As filed with the Securities and Exchange Commission on May 16, 1997
REGISTRATION NO. 333-24821
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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REPUBLIC SECURITY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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FLORIDA 6120 59-2335075
<S> <C> <C>
(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)
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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)
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Copies to:
JOHN S. FLETCHER, ESQ. ROBERT L. GROSSMAN, ESQ.
MORGAN, LEWIS & BOCKIUS LLP GREENBERG, TRAURIG, HOFFMAN,
5300 FIRST UNION FINANCIAL CENTER LIPOFF, ROSEN & QUENTEL, P.A.
200 SOUTH BISCAYNE BOULEVARD 1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131 MIAMI, FLORIDA 33131
(305) 579-0432 (305) 579-0756
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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.
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed
Title of Each Class Maximum Proposed Maximum Amount of
of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered(1) Registered Per Share Price Fee(3)
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Common Stock, $.01 par $712,036 Not applicable Not applicable $215.77
value(2)..............
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<FN>
(1) This Registration Statement relates to securities of the Registrant issuable to holders
of common stock of Family Bank, a Florida state bank ("Family"), in the proposed merger
of Family and a wholly owned subsidiary of the Registrant.
(2) Includes preferred share purchase rights. Prior to the occurrence of certain events,
such rights will not be exercisable or evidenced separately from the Common Stock.
(3) Pursuant to Rule 457(f), the registration fee was computed on the basis of the market
value of the Family Common Stock to be exchanged in the merger computed in accordance
with Rule 457(f)(2) on the basis of the book value of the Family Common Stock as of
March 31, 1997. On March 31, 1997, the book value per share of Family Common Stock, for
which there is no established public trading market, was $37.37, and the closing price
per share of RSFC Common Stock was $7.75. On May 14, 1997, the closing price per share
was $7.625. Given the exchange ratio of 13 shares of RSFC Common Stock for each share
of Family Common Stock, the dollar value of one Family share on May 14, 1997 was $99.125,
and the aggregate dollar value of the shares of RSFC Common Stock to be issued in the
Merger was $63,087,214.
</FN>
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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.
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CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B)
OF REGULATION S-K
S-4 ITEMS NUMBER AND CAPTION LOCATION IN PROXY STATEMENT/PROSPECTUS
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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 Family Common Stock;
Appendix A - Form of Agreement of Merger
and Plan of Reorganization
5. Pro Forma Financial Information............. Summary; Unaudited Pro Forma Combined
Condensed Financial Data
6. Material Contracts with the Company
Being Acquired.................................. Not Applicable
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 Incorporation of Certain Information by
Reference....................................... Reference
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants.............. Not Applicable
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 Family
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorization 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
Authorization Are Not to be Solicited,
or in Exchange Offer............................ Not Applicable
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REPUBLIC SECURITY FINANCIAL CORPORATION
4400 CONGRESS AVENUE
WEST PALM BEACH, FLORIDA 33407
_____________, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Republic Security Financial Corporation ("RSFC") which will be held on Friday,
June 27, 1997 at 3:00 P.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 Annual
Meeting, shareholders will be asked to act upon the following proposals (the
"Proposals"):
1. The election of three directors; each to serve until the 2000 Annual
Meeting and until his successor is duly elected and qualified.
2. Approval of an amendment to RSFC's Articles of Incorporation increasing
the authorized shares of its common stock (the "RSFC Common Stock") from
20,000,000 to 100,000,000 (the "Amendment to the Articles").
3. Approval of the Republic Security Financial Corporation 1997 Performance
Incentive Plan.
4. Approval of the Agreement and Plan of Merger, dated as of January 7, 1997
(the "Merger Agreement"), by and among RSFC, Republic Security Bank (the
"Bank") and Family Bank ("Family"), providing for the merger of Family with
and into the Bank, a wholly owned subsidiary of RSFC (the "Merger").
Approval of the Merger Agreement is conditioned upon approval of the
Amendment to the Articles.
Pursuant to the Merger, each share of common stock of Family will be
converted into 13 shares of RSFC Common Stock. The Amendment to the Articles
will provide a sufficient number of authorized and unissued shares of RSFC
Common Stock to issue upon the consummation of the Merger as well as additional
shares for issuance under the 1997 Performance Incentive Plan.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF RSFC AND ITS SHAREHOLDERS. IN ADDITION, THE BOARD OF DIRECTORS HAS
RECEIVED THE OPINION OF ITS FINANCIAL ADVISER, RAYMOND JAMES & ASSOCIATES, INC.,
AS OF MAY , 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 ANNUAL
MEETING IN FAVOR OF THE MERGER AGREEMENT AND THE AMENDMENT TO THE ARTICLES.
Only holders of RSFC Common Stock of record at the close of business on May
1, 1997 are entitled to notice of and to vote at the Annual 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 each of the Proposals to be voted upon at the
Annual 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 Annual Meeting.
Whether or not you plan to attend the Annual 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 Annual 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 Annual Meeting in
person.
Thank you and I look forward to seeing you at the Annual Meeting.
Sincerely,
Rudy E. Schupp
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
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FAMILY BANK
1000 EAST HALLANDALE BEACH BOULEVARD
HALLANDALE, FLORIDA 33009
__________________, 1997
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Family Bank ("Family") which will be held on Friday, June 27, 1997 at 10:00
A.M., local time, at the Hallandale Cultural Center located at 410 SE 3rd
Street, Hallandale, Florida 33009.
At the Special Meeting, shareholders will be asked to approve the Agreement
and Plan of Merger, dated as of January 7, 1997 (the "Merger Agreement"), by and
among Family, Republic Security Financial Corporation ("RSFC") and Republic
Security Bank (the "Bank"), providing for the merger of Family with and into the
Bank, a wholly owned subsidiary of RSFC (the "Merger"), together with the Plan
of Merger and Merger Agreement, dated as of January 7, 1997 (the "Plan of
Merger"), by and between Family and the Bank, which is the instrument to be
filed with the Florida Department of Banking and Finance to effect the Merger.
Pursuant to the Merger, each share of common stock of Family will be converted
into 13 shares of the common stock of RSFC.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF FAMILY AND ITS SHAREHOLDERS. IN ADDITION, THE BOARD OF DIRECTORS
HAS RECEIVED THE OPINION OF ITS FINANCIAL ADVISOR, RYAN, BECK & CO., AS OF MAY
__, 1997 TO THE EFFECT THAT THE MERGER IS FAIR FROM A FINANCIAL POINT OF VIEW TO
FAMILY'S SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AS BEING IN THE BEST INTERESTS OF FAMILY AND ITS
SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE AT THE SPECIAL MEETING IN FAVOR OF THE
MERGER AGREEMENT AND THE PLAN OF MERGER.
Only holders of Family Common Stock of record at the close of business on
May 15, 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 Merger is attached. Please read
this material carefully.
Your participation in the Special Meeting, in person or by proxy, is
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.
Sincerely,
Carol R. Owen
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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REPUBLIC SECURITY FINANCIAL CORPORATION
4400 CONGRESS AVENUE
WEST PALM BEACH, FLORIDA 33407
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 27, 1997
The Annual Meeting of Shareholders of Republic Security Financial
Corporation ("RSFC") will be held on Friday, June 27, 1997 at the Palm Beach
Airport Hilton, 150 Australian Avenue, West Palm Beach, Florida 33406 at 3:00
P.M., local time, to consider the following matters:
1. The election of three directors; each to serve until the 2000 Annual
Meeting and until his successor is duly elected and qualified.
2. Approval of an amendment to RSFC's Articles of Incorporation increasing
the authorized shares of its common stock (the "RSFC Common Stock") from
20,000,000 to 100,000,000 (the "Amendment to the Articles").
3. Approval of the Republic Security Financial Corporation 1997 Performance
Incentive Plan.
