic is not a party to or bound by any contract, agreement or
arrangement to issue, sell or otherwise dispose of or redeem, purchase or
otherwise acquire any of its capital stock and there is no outstanding option,
warrant or other right to subscribe for or purchase, or contract, agreement or
arrangement with respect to, any capital stock of Republic or any other security
exercisable or convertible into any capital stock of Republic, or any stock
appreciation rights.
4.7 REPUBLIC AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION.
Republic's Board of Directors and shareholders have duly authorized the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and this Agreement is a legal,
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valid and binding obligation of Republic, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and except that the availability of equitable
remedies is within the discretion of the appropriate court. The execution,
delivery and performance of this Agreement do not, and the consummation of the
Bank Merger will not, (a) violate or conflict with any provision of the Articles
of Incorporation or Bylaws of Republic; (b) require any third party consent
pursuant to or result in any breach of or default under any provision of any
contract or agreement of any kind to which Republic is a party or by which
Republic is bound or to which any property or asset of Republic is subject; (c)
result in any breach or violation of, or default under, or any event which with
due notice or lapse of time or both would constitute a default under, result in
the termination of, or accelerate the performance required by, or require
Republic to obtain or make any consent, authorization, approval, registration or
filing (other than as described in this Agreement), under any statute, law,
bylaw, ordinance, regulation, rule, judgment, decree, order, license, waiver,
variance or other requirement of any court or agency, board, bureau, body or
department of the United States or any state thereof which is applicable to
Republic or any of the properties or assets of Republic; (d) cause any
acceleration of maturity of any note, instrument or other obligation to which
Republic is a party or by which it is bound or with respect to which it is an
obligor or guarantor; or (e) result in the creation or imposition of any lien,
pledge, claim, charge, restriction, equity or encumbrance of any kind whatsoever
upon or give to any other person any interest or right, including any right of
termination or cancellation, in or with respect to any of the business,
operations, properties, assets, agreements or contracts of Republic.
4.8 SEC FILINGS. RSFC has heretofore or will deliver to CFC,
copies of RSFC's: (i) Annual Reports on Form 10-K for the fiscal years ended
December 31, 1996 and 1995; (ii) 1996 Annual Report to Shareholders; (iii)
Quarterly Report on Form 10-Q for the fiscal quarters ended March 31 and June
30, 1997; and (iv) any reports on Form 8-K filed by RSFC with the SEC since
December 31, 1996 and will continue until the Closing to furnish CFC with copies
of such reports. As of the respective filing and effective dates, (i) such
reports complied as to form with the applicable requirements of the Securities
Act of 1933 (the "33 Act") and the Securities Exchange Act of 1934 (the "34
Act") and the regulations thereunder, and (ii) none of such reports contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.9 REGISTRATION STATEMENT. At the time the Registration
Statement referred to in Section 6.5 hereof becomes effective, the Registration
Statement, including the proxy statement constituting a part thereof, will
comply in all material respects with the requirements of the 33 Act or other
applicable securities law and the rules and regulations thereunder, will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that this Section 4.9 shall not apply to statements included in the proxy
statement made in reliance upon and in conformity with information furnished to
RSFC in writing
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by CFC or any of its representatives, including financial information and
statements.
4.10 FINANCIAL STATEMENTS. RSFC has delivered to CFC copies of
its statements of financial condition as of March 31, 1994, 1995 and 1996, and
December 31, 1996, and statements of changes in shareholders' equity, statements
of cash flows and statements of operations for each of the years then ended,
together with supporting schedules and notes thereto, audited by Ernst & Young
LLP (the "RSFC Annual Statements"), and its unaudited statements of financial
condition as of June 30, 1997 and statements of operations for the six-month
period then ended (such statements as of and for the period ended June 30, 1997
are hereinafter referred to as the "RSFC Interim Statements"). The RSFC Annual
Statements and the RSFC Interim Statements, including, without limitation, the
allowances for loan losses, fairly present the financial position and results of
operations of RSFC as of the respective dates of such financial statements and
for the respective periods then ended in conformity with GAAP, consistently
applied throughout the periods involved; except, with respect to the RSFC
Interim Statements, for year-end adjustments and footnote disclosure.
4.11 LOAN PORTFOLIO. With respect to each loan owned by
Republic in whole or in part (each, a "Loan"), except as described on Schedule
4.11 hereto:
(a) the note and any related security documents are each
legal, valid and binding obligations of the maker or obligor thereof,
enforceable against such maker or obligor in accordance with their
terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditor's rights
generally, and to general equitable principles;
(b) neither Republic nor, to the knowledge of Republic, any
prior holder of a Loan has modified the note or any of the related
security documents in any material respect or satisfied, canceled or
subordinated the note or any of the related security documents, except
as otherwise disclosed by documents in the applicable Loan file;
(c) Republic is the sole holder of legal and beneficial title
to each Loan (or Republic's applicable participation interest, as
applicable);
(d) the note and the related security documents, copies of
which are included in the Loan files, are true and correct copies of
the documents they purport to be and have not been superseded, amended,
modified, canceled or otherwise changed in any material respect, except
as otherwise disclosed by documents in the applicable Loan file;
(e) to the knowledge of Republic, there is no pending or
threatened condemnation proceeding or similar proceeding affecting the
property which serves as security for a Loan;
(f) to the knowledge of Republic, there is no litigation or
proceeding pending
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or threatened, relating to the property which serves as security for a
Loan, which would have a material adverse effect upon the related Loan;
(g) with respect to a Loan held in the form of a
participation, the participation documentation is legal, valid, binding
and enforceable and Republic's interest in such Loan created by such
participation would not be a part of the insolvency estate of the Loan
originator or other third party upon the insolvency thereof; and
(h) each Loan secured by a mortgage on residential property
(except for construction loans) was originated by a bank, thrift or
other HUD-approved lender.
4.12 DEPOSITS. Except as described on Schedule 4.12 hereto,
none of the deposits of Republic is a "brokered" deposit or subject to any
encumbrance, legal restraint or other legal process.
4.13 NO UNDISCLOSED LIABILITIES, ETC. Since June 30, 1997,
RSFC has not incurred or become aware of any material liability or obligation
(absolute, accrued, contingent or otherwise) of any nature which should properly
have been reflected or reserved for in the RSFC Interim Statements.
4.14 ABSENCE OF CERTAIN CHANGES. Since June 30, 1997 (except
for the transactions contemplated by this Agreement), neither RSFC nor Republic
has:
(a) had any change in financial condition, properties,
business or operations which would have a material adverse effect;
(b) suffered any damage, destruction or loss of physical
property or assets (whether or not covered by insurance), in the
aggregate in excess of $100,000 in value;
(c) issued, sold or otherwise disposed of, or agreed to issue,
sell or otherwise dispose of, any of its capital stock, except upon
exercise of outstanding stock options;
(d) incurred or agreed to incur any material indebtedness for
borrowed money, other than in the ordinary course of business;
(e) made or obligated itself to make any capital expenditure
in excess of $100,000 in the aggregate;
(f) waived any material right;
(g) sold, transferred or otherwise disposed of, or agreed to
sell, transfer or otherwise dispose of, any material assets, or
canceled, or agreed to cancel, any material debts or claims, in each
case, other than in the ordinary course of business;
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(h) mortgaged, pledged or subjected to any charge, lien, claim
or encumbrance, or agreed to mortgage, pledge or subject to any charge,
lien, claim or encumbrance, any of its material properties or assets,
other than in the ordinary course of business;
(i) declared, set aside or paid any dividend (whether in cash,
property or stock) with respect to any of its capital stock, other than
its regular cash dividends, or redeemed, purchased or otherwise
acquired, or agreed to redeem, purchase or otherwise acquire, any of
its capital stock;
(j) increased the compensation or bonuses or special
compensation of any kind of any of its directors, officers, employees
or agents over the rate being paid to them on June 30, 1997 or adopted
or increased any benefits under any insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with any
such director, officer, employee or agent;
(k) made or permitted any amendment or termination of any
material contract, agreement or license to which it is a party, other
than in the ordinary course of business;
(l) made any material change in its accounting methods or
practices with respect to its financial condition, properties, business
or operations;
(m) repaid any outstanding loans, other than repayments in the
ordinary course of business;
(n) entered into any other material transaction not in the
ordinary course of business;
(o) become aware of the need to make additional specific
provisions for reserves for loan losses which would have a material
adverse effect on its financial condition, properties, business or
operations;
(p) hired any new officers, other than in the ordinary course
of business, consistent with past practice;
(q) entered into any real estate or equipment lease, requiring
aggregate rental payments in excess of $100,000;
(r) entered into any agreement not terminable at will by it
which requires the payment by it of an aggregate amount in excess of
$100,000; or
(s) agreed to or otherwise become obligated to do any of the
foregoing.
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4.15 REAL PROPERTIES. Schedule 4.15 hereto describes all real
estate owned or leased by RSFC or Republic, exclusive of "other real estate
owned" acquired by Republic as a result of foreclosure or "deed in lieu"
settlements and held by Republic for resale. All such real property, if owned,
is owned under good, clear and marketable title, free and clear of all claims,
liens, charges, security interests or encumbrances of any nature whatsoever
except (i) statutory liens securing payments not yet due, (ii) liens which are
incurred in the ordinary course of its business and (iii) such imperfections or
irregularities of title, claims, liens, charges, security interests or
encumbrances as do not materially impair business operations at such property.
RSFC or Republic is the lessee of all leasehold estates described in Schedule
4.15 and is in possession of the properties purported to be leased thereunder
and each such lease is valid, without material default thereunder by the lessee
or, to lessee's knowledge, the lessor. True and complete copies of all leases
listed in Schedule 4.15 have been delivered by RSFC to CFC.
4.16 TAXES AND FEES. With respect to RSFC and each member of
any affiliated group, within the meaning of Section 1504 of the Internal Revenue
Code of 1986, of which RSFC is or has been a member (RSFC as used hereafter in
this Section 4.16 shall refer to RSFC and each such other company) (i) except as
described in Schedule 4.16, all reports, returns, statements (including
estimated reports, returns or statements), and other similar filings required to
be filed on or before Effective Time by RSFC or Republic (the "Tax Returns")
with respect to any Taxes (as defined below) have been or will be timely filed
with the appropriate governmental agencies in all jurisdictions in which such
Tax Returns are required to be filed, and all such Tax Returns correctly reflect
the liability of RSFC for Taxes for the periods, properties, or events covered
thereby; (ii) except as described in Schedule 4.16, all Taxes payable with
respect to the Tax Returns referred to in the preceding clause, and all Taxes
accruable or otherwise attributable to events occurring prior to the Test Date,
whether disputed or not, whether or not shown on any Tax Return, and whether or
not currently due or payable, will have been paid in full prior to the Test
Date, or an adequate accrual in accordance with generally accepted accounting
principles will be provided with respect thereto on the balance sheet dated as
of the Test Date; (iii) except as described in Schedule 4.16, RSFC has no
knowledge of any unassessed Tax deficiencies or of any audits or investigations
pending or threatened against RSFC with respect to any Taxes; (iv) the Tax
Returns of RSFC have never been examined by the Internal Revenue Service; (v)
except as described in Schedule 4.16, there is in effect no extension for the
filing of any Tax Return and RSFC has not extended or waived the application of
any statute of limitations of any jurisdiction regarding the assessment or
collection of any Tax; (vi) no claim has ever been made by any Tax authority in
a jurisdiction in which RSFC does not file Tax returns that it is or may be
subject to taxation by that jurisdiction; (vii) there are no liens for Taxes
upon any asset of RSFC except for liens for current Taxes not yet due; (viii)
RSFC has timely made all deposits required by law to be made with respect to
employees' withholding and other payroll, employment, or other withholding
taxes, including the portions of such taxes imposed upon RSFC.
4.17 CONTRACTS. Except as set forth on Schedule 4.17 hereto,
neither RSFC nor Republic is a party to any written or oral:
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(a) contract or agreement, other than contracts or agreements
made in the ordinary course of business, involving more than $100,000;
(b) contract or agreement with any governmental authority,
other than contracts or agreements made in the ordinary course of
business;
(c) contract or agreement providing for the settlement of any
material action, suit, proceeding or investigation involving it;
(d) employment or consulting agreement of any kind with any
officer, director, employee or consultant, or any policy, program,
agreement or understanding (whether or not in the form of an agreement)
obligating it to pay any amount to any officer or employee on account
of severance or termination of employment;
(e) contract or collective bargaining agreement with any labor
union or representative of its employees; or
(f) contract or agreement which is material to its financial
condition, properties, business or operations.
Except as set forth in Schedule 4.17 hereto, each contract or other agreement to
which RSFC or Republic is a party is in full force and effect and is valid and
enforceable by it in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally,
and, as to enforceability, to general principles of equity. Neither RSFC nor
Republic is in default in any material respect in the observance or the
performance of any term or obligation to be performed by it under any such
contract or other agreement. RSFC has delivered or made available to CFC true
and complete copies of all contracts and agreements referred to in clauses (a)
through (f) above.
4.18 LITIGATION. Except as set forth in Schedule 4.18 hereto
and except for actions in which Republic is the plaintiff where the amount in
controversy is less than $100,000, there are no actions, suits, proceedings or
investigations before any court or administrative authority in the United
States, any state thereof, or any other jurisdiction, of any kind now pending
or, to the best of the knowledge of RSFC, threatened, involving RSFC or Republic
or any of its businesses, operations, properties, assets or liabilities. There
is no arbitration proceeding involving RSFC or Republic which is pending or, to
RSFC's knowledge, threatened under any collective bargaining agreement or
otherwise. Except as set forth in Schedule 4.18 hereto, neither RSFC, Republic
nor any of their properties, assets or liabilities, is subject to any judicial
or administrative judgment, order, decree or restraint which adversely affects
its business, operations or financial condition.
4.19 COMPLIANCE WITH LAWS AND REGULATIONS. The business and
operations of RSFC and Republic have been and are in all material respects
conducted in accordance with all
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applicable laws, rules and regulations (including, without limitation, the Equal
Credit Opportunity Act, the Consumer Credit Protection Act, the Truth in Lending
Act, the Community Reinvestment Act and the Real Estate Settlement Procedures
Act), and neither RSFC nor Republic is subject to or, to RSFC's knowledge, being
threatened with, any material fine, penalty, liability or legal disability to
its business as the result of its failure to comply with any requirement of any
governmental body or agency having jurisdiction over it, the conduct of its
business, the use of its assets and properties, or any premises occupied by it.
RSFC and Republic have filed all reports and maintained all records required to
be filed or maintained during the past five fiscal years and the current fiscal
year under applicable rules and regulations of the Federal Reserve, the FDIC and
the State of Florida. Each such filing contains the information required to be
stated therein and such information was true and correct in all material
respects as of the time such report was filed.
4.20 EMPLOYMENT BENEFIT PLANS AND ARRANGEMENTS; LABOR MATTERS.
(a) Schedule 4.20 hereto lists all employee benefits plans,
contracts, programs or arrangements, including but not limited to
pension, profit-sharing, stock option, stock bonus, deferred
compensation, supplemental retirement, severance, health care,
hospitalization, medical, dental, disability, life insurance and salary
continuation, which are currently maintained, contributed to or
required to be contributed to by RSFC or Republic or which otherwise
cover or provide benefits to any employee or former employee of RSFC or
Republic or any beneficiary thereof (collectively, the "RSFC Plans").
RSFC has delivered to CFC true and complete copies of all of the RSFC
Plans and all documents relating thereto, including, but not limited
to, summary plan descriptions, annual reports (IRS Form 5500 Series),
actuarial reports, and accountant or trustee reports, if any, and such
reports are accurate in all material respects and there has been no
material change in the financial or funding status of any such RSFC
Plan since the dates of the most recent of such reports. Each RSFC Plan
has been maintained and administered in all material respects in
accordance with its terms and with all applicable laws, including ERISA
and the Code and the regulations promulgated thereunder, and in a
manner which will not result in any material charge or assessment
against or liability of RSFC or Republic. Except as set forth on
Schedule 4.20 hereto, any RSFC Plan that is intended to qualify under
Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified, and nothing has occurred since the date of
such determination that could adversely affect such qualification. The
fair market value of the assets of each RSFC Plan that is subject to
Title IV equals or exceeds the present value of all benefit liabilities
(as defined in Title IV of ERISA) under the RSFC Plan, with such
present value being determined by application of the actuarial methods
and assumptions applied by the Plan's enrolled actuary at the most
recent annual valuation of the RSFC Plan. Neither RSFC nor Republic has
engaged in any transaction which may result in imposition on it of any
material excise tax under Sections 4971 through 4980, inclusive, of the
Code, or otherwise incurred a liability for any excise tax, other than
excise taxes which have heretofore been paid or have been accrued, and,
in either case are fully reflected in the
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RSFC Interim Statements. There does not exist any accumulated material
funding deficiency (within the meaning of Section 302 of ERISA or
Section 412 of the Code), whether or not waived, with respect to any
RSFC Plan. There are no circumstances pursuant to which RSFC or
Republic could be liable to the Pension Benefit Guaranty Corporation or
a multi-employer plan (as defined in Section 3(37) of ERISA) with
respect to any plan not listed on Schedule 4.20. Except as set forth in
Schedule 4.20 hereto, no RSFC Plan provides hospital, medical or health
care benefits (other than those mandated by the Consolidated Omnibus
Budget Reconciliation Act of 1986) or any life insurance or death
benefit protection (other than under an RSFC Plan that qualifies under
Section 401(a) of the Code) to any retired employees.
(b) As of the date hereof, no association of employees has
petitioned or applied for labor union certification with respect to all
or any part of the business or operations of Republic nor is there any
organized campaign to obtain any such certification and there have been
no negotiations with any labor union or association of employees with
respect to any future or amended agreements by Republic involving its
business or operations and Republic has not made or received any offers
or proposals with respect thereto.
4.21 ACCOUNTING PRACTICES. The books, records and accounts
maintained by RSFC and Republic accurately and fairly reflect in reasonable
detail its businesses, operations, properties, assets and liabilities, and they
maintain internal accounting controls that provide reasonable assurances that
transactions are executed only with management's authorization and transactions
are recorded as necessary to permit preparation of accurate financial statements
and to maintain accountability for its properties and assets.
4.22 MINUTE BOOKS. The minute books of RSFC and Republic are
in all material respects complete and accurate records of all meetings and other
corporate actions of their respective shareholders and Board of Directors and
RSFC has made available to CFC for inspection the originals thereof or delivered
true copies thereof.
4.23 INSURANCE. All of the insurance policies in force on the
date hereof insuring RSFC or Republic, and their assets, business, employees,
officers and directors, are described in Schedule 4.23 hereto. RSFC has
delivered or made available to CFC true and complete copies of all such
policies.
4.24 AGREEMENTS WITH REGULATORS. Neither RSFC nor Republic is
a party to any written agreement or memorandum of understanding with, nor a
party to any commitment letter or similar undertaking to, nor subject to any
order or directive by, nor a recipient of any extraordinary supervisory letter
from, any Agency which restricts the conduct of its business, or in any manner
relates to its capital adequacy, its credit policies or its management. Neither
RSFC nor Republic has been advised by any Agency or is aware that such Agency is
contemplating issuing or requesting any such agreement, memorandum, commitment,
understanding, order or
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supervisory letter.
4.25 ENVIRONMENTAL. Neither RSFC nor Republic is (i) in
violation of any law, regulation, order, permit, license or decree regulating
emissions into the environment and the proper disposal of wastes, petroleum
products or other materials; or (ii) liable or responsible for any cleanup,
fines, liability or expense arising under any environmental law, regulation or
order as a result of the disposal of wastes, petroleum products or other
materials in or on its property (whether owned or leased or in which either has
acquired an interest by way of mortgage or foreclosure) by it, its predecessors
in title, or any other person, or in or on any other property, including
property no longer owned, leased or used by it. There are no asbestos or
petroleum products or any hazardous or waste material of any kind located under,
on or in the property (owned or leased) of RSFC or Republic, and such property
has never been used for the handling, treatment, storage or disposal of any
petroleum products or any hazardous or toxic substances as defined under any
applicable state or federal law.
4.26 COMMUNITY REINVESTMENT ACT. Except as set forth on
Schedule 4.26 Republic has complied in all material respects with its
obligations under the Community Reinvesment Act.
4.27 TRANSACTIONS WITH INSIDERS. Except as set forth on
Schedule 4.27, all of the loans, transactions, agreements and dealings between
Republic and any "Insider," as defined in Regulation O, comply in all respects
with the provisions of Regulation O.
4.28 FIDELITY BOND. Republic has obtained all fidelity bonds
that are required by law or regulation or that are reasonably necessary for the
protection of Republic. All such fidelity bonds are currently in force and
Republic has no reason to anticipate that the issuers thereof will fail to renew
them or plan to revoke and/or cancel them.
4.29 BROKERS. Except as described in Schedule 4.29, neither
RSFC, Republic nor any director, officer, employer, agent or other
representative of RSFC, has paid or is obligated to pay to any party any
finder's fee, brokerage commission, fairness opinion fee or like payment in
connection with the transactions contemplated by this Agreement.
4.30 NO UNTRUE STATEMENTS. No statement by RSFC or Republic
contained in this Agreement or any of the Schedules hereto or RSFC or Republic
financial statements referred to herein contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.31 ABSENCE OF REGULATORY COMMUNICATIONS. Neither RSFC nor
Republic is subject to, or has received during the past three years, any written
communication directed specifically to it from any Agency to which it is subject
or pursuant to which such Agency has imposed or has indicated it may impose any
material restrictions on the operations of it or the
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business conducted by it or in which such Agency has raised a material question
concerning the condition, financial or otherwise, of such company.
4.32 OPINION OF FINANCIAL ADVISOR. RSFC has been advised by
Ryan, Beck & Co. that the Conversion Rate is fair to the holders of RSFC Common
Stock from a financial point of view.
ARTICLE V
COVENANTS OF CFC
5.1 ACCESS, INFORMATION AND DOCUMENTS. From the date hereof
until the Effective Time, CFC will give, and will cause its directors, officers,
employees, agents and other representatives to give, to RSFC and to its agents
and representatives (including, but not limited to, its accountants and counsel)
reasonable access to any and all of its properties, assets, books, records and
other documents, to enable RSFC to make such audit, examination and
investigation of the business, operations, properties, assets, liabilities,
books, records and other documents of CFC and County as RSFC may determine, and
will furnish, and will cause its directors, officers, employees, agents and
other representatives to furnish, to RSFC such information and copies of such
documents and records as RSFC shall request, including without limitation files
relating to loans originated or purchased, investments, leases, contracts,
employment records and benefit plans, minutes of the proceedings of the Board of
Directors and any committees thereof, minutes of shareholders' meetings, legal
proceedings, examination reports, correspondence with regulatory authorities and
correspondence with independent auditors. As part of such examination, RSFC may
make such reasonable inquiries of such persons having business or professional
relationships with CFC and County as RSFC shall determine (other than customers
of County, except with the prior permission of CFC), and CFC and County will
authorize, and will cause their directors, officers, employees, agents and other
representatives to authorize, such persons to respond to each inquiry and to
cooperate fully with RSFC in connection therewith. No investigation by RSFC
shall affect the representations and warranties made by CFC and County herein or
result in any waiver or limitation thereof.
RSFC agrees to keep confidential and not to disclose to any
persons, except its officers, directors, accountants and legal counsel and as
may otherwise be required by law, all confidential information provided to it by
CFC and County in connection with the foregoing examination of CFC and County.
Nothing contained in this Section 5.1 shall be construed to permit or require
any party to take any action, obtain any information or provide access to any
information in violation of applicable law.
5.2 NO OTHER TRANSACTIONS. Except and only to the extent
required by fiduciary obligations, neither CFC, County nor any of their
directors, executive officers, representatives, agents or other persons
controlled by CFC shall, and neither CFC nor County shall permit its directors
and executive officers to, directly or indirectly, encourage or solicit or
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hold discussions or negotiations with, or provide any information to, any
person, entity or group (other than RSFC) concerning any merger, sale of
substantially all of the assets, sale of shares of capital stock or similar
transactions involving CFC or County.
5.3 CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. During
the period from the date of this Agreement to the Effective Time, CFC shall (i)
maintain its existence and good standing under the laws of its organization, and
(ii) conduct its business and engage in transactions only in the ordinary course
and consistent with its past prudent banking practices. In addition, CFC agrees
that from the date hereof to the Effective Time, except as permitted or required
by this Agreement, it will not take any action that would result in any of its
representations or warranties contained in this Agreement not being true and
correct in any material respect at the Effective Time. CFC agrees that it shall
confer with RSFC upon the request of RSFC and will advise RSFC regarding all
significant developments, transactions and proposals relating to its financial
condition, properties, business or operations, and will cause its directors,
officers, employees, agents and other representatives to disclose to RSFC any
and all material changes in, or events which materially affect, its financial
condition, properties, business or operations.