4. Approval of the Agreement and Plan of Merger, dated as of January 7, 1997
(the "Merger Agreement"), by and among RSFC, Republic Security Bank (the
"Bank") and Family Bank ("Family"), providing for the merger of Family with
and into the Bank, a wholly owned subsidiary of RSFC (the "Merger").
Approval of the Merger Agreement is conditioned upon approval of the
Amendment to the Articles.
5. Such other business as may properly be brought before the Annual Meeting.
The Board of Directors has fixed the close of business on May 1, 1997, as
the record date for determining shareholders of RSFC entitled to notice of and
to vote at the Annual 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 Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual 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 Annual 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 Annual Meeting in person. We look
forward to seeing you.
By Order of the Board of Directors,
H. Gearl Gore
SECRETARY
West Palm Beach, Florida
___________ , 1997
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FAMILY BANK
1000 EAST HALLANDALE BEACH BOULEVARD
HALLANDALE, FLORIDA 33009
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 27, 1997
A Special Meeting of Shareholders of Family Bank ("Family") will be held on
Friday, June 27, 1997 at 10:00 A.M., local time, at the Hallandale Cultural
Center, located at 410 SE 3rd Street, Hallandale, Florida 33009 to consider the
following proposals:
1. Approval of the Agreement and Plan of Merger, dated as of January 7, 1997
(the "Merger Agreement"), by and among Family, Republic Security Financial
Corporation ("RSFC") and Republic Security Bank (the "Bank"), providing for
the merger of Family with and into the Bank, a wholly owned subsidiary of
RSFC (the "Merger").
2. Approval of the Plan of Merger and Merger Agreement, dated as of January
7, 1997 (the "Plan of Merger"), by and between Family and the Bank, which is
the instrument to be filed with the Florida Department of Banking and
Finance to effect the Merger.
3. Such other business as may properly be brought before the Special
Meeting.
The Board of Directors has fixed the close of business on May 15, 1997, as
the record date for determining shareholders of Family 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 Family and at
the Special Meeting.
Pursuant to Section 658.44 of the Florida Banking Code, each dissenting
Family shareholder, whether or not entitled to vote at the Special Meeting, is
entitled to payment in cash of the value of the shares held by such shareholder
only if such shareholder either (i) votes against the Plan of Merger at the
Special Meeting or (ii) gives written notice to Family, at or prior to the
Special Meeting, that the shareholder dissents from the Plan of Merger.
Shareholders will also have the option of voting against the Plan of Merger and
electing to receive shares of RSFC common stock in accordance with the exchange
ratio described in the Merger Agreement rather than the cash payment required by
Section 658.44
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 Family's Board of Directors.
The proxy card shows the form in which your shares of Family 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,
Lynn W. Fromberg
SECRETARY
Hallandale, Florida
______________, 1997
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED MAY 16, 1997
REPUBLIC SECURITY FINANCIAL CORPORATION
AND
FAMILY BANK
JOINT PROXY STATEMENT
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REPUBLIC SECURITY FINANCIAL CORPORATION
PROSPECTUS
8,273,733 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 Family Bank ("Family") 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 an annual meeting of shareholders of RSFC (together with any adjournments
or postponements thereof, the "RSFC Annual Meeting") and in connection with the
solicitation of proxies by the Board of Directors of Family from holders of
Family's outstanding shares of common stock, par value $5.00 per share (the
"Family Common Stock"), for use at a special meeting of shareholders of Family
(together with any adjournments or postponements thereof, the "Family Special
Meeting" and, together with the RSFC Annual Meeting, the "Shareholder
Meetings").
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Family with and into Republic Security Bank, a Florida state bank
(the "Bank"), a wholly owned subsidiary of RSFC, pursuant to the Agreement and
Plan of Merger, dated as of January 7, 1997, among RSFC, the Bank and Family
(the "Merger Agreement"). As a consequence of the Merger, at the effective time
of the Merger, each outstanding share of Family Common Stock will be converted
into the right to receive 13 shares of RSFC Common Stock as more fully described
in this Joint Proxy Statement/Prospectus. On March 31, 1997, the book value
per share of Family Common Stock, for which there is no established public
trading market, was $37.37, and the closing price per share of RSFC Common Stock
was $7.75. On May 14, 1997, the closing price per share of RSFC Common Stock
was $7.625. Given the exchange ratio of 13 shares of RSFC Common Stock for each
share of Family Common Stock, the equivalent market value of one Family share on
May 14, 1997 was $99.125, and the aggregate dollar value of the shares of RSFC
Common Stock to be issued in the Merger was $63,087,214.
For shareholders of RSFC, this Joint Proxy Statement/Prospectus also relates
to the election of three directors, approval of an amendment to the RSFC
Articles of Incorporation to increase the number of authorized shares and the
approval of the 1997 Performance Incentive Plan.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of RSFC
with respect to shares of the RSFC Common Stock issuable to Family 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 Family has been furnished by Family.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of RSFC and Family on or about May __,
1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 28 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHAREHOLDERS OF RSFC AND FAMILY SHOULD CONSIDER IN CONNECTION WITH THEIR
VOTE.
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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 SHARES OF RSFC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MAY __, 1997.
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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 FAMILY 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.
Family is not subject to the informational requirements of the Exchange Act
and thus does not file periodic reports, proxy statements or other information
with the Commission.
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 the Bank, except such information described under "The
Merger--Opinion of Raymond James & Associates, Inc.," has been supplied by RSFC
for inclusion herein and has not been independently verified by Family. All
information contained in this Joint Proxy Statement/Prospectus with respect to
Family, except such information described under "The Merger--Opinion of Ryan,
Beck & Co.," has been supplied by Family for inclusion herein and has not been
independently verified by RSFC.
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.
ii
<PAGE>
2. Current Report on Form 8-K filed with the Commission on January 13,
1997.
3. Quarterly Report on Form 10-Q filed with the Commission on April 14,
1997.
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 its Annual Meeting 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 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
__________, 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, FAMILY AND THE BANK, OF FAMILY AND THE BANK FOLLOWING THE
MERGER (THE "COMBINED BANK") AND OF RSFC AND THE COMBINED BANK FOLLOWING THE
MERGER (THE "COMBINED COMPANY") AND VARIOUS STATEMENTS CONTAINED UNDER THE
CAPTIONS "SUMMARY," "RISK FACTORS," "THE MERGER," "CERTAIN INFORMATION
CONCERNING RSFC" AND "CERTAIN INFORMATION CONCERNING FAMILY." THE ACTUAL RESULTS
OF RSFC, FAMILY AND THE COMBINED COMPANY COULD DIFFER MATERIALLY FROM SUCH
FORWARD-LOOKING STATEMENTS.
THE COMBINED COMPANY MUST SUCCESSFULLY INTEGRATE THE OPERATIONS OF THE BANK
AND FAMILY. 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 INTEGRATE SUCCESSFULLY THE BANK
AND FAMILY OPERATIONS IN A TIMELY MANNER AND TO CONTAIN RESTRUCTURING
EXPENSES;
- RAPID CHANGES IN INTEREST RATES;
- ADVERSE ECONOMIC CONDITIONS IN PALM BEACH AND BROWARD 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 ARE
DISCUSSED IN GREATER DETAIL IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
iii
<PAGE>
[FOR RSFC]
TABLE OF CONTENTS
AVAILABLE INFORMATION ................................................ ii
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE ............................................. ii
RSFC ANNUAL MEETING .................................................. 1
Proposal 1: Election of Directors .................................. 1
Stock Performance .................................................. 5
Proposal 2: Amendment to Articles of Incorporation ................. 6
Proposal 3: 1997 Performance Incentive Plan ........................ 7
PROPOSAL 4: AGREEMENT AND PLAN
OF MERGER ............................................................ 13
SUMMARY .............................................................. 14
The Companies ...................................................... 14
Shareholder Meetings ............................................... 14
Dissenters' Rights of Appraisal .................................... 15
The Merger ......................................................... 15
Risk Factors ....................................................... 18
Selected Consolidated Financial Data--
Republic Security Financial Corporation .......................... 19
Selected Financial Data--Family Bank ............................... 24
Market Price and Dividend Data ..................................... 26
Selected Comparative Per Share Data ................................ 27
RISK FACTORS ......................................................... 28
MARKET PRICE AND DIVIDEND DATA ....................................... 32
SHAREHOLDER MEETINGS ................................................. 34
VOTING AND PROXY INFORMATION ......................................... 35
RSFC ............................................................... 35
Family ............................................................. 35
Proxies ............................................................ 36
DISSENTERS' RIGHTS OF APPRAISAL ...................................... 37
THE MERGER ........................................................... 38
Background to the Merger ........................................... 38
RSFC Reasons for the Merger; Potential Adverse
Effects of the Merger; and Recommendation
of RSFC's Board of Directors ..................................... 40
Opinion of Raymond James & Associates, Inc. ........................ 41
Family Reasons For The Merger; Potential Adverse
Effects of the Merger; and Recommendation
of Family's Board of Directors ................................... 43
Opinion of Ryan, Beck & Co. ........................................ 43
The Merger Agreement ............................................... 50
Certain Federal Income Tax Consequences ............................ 55
Restrictions on Resales of Securities .............................. 56
Accounting Treatment ............................................... 57
Interests of Certain Persons in the Merger ......................... 57
Regulatory Approvals ............................................... 58
Plan of Merger and Merger Agreement ................................ 58
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA ............................................. 59
MANAGEMENT FOLLOWING THE MERGER ...................................... 67
Executive Compensation, Benefits and Related Matters ............... 70
Management Indebtedness ............................................ 75
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ................................................ 77
RSFC ............................................................... 77
Family ............................................................. 78
COMPARISON OF RIGHTS OF HOLDERS OF RSFC AND
FAMILY COMMON STOCK .................................................. 79
Authorized Capital Stock ........................................... 79
Board of Directors ................................................. 79
Cumulative Voting .................................................. 79
Preemptive Rights .................................................. 80
Special Meetings of Shareholders; Action Without
a Meeting ........................................................ 80
Mergers, Share Exchanges and Sales of Assets ....................... 80
Amendment of Articles of Incorporation and of Bylaws ............... 80
Rights of Dissenting Shareholders .................................. 81
Dividends .......................................................... 81
Certain Anti-Takeover Provisions ................................... 81
CERTAIN INFORMATION CONCERNING RSFC .................................. 85
Business ........................................................... 85
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 96
Recent Developments............................................... 111
CERTAIN INFORMATION CONCERNING FAMILY ................................ 113
Business ........................................................... 113
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 121
PROXY SOLICITATION ................................................... 131
LEGAL MATTERS ........................................................ 131
EXPERTS .............................................................. 131
iv
<PAGE>
SHAREHOLDER PROPOSALS................................................. 131
INDEX TO FINANCIAL STATEMENTS ........................................ F-1
ANNEX A: Agreement and Plan of Merger A-1
ANNEX B: Plan of Merger and Merger
Agreement .......................................... B-1
ANNEX C: Form of Opinion of Raymond James &
Associates, Inc. ................................... C-1
ANNEX D: Form of Opinion of Ryan, Beck & Co. ................... D-1
ANNEX E: Dissenters Rights Provisions of the
Florida Banking Code ............................... E-1
ANNEX F: Text of Amendment to Articles of
Incorporation ...................................... F-1
ANNEX G: Republic Security Financial Corporation
1997 Performance Incentive Plan ..................... G-1
v
<PAGE>
[FOR FAMILY]
TABLE OF CONTENTS
AVAILABLE INFORMATION ................................................. ii
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE .............................................. ii
SUMMARY
The Companies .......................................................
Shareholder Meetings ................................................
Dissenters' Rights of Appraisal .....................................
The Merger ..........................................................
Risk Factors ........................................................
Selected Consolidated Financial Data--
Republic Security Financial Corporation ...........................
Selected Financial Data--Family Bank ................................
Market Price and Dividend Data ......................................
Selected Comparative Per Share Data .................................
RISK FACTORS ..........................................................
MARKET PRICE AND DIVIDEND DATA ........................................
SHAREHOLDER MEETINGS ..................................................
VOTING AND PROXY INFORMATION ..........................................
RSFC ................................................................
Family ..............................................................
Proxies .............................................................
DISSENTERS' RIGHTS OF APPRAISAL .......................................
THE MERGER ............................................................
Background to the Merger ............................................
RSFC Reasons for the Merger; Potential Adverse
Effects of the Merger; and Recommendation
of RSFC's Board of Directors ......................................
Opinion of Raymond James & Associates, Inc. .........................
Family Reasons For The Merger; Potential Adverse
Effects of the Merger; and Recommendation
of Family's Board of Directors ....................................
Opinion of Ryan, Beck & Co. .........................................
The Merger Agreement ................................................
Certain Federal Income Tax Consequences .............................
Restrictions on Resales of Securities ...............................
Accounting Treatment ................................................
Interests of Certain Persons in the Merger ..........................
Regulatory Approvals ................................................
Plan of Merger and Merger Agreement .................................
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA ..............................................
MANAGEMENT FOLLOWING THE MERGER .......................................
Executive Compensation, Benefits and Related Matters ................
Management Indebtedness .............................................
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT ......................................
RSFC ................................................................
Family ..............................................................
COMPARISON OF RIGHTS OF HOLDERS OF RSFC
AND FAMILY COMMON STOCK ...............................................
Authorized Capital Stock ............................................
Board of Directors ..................................................
Cumulative Voting ...................................................
Preemptive Rights ...................................................
Special Meetings of Shareholders; Action Without
a Meeting ........................................................
Mergers, Share Exchanges and Sales of Assets ........................
Amendment of Articles of Incorporation and of Bylaws ................
Rights of Dissenting Shareholders ...................................
Dividends ...........................................................
Certain Anti-Takeover Provisions ....................................
CERTAIN INFORMATION CONCERNING RSFC ...................................
Business ............................................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations .....................
Recent Developments ...............................................
CERTAIN INFORMATION CONCERNING
FAMILY ................................................................
Business ............................................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations .....................
PROXY SOLICITATION ....................................................
LEGAL MATTERS .........................................................
EXPERTS ...............................................................
SHAREHOLDER PROPOSALS .................................................
INDEX TO FINANCIAL STATEMENTS ......................................... F-1
iv
<PAGE>
ANNEX A: Agreement and Plan of Merger............................ A-1
ANNEX B: Plan of Merger and Merger
Agreement ............................................ B-1
ANNEX C: Form of Opinion of Raymond James &
Associates, Inc. ..................................... C-1
ANNEX D: Form of Opinion of Ryan, Beck & Co. .................... D-1
ANNEX E: Dissenters Rights Provisions of the
Florida Banking Code ................................ E-1
<PAGE>
RSFC ANNUAL MEETING
The accompanying proxy is solicited by the Board of Directors of RSFC (the
"RSFC Board") for use at the RSFC Annual Meeting of Shareholders of RSFC to be
held on Friday, June 27, 1997 at 3:00 P.M. local time, at the Palm Beach Airport
Hilton, 150 Australian Avenue, West Palm Beach, Florida 33406, and at any
postponements or adjournments thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Shareholders. A proxy may be
revoked at any time prior to voting by providing the Secretary with written
notice revoking such proxy or a duly executed proxy bearing a later date, or by
attending the meeting and voting in person. Attending the meeting by itself will
not revoke a proxy previously given.