5.4 NEGATIVE COVENANTS. From the date hereof to the Effective
Time, except as permitted or required by this Agreement, neither CFC nor County
will, without the prior consent of RSFC, which consent shall not be unreasonably
withheld:
(a) change any provision of its Articles of Incorporation or
Bylaws, or take any other action with respect thereto;
(b) change the number of shares of its issued capital stock or
issue or grant any option, warrant, call, commitment, subscription,
right to purchase or agreement of any character relating to its
authorized or issued capital stock, or any securities convertible into
shares of such stock, or split, combine or reclassify any shares of its
capital stock, or redeem or otherwise acquire any shares of such
capital stock, or declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, except for quarterly cash
dividends in amounts per share not exceeding the amounts per share of
any dividends paid by RSFC with respect to the same quarter, multiplied
by the Conversion Rate;
(c) hire any officer, except in the ordinary course of
business;
(d) grant any severance or termination rights to, or enter
into or amend any written severance or employment agreement with, any
of its directors, officers or employees or adopt any new employee
benefit plan or arrangement of any type;
(e) sell or dispose of any assets or incur any liabilities, in
either case in excess of $100,000 in the aggregate, except in the
ordinary course of business;
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(f) make any capital expenditure in excess of $100,000 in the
aggregate;
(g) file any applications or make any contract with respect to
branching or site location or relocation;
(h) make any loan, commitment therefor, or direct investment
in or with respect to any one party or related group of parties or
issue any letter of credit, or any renewal thereof, in a single or
series of transactions in an amount in excess of $1,000,000;
(i) engage in any transactions with any of its directors or
officers;
(j) take any action, except as may be required by law,
regulation or judicial or regulatory order, which could prevent the
Parent Merger or the Bank Merger;
(k) enter into or renew any employment or consulting agreement
or amend or otherwise modify any existing employment or consulting
agreements;
(l) increase the compensation or benefits of any of its
employees, officers or directors or pay any bonuses, directly or
indirectly, to any such persons, except for increases in the ordinary
course of business not to exceed 6% of the aggregate payroll as of June
30, 1997;
(m) enter into, amend or renew any real estate lease;
(n) enter into any agreement not terminable at will by it
which requires the payment by it of an aggregate amount in excess of
$100,000 (other than loan commitments or agreements);
(o) waive any material right other than in the ordinary course
of business;
(p) incur any material indebtedness for money owed;
(q) mortgage, pledge or subject to any charge, lien, claim or
encumbrance any of its assets;
(r) make any material change in its accounting methods or
practices;
(s) amend or modify any employee retirement plans or increase
the amount of contributions to such plans; or
(t) agree or obligate itself to do any of the foregoing.
5.5 CURRENT INFORMATION. During the period from the date of
this Agreement to
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the Effective Time, CFC shall promptly advise RSFC in writing of any information
or fact that would make any representation or warranty or any statement in this
Agreement or in the Schedules not true and correct if such information or fact
had been known when the representation, warranty or statement was made.
5.6 PURSUIT OF APPROVALS. CFC and County will use their best
efforts to obtain all necessary government approvals and any other regulatory
approvals which may be required of CFC and County and to do all other things
which are or may be necessary to consummate the Parent Merger and the Bank
Merger and will cooperate with RSFC and Republic in the preparation of all
applications and regulatory filings and will furnish promptly upon written
request all documents, information, financial statements or other materials as
may be required in order to complete such applications. RSFC will be provided
the opportunity to review and approve in advance all information relating to it
which appears in any filing made with, or written material submitted to any
third party or governmental body in connection with the transactions
contemplated by this Agreement.
5.7 MEETING OF CFC'S SHAREHOLDERS; PROXY STATEMENT. CFC will
take all steps necessary to duly call, give notice of, convene and hold a
meeting of its shareholders, to be held within 45 days of the effectiveness of
the Registration Statement, for the purpose of securing the required approval of
its shareholders of this Agreement, the Parent Merger and the transactions
contemplated hereby. Subject to applicable fiduciary obligations, CFC will
recommend to its shareholders the approval of this Agreement, the Parent Merger
and the transactions contemplated hereby and use its best efforts to obtain such
approvals. The text of the CFC proxy statement with respect to such shareholders
meeting shall be prepared by RSFC in connection with the Registration Statement
and shall be subject to the prior approval of CFC.
5.8 CFC FUTURE FINANCIAL STATEMENTS. CFC shall deliver to
RSFC, within 20 days after the end of each calendar month from the month of July
1997 through the Closing Date, its unaudited statements of financial condition
as of the end of such month and its statements of operations for the period from
January 1, 1997 through the month then ended. All of the financial statements
hereinabove referred to in this Section 5.8 are hereinafter referred to as the
"CFC Future Financial Statements." The CFC Future Financial Statements shall be
prepared in accordance with GAAP on a basis consistent with the Interim
Statements. The CFC Future Financial Statements so delivered after the date
hereof shall be accompanied by a certificate of a duly authorized officer
certifying that, to the best of his knowledge, such statements are complete,
true and accurate and that they have been prepared in accordance with GAAP, and
on a basis consistent with the Interim Statements.
5.9 OBSERVER AT MEETINGS. Unless prohibited by law, CFC and
County each agrees to permit the Chairman of the Board and the Executive Vice
President of RSFC or their designees to attend, as observers, all meetings of
their respective shareholders, Board of Directors and committees of the Board of
Directors, including loan committees, which may be held from the date hereof
through the Effective Time. CFC and County shall provide RSFC with the same
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notice of all such meetings which is given to shareholders or directors, as the
case may be, and with copies of all materials and documents distributed at such
meetings. Notwithstanding the foregoing, CFC and County may, in their
discretion, exclude RSFC from portions of meetings during which this Agreement
or its interpretation, breach, performance and/or enforcement are reviewed, or
if otherwise required to do so under applicable fiduciary obligations. RSFC
shall maintain the strict confidentiality of all matters observed at such
meetings; provided, however, RSFC may discuss such matters with officers,
directors, legal counsel and advisors of RSFC and Republic and may disclose such
matters publicly if obligated to do so by law.
5.10 POOLING. CFC agrees that it will not knowingly take any
action which would have the effect of jeopardizing the treatment of the Parent
Merger as a "pooling of interests."
5.11 CORAL WAY BRANCH. Notwithstanding anything in this
Agreement to the contrary, County may, at any time in its sole discretion, cease
operations at its Coral Way branch, vacate the premises housing such branch and
take such related actions as it deems appropriate.
ARTICLE VI
COVENANTS OF RSFC AND REPUBLIC
6.1 ACCESS, INFORMATION AND DOCUMENTS. From the date hereof
until the Effective Time, RSFC and Republic will give, and will cause their
directors, officers, employees, agents and other representatives to give, to CFC
and to its agents and representatives (including, but not limited to, its
accountants and counsel) reasonable access to any and all of its properties,
assets, books, records and other documents, to enable CFC to make such audit,
examination and investigation of the business, operations, properties, assets,
liabilities, books, records and other documents of RSFC and Republic as CFC may
determine, and will furnish, and will cause its directors, officers, employees,
agents and other representatives to furnish, to CFC such information and copies
of such documents and records as CFC shall request, including without limitation
files relating to loans originated or purchased, investments, leases, contracts,
employment records and benefit plans, minutes of the proceedings of the Board of
Directors and any committees thereof, minutes of shareholders' meetings, legal
proceedings, examination reports, correspondence with regulatory authorities and
correspondence with independent auditors. As part of such examination, CFC may
make such reasonable inquiries of such persons having business or professional
relationships with RSFC and Republic as CFC shall determine (other than
customers of Republic, except with the prior permission of RSFC), and RSFC will
authorize, and will cause its directors, officers, employees, agents and other
representatives to authorize, such persons to respond to each inquiry and to
cooperate fully with CFC in connection therewith. No investigation by CFC shall
affect the representations and warranties made by RSFC herein or result in any
waiver or limitation thereof.
CFC agrees to keep confidential and not to disclose to any
persons, except its
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officers, directors, accountants and legal counsel and as may otherwise be
required by law, all confidential information provided to it by RSFC and
Republic in connection with the foregoing examination of RSFC and Republic.
Nothing contained in this Section 6.1 shall be construed to permit or require
any party to take any action, obtain any information or provide access to any
information in violation of applicable law.
6.2 NO OTHER TRANSACTIONS. Except and only to the extent
required by fiduciary obligations, neither RSFC, Republic nor any of their
directors, executive officers, representatives, agents or other persons
controlled by RSFC or Republic shall, and neither RSFC nor Republic shall permit
its directors and executive officers to, directly or indirectly, encourage or
solicit or hold discussions or negotiations with, or provide any information to,
any person, entity or group (other than CFC) concerning any merger or
acquisition involving RSFC or Republic, other than any merger or acquisition in
which RSFC, Republic or a subsidiary of either is the surviving corporation and
which has an aggregate purchase price of $12,000,000 or less (an "Additional
Acquisition").
6.3 CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. During
the period from the date of this Agreement to the Effective Time, RSFC shall (i)
maintain its existence and good standing under the laws of its organization, and
(ii) conduct its business and engage in transactions only in the ordinary course
and consistent with its past prudent banking practices. In addition, RSFC agrees
that from the date hereof to the Effective Time, except as permitted or required
by this Agreement, it will not take any action that would result in any of its
representations or warranties contained in this Agreement not being true and
correct in any material respect at the Effective Time. RSFC agrees that it shall
confer with CFC upon the request of CFC and will advise CFC regarding all
significant developments, transactions and proposals relating to its financial
condition, properties, business or operations, and will cause its directors,
officers, employees, agents and other representatives to disclose to CFC any and
all material changes in, or events which materially affect, its financial
condition, properties, business or operations.
6.4 NEGATIVE COVENANTS. From the date hereof to the Effective
Time, except as permitted or required by this Agreement, neither RSFC nor
Republic will, without the prior consent of CFC, which consent shall not be
unreasonably withheld:
(a) change any provision of its Articles of Incorporation or
Bylaws, or take any other action with respect thereto;
(b) take any action, except as may be required by law,
regulation or judicial or regulatory order, which could prevent the
Parent Merger or the Bank Merger;
(c) make any material change in its accounting methods or
practices; or
(d) agree or obligate itself to do any of the foregoing.
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6.5 CURRENT INFORMATION. During the period from the date of
this Agreement to the Effective Time, RSFC shall promptly advise CFC in writing
of any information or fact that would make any representation or warranty or any
statement in this Agreement or in the Schedules not true and correct if such
information or fact had been known when the representation, warranty or
statement was made.
6.6 PURSUIT OF APPROVALS. RSFC and Republic will each use its
best efforts to promptly prepare applications for and to obtain all necessary
governmental approvals and any other regulatory approvals which may be required
and to do all other things which are or may be necessary to consummate the
Parent Merger and the Bank Merger and will cooperate with CFC in the preparation
of all applications and will furnish promptly upon written request all
documents, information, financial statements or other materials as may be
required in order to complete such applications. CFC will be provided the
opportunity to review and approve in advance all information relating to it
which appears in any filing made with, or written material submitted to any
third party or governmental body in connection with the transactions
contemplated by this Agreement.
6.7 REGISTRATION STATEMENT; MEETING OF RSFC'S SHAREHOLDERS. As
soon as practicable after the date hereof, RSFC shall prepare and file with the
Securities and Exchange Commission (the "SEC"), and diligently seek
effectiveness of, a Registration Statement on Form S-4 ( the "Registration
Statement") containing the joint proxy statement/prospectus with respect to the
RSFC and CFC shareholders meetings referred to herein and the RSFC Common Stock
to be issued upon effectiveness of the Parent Merger. CFC shall have the right
to review and approve drafts of the Registration Statement. RSFC will take all
steps necessary duly to call, give notice of, convene and hold a meeting of its
shareholders, to be held within 45 days of the effectiveness of the Registration
Statement, for the purpose of securing the required approval of its shareholders
of this Agreement, the Parent Merger and the transactions contemplated hereby.
Subject to applicable fiduciary obligations, RSFC will recommend to its
shareholders the approval of this Agreement, the Parent Merger and the
transactions contemplated hereby and use its best efforts to obtain such
approvals.
6.8 BOARDS OF DIRECTORS ELECTION. Promptly after the Closing,
RSFC and Republic agree to cause four designees of CFC, who are acceptable to
RSFC and Republic in their sole judgment, to be elected to each of the Boards of
Directors of RSFC and Republic.
6.9 POOLING. RSFC agrees that it will not knowingly take any
action which would have the effect of jeopardizing the treatment of the Parent
Merger as a "pooling of interests."
6.10 COUNTY EMPLOYEES. All employees of County shall, at
Republic's option, become employees of Republic on the Effective Date. All
employees of County who become employees of Republic on the Effective Date shall
be entitled, to the extent permitted by applicable law, to participate in all
benefit plans of Republic to the same extent as Republic's
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employees, except as stated otherwise in this Section 6.10. Employees of County
on the Effective Date shall be allowed to participate as of the Effective Date
in the medical and dental benefit plans of Republic, and the time of employment
of such employees who are employed at least 30 hours per week with County, as of
the Effective Date, shall be counted as employment with Republic under such
dental and medical plans of Republic for purposes of calculating any waiting
period and preexisting condition limitations. To the extent permitted by
applicable law, the period of service with County of all employees to become
employees of Republic on the Effective Date shall be recognized only for vesting
and eligibility purposes under RSFC's and Republic's current benefit plans, but
not for the determination of the amount of benefits (provided, however, that the
period of service with County of each such employee shall be recognized for
purposes of determining the amount of annual paid vacation time to which the
employee is entitled).
6.11 INDEMNIFICATION.
(a) For a period of six years after the Effective Date, RSFC
shall indemnify, defend and hold harmless the present and former
directors, officers, employees and agents of CFC or County (each, an
"Indemnified Party") against all liabilities arising out of actions or
omissions arising out their employment by or service with CFC or County
and occurring at or prior to the Effective Date to the full extent
permitted under Florida law and by RSFC's Articles of Incorporation and
Bylaws as in effect on the date hereof, including provisions relating
to advances of expenses incurred in the defense of any litigation;
provided that no such indemnification shall be made for actions or
omissions which constitute fraud, are intentionally taken or omitted in
bad faith, constitute a knowing breach of this Agreement or constitute
violations of criminal law, unless the Indemnified Party had no
reasonable cause to believe his or her conduct was unlawful.
(b) Any Indemnified Party wishing to claim indemnification
under this Section 6.11, upon learning of any such liability or
litigation, shall promptly notify RSFC thereof (provided, however, that
the failure to so notify shall release RSFC only to the extent it is
actually prejudiced thereby). In the event of any such litigation
(whether arising before or after the Effective Date), (i) RSFC shall
have the right to assume the defense thereof and RSFC shall not be
liable to such Indemnified Party for any legal expenses for other
counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if RSFC
elects not to assume such defense or counsel for the Indemnified
Parties advises that there are substantive issues which raise conflicts
of interest between RSFC and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and RSFC shall pay all
reasonable fees and expenses of such counsel for the Indemnified
Parties; provided, however, that RSFC shall be obligated pursuant to
this Section 6.11(b) to pay for such additional counsel for Indemnified
Parties
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in any jurisdiction as counsel for RSFC shall determine is necessary
under law and professional ethics; (ii) the Indemnified Parties will
cooperate in the defense of any such litigation, and (iii) RSFC shall
not be liable for any settlement effected without its prior written
consent; and provided, further, that RSFC shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall determine, and such determination shall have become
final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
(c) If RSFC or any of its successors or assigns shall
consolidate with or merge into any other person and shall not be the
continuing or surviving person of such consolidation or merger or shall
transfer all or substantially all of its assets to any person, then and
in each case, proper provision shall be made so that the successors and
assigns of RSFC shall assume the obligations set forth in this Section
6.11.
(d) In consideration of the indemnification obligations
provided by RSFC in this Section 6.11 and as a condition precedent
thereto, each director, former director and officer of CFC or County
shall have delivered to RSFC on or prior to the date of this Agreement,
a letter (in form reasonably satisfactory to RSFC) describing all known
claims such directors and officers may have against CFC or County. In
the letter, the director, former director or officer shall: (a)
acknowledge the assumption by RSFC of all liability (to the extent CFC
or County would be so liable) for claims for indemnification arising
under Section 6.11(a) hereof; (b) affirm that he or she is not aware of
any claims he or she might have, against CFC or County; (c) identify
any other facts or circumstances of which he or she is aware and which
he or she reasonably believes could give rise to a claim for
indemnification under Section 6.11(a) hereof; and (d) release as of the
Effective Date any and all claims that he or she may have against any
CFC or County known to him or her which he or she did not so disclose
to RSFC.
(e) CFC hereby represents and warrants to RSFC and Republic
that it has no knowledge of any claim, pending or threatened, or of any
facts or circumstances that it reasonably believes could give rise to
any obligation by RSFC to provide the indemnification required by this
Section 6.11.
6.12 FUTURE FINANCIAL INFORMATION. RSFC shall deliver to CFC,
within 20 days after the end of each calendar month from the month of July 1997
through the Closing Date, its unaudited statements of financial condition as of
the end of such month and its statements of operations for the period from
January 1, 1997 through the month then ended. All of the financial statements
hereinabove referred to in this Section 5.8 are hereinafter referred to as the
"RSFC Future Financial Statements." The RSFC Future Financial Statements shall
be prepared in accordance with GAAP on a basis consistent with the Interim
Statements. The RSFC Future Financial Statements so delivered after the date
hereof shall be accompanied by a certificate of a duly authorized officer
certifying that, to the best of his knowledge, such statements are complete,
true and accurate and that they have been prepared in accordance with GAAP, and
on a basis
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consistent with the Interim Statements.
6.13 OBSERVER AT MEETINGS. Unless prohibited by law, RSFC and
Republic agree to permit the Chairman of the Board and the President of CFC or
their designees to attend, as observers, all meetings of their respective
shareholders, Board of Directors and committees of the Board of Directors,
including loan committees, which may be held from the date hereof through the
Effective Time. RSFC and Republic shall provide CFC with the same notice of all
such meetings which is given to shareholders or directors, as the case may be,
and with copies of all materials and documents distributed at such meetings.
Notwithstanding the foregoing, RSFC or Republic may, in its discretion, exclude
CFC from portions of meetings during which this Agreement or its interpretation,
breach, performance and/or enforcement are reviewed, or if otherwise required to
do so under applicable fiduciary obligations. CFC shall maintain the strict
confidentiality of all matters observed at such meetings; provided, however, CFC
may discuss such matters with officers, directors, legal counsel and advisors of
CFC and may disclose such matters publicly if obligated to do so by law.
6.14 POOLING AND SECURITIES LAW MATTERS. In order to
facilitate to the fullest extent possible any future sale of shares of RSFC
Common Stock received by shareholders of CFC in connection with the Parent
Merger, RSFC agrees as follows:
(a) within 30 days of the end of the first calendar month
after the month which includes the Effective Date, RSFC shall file with
the SEC a report on Form 8-K reporting at least 30 days of operating
results of RSFC as the corporation surviving the Parent Merger; and
(b) RSFC shall timely file any annual, quarterly and other
reports required under the 34 Act in order to permit any of the current
shareholders of CFC to sell their RSFC Common Stock following the
Effective Date pursuant to Rule 144 promulgated under the 33 Act ("Rule
144"). Assuming that any such shareholder complies with the
requirements of Rule 144, RSFC agrees to promptly after the request of
the shareholder, take such action as may be reasonably necessary to
permit the shareholder to sell his or her shares of RSFC Common Stock
under Rule 144, including, without limitation, causing counsel for RSFC
to issue the necessary legal opinion to RSFC's transfer agent.
6.15 REGISTRATION RIGHTS.
(a) After the report on Form 8-K referred to in Section 6.14
has been filed, any Qualifying Affiliate shall have the right to
require RSFC, at RSFC's expense, to register his or her shares of RSFC
Common Stock for resale on Form S-3 under the 33 Act (or such other
form for which RSFC then qualifies if Form S-3 is then not available
for use by RSFC). RSFC, upon receipt of notice from any such Qualifying
Affiliate requiring registration, shall so register the shares. A
"Qualifying Affiliate" shall mean any Affiliate
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of CFC (or entity controlled by such affiliate or any pledgee holding
at least 200,000 shares of a Qualifying Affiliate's shares as
collateral for a loan) for purposes of Rule 145 of the 33 Act who, at
the time of such notice to RSFC, owns RSFC shares in an aggregate
amount in excess of 200,000 shares.
(b) The registration expenses to be paid by RSFC shall mean
all expenses incident to RSFC's performance of or compliance with this
Section 6.15, including, but not limited to, all SEC and NASD
registration and filing fees and expenses, fees and expenses of
compliance with state securities and blue sky laws (including, without
limitation, reasonable fees and disbursements of counsel for RSFC in
connection with blue sky qualifications), printing expenses, messenger
and delivery expenses, fees and disbursements of counsel for RSFC and
its independent certified public accountants (including the expenses of
any annual audit, special and "cold comfort" letters required by or
incident to such performance and compliance), and fees and expenses of
other persons retained by RSFC.
(c) RSFC shall prepare and file with the SEC, within 45 days
after receipt of notice from any Qualifying Affiliate referenced in
subsection (a) above, a registration statement on Form S-3 (or such
other form for which RSFC then qualifies if Form S-3 is then not
available for use by RSFC).
(d) RSFC shall prepare and file with the SEC such amendments
and supplements to such registration statement and prospectus as may be
necessary or advisable to keep such registration statement effective
until all of the shares of Qualifying Affiliate covered by such
registration statement have been sold or one year from the effective
date of such registration.
(e) RSFC shall furnish to any Qualifying Affiliate whose
shares are covered by such registration statement such number of copies
of such registration statement, each amended and supplemented thereto
(in each case including all exhibits thereto), the prospectus included
in such registration statement (including each preliminary prospectus),
in conformity with the requirements of the 33 Act, and such other
documents as the Qualifying Affiliate may reasonably request.
(f) RSFC shall register or qualify the shares of any
Qualifying Affiliate who has provided notice to RSFC under subsection
(a) above, under such other securities or blue sky laws of such
jurisdiction as the Qualifying Affiliate requests and do any and all
other acts and things which may be reasonably necessary to consummate
the disposition of such shares in such jurisdictions.
(g) RSFC shall immediately notify a Qualifying Affiliate whose
shares are covered by a registration statement filed by RSFC hereunder
of the happening of any event which comes to RSFC's attention if as a
result of such event the prospectus included in
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such registration statement contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and RSFC
will promptly prepare and furnish to such Qualifying Affiliate a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of the registered shares, such prospectus
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(h) RSFC will use its best efforts to obtain a "cold comfort"
letter from its independent public accountants in customary form
covering such matters of the type customary covered by "cold comfort"
letters as the Qualifying Affiliate reasonably requests.
(i) RSFC agrees to indemnify and hold harmless, to the fullest
extent permitted by law, any Qualifying Affiliate whose shares are
covered by any registration filed by RSFC under this Section 6.15 (the
"Indemnitee"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses (including any amounts paid
in any settlement effected with RSFC's consent) (each a "Loss") to
which such Indemnitee may become subject under the 33 Act, state
securities or blue sky laws, common law or otherwise, insofar as such
Losses arise out of or are based upon
(i) any untrue statement or alleged untrue statement
of any material fact contained in any registration statement
under which such securities were registered under the 33 Act,
any preliminary, final or summary prospectus contained therein
or any amendment or supplement thereto (other than with
respect to information provided by the Indemnitee);
(ii) any violation by RSFC of any federal, state or
common law rule or regulation applicable to it and relating to
action required of or inaction by it in connection with any
such registration, and RSFC will reimburse such Indemnitee for
any legal or other expenses reasonably incurred by it in
connection with investigating or defending such Loss.
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ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF RSFC, REPUBLIC, CFC AND COUNTY
The obligations of RSFC, Republic, CFC and County to effect
the Parent Merger and the Bank Merger are subject to the fulfillment of each of
the following conditions prior to or at the Effective Time, or waiver thereof by
all four parties:
7.1 GOVERNMENT APPROVALS. (a) The receipt of all government
approvals required to be received to consummate the Parent Merger and the Bank
Merger, including the SEC ordering effective the Registration Statement, shall
have been received, without the imposition of conditions which would, in the
reasonable determination of RSFC or CFC, (i) have a material adverse effect on
the financial condition, properties, business or operations of RSFC or Republic
upon completion of the Parent Merger and the Bank Merger, or (ii) otherwise
materially impair the value of the transactions contemplated hereby; (b) such
government approvals shall remain in effect; (c) all applicable statutory
waiting or notice periods with respect to such government approvals shall have
expired; and (d) all conditions and requirements prescribed by law or by such
government approvals shall have been satisfied to the extent required prior to
the Effective Time.