Holders of shares of RSFC Common Stock of record at the close of business on
May 1, 1997, will be entitled to vote on all matters presented at the RSFC
Annual Meeting and at any postponement thereof. As of such date, there were
7,854,982 shares of RSFC Common Stock issued and outstanding. Each share of RSFC
Common Stock entitles the holder to one vote in the election of directors, the
approval of the amendment to the RSFC Articles of Incorporation to increase the
number of authorized shares, the adoption of the 1997 Performance Incentive Plan
and the proposal to approve the Merger Agreement as well as all other matters
voted upon by the shareholders. A majority of the outstanding shares of RSFC
Common Stock is necessary to constitute a quorum for the transaction of business
at the RSFC Annual Meeting. Directors are elected by, and the other three
proposals will be approved by, the affirmative vote of a plurality of the votes
cast at the RSFC Annual Meeting. Abstentions and broker non-votes will, if
present, be counted for purposes of establishing a quorum at the RSFC Annual
Meeting but will not be counted for purposes of the number of votes cast at the
meeting.
PROPOSAL 1:
ELECTION OF DIRECTORS
The RSFC Board, which is currently comprised of nine members, is divided
into three classes. The prescribed term for a director is three years. Each
class is comprised of three members. All members of Class 1 are standing for
re-election in 1997.
RSFC has no reason to believe that any nominee for election will not be able
to serve his prescribed term. The persons named in the proxy will, however, have
discretionary authority to vote for another if a nominee is unable or unwilling
to serve.
Set forth below is information regarding such nominees and other directors
whose terms of office will continue after the Annual Meeting, including their
ages and principal occupations or employment and business experience during the
last five years.
NOMINEES FOR ELECTION AS DIRECTORS THROUGH 2000
CLASS 1 DIRECTORS (TERMS EXPIRE 1997):
Richard J. Haskins, 47, has been Executive Vice President and Chief
Financial Officer of RSFC and the Bank since 1989, Senior Vice President of RSFC
and the Bank since August 1984, and a Director of RSFC and the Bank 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.
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.
2
<PAGE>
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.
DIRECTORS WHOSE TERMS DO NOT EXPIRE THIS YEAR
CLASS 2 DIRECTORS (TERMS EXPIRE 1998):
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 the Bank.
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.
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.
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.
CLASS 3 DIRECTORS (TERMS EXPIRE 1999):
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.
Rudy E. Schupp, 46, has been President and Chief Executive Officer of RSFC
since 1985, and the President and Chief Executive Officer of the Bank since its
inception. From 1980 to 1984, Mr. Schupp was employed by AmeriFirst Bank, FSB,
Miami, Florida, where he held the position of Division Vice President and,
previously, was Senior Vice President and Division Manager of the Orlando
Division of AmeriFirst Bank, FSB. Mr. Schupp was Manager in Consumer Bank
Planning and Marketing 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.
COMMITTEES OF THE RSFC BOARD AND MEETING ATTENDANCE
During the year ended December 31, 1996, there were 12 regular meetings of
the RSFC Board, and one special meeting. Each director attended at least 75% of
the meetings of the RSFC Board and of committees of the RSFC Board on which such
director served.
The RSFC Board has an Audit Committee that reviews, reports to and advises
the RSFC Board with respect to various auditing and accounting matters involving
the selection of and the nature of services to be performed by RSFC's
independent auditors, the performance of the auditors and the fees to be paid to
them, the scope of audit procedures and RSFC's accounting procedures and
internal controls. The members of the Audit Committee are Directors Gore,
3
<PAGE>
Wolfson and Rathke. Four Audit Committee meetings were held during the year
ended December 31, 1996.
The RSFC Board has a Compensation Committee that investigates comparative
compensation, reviews levels of staffing and compensation and reports its
findings and recommendations to the RSFC Board. The members of the Compensation
Committee are Directors Lindahl, Spitznagel and Wiita. Four Compensation
Committee meetings were held during the year ended December 31, 1996.
The RSFC Board has a Nominating Committee, which reviews the qualifications
of candidates for the Board and reports its findings and recommendations to the
Board. The members of the Nominating Committee are Directors Spitznagel, Siegel,
Haskins and Lindahl. One Nominating Committee meeting was held during the year
ended December 31, 1996. The Nominating Committee will consider proposals for
nominees for Director from shareholders which are made in writing to the
Secretary of RSFC at 4400 Congress Avenue, West Palm Beach, Florida, 33407-3288.
DIRECTOR COMPENSATION
Each director, excluding Messrs. Schupp and Haskins, receives a retainer of
$200 per month plus $325 for attendance at RSFC Board meetings and $200 for each
committee meeting attended.
CERTAIN TRANSACTIONS
Mr. Gore owns a real estate appraisal firm that received fees from the Bank
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. See "Management Indebtedness to the Bank."
CONSENT TO FINDINGS OF EXCHANGE ACT VIOLATIONS
On October 22, 1993, RSFC and Mr. Haskins consented, without admitting or
denying the matters therein, to findings of the Commission that he caused
violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules
12b-20 and 13a-13 promulgated thereunder and to an order of the Commission that
he cease and desist from committing or causing future violations of such
provisions. RSFC's and Mr. Haskins' consents were given in connection with a
determination that RSFC failed to record timely a loss on a certain lease
transaction in its Form 10-Q for the quarter ended June 30, 1989 and that
Haskins, as RSFC's chief financial officer, determined not to record the loss in
such 10-Q.
EXECUTIVE COMPENSATION, BENEFITS AND RELATED MATTERS
See "Management Following the Merger--Executive Compensation, Benefits and
Related Matters" on page 66 of this Joint Proxy Statement/Prospectus. For the
Report of the Compensation Committee, see page 68 of this Joint Proxy
Statement/Prospectus.
MANAGEMENT INDEBTEDNESS TO THE BANK
See "Management Following the Merger--Management Indebtedness to the Bank" on
page 71 of this Joint Proxy Statement/Prospectus.
4
<PAGE>
STOCK PERFORMANCE
Set forth below is a five-year comparison of the total shareholder return of
RSFC with both a broad equity market index and a peer group. The table assumes
$100 was invested on December 31, 1991 and shows the cumulative total return as
of each December 31 thereafter.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among RSFC, the Russell 2000 Index and the Commercial Banks Peer Group
<TABLE>
<CAPTION>
====================================================== ========== ========== =========== ========== ========= =========
December 31,
1991 1992 1993 1994 1995 1996
====================================================== ========== ========== =========== ========== ========= =========
<S> <C> <C> <C> <C> <C> <C>
Republic Security Financial Corp. $100 $93 $113 $117 $160 $184
Commercial Banks Peer Group 100 167 181 190 191 249
Russell 2000 100 119 141 139 178 207
====================================================== ========== ========== =========== ========== ========= =========
</TABLE>
The board equity market index used was the Russell 2000 and the peer group
represents publicly traded commercial banks with asset size between $285,000,000
and $350,000,000 at December 31, 1996. The companies in the commercial bank peer
group are as follows:
================================================================================
COMMERCIAL BANKS
================================================================================
Belmont Bancorp Fidelity Bancorp, Inc.
Royal Bankshares PA, Inc. First Mut Bancorp Inc.
Bryn Mawr Bank Corp. First Citizens Bankshares Inc. NC
United Bancorp Inc., Ohio Peoples BancTrust Inc.
Pioneer American Holding Corp. CNB Financial Corp NY
Heritage Bancorp, Inc. PA ISB Financial Corp LA
Cooperative Bankshares, Inc. First St. Bancorporation
First Bancorp NC Hebersham Bancorp Inc.
Carnegie Bancorp Columbia Bancorp
Indiana United Bancorp State Financial Sves Corp
BNH Bankshares Inc. FP Bancorp
First Colonial Group, Inc.
================================================================================
5
<PAGE>
PROPOSAL 2:
AMENDMENT TO
ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES
DESCRIPTION
The RSFC Board proposes and recommends to the shareholders an amendment to
the Articles of Incorporation of RSFC (the "RSFC Articles") to increase the
number of authorized shares of RSFC Common Stock from 20,000,000 shares to
100,000,000. The amendment also increases the number of authorized shares of
Series B Junior Participating Preferred Stock (the "Series B Preferred") from
100,000 to 1,000,000 and deletes the provisions of the Articles of Incorporation
which provide for the 7.5% Cumulative Convertible Preferred Stock, Series A (the
"Series A Preferred").
THE TEXT OF THE AMENDMENT TO THE RSFC ARTICLES IS SET FORTH ON ANNEX F TO
THIS JOINT PROXY STATEMENT/PROSPECTUS.
PURPOSES AND EFFECTS
The principal reason for the amendment is to provide a sufficient number of
authorized and unissued shares of RSFC Common Stock to issue upon consummation
of the acquisition of Family. If the amendment is not adopted by the
shareholders, the acquisition cannot be completed. As of March 31, 1997, there
were 7,854,982 shares of RSFC Common Stock outstanding and 12,145,018 shares
authorized and unissued. Approximately 8,273,733 authorized and unissued shares
of RSFC Common Stock will be required to complete the acquisition. In addition,
2,000,000 shares have been reserved for issuance under the 1997 Performance
Incentive Plan and 1,604,280 shares have been reserved for issuance upon
conversion of the Series C Preferred Stock. See "Proposal 4: Agreement and Plan
of Merger."
The RSFC Board also determined that additional shares of RSFC Common Stock
should be authorized to provide shares available for issuance under the 1997
Performance Incentive Plan and to provide shares available for future stock
dividends, acquisitions, public offerings and other corporate purposes. The RSFC
Board has reserved 2,000,000 shares of RSFC Common Stock for issuance under the
1997 Performance Incentive Plan through 2007. The 1997 Performance Incentive
Plan is subject to shareholder approval at the Annual Meeting. RSFC has no
present plans for any such stock dividend, acquisition or offering but expects
to continue to review acquisition opportunities as they may become available.
See "Proposal 3: 1997 Performance Incentive Plan."
Having additional shares of authorized stock available for issuance will
give RSFC greater flexibility and may result in future acquisitions or offerings
being effected without shareholder approval. Future issuances of such shares
could dilute existing shareholders.
The number of authorized shares of the Series B Preferred is to be increased
from 100,000 to 1,000,000 to correspond to the increase in the number of
authorized shares of RSFC Common Stock. The Series B Preferred shares are only
issuable upon the exercise of Rights issued under the Shareholders Rights Plan
at the rate of one one-hundredth of a share of Series B Preferred for each
Right. See "Comparison of Rights of Holders of RSFC and Family Common
Stock--Certain Anti-Takeover Provisions."
The provisions of the RSFC Articles providing the preferences, limitations
and relative rights of the Series A Preferred, are being deleted because all of
the Series A Preferred shares have been redeemed. The number of shares of Series
A Preferred which had been authorized is 402,500. The effect of the deletion of
the provisions is to increase the number of shares of Preferred Stock available
for future designation by 402,500. The RSFC Board does not have any present
plans to designate another series of Preferred Stock.
THE RSFC BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE RSFC
ARTICLES.
6
<PAGE>
PROPOSAL 3:
APPROVAL OF
REPUBLIC SECURITY FINANCIAL CORPORATION
1997 PERFORMANCE INCENTIVE PLAN
PROPOSED PLAN
At the RSFC Annual Meeting, the shareholders will consider and act upon a
proposal to approve the Republic Security Financial Corporation 1997 Performance
Incentive Plan (the "Plan"). The Plan was unanimously approved by the RSFC Board
on February 19, 1997, subject to shareholder approval.
The Plan provides for grants of stock options ("Options"), restricted stock
("Restricted Stock"), stock appreciation rights ("SARs"), performance units
("Performance Units"), performance shares ("Performance Shares"), phantom stock
("Phantom Stock") and dividend equivalents ("Dividend Equivalents")
(collectively, "Grants") to key employees (including employees who are officers
or directors) and Non-employee Directors (the "Grantees"). RSFC believes that
the Plan will be an incentive to the participants to contribute materially to
the growth of RSFC, thereby benefitting RSFC's shareholders, and will align the
economic interests of the participants with those of the shareholders.
THE RSFC BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO
ADOPT THE PLAN.
THE PLAN IS SET FORTH AS ANNEX G TO THIS JOINT PROXY STATEMENT/PROSPECTUS
AND THE DESCRIPTION OF THE PLAN CONTAINED HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX G.
DESCRIPTION OF THE PLAN
GENERAL. The aggregate number of shares of RSFC Common Stock that may be
issued or transferred under the Plan is 2,000,000. If and to the extent Grants
under the Plan terminate, expire or are canceled, forfeited, exchanged or
surrendered for any reason without being exercised, the shares of RSFC Common
Stock subject to such Grants again will be available for Grants under the Plan.
ADMINISTRATION OF THE PLAN. The Plan is administered and interpreted by a
Committee (the "Committee") consisting of three or more persons appointed by the
RSFC Board, each of whom must be an "outside director" as defined by Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and a
"non-employee director" as defined in Rule 16b-3 under the Exchange Act. The
Committee has the authority to (i) recommend the individuals to whom Grants may
be made under the Plan, (ii) recommend the type, size and other terms and
conditions of each Grant, (iii) recommend the time when the Grants will be made
and the duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, (iv)
recommend amendments to the terms of any previously issued Grant, and (v) deal
with any other matters arising under the Plan. All recommendations and decisions
of the Committee shall be subject to final approval by majority vote of the
directors of RSFC who are not employees of RSFC ("Non-employee Directors"). The
Committee will have full power and authority to administer and interpret the
Plan, to make factual determinations and to recommend amendment to such rules,
regulations, agreements and instruments for implementing the Plan and for
conduct of its business as it deems necessary or advisable, in its sole
discretion.
GRANTS. Grants under the Plan may consist of (i) options intended to qualify
as incentive stock options ("ISOs") within the meaning of section 422 of the
Code, (ii) "nonqualified stock options" that are not intended to so qualify
("NQSOs"), (iii) Restricted Stock, (iv) SARs, (v) Performance Units, (vi)
Performance Shares, (vii) Phantom Stock and (viii) Dividend Equivalents. All
Grants are subject to such terms and conditions set forth in the Plan as the
Committee deems appropriate and as are specified in writing by the Committee to
the Grantee (the "Grant Instrument"). The Committee must approve the form and
provisions of each Grant Instrument. Grants under the Plan need not be uniform
as among other recipients of the same type of Grant.
ELIGIBILITY FOR PARTICIPATION. Grants may be made to any key employee
(including officers and directors) of RSFC
7
<PAGE>
and its subsidiaries and Non-employee Directors. As of March 31, 1997, 150
employees and seven Non-employee Directors were eligible for Grants under the
Plan. No Grants will be made under the Plan until after shareholder approval.
INDIVIDUAL LIMIT ON GRANTS During any calendar year, no individual may be
granted Options or other Grants under the Plan that, in the aggregate, may be
settled by delivery of more than 100,000 shares of RSFC Common Stock. In
addition, with respect to Grants the value of which is based on the fair market
value of RSFC Common Stock and that may be settled in cash (in whole or in
part), no individual may be paid during any calendar year cash amounts relating
to such Grants that exceed the greater of the fair market value (as defined in
the Plan) of the number of shares of RSFC Common Stock set forth in the
preceding sentence either at the date of grant or at the date of settlement.