7.2 SHAREHOLDER APPROVAL. At the respective shareholders
meetings, the Parent Merger shall have received the approval of holders of a
majority of the outstanding shares of each of RSFC Common Stock and of CFC
Common Stock.
7.3 NO LITIGATION. No order, judgment or decree shall be
outstanding against a party hereto or a third party that would have the effect
of preventing consummation of the Parent Merger or the Bank Merger; no suit,
action or other proceeding shall be pending or, to the knowledge of either party
hereto, threatened by any governmental body in which it is sought to restrain or
prohibit the Parent Merger or the Bank Merger; and no suit, action or other
proceeding shall be pending before any court or governmental agency in which it
is sought to restrain or prohibit the Parent Merger or the Bank Merger or obtain
other substantial monetary or other relief against one or more of the parties
hereto in connection with this Agreement and which RSFC or CFC determines in
good faith, based upon the advice of their respective counsel, makes it
inadvisable to proceed with either Merger because any such suit, action or
proceeding has a significant potential to be resolved in such a way as to
deprive the party electing not to proceed or its shareholders of any of the
material benefits to it or them of either Merger or to have a material adverse
effect on the business or financial condition of RSFC or CFC.
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ARTICLE VIII
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF CFC AND COUNTY
The obligation of CFC and County to effect the Parent Merger
and the Bank Merger is subject to the fulfillment of the following condition
prior to or at the Effective Time, or waiver thereof by CFC and County:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The obligations
of RSFC or Republic required to be performed by it at or prior to the Effective
Time pursuant to the terms of this Agreement shall have been duly performed and
complied with in all material respects. The representations and warranties of
RSFC or Republic contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement, and as of the Effective Time
as though made at and as of the Effective Time, except for those representations
and warranties specifically relating to a time or times other than the Effective
Time which shall be true and correct in all material respects at such time or
times and except for changes permitted by this Agreement with the same force and
effect as if made at and as of the Effective Time.
8.2 MATERIAL CHANGE. There shall not have occurred a material
adverse change in RSFC, its business, financial condition or prospects, taken as
a whole, since June 30, 1997.
8.3 ACCOUNTANTS' COMFORT LETTER. CFC and County shall have
received the letter of Ernst & Young, dated the Closing Date, to the effect
that, based on agreed-upon procedures, nothing has come to their attention which
would cause them to believe (i) that the financial condition of RSFC as of the
calendar month ended prior to the Closing Date is not as reported by RSFC or
(ii) that the accounting treatment of the Parent Merger would not be a "pooling
of interests" in accordance with GAAP.
8.4 OFFICERS' CERTIFICATES. RSFC and Republic shall have
furnished CFC with such certificates of its officers or others and such other
documents to evidence the fulfillment of the conditions set forth in this
Article VIII as CFC may reasonably request.
8.5 CONSENTS. RSFC and Republic shall have received all
necessary consents to the transactions contemplated herein required by any
agreement material to the operation or conduct of business of RSFC or Republic.
8.6 TAX OPINION. RSFC and CFC shall have received the opinion
of Morgan, Lewis & Bockius LLP to the effect that the Parent Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and that RSFC, Republic and CFC will each be a
party to such reorganization within the meaning of Section 368(a) of the Code.
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8.7 FAIRNESS OPINION. As of a date within five days prior to
the date on which the Registration Statement is filed by RSFC with the SEC, CFC
shall have received in writing the opinion referred to in Section 3.31 hereof.
ARTICLE IX
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF RSFC AND REPUBLIC
The obligation of RSFC and Republic to effect the Parent
Merger and the Bank Merger is subject to the fulfillment of each of the
following conditions prior to or at the Effective Time, or waiver thereof by
RSFC and Republic:
9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The obligations
of CFC and County required to be performed by it at or prior to the Effective
Time pursuant to the terms of this Agreement shall have been duly performed and
complied with in all material respects. The representations and warranties of
CFC and County contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement, and as of the Effective Time
as though made at and as of the Effective Time, except for those representations
and warranties specifically relating to a time or times other than the Effective
Time which shall be true and correct in all material respects at such time or
times and except for changes permitted by this Agreement with the same force and
effect as if made at and as of the Effective Time.
9.2 MATERIAL CHANGE. There shall not have occurred a material
adverse change in CFC, its business, financial condition or prospects, taken as
a whole, since June 30, 1997, including but not limited to any such change
arising from or relating to the lawsuit styled DENNIS BASILE AND JAMES F.
THERIAC III, AS CO-RECEIVERS FOR FLORIDA HOME FINDERS, INC. AND FLORIDA HOME
FINDERS REALTY, INC. V. COUNTY NATIONAL BANK OF SOUTH FLORIDA, or any other
lawsuit filed with respect to the same facts.
9.3 FINANCIAL CONDITIONS. The interim consolidated balance
sheet of CFC for the calendar month end immediately prior to the Closing Date,
and as of the Closing Date, shall reflect total deposits of not less than
$205,000,000, total loans of not less than $130,000,000, Tangible Equity (as
defined in Section 11.1 hereof) of not less than $23,000,000, non-performing
assets of not more than $4,250,000 and an allowance for loan losses of not less
than the greater of 1.4% of total loans or $2,000,000. For purposes of this
Section 9.3, legal fees paid by CFC or County in connection with this Agreement
and the transactions contemplated hereby which have been expensed may be added
back to Tangible Equity in an amount up to 50% of the first $200,000 thereof.
9.4 DEMANDS FOR APPRAISAL. The holders of not more than 10% of
the outstanding shares of CFC Common Stock shall have duly delivered proper
demands stating an intention to demand appraisal of and payment for their shares
in accordance with Section
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607.1320 of the Florida Business Corporation Act.
9.5 ACCOUNTANTS' COMFORT LETTER. RSFC and Republic shall have
received the letter of Deloitte & Touche LLP dated the Closing Date, to the
effect that, based on agreed-upon procedures, nothing has come to their
attention which would cause them to believe that the total assets, total
deposits, total loans, Tangible Equity, classified assets and non-performing
assets of CFC as of the calendar month ended prior to the Closing Date are not
as reported by CFC.
9.6 OFFICERS' CERTIFICATES. CFC shall have furnished RSFC and
Republic with such certificates of its officers or others and such other
documents to evidence the fulfillment of the conditions set forth in this
Article IX as RSFC and Republic may reasonably request, including certification
of the names, addresses and numbers of shares of CFC Common Stock held by CFC
shareholders of record as of the Closing.
9.7 CONSENTS. Republic and RSFC shall have received all
necessary consents to the transactions contemplated herein required by any
agreement material to the operation or conduct of business of CFC.
9.8 EMPLOYMENT AGREEMENTS. The Employment Agreements between
Republic and George M. Apelian and Richard Kuci, entered into on the date hereof
and effective at the Effective Time, shall remain in full force and effect.
9.9 TAX OPINION. RSFC shall have received the opinion of
Morgan, Lewis & Bockius LLP to the effect that the Parent Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that RSFC, Republic and CFC will each be a party
to such reorganization within the meaning of Section 368(a) of the Code.
9.10 CFC AFFILIATE LETTERS. RSFC shall have received from each
director of CFC and any other person which would be an "affiliate" of CFC for
purposes of Rule 145 under the 33 Act a duly executed letter agreement, in form
and substance acceptable to RSFC, with regard to their Rule 145 and "pooling"
obligations.
9.11 FAIRNESS OPINION. Prior to the date on which the
Registration Statement is filed by RSFC with the SEC, RSFC shall have received
in writing the opinion referred to in Section 4.33 hereof.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Effective Time (whether before or after
approval of the Parent Merger by
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RSFC's or CFC's shareholders) by mutual written consent of RSFC and CFC.
10.2 TERMINATION BY CFC. CFC may terminate this Agreement by
written notice to RSFC, at any time prior to the Effective Time, whether before
or after approval by the shareholders of CFC, if (a) any event occurs such that
a material condition set forth in Articles VII or VIII hereof which must be
fulfilled before CFC is obligated to consummate the Parent Merger cannot be
fulfilled (other than by reason of CFC's failure to comply with its obligations
hereunder) and nonfulfillment is not waived, expressly or by implication, by
CFC; (b) there shall have been a material default under or a material breach of
RSFC or Republic's covenants hereunder; (c) there shall have been a material
default under or a material breach of RSFC's or Republic's representations and
warranties hereunder; (d) any event occurs which, in the opinion of Ernst &
Young LLP, would disqualify the Parent Merger from being treated as a "pooling
of interests"; (e) the shareholders of either CFC or RSFC shall fail to approve
the Parent Merger at their respective shareholders meetings held to consider the
Parent Merger; or (f) in accordance with the provisions of Section 1.3 hereof.
CFC may also terminate this Agreement at any time after January 31, 1998, if all
the conditions precedent to its obligations to effect the Parent Merger shall
not have been fulfilled by reason other than CFC's failure to comply with its
obligations hereunder and the Parent Merger shall not have become effective on
or prior to such date.
10.3 TERMINATION BY RSFC. RSFC may terminate this Agreement by
written notice to CFC at any time prior to the Effective Time, whether before or
after approval by the shareholders of CFC, if (a) any event occurs such that a
condition set forth in Articles VII or IX hereof which must be fulfilled before
RSFC is obligated to consummate the Parent Merger or cannot be fulfilled (other
than by reason of RSFC's or Republic's failure to comply with its obligations
hereunder) and nonfulfillment is not waived by RSFC; (b) there shall have been a
material default under or a material breach of CFC's covenants hereunder; (c)
there shall have been a material default under or material breach of CFC's
representations and warranties hereunder; (d) any event occurs which, in the
opinion or Ernst & Young LLP, would disqualify the Parent Merger from being
treated as a "pooling of interests"; (e) the shareholders of either CFC or RSFC
shall fail to approve the Parent Merger at their respective shareholders
meetings held to consider the Parent Merger; or (f) in accordance with the
provisions of Section 3.23 hereof. RSFC may also terminate this Agreement at any
time after January 31, 1998, if all the conditions precedent to their
obligations to effect the Parent Merger shall not have been fulfilled by reason
other than RSFC's or Republic's failure to comply with its obligations hereunder
and the Parent Merger shall not have become effective on or prior to such date.
10.4 EFFECT OF TERMINATION. If this Agreement is terminated,
this Agreement, except for this Section 10.4 and Section 10.5, which shall
remain in full force and effect, shall no longer be of any force or effect and
there shall be no liability hereunder on the part of any party or its respective
directors, officers or shareholders; provided that (i) if such termination
results from breaches by CFC of any representation, warranty or covenant
hereunder, then CFC shall pay all of the reasonable fees and expenses incurred
by RSFC and Republic in connection with this Agreement and the transactions
contemplated hereby and (ii) if such termination results from
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breaches by RSFC or Republic of any representation or warranty or covenant
hereunder, then RSFC and Republic shall pay all of the reasonable fees and
expenses of CFC and County in connection with this Agreement and the
transactions contemplated hereby.
10.5 ALTERNATE CFC OR COUNTY TRANSACTION. In addition to any
payment required by Section 10.4 hereof, in the event that this Agreement is
terminated as a result of CFC or County or the holders of at least a majority of
the shares of CFC Common Stock entering into an agreement with respect to the
merger of CFC or County with a party other than RSFC or Republic or the
acquisition of a majority of the outstanding shares of CFC Common Stock or of
County Common Stock by any party other than RSFC, or is terminated in
anticipation of any such agreement or acquisition, then, in either event, CFC
shall immediately pay RSFC, by wire transfer, $1,500,000 in full satisfaction of
RSFC's losses and damages resulting from such termination. CFC agrees that
$1,500,000 is reasonable under the circumstances, that it would be impossible to
exactly determine RSFC's actual damages as a result of such a termination and
that RSFC's actual damages resulting from the loss of the transaction are in
excess of $1,500,000.
10.6 ALTERNATE RSFC OR REPUBLIC TRANSACTION. In addition to
any payment required by Section 10.4 hereof, in the event that this Agreement is
terminated as a result of RSFC or Republic or the holders of at least a majority
of the shares of RSFC Common Stock entering into an agreement with respect to
the merger of RSFC or Republic with a party other than CFC or County or the
acquisition of a majority of the outstanding shares of RSFC Common Stock or of
Republic Common Stock by any party other than CFC, or is terminated in
anticipation of any such agreement or acquisition, then, in either event, RSFC
shall immediately pay CFC, by wire transfer, $500,000 in full satisfaction of
CFC's losses and damages resulting from such termination. RSFC agrees that
$500,000 is reasonable under the circumstances, that it would be impossible to
exactly determine CFC's actual damages as a result of such a termination and
that CFC's actual damages resulting from the loss of the transaction are in
excess of $500,000.
10.7 EXTENSION OR WAIVER. At any time prior to the Effective
Time, whether before or after shareholder approval, either party may (a) extend
the time for the performance of any of the obligations or other acts of the
other party hereto, (b) waive any inaccuracies in the representations and
warranties of the other party hereto contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions of the other party hereto contained herein. Any agreement on the part
of any party hereto for any such extension or waiver shall only be valid if set
forth in a writing signed on behalf of such party.
ARTICLE XI
MISCELLANEOUS
11.1 CERTAIN TERMS.
(a) Unless otherwise defined herein, all accounting terms used
herein shall have the meanings ascribed to them under generally
accepted accounting principles ("GAAP"), as adjusted by FDIC or OCC
regulations and practice.
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(b) "Agency" shall mean each of the United States Department
of Justice, the Board of the Governors of the Federal Reserve System,
the FDIC, the OCC, all state regulatory agencies having jurisdiction
over the parties, HUD, the VA, the FHA, the GNMA, the FNMA, the FHLMC
and the SEC.
(c) "Non-performing assets" shall mean loans which are past
due at least 90 days or in material default for reasons other than late
payment or non-payment, Other Real Estate Owned, any other repossessed
assets and any other loans off accrual for any reason.
(d) "Tangible Equity" shall have the meaning set forth in 12
C.F.R. ss.325.2(s).
(e) "Taxes" shall mean any taxes, duties, assessments, fees,
levies or similar governmental charges, together with any interest,
penalties and additions to tax, imposed by any taxing authority,
wherever located (I.E. whether federal, state, local, municipal, or
foreign), including, without limitation, all net income, gross income,
gross receipts, net receipts, sales, use, transfer, franchise,
privilege, profits, social security, disability, withholding, payroll,
unemployment, employment, excise, severance, property, windfall
profits, value added, AD VALOREM, occupation or any other similar
governmental charge or imposition.
11.2 EXPENSES. Except as provided in Section 10.4 hereof, each
of the parties will pay all of its own legal, accounting and other expenses
incurred in the preparation of this Agreement and the performance of the terms
and provisions of this Agreement.
11.3 LEGAL FEES. In the event of litigation between any of the
parties to this Agreement with respect to enforcement of the provisions hereof,
the prevailing party in such litigation shall be entitled to recover its legal
fees and expenses from the other party to such litigation.
11.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER. Except for the
respective confidentiality agreements signed by the parties, this Agreement
supersedes all previous arrangements or understandings, whether written or oral,
and contains the entire agreement of the parties, with respect to the subject
matter hereof. This Agreement may be modified, varied or otherwise amended only
by a writing executed on behalf of each of the parties hereto. No waiver of any
provision of this Agreement shall be valid unless in writing and signed by the
party against whom enforcement of such waiver is sought. No waiver, course of
dealing, delay in acting or other purported waiver by any party of compliance
with any provision of this Agreement shall be construed as a continuing waiver,
or as a waiver of any subsequent breach, of any such provision or of any rights
or remedies with respect thereto.
11.5 NOTICES. Any notice, request, election, or other
communication required or
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permitted to be given by any party under any provision of this Agreement shall
be in writing and shall be deemed to have been duly given if delivered in
person, by overnight courier or by facsimile transmission, to the following
address, or to such other address as any party shall designate upon written
notice to the other party pursuant to this Section 11.5:
If to RSFC or Republic:
Republic Security Bank
4400 Congress Avenue
West Palm Beach, Florida 33407
Facsimile No.: 561-881-9225
Attn: Rudy E. Schupp, President
and Chairman of the Board
With a copy to:
John S. Fletcher, Esq.
Morgan, Lewis & Bockius LLP
5300 First Union Financial Center
200 South Biscayne Boulevard
Miami, Florida 33131-2339
Facsimile No.: 305-579-0321
If to CFC or County:
County National Bank of South Florida
801 N.E. 167th Street
North Miami Beach, Florida 33162
Facsimile No.: 305-652-2539
Attn: George M. Apelian,
President
With a copy to:
Bowman Brown, Esq.
Shutts & Bowen LLP
201 South Biscayne Boulevard
Miami, Florida 33131
Facsimile No.: 305-381-9982
11.7 RIGHTS UNDER THIS AGREEMENT; NONASSIGNABILITY. This
Agreement shall bind
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and inure to the benefit of the parties hereto and their respective successors,
but shall not be assignable by any party. Nothing contained in this Agreement is
intended to confer upon any person, other than the parties to this Agreement and
their respective successors, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement.
11.8 FORM OF THIS AGREEMENT. Captions to the various
provisions in this Agreement are for the convenience of the reader only and
shall not be construed as affecting the meaning or interpretation of any
provision of this Agreement. Terms used in the singular shall be read in the
plural, and vice versa, and terms used in the masculine gender shall be read in
the feminine or neuter gender, when the context so requires. This Agreement may
be executed in several counterparts, each of which shall be deemed an original,
but together shall constitute one and the same instrument.
11.9 GOVERNING LAW. This Agreement has been entered into
under, and shall be construed and enforced in accordance with, the laws of the
State of Florida.
11.10 PUBLIC ANNOUNCEMENTS. RSFC and CFC shall each approve in
advance the substance of and cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to this Agreement or any of the transactions contemplated hereby, except
as may be otherwise required by law or regulation.
11.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the several parties hereto on separate
counterparts, each of which when so executed shall be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
REPUBLIC SECURITY FINANCIAL
CORPORATION
By /S/ RUDY E. SCHUPP
-----------------------
Rudy E. Schupp,
President and Chairman
of the Board
[SEAL]
ATTEST:
/S/ RICHARD J. HASKINS
-----------------------
Richard J. Haskins,
Assistant Secretary
A-49
<PAGE>
REPUBLIC SECURITY BANK
By /S/ RUDY E. SCHUPP
-------------------
Rudy E. Schupp,
President and Chairman
of the Board
[SEAL]
ATTEST:
/S/ RICHARD J. HASKINS
----------------------
Richard J. Haskins,
Assistant Secretary
COUNTY FINANCIAL CORPORATION
By /S/ GEORGE M. APELIAN
----------------------
George M. Apelian,
President
[SEAL]
ATTEST:
/S/
- ------------------
Secretary
COUNTY NATIONAL BANK OF
SOUTH FLORIDA
By /S/ GEORGE M. APELIAN
----------------------
George M. Apelian,
President
[SEAL]
ATTEST:
/S/
- -------------------
Secretary
A-50
<PAGE>
ANNEX B
[LETTERHEAD OF RYAN, BECK & CO., INC.]
October ____, 1997
The Board of Directors
Republic Security Financial Corporation
4400 Congress Avenue
West Palm Beach, Florida 33407-3288
Members of the Board:
Republic Security Financial Corporation ("Republic") and County Financial
Corporation ("County") have entered into an Agreement and Plan of Merger dated
August 8, 1997 (the "Agreement"). Pursuant to the Agreement, among other things,
County shall merge with and into Republic (the "Merger"), and each share of
County's issued and outstanding common stock will be converted into 4.807 shares
of Republic's common stock (the "Exchange Ratio"), provided that Republic's
market value (as defined) remains above $7.65. If Republic's market value
determined as of the determination date (as defined) is less than $7.65 and the
market value has declined by 5% more than that of an Index Group of selected
commercial banks, then County shall have the right to terminate the Agreement,
subject to Republic's right to increase the exchange ratio so that the per share
value to County's shareholders would be $36.77, based upon Republic's twenty day
Average Closing Price (as defined). You have requested our opinion as to whether
the Exchange Ratio in the merger is fair, from a financial point of view, to the
holders of Republic Common Stock. We have assumed that the Merger will be
accounted for as a pooling of interests transaction by Republic.
Ryan, Beck & Co., as a customary part of its investment banking business, is
engaged in the valuation of banking and savings institutions and their
securities in connection with mergers and acquisitions. In conducting our
investigation and analysis of this transaction, we have met separately with
members of senior management of Republic and County to discuss their respective
operations, historical financial statements, strategic plans and future
prospects. We have reviewed and analyzed material prepared in connection with
the Merger, including but not limited to the following: (i) the Merger Agreement
and related documents; (ii) drafts of the Proxy Statement / Prospectus prepared
in connection with the Merger; (iii) Republic's Annual Reports to Shareholders
and Annual Reports on Form 10-K for the years ended December 31, 1996 and March
31, 1995, the nine months ended December 31, 1995 and the fiscal year ended
March 31, 1994 and Republic's Quarterly Reports on Form 10-Q for the periods
ended June 30, 1997 and March 31, 1997; (iv) County's Annual Reports to
Shareholders and/or Annual Reports on Form 10-K for the years ended December 31,
1996, 1995, and 1994, and County's Quarterly Reports on Form 10-Q for the
periods ended June 30, 1997 and March 31, 1997; (v) Registration Statement on
Form S-4 with respect to County's acquistion of Carney Bank; (vi) certain
operating and financial information provided to us by the managements of
Republic and County relating to their business and prospects; (vii) the
historical stock prices and trading volume of
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Republic's Common Stock; (viii) the publicly available financial data of
commercial banking organizations which Ryan, Beck deemed generally comparable to
Republic; (ix) the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to County; and (x)
the terms of recent acquisitions of commercial banking organizations which Ryan,
Beck deemed generally comparable to County. We also conducted or reviewed such
other studies, analyses, inquiries and examinations as we deemed appropriate.
Ryan, Beck as part of its review of the Merger, also analyzed Republic's ability
to consummate the Merger.
While we have taken care in our investigation and analyses, we have relied upon
and assumed the accuracy, completeness and fairness of the financial and other
information provided to us by the respective institutions or which was publicly
available and have not assumed any responsibility for independently verifying
such information. We have also relied upon the managements of Republic and
County as to the reasonableness and achievability of the financial and operating
forecasts and projections (and the assumptions and bases therefor) provided to
us and in certain instances we have made certain adjustments to such financial
and operating forecasts which in our judgment were appropriate under the
circumstances. In addition, we have assumed with your consent that such
forecasts and projections reflect the best currently available estimates and
judgments of the respective managements. We are not experts in the evaluation of
allowances for loan losses. Therefore, we have not assumed any responsibility
for making an independent valuation of the adequacy of the allowances for loan
losses set forth in the balance sheets of Republic and County at June 30, 1997,
and we assumed such allowances were adequate and comply fully with applicable
law, regulatory policy and sound banking practice as of the date of such
financial statements. We also assumed that the Merger in all respects is, and
will be consummated in compliance with all laws and regulations applicable to
Republic and County. We have not made or obtained any independent evaluations or
appraisals of the assets and liabilities of either Republic or County or their
respective subsidiaries, nor have we reviewed any individual loan files of
Republic, County or their respective subsidiaries.
In conducting our analysis and arriving at our opinion as expressed herein, we
have considered such financial and other factors as we have deemed appropriate
in the circumstances. In rendering our opinion, we have assumed that in the
course of obtaining the necessary regulatory approvals for the Merger, no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger to Republic.
Our opinion is necessarily based on economic, market and other conditions and
projections as they exist and can be evaluated on the date hereof. Ryan, Beck
did not express any opinion as to the price or range of prices at which Republic
Common Stock might trade subsequent to the Merger.
We have been retained by the Board of Directors of Republic as an independent
contractor to act as financial advisor to Republic with respect to the Merger
and will receive a fee for our services. We have no prior relationship with
County. In addition, we may actively trade equity securities of Republic and its
respective affiliates for our own account and the account of our customers, and
we therefore may from time to time hold a long or short position in such
securities.
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<PAGE>
Our opinion is directed to the Board of Directors of Republic and does not
constitute a recommendation to any shareholder of Republic as to how such
shareholder should vote at any shareholder meeting held in connection with the
Merger.
Based upon and subject to the foregoing it is our opinion as investment bankers
that the Exchange Ratio in the Merger as provided and described in the Merger
Agreement is fair to the holders of Republic Common Stock from a financial point
of view.
Very truly yours,
RYAN, BECK & CO., INC.
B-3
<PAGE>
ANNEX C
[LETTERHEAD OF ALEX SHESHUNOFF & CO]
October __, 1997
Board of Directors
County Financial Corporation
801 North East 167 Street
North Miami Beach, Florida 33162
Members of the Board:
We understand that County Financial Corporation, North Miami Beach, Florida,
("CFC") and Republic Security Financial Corporation, West Palm Beach, Florida,
("RSFC") entered into a Plan of Merger and Merger Agreement (the "Agreement"),
which provides, among other things, for the acquisition of all of the capital
stock of CFC by means of a merger of CFC with and into RSFC (the "Merger").