Grants that may be settled solely by delivery of RSFC Common Stock will not
operate to reduce the amount or value of cash-only Grants, and vice versa;
nevertheless, Grants that may be settled in RSFC Common Stock or cash must not
exceed either limitation.
With respect to Grants, the value of which is not based on the fair market
value of RSFC Common Stock, no individual may receive during any calendar year
cash or shares of RSFC Common Stock with a fair market value at date of
settlement that, in the aggregate, exceeds $1,000,000.
OPTIONS. The Committee fixes the option price per share at the date of
Grant. The option price of any Option granted under the Plan may be equal to or
greater than the fair market value of the underlying shares of RSFC Common Stock
on the date of grant, except that the option price of an ISO granted to an
employee who owns more than 10% of the total combined voting power of all
classes of stock of RSFC, or any parent or subsidiary of RSFC, may not be less
than 110% of the fair market value of the underlying shares of RSFC Common Stock
on the date of grant. The measure of fair market value of a share of RSFC Common
Stock on a particular date is the closing sale price of a share of RSFC Common
Stock as reported on the Nasdaq National Market on that date, or if there is not
such a sale on that date, then on the last previous date on which such a sale
was reported. On April 4, 1997, the closing price of the RSFC Common Stock was
$7.25 per share.
The Committee determines the term of each option; provided, however, that
the exercise period may not exceed ten years from the date of grant, and the
exercise period of an ISO granted to an employee who owns more than 10% of the
total combined voting power of all classes of stock of RSFC, or any parent or
subsidiary of RSFC, may not exceed five years from the date of grant. To the
extent that the aggregate fair market value of shares of RSFC Common Stock,
determined on the date of grant, with respect to which ISOs become exercisable
for the first time by a Grantee during any calendar year exceeds $100,000, such
ISOs will be treated as NQSOs.
The exercisability of stock options will be as determined by the Committee,
in its sole discretion, and specified in the Grant Instrument. The Committee, in
its sole discretion, may accelerate the exercisability of any Option at any time
for any reason. A Grantee may exercise an Option by delivering notice of
exercise to the Committee with accompanying payment of the option price.
A Grantee may pay the option price (i) in cash, (ii) with the approval of
the Committee, by delivering shares of RSFC Common Stock owned by the Grantee
(including RSFC Common Stock acquired in connection with the exercise of a stock
option, subject to such restrictions as the Committee deems appropriate) and
having a fair market value on the date of exercise equal to the option price, or
(iii) by such other method as the Committee may approve, including attestation
(on a form prescribed by the Committee) to ownership of shares of RSFC Common
Stock having a fair market value equal to the exercise price or payment through
a designated broker. In addition, the Committee may authorize loans by RSFC to
Grantees in connection with the exercise of an Option, upon such terms and
conditions that the Committee, in its sole discretion, deems appropriate. The
Grantee must pay the option price and the amount of any withholding tax due at
the time of exercise. Shares of the RSFC Common Stock will not be issued upon
exercise of an Option until the option price is fully paid and any required
withholding is made.
If a Grantee ceases to be an employee of RSFC or its subsidiaries for any
reason other than disability, death, retirement, or termination by RSFC (or
ceases to be a member of the RSFC Board), the Grantee's Option will terminate at
the close of business on the Grantee's last day of employment or service as a
director. If a Grantee ceases to be an
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employee of RSFC because the Grantee is disabled (within the meaning of section
22(e)(3) of the Code) or the Grantee dies or retires, any Option that is
otherwise exercisable by the Grantee, will terminate unless exercised within one
year after the date on which the Grantee ceases to be an employee or a director.
If a Grantee ceases to be an employee of RSFC because the Grantee's employment
is terminated by RSFC, any Option that is otherwise exercisable by the Grantee
shall terminate unless exercised within 90 days after the date on which the
Grantee ceases to be an employee. In all cases described above, such Options
will terminate within any shorter period of time as may be specified by the
Committee, but in any event no later than the date of expiration of the Option
term. Any of the Grantee's Options that are not otherwise exercisable as of the
date on which the Grantee ceases to be employed by RSFC (or ceases to be a
director) shall terminate as of such date.
RESTRICTED STOCK. The Committee may make Grants of Restricted Stock. The
Committee, in its sole discretion, may determine that RSFC not issue any
certificates for shares subject to a Restricted Stock Grant or that RSFC retain
possession of any certificates for shares issued pursuant to a Restricted Stock
Grant, until all restrictions have lapsed. Shares may be issued for
consideration or for no consideration, as the Committee determines. The number
of shares of RSFC Common Stock granted to each Grantee shall be determined by
the Committee. Grants of Restricted Stock will be made subject to such
restrictions and conditions as the Committee may determine in its sole
discretion. The Grant Instrument may provide for a period during which the Grant
will remain subject to certain restrictions, including restrictions on
transferability (the "Restriction Period"). During the Restriction Period the
Grantee will have the right to receive any dividends or other distributions paid
thereon, subject to any restrictions deemed appropriate by the Committee. Unless
the Committee otherwise determines, during the Restriction Period a Grantee will
not have the right to vote the shares subject to the Restricted Stock Grant. The
Grantee may not sell, assign, transfer, pledge or otherwise dispose of such
shares except by will or the laws of descent and distribution. If the Grantee
ceases to be employed by RSFC during the Restriction Period (or ceases to be a
member of the RSFC Board) or if other specified conditions are not met, the
Restricted Stock Grant will terminate with respect to all shares as to which the
restrictions have not lapsed and those shares must be returned to RSFC.
STOCK APPRECIATION RIGHTS. The Committee may grant SARs separately or in
tandem with any Option. An SAR entitles the Grantee, upon exercise, to receive
the amount by which the fair market value of RSFC Common Stock on the date of
exercise exceeds the exercise price established by the Committee for the SAR.
Such appreciation may be paid in cash, in shares of RSFC Common Stock or a
combination of the two, as determined by the Committee. The exercise price of an
SAR will be the exercise price of the related Option or, if none, the fair
market value of a share of RSFC Common Stock on the date of grant of the SAR,
unless the Committee determines otherwise. When a Grantee exercises an SAR, the
related Option, if any, will terminate to the extent of an equal number of
shares of Company Stock. Similarly, upon exercise of the related Option, if any,
the SARs relating to RSFC Stock covered by such exercise will terminate.
PERFORMANCE UNIT AND PERFORMANCE SHARES. The Committee may grant Performance
Units or Performance Shares, which will represent the right of the Grantee to
receive an amount based on the value of the Performance Units/Shares if certain
performance goals are met. A Performance Unit will have a value based on such
measurements or criteria as the Committee determines. A Performance Share will
have a value equal to the fair market value of a share of RSFC Common Stock.
Such awards will be contingent upon the attainment of such performance goals
over a period to be determined by the Committee (the "Performance Period"). The
performance goals to be achieved during a Performance Period and the measure of
whether and to what degree such goals have been attained will also be determined
by the Committee. If the Grantee ceases to be employed by RSFC during the
Performance Period or if other specified conditions are not met, the Performance
Unit/Share Grant will be forfeited at the close of business on the Grantee's
last day of employment. The Committee may, however, provide for complete or
partial exceptions to this requirement as it deems appropriate. If the Grantee
ceases to be employed by RSFC after the expiration of a Performance Period but
prior to payment, payment will be made to the Grantee or the successor grantee,
if applicable. Non-employee Directors are not eligible to receive Performance
Units or Performance Shares.