Pursuant to the Agreement at the Effective Time, each share of CFC Common Stock,
issued and outstanding prior to the Effective Time, excluding Dissenting Shares,
shall, by virtue of the Merger and without any action by the holder thereof, be
exchanged for 4.807 shares of RSFC Common Stock (the "Conversion Rate"). The
Conversion Rate shall be fixed and no adjustment shall be made unless the
Average Closing Price of RSFC Common Stock, defined in the Agreement as the
average of the daily last sales prices of RSFC Common Stock as reported by
NASDAQ - National Market System for the twenty consecutive full trading days
beginning on the first full trading day following the date on which the
Registration Statement is declared effective by the Securities and Exchange
Commission, is both (i) less than $7.65, and (ii) the percentage price decline
of the Average Closing Price of RSFC Common Stock from $8.76 per share shall be
greater than 5.0% more than the percentage price decline of the Index banks from
August 6, 1997, in which event CFC may terminate the Agreement and RSFC shall
have the right but not the obligation, to increase the Conversion Rate to the
number of shares of RSFC Common Stock equal to a quotient (rounded to the
nearest one-thousandth) the numerator of which is the product of $7.65 and the
Conversion Rate, and the denominator of which is the Average Closing Price of
RSFC Common Stock.
You have requested our opinion, as to whether the Conversion Rate to be received
by the holders of shares of CFC Common Stock pursuant to the Agreement is fair
from a financial point of view to such holders of CFC's Common Stock.
In connection with our opinion, we have: (i) reviewed a copy of the Agreement;
(ii) reviewed certain publicly available financial statements and other
information of CFC and RSFC, respectively; (iii) reviewed this Joint Proxy
Statement / Prospectus; (iv) discussed the results of regulatory examinations of
CFC, RSFC and Family Bank; (v) reviewed and compared certain estimates of cost
savings arising from the transaction with cost savings estimates in certain
precedent transactions; (vi) reviewed the Joint Proxy Statement / Prospectus of
RSFC and Family Bank, Hallandale, Florida, dated May 27, 1997; (vii)reviewed
certain public and internal financial statements and other financial and
operating data concerning CFC and RSFC, respectively; (viii) analyzed certain
budget and financial projections of CFC prepared by the management of CFC; (ix)
analyzed certain financial earnings per share projections of RSFC provided by
independent banking industry analysts; (x) analyzed the pro forma impact of the
Merger on the combined company's earnings, book value and tangible book value
per share, respectively, and consolidated capitalization, market valuation and
financial ratios; (xi) reviewed the reported prices and shares trading activity
for RSFC; (xii) discussed the past and current operations and financial
condition, and the prospects of both CFC and RSFC with executive management;
(xiii) compared CFC and RSFC from a financial point of view with certain other
companies which we deemed to be relevant;
C-1
<PAGE>
(xiv) reviewed the financial terms, to the extent publicly available, of certain
comparable merger transactions, and (xv) performed such other analyses and
examinations as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information supplied or otherwise made available to us
by CFC and RSFC for the purposes of this opinion. We have not made an
independent evaluation of the assets or liabilities of CFC, nor have we been
furnished with any such appraisals. With respect to budgets and financial
forecasts, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgments of management of CFC and
RSFC, as to the future financial performance of CFC and RSFC, and we have
assumed such forecasts and projections will be realized in the amounts and at
the times contemplated thereby. We have assumed that obtaining any necessary
regulatory approvals and third party consents for the merger or otherwise will
not have an adverse effect on CFC, RSFC or the combined company pursuant to the
Agreement. We are not experts in the evaluation of loan portfolios for the
purpose of assessing the adequacy of the allowance for losses with respect
thereto and have assumed that such allowances for each of the companies are in
the aggregate, adequate to cover such losses. In addition, we have not reviewed
any individual credit files or made an independent evaluation, appraisal or
physical inspection of the assets or individual properties of CFC or RSFC, nor
have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of the date hereof.
Events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion. We have also assumed that there are no material
changes in CFC's or RSFC's assets, financial condition, results of operations,
business or prospects since the respective dates of their last financial
statements reviewed by us, and that off-balance sheet activities of CFC and RSFC
will not materially and adversely impact the future financial position or
results of operation of CFC and RSFC. We have also assumed the Merger will be
completed as set forth in the Agreement and that no material changes will be
made or restrictions imposed by regulatory or other parties on the terms of the
Agreement.
Our opinion is limited to the fairness, from a financial point of view, to the
holders of CFC's Common Stock of the Conversion Rate and does not address CFC's
underlying business decision to undertake the Merger. Moreover, this letter, and
the opinion expressed herein, does not constitute a recommendation to any
stockholder as to any approval of the Merger or the Agreement. It is understood
that this letter is for the information of the Board of Directors of CFC and may
not be used for any other purpose without our prior written consent, except that
this opinion may be included in its entirety in any filing made by CFC or RSFC
with the Securities and Exchange Commission with respect to the Merger.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Conversion Rate to be received by CFC's Common stockholders is
fair from a financial point of view to the holders of such shares.
Very truly yours,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
C-2
<PAGE>
ANNEX D
SECTIONS 607.1301, 607.1302 AND 604.1320
OF THE FLORIDA BUSINESS CORPORATION ACT
SECTION 607.1301 DISSENTERS' RIGHTS; -- THE FOLLOWING DEFINITIONS APPLY TO
SECTIONS 607.1302 AND 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion
would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date
on which the corporation received written consents without a meeting
from the requisite number of shareholders in order to authorize the
action, or, in the case of a merger pursuant to s. 607.1104, the day
prior to the date on which a copy of the plan of merger was mailed to
each shareholder of record of the subsidiary corporation.
SECTION 607.1302 -- RIGHT OF SHAREHOLDERS TO DISSENT.
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger,
or
2. If the corporation is a subsidiary that is merged
with its parent under Section 607.1104, and the
shareholders would have been entitled to vote on
action taken, except for the applicability of Section
607.1104;
(b) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation, other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be acquired,
if the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached
to any of his shares;
2. Altering or abolishing the voting rights pertaining
to any of his shares, except as such rights may be
affected by the voting rights of new shares then
being authorized of any existing or new class or
series of shares;
D-1
<PAGE>
3. Effecting an exchange, cancellation, or
reclassification of any of his shares, when such
exchange, cancellation, or reclassification would
alter or abolish his voting rights or alter his
percentage of equity in the corporation, or effecting
a reduction or cancellation of accrued dividends or
other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his
redeemable shares, altering or abolishing any
provision relating to any sinking fund for the
redemption or purchase of any of his shares, or
making any of his shares subject to redemption when
they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends
of any of his preferred shares which had theretofore
been cumulative;
6. Reducing the stated dividend preference of any of his
preferred shares; or
7. Reducing any stated preferential amount payable on
any of his preferred shares upon voluntary or
involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which
are adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the
shares as to which he has dissented and his other shares were
registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any
class or series which, on the record date fixed to determine the
shareholders entitled to vote at the meeting of shareholders at which
such action is to be acted upon or to consent to any such action
without a meeting, were either registered on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to
the shareholder or the corporation.
SECTION 607.1320 -- PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
(1) (a) If a proposed corporate action creating dissenters' rights
under s. 607.1302 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights and be accompanied by a copy of ss. 607.1301, 607.1302, and
607.1320. A shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken
written notice of his intent to demand payment for
his shares if the proposed action is effectuated, and
2. Not vote his shares in favor of the proposed action.
A proxy or vote against the proposed action does not
constitute such a notice of intent to demand payment.
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<PAGE>
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for his written consent or, if such a request is
not made, within 10 days after the date the corporation received written
consents without a meeting from the requisite number of shareholders necessary
to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent
or adoption of the plan of merger, as the case may be, to each
shareholder who filed a notice of intent to demand payment for his
shares pursuant to paragraph (1)(a) or, in the case of action
authorized by written consent, to each shareholder, excepting any who
voted for, or consented in writing to, the proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such
election, stating his name and address, the number, classes, and series
of shares as to which he dissents, and a demand for payment of the fair
value of his shares. Any shareholder failing to file such election to
dissent within the period set forth shall be bound by the terms of the
proposed corporate action. Any shareholder filing an election to
dissent shall deposit his certificates for certificated shares with the
corporation simultaneously with the filing of the election to dissent.
The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the
corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and
shall not be entitled to vote or to exercise any other rights of a
shareholder. A notice of election may be withdrawn in writing by the
shareholder at any time before an offer is made by the corporation, as
provided in subsection (5), to pay for his shares. After such offer, no
such notice of election may be withdrawn unless the corporation
consents thereto. However, the right of such shareholder to be paid the
fair value of his shares shall cease, and he shall be reinstated to
have all his rights as a shareholder as of the filing of his notice of
election, including any intervening preemptive rights and the right to
payment of any intervening dividend or other distribution or, if any
such rights have expired or any such dividend or distribution other
than in cash has been completed, in lieu thereof, at the election of
the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after
such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the
corporation shall make a written offer to each dissenting shareholder
who has made demand as provided in this section to pay an amount the
corporation estimates to be the fair value for such shares. If the
corporate action has not been consummated before the expiration of the
90-day period after the shareholders' authorization date, the offer may
be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
12 months prior to the making of such offer; and
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<PAGE>
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days
after the making of such offer or the consummation of the proposed
action, whichever is later. Upon payment of the agreed value, the
dissenting shareholder shall cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period
of 30 days thereafter, then the corporation, within 30 days after
receipt of written demand from any dissenting shareholder given within
60 days after the date on which such corporate action was effected,
shall, or at its election at any time within such period of 60 days
may, file an action in any court of competent jurisdiction in the
county in this state where the registered office of the corporation is
located requesting that the fair value of such shares be determined.
The court shall also determine whether each dissenting shareholder, as
to whom the corporation requests the court to make such determination,
is entitled to receive payment for his shares. If the corporation fails
to institute the proceeding as herein provided, any dissenting
shareholder may do so in the name of the corporation. All dissenting
shareholders (whether or not residents of this state), other than
shareholders who have agreed with the corporation as to the value of
their shares, shall be made parties to the proceeding as an action
against their shares. The corporation shall serve a copy of the initial
pleading in such proceeding upon each dissenting shareholder who is a
resident of this state in the manner provided by law for the service of
a summons and complaint and upon each nonresident dissenting
shareholder either by registered or certified mail and publication or
in such other manner as is permitted by law. The jurisdiction of the
court is plenary and exclusive. All shareholders who are proper parties
to the proceeding are entitled to judgment against the corporation for
the amount of the fair value of their shares. The court may, if it so
elects, appoint one or more persons as appraisers to receive evidence
and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as is specified in the order of
their appointment or an amendment thereof. The corporation shall pay
each dissenting shareholder the amount found to be due him within 10
days after final determination of the proceedings. Upon payment of the
judgment, the dissenting shareholder shall cease to have any interest
in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any
part of such costs and expenses may be apportioned and assessed as the
court deems equitable against any or all of the dissenting shareholders
who are parties to the proceeding, to whom the corporation has made an
offer to pay for the shares, if the court finds that the action of such
shareholders in failing to accept such offer was arbitrary, vexatious,
or not in good faith. Such expenses shall include reasonable
compensation for, and reasonable expenses of, the appraisers, but shall
exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially
exceeds the amount which the corporation offered to pay therefor or if
no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court
determines to be reasonable compensation to any attorney or expert
employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor,
as provided in this section, may be held and disposed of by such
corporation as authorized but unissued shares of the corporation,
except that, in the case of a merger, they may be held and disposed of
as the plan of merger otherwise provides. The shares of the surviving
corporation into which the shares of such dissenting shareholders would
have been converted had they assented to the merger shall have the
status of authorized but unissued shares of the surviving corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850 of the Florida Business Corporation Act empowers a
corporation, subject to certain limitations, to indemnify any person who was or
is a party to any proceeding by reason of the fact that he was or is a director,
officer, employee or agent of the corporation, against liability and expenses
actually and reasonably incurred by him in connection with such proceeding,
including any appeal thereof, if such party acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to a criminal action or proceeding, had no
reasonable cause to believe his conduct to have been unlawful.