PHANTOM STOCK. The Committee may grant Phantom Stock to a Grantee in such
amounts and upon such terms, and at any time and from time to time, as
determined by the Committee. The initial value of the Phantom Stock will be
determined by the Committee at the time of grant and may be greater than, equal
to or less than the fair market value of a share of RSFC Common Stock. The
Committee may grant dividend equivalents in connection with Phantom Stock
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granted under the Plan. Such dividends may be paid currently or accrued as
contingent cash obligations and may be payable in cash or shares of Company
Stock, upon such terms as the Committee may establish, including the achievement
of specific performance goals.
The Committee will determine whether the Phantom Stock will be paid in the
form of cash, shares of RSFC Common Stock or a combination of the two. Cash
payments will be in an amount equal to the fair market value on the payment date
of the number of shares of RSFC Common Stock equal to the number of shares of
Phantom Stock with respect to which payment is made. The number of shares of
RSFC Common Stock distributed in settlement of a Phantom Stock Grant will equal
the number of shares of Phantom Stock with respect to which settlement is made.
Payment will be made in accordance with the terms and at such times as
determined by the Committee at the time of grant. If the Grantee ceases to be
employed by RSFC (or a member of the RSFC Board) prior to becoming vested or
otherwise entitled to payment, the Grantee's Phantom Stock shall be forfeited at
the close of business on the Grantee's last day of employment or service as a
director. The Committee may, however, provide for complete or partial exceptions
to this requirement as it deems appropriate.
DIVIDEND EQUIVALENTS. The Committee may grant Dividend Equivalents to a
Grantee in such number and upon such other terms, including in either case the
achievement of specific performance goals, and at any time and from time to
time, as may be determined by the Committee. Each Dividend Equivalent will
represent the right to receive an amount in cash, or shares of RSFC Common Stock
having a fair market value, equal to the amount of dividends paid on one share
of RSFC Common Stock during such period as may be established by the Committee.
Dividend Equivalents may be paid currently or accrued as contingent cash
obligations, upon such terms as the Committee may establish. The Committee will
determine whether Dividend Equivalents will be paid in the form of cash, shares
of RSFC Common Stock or a combination of the two. The number of any shares of
RSFC Common Stock payable in satisfaction of Dividend Equivalents will be
determined by dividing the amount credited to the Grantee with respect to such
Dividend Equivalents by the fair market value of a share of RSFC Common Stock on
the day instructions are given to RSFC's Chief Financial Officer or transfer
agent to issue or purchase such shares. Payment shall be made at such times as
determined by the Committee at the time of grant. If the Grantee ceases to be
employed by RSFC prior to becoming entitled to payment, the Grantee's Dividend
Equivalents shall be forfeited at the close of business on the Grantee's last
day of employment or service as a director. The Committee may, however, provide
for complete or partial exceptions to this requirement as it deems appropriate.
RESTRICTIONS ON TRANSFERABILITY OF GRANTS. No Grants under the Plan may be
transferred, except by will or the laws of descent and distribution. However, if
permitted by the Committee, Grants other than ISOs may be transferred pursuant
to a domestic relations order, within the meaning of the Code or of Title I of
the Employee Retirement Income Security Act of 1974, as amended. Notwithstanding
the foregoing, the Committee may provide in a Grant Instrument that a Grantee
may transfer NQSOs to family members or other persons or entities according to
such terms as the Committee may determine; provided that the Grantee receives no
consideration for the transfer of the NQSO and the transferred NQSO continues to
be subject to the same terms and conditions as were applicable to the NQSO
immediately before the transfer.
AMENDMENT, TERM AND TERMINATION OF THE PLAN. The Committee may amend or
terminate the Plan at any time; provided, however, that the Committee may not
amend the Plan without shareholder approval if such approval is required by
Section 162(m) of the Code or the rules of any stock exchange on which the RSFC
Common Stock is listed. The Plan will become effective upon approval by the
shareholders and will terminate ten years after such approval, unless terminated
earlier by the Committee or extended by the Committee with approval of the
shareholders. No award may be made under the Plan after its termination, but
awards made prior thereto may extend beyond the date of termination.
ADJUSTMENT PROVISIONS. If there is any change in the number or kind of
shares of RSFC Common Stock outstanding (i) by reason of a stock dividend,
spinoff, recapitalization, stock split, or combination or exchange of shares,
(ii) by reason of a merger, reorganization or consolidation in which RSFC is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding RSFC Common Stock as a class without RSFC's receipt of
consideration, or if the value of outstanding
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shares of Company Stock is substantially reduced as a result of a spinoff or
RSFC's payment of an extraordinary dividend or distribution, the maximum number
of shares of RSFC Common Stock available for Grants, the maximum number of
shares of RSFC Common Stock that any individual participating in the Plan may be
granted in any year, the number of shares covered by outstanding Grants, the
kind of shares issued under the Plan, and the price per share or the applicable
market value of such Grants may be appropriately adjusted by the Committee to
reflect any increase or decrease in the number of, or change in the kind or
value of, issued shares of RSFC Common Stock to preclude, to the extent
practicable, the enlargement or dilution of rights and benefits under such
Grants; provided, however, that any fractional shares resulting from such
adjustment will be eliminated. If and to the extent that any such change in the
number or kind of shares of RSFC Common Stock outstanding is effected solely by
application of a mathematical formula (E.G., a 2-for-1 stock split), the
adjustment described above will be automatic, without action by the Committee.
SECTION 162(M). Under Section 162(m) of the Code, RSFC may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated officers in any one year. An exception exists, however, for
"performance-based compensation," including amounts received upon the exercise
of stock options (the exercise price for which is at or above the fair market
value of the underlying shares at the date of grant) or stock appreciation
rights, if such options or stock appreciation rights are granted pursuant to a
plan approved by shareholders that meets certain requirements. The Plan, when
approved by shareholders, is intended to make grants of stock options and stock
appreciation rights thereunder meet the requirements of "performance-based
compensation."
"Performance-based compensation" also includes remuneration paid upon the
attainment of performance goals if specified requirements are met. Section
162(m) of the Code requires that a compensation committee consisting of two or
more "outside directors" establish performance goals that must be met before
such remuneration may be awarded. The committee also must certify that the
performance goals have actually been met before payment of the remuneration.
Finally, the business criteria on which performance goals may be based must be
disclosed to and approved by the shareholders.
The Plan provides that any Grant to a Grantee who is a "covered employee"
within the meaning of Section 162(m), the exercisability or settlement of which
is subject to the achievement of performance goals, will qualify as "qualified
performance-based compensation" within the meaning of Section 162(m) of the Code
and the regulations thereunder. The Committee will specify the performance goals
in writing, prior to (or within 90 days after commencement of) the applicable
performance period.
FEDERAL INCOME TAX CONSEQUENCES. There are no federal income tax
consequences to Grantees or to RSFC upon the grant of an NQSO under the Plan.
Upon the exercise of NQSOs, a Grantee will recognize ordinary compensation
income in an amount equal to the excess of the fair market value of the shares
of RSFC Common Stock at the time of exercise over the exercise price of the
NQSO, and RSFC generally will be entitled to a corresponding federal income tax
deduction. Upon the sale of shares of RSFC Common Stock acquired by exercise of
an NQSO, a Grantee will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares of RSFC Common Stock were held) in
an amount equal to the difference between the amount realized upon the sale and
the Grantee's adjusted tax basis in the shares of RSFC Common Stock (the
exercise price plus the amount of ordinary income recognized by the Grantee at
the time of exercise of the NQSO).