RSFC's Bylaws provide as follows:
ARTICLE VII
Indemnification of Directors, Officers,
Employees and Agents
SECTION 7.01. DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The corporation shall
indemnify any person who was or is a party or is threatened to be made a party
(which shall include the giving of testimony or similar involvement) to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by, or in the
right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of any
other corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding, including any appeal thereof, if he or she
acted in good faith in a manner he or she reasonably believed to be in, or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceedings, had no reasonable cause to believe that his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent shall not create, of itself, a presumption that the person did not
act in good faith or in a manner which he or she reasonably believed to be in,
or not opposed to, the best interest of the corporation or, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party (which shall include the giving of testimony or
similar involvement), to any threatened, pending or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that he or she is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (to the extent permitted by
law), including any appeal thereof. Such indemnification shall be authorized if
such person acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable unless, and only to the
extent that, the court in which such proceeding was brought, or any other court
of competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
SECTION 7.02. EXPENSES. To the extent that a director, officer, employee or
agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to above, or in any defense
of any claim, issue or matter therein, the corporation shall indemnify such
person against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
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<PAGE>
SECTION 7.03. DETERMINATION OF STANDARD OF CONDUCT. Any indemnification
hereunder, unless pursuant to a determination by a court, shall be made by the
corporation as authorized upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct set forth above. Such
determination shall be made either (1) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such
proceeding, (2) by majority vote of a committee duly designated by the board of
directors consisting of two or more directors not at the time parties to the
proceeding, (3) by the shareholders who were not parties to such action, suit or
proceedings, or (4) by independent legal counsel selected in accordance with the
provisions of the Florida Business Corporation Act in a written opinion.
SECTION 7.04. ADVANCE EXPENSES. Expenses including attorney's fees incurred in
defending any action, suit or pro ceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided above or upon receipt of any undertaking by or
on behalf of the director, officer, employee or agent to repay such amount,
unless it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized herein.
SECTION 7.05. BENEFIT. The indemnification provided by this Article VII shall be
in addition to the indemnification rights provided pursuant to the Florida
Business Corporation Act and shall not be deemed exclusive of any other rights
to which person seeking indemnification may be entitled under any by law,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent of the corporation and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 7.06. INSURANCE. The corporation shall be empowered to purchase and
maintain insurance on behalf of any per son who is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against liability asserted
against such person and incurred by him or her in any such capacity or arising
out of his or her status as such, whether or not the corporation would have the
power to indemnify such person against such liability under the provisions
contained herein.
SECTION 7.07. NO RIGHTS OF SUBROGATION. Indemnification herein shall be a
personal right and, the corporation shall have no liability under this Article
VII to any insurer or any person, corporation, partnership, association, trust
or other entity (other than the heirs, executors or administrators of such
person) by reason of subrogation, assignment or succession by any other means to
the claim of any person to indemnification hereunder.
SECTION 7.08. INDEMNIFICATION FOR PAST DIRECTORS. Indemnification as provided in
this section shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.09. AFFILIATES. For the purposes of this Article VII, references to
the "corporation" include all constituent corporations absorbed in a
consolidation or merger, as well as the resulting or surviving corporation, so
that any person who is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article VII with respect to the resulting
or surviving corporation as such person would if he or she had served the
resulting or surviving corporation in the same capacity.
SECTION 7.10. RELIANCE AND NON-EXCLUSIVITY. Each person who shall act as an
authorized representative of the cor poration shall be deemed to be doing so in
reliance upon such rights of indemnification as are provided in this Article
VII.
SECTION 7.11. OTHER INDEMNIFICATIONS. The corporation shall have the power to
make any other or further indemnification, except an indemnification against
gross negligence or willful misconduct, under any bylaw, agreement,
II-2
<PAGE>
vote of shareholders or disinterested directors, or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office.
SECTION 7.12. AMENDMENTS. The provisions of this Article VII relating to
indemnification and to the advancement of expenses shall constitute a contract
between the corporation and each of its directors and officers which may be
modified as to any director or officer only with that person's consent or as
specifically provided in this section. Notwithstanding any other provision of
these bylaws relating to their amendment generally, any repeal or amendment of
this Article VII which is adverse to any director or officer shall apply to such
director or officer only on a prospective basis, and shall not limit the rights
of a director or officer to indemnification or to the advancement of expenses
with respect to any action or failure to act occurring prior to the time of such
repeal or amendment.
The Bylaws are not exclusive of any other rights to which any person
seeking indemnification from the registrant may be entitled.
Pursuant to Florida law, the registrant may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the registrant, or is or was serving at the request of the registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the registrant would have the power to indemnify him
against such liability under the applicable provisions of the bylaws of the
registrant or applicable law. RSFC currently has in place an insurance contract
covering the liability of directors and officers as permitted under Florida law.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO. DESCRIPTION
2(e) Agreement and Plan of Merger, dated as of August 8, 1997, among
Republic Security Financial Corporation, Republic Security Bank and
County Financial Corporation (included as Annex A to the Joint Proxy
Statement/Prospectus) (1)
3(a) Articles of Incorporation, as amended, of Republic Security Financial
Corporation (2)
(b) Bylaws, as amended, of Republic Security Financial Corporation (2)
4(a) Form of Common Stock certificate of Republic Security Financial
Corporation (2)
(b) Form of Series C Preferred Stock Certificate and Designations,
Relative Rights, Preferences and Limitations (3)
(c) Rights Agreement by and Between Republic Security Financial
Corporation and IBJ Schroder Bank and Trust Company (4)
5 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the
shares being registered(11)
8 Opinion of Morgan, Lewis & Bockius LLP re: tax matters(11)
10(a) Employment Agreement between Republic Security Financial Corporation
and R.E. Schupp, as amended (5)
(b) Employment Agreement between Republic Security Financial Corporation
and Richard J. Haskins, as amended (5)
(c) Forms of Supplemental Executive Retirement Plan Agreements (2)
(d) Supplemental Executive Retirement Program Agreement - Richard J.
Haskins (2)
(e) Supplemental Executive Retirement Program Agreement - R.E. Schupp (2)
(f) Restricted Stock Plan (6)
(g) Restricted Stock Plan Agreement - Richard J. Haskins (6)
(h) Restricted Stock Plan Agreement - R.E. Schupp (6)
(i) Stock Appreciation Rights Agreement between Republic Security
Financial Corporation and Rudy E. Schupp (7)
II-4
<PAGE>
EXHIBIT
NO. DESCRIPTION
(j) Stock Appreciation Rights Agreement between Republic Security
Financial Corporation and Richard J. Haskins (7)
(k) Stock Appreciation Rights Agreement between Republic Security
Financial Corporation and non-employee directors (7)
(l) Republic Security Financial Corporation 1997 Performance Incentive
Plan (8)
(m) Employment Agreement with Carol Owen(8)
(n) Employment Agreement with Bruce Keir (8)
(o) Employment Agreement with George Apelian(11)
(p) Employment Agreement with Richard Kuci(11)
11 Statement regarding Computation of Per Share Earnings (10)
12 Statement regarding Computation of Ratios (3)
13 Annual report to security holders of Republic Security Financial
Corporation (9)
21 Subsidiaries of Republic Security Financial Corporation (9)
23(a) Consent of Ernst & Young LLP
(b) Consent of Deloitte & Touche LLP
(c) Consent of Alex Sheshunoff
(d) Consent of Morgan, Lewis & Bockius LLP (included in its opinions in
Exhibits 5 and 8 hereof)
(e) Consent of Ryan, Beck & Co.
24 Powers of Attorney (included on the signature page of the Registration
Statement)(11)
99(a) Form of Proxy of Republic Security Financial Corporation(11)
99(b) Form of Proxy of County Financial Corporation(11)
All other Exhibits are omitted because they are not applicable.
II-5
<PAGE>
- ------------
(1) Incorporated by reference to Form 8-K as filed with the Securities and
Exchange Commission on August 20, 1997.
(2) Incorporated by reference to Registration Statement on Form S-1, File No.
2-99505.
(3) Incorporated by reference to Registration Statement on Form S-1, File No.
33-62847.
(4) Incorporated by reference to Form 8-A as filed with the Securities and
Exchange Commission on April 27, 1995.
(5) Incorporated by reference to Form 10-K as filed with the Securities and
Exchange Commission on June 24, 1994.
(6) Incorporated by reference to Form 10-K as filed with the Securities and
Exchange Commission on June 28, 1990.
(7) Incorporated by reference to Form 10-K as filed with the Securities and
Exchange Commission on March 28, 1996.
(8) Incorporated by reference to Registration Statement on Form S-4, File No.
333-24821.
(9) Incorporated by reference to Form 10-K as filed with the Securities and
Exchange Commission on March 19, 1997.
(10) Incorporated by reference to Form 10-Q as filed with the Securities and
Exchange Commission on May 14, 1997.
(11) Previously filed.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(c) (1) The undersigned registrant hereby undertakes as follows:
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this
registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer
II-6
<PAGE>
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(h) The undersigned registrant undertakes to furnish supplementally a copy
of any omitted schedule to the Commission upon request.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of West Palm Beach, State of
Florida on the 23rd day of October, 1997.
REPUBLIC SECURITY FINANCIAL CORPORATION
By: /s/ RUDY E. SCHUPP
-------------------------------
Rudy E. Schupp, Chairman of the Board,
President, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RUDY E. SCHUPP Chairman of the Board, October 23, 1997
- -------------------------- President, Chief Executive
Rudy E. Schupp Officer and Director
* Chairman of the Board, October 23, 1997
- -------------------------- Broward County and
Carol R. Owen Director
/s/ RICHARD J. HASKINS Executive Vice President, October 23, 1997
- -------------------------- Principal Financial and
Richard J. Haskins Accounting Officer and
Director
* Director October 23, 1997
- --------------------------
Paula Berliner
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
*
- -------------------------- Director October 23, 1997
Joseph D. Cesarotti
* Director October 23, 1997
- -------------------------
Mary Anna Fowler
* Director October 23, 1997
- -------------------------
H. Gearl Gore
* Director October 23, 1997
- -------------------------
Eugene W. Hughes, Jr.
* Director October 23, 1997
- -------------------------
Lennart E. Lindahl, Jr.
* Director October 23, 1997
- -------------------------
Richard C. Rathke
* Director October 23, 1997
- -------------------------
Victor H. Siegel
* Director October 23, 1997
- -------------------------
William F. Spitznagel
* Director October 23, 1997
- -------------------------
Bruce E. Wiita
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
* Director October 23, 1997
- ----------------------------
William Wolfson
* By: /s/ RUDY E. SCHUPP
--------------------
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
23(a) Consent of Ernst & Young LLP
(b) Consent of Deloitte & Touche LLP
(c) Consent of Alex Sheshunoff & Co.
(e) Consent of Ryan, Beck & Co., Inc.
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data--Republic Security Financial Corporation"
and to the use of our report dated March 28, 1997, except for paragraph 1 of
Note 2 as to which the date is June 30, 1997 and Note 20 as to which the date is
August 8, 1997, included in the Joint Proxy Statement/Prospectus of Republic
Security Financial Corporation and County Financial Corporation which is made a
part of the Amendment No. 2 to Registration Statement (Form S-4) for the
registration of 6,100,000 shares of Republic Security Financial Corporation
common stock.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
October 22, 1997
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-36717 of Republic Security Financial Corporation of our report relating to
County Financial Corporation dated February 21, 1997 appearing in the Joint
Proxy Statement/Prospectus, which is a part of such to Registration Statement,
and to the reference to us under the headings "Selected Financial Data-CFC" and
"Experts" in such Joint Proxy Statement/Prospectus.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
October 22, 1997
EXHIBIT 23(c)
CONSENT OF ALEX SHESHUNOFF & CO.
We hereby consent to the references in Amendment No. 2 to the Joint Proxy
Statement/Prospectus to our opinion, dated October 22, 1997 with respect to the
merger of Republic Security Financial Corporation and County Financial
Corporation and to our firm, respectively, and to the inclusion of such opinion
as an annex to such Joint Proxy Statement/Prospectus. By giving such consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
ALEX SHESHUNOFF & CO.
Austin, TX
October 22, 1997
EXHIBIT 23(e)
CONSENT OF RYAN, BECK & CO., INC.
We hereby consent to the references in Amendment No. 2 to the Joint Proxy
Statement/Prospectus to our opinion, dated October 22, 1997 with respect to the
merger of Republic Security Financial Corporation and County Financial
Corporation and to our firm, respectively, and to the inclusion of such opinion
as an annex to such Joint Proxy Statement/Prospectus. By giving such consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
RYAN, BECK & CO., INC.
Livingston, NJ
October 22, 1997