A Grantee of an ISO will not recognize taxable income upon either the grant
or exercise of the ISO. A Grantee who disposes of the shares of RSFC Common
Stock acquired upon exercise of an ISO after two years from the date the ISO was
granted and after one year from the date such shares were transferred to him
will recognize long-term capital gain or loss in the amount of the difference
between the amount realized on the sale and the option price (or the Grantee's
other tax basis in the shares), and RSFC will not be entitled to any tax
deduction by reason of the grant or exercise of the ISO, or the Grantee's
disposition of the shares. As a general rule, if a Grantee disposes of the
shares of RSFC Common Stock acquired upon exercise of an ISO before satisfying
both holding period requirements (a "disqualifying disposition"), his or her
gain recognized on such a disposition will be taxed as ordinary income to the
extent of the difference between the fair market value of such shares on the
date of exercise and the option price, and RSFC will be entitled to a deduction
in that amount. The gain, if any, in excess of the amount recognized as ordinary
income on such a disqualifying disposition will be long-term or short-term
capital gain, depending upon the length of time the Grantee
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held his or her shares of RSFC Common Stock prior to the disposition.
A Grantee normally will not recognize taxable income upon receiving a
Restricted Stock Grant, and RSFC will not be entitled to a deduction, until such
RSFC Common Stock is transferable by the Grantee or is no longer subject to a
substantial risk of forfeiture for federal income tax purposes, whichever occurs
earlier. When the RSFC Common Stock either is transferable or is no longer
subject to a substantial risk of forfeiture, the Grantee will recognize ordinary
compensation income in an amount equal to the fair market value of the RSFC
Common Stock subject to the Restricted Stock Grant (less any amounts paid for
such shares) at that time, and RSFC will be entitled to a deduction in the same
amount. A Grantee may, however, elect to recognize ordinary compensation income
in the year the Restricted Stock Grant is awarded in an amount equal to the fair
market value of the RSFC Common Stock (less any amounts paid for such shares) at
that time, determined without regard to the restrictions. In such event, RSFC
will be entitled to a deduction in the same year. Any gain or loss recognized by
the Grantee upon subsequent disposition of the RSFC Common Stock will be capital
gain or loss. If, after making the election, any RSFC Common Stock subject to a
Restricted Stock Grant is forfeited, or if the market value declines during the
Restriction Period, the Grantee is not entitled to any tax deduction or tax
refund.
A Grantee will not recognize any income upon the grant of an SAR. Upon the
exercise of an SAR, a Grantee will recognize ordinary compensation income in an
amount equal to the difference between the exercise price of shares and the fair
market value of the shares on the date of exercise, and RSFC will be entitled to
a corresponding deduction.
A Grantee of Performance Units, Performance Shares or Phantom Stock will not
have taxable income at the time of the grant, and RSFC will not be entitled to a
deduction at such time. A Grantee will have ordinary income at the time the
Grant is paid, in the amount of such payment, and RSFC will have a corresponding
deduction.
A Grantee of Dividend Equivalents will recognize ordinary compensation
income when paid, in the amount of such payment, and RSFC will have a
corresponding deduction.
Local and state tax authorities may also tax incentive compensation awarded
under Plan.
TAX WITHHOLDING. RSFC will have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in RSFC Common Stock, RSFC may require the Grantee
or other person receiving such shares to pay to RSFC the amount of any such
taxes that RSFC is required to withhold with respect to such Grants, or RSFC may
deduct from other wages paid by RSFC the amount of any withholding taxes due
with respect to such Grants. If the Committee so permits, a Grantee may elect to
satisfy RSFC's income tax withholding obligation with respect to an Option, SAR,
Restricted Stock, Performance Units, Performance Shares, Phantom Stock or
Dividend Equivalents, any of which is paid in RSFC Common Stock, by having
shares withheld having a fair market value up to an amount that does not exceed
the Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
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PROPOSAL 4:
AGREEMENT AND PLAN OF MERGER
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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 (the "Bank"). As of March 31, 1997, RSFC had
consolidated assets of $365 million, deposits of $262 million and shareholders'
equity of $46 million.
THE BANK. The Bank 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. The Bank 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.
The Bank has ten full-service branches, nine of which are located in Palm
Beach County and one in Dade County, Florida. The Bank's main business
activities are attracting deposits, originating loans, making investments and
servicing loans for the Bank and for others. The Bank's loan portfolio is
primarily comprised of residential and commercial real estate loans, business
loans and consumer loans, including automobile loans. At March 31, 1997, the
Bank's loan portfolio was composed of 10% commercial purpose loans, 24%
commercial real estate loans, 48% residential real estate loans and 18% consumer
loans. Earnings depend primarily upon the difference between interest received
on loans and investments and interest paid on the Bank's deposit base and
borrowing.
On July 26, 1995, as a consequence of the Bank'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.
FAMILY. Family is a Florida commercial bank. As of March 31, 1997, Family
had assets of $253 million, deposits of $219 million and shareholders' equity of
$22 million. The deposits of Family are insured by the FDIC up to applicable
limits.
Family has seven full-service branches, all of which are located in Broward
County, Florida. Family's main business activities are attracting deposits,
originating loans, making investments and servicing its loans. Family's loan
portfolio is primarily business-oriented, with an emphasis on commercial real
estate loans. At March 31, 1997, Family's loan portfolio was composed of 9%
commercial purpose loans, 50% commercial real estate loans, 32% residential real
estate loans and 9% consumer loans. Earnings depend primarily upon the
difference between interest received on loans and investments and interest paid
on Family's deposit base and borrowing.
The address of Family's principal executive offices is 1000 East Hallandale
Beach Boulevard, Hallandale, Florida 33009 and its telephone number is (954)
458-2211.
SHAREHOLDER MEETINGS
GENERAL. At the RSFC Annual Meeting, to be held on Friday, June 27, 1997, at
3:00 P.M., local time, at the Palm Beach Airport Hilton, 150 Australian Avenue,
West Palm Beach, Florida 33406, RSFC shareholders will consider and vote upon
election of three directors, approval of an amendment to the RSFC Articles of
Incorporation to increase the number of authorized shares, adoption of the 1997
Performance Incentive Plan and a proposal to approve the Merger Agreement. The
Family Special Meeting will be held on Friday, June 27, 1997, at 10:00 A.M.,
local time, at the main
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offices of Family located at 1000 East Hallandale Beach Boulevard, Hallandale,
Florida 33009. The purpose of the Family Special Meeting is to consider and vote
upon a proposal to approve the Merger Agreement, together with that certain Plan
of Merger and Merger Agreement, by and between the Bank and Family, dated as of
January 7, 1997 (the "Plan of Merger"). See "Shareholder Meetings." The Plan of
Merger is the instrument to be filed with the Florida Department of Banking and
Finance (the "Florida Banking Department") to effect the Merger.
RECORD DATES; SHARES ENTITLED TO VOTE ON THE MERGER. Holders of record of
shares of RSFC Common Stock at the close of business on May 1, 1997 (the "RSFC
Record Date") and holders of record of shares of Family Common Stock at the
close of business on May 15, 1997 (the "Family Record Date") will be entitled to
notice of and to vote at the respective Shareholder Meetings. At the RSFC Record
Date, there were outstanding 7,854,982 shares of RSFC Common Stock. At the
Family Record Date, there were outstanding 636,441 shares of Family 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. The proposal to approve the Merger
Agreement and the Plan of Merger must be approved by the holders of at least a
majority of the shares of Family Common Stock outstanding at the Family Record
Date. At the respective Record Dates, directors and executive officers of RSFC
and Family and their affiliates had the right to vote, in the aggregate, 995,060
shares and 178,052 shares, respectively, of RSFC Common Stock and Family Common
Stock, representing 12.7% and 28.0%, respectively, of the RSFC Common Stock and
Family 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. H. Gearl Gore, Richard J. Haskins, Lennart E. Lindahl Jr., 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 Family 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 1,007,188,
representing 12.8% of the shares of RSFC Common Stock outstanding on the Record
Date. The directors and executive officers of Family who hold such Family shares
have informed Family that they intend to vote all such shares in favor of the
approval of the Merger Agreement and the Plan of Merger. Paula Berliner, Louis
R. Bianculli, Joseph D. Cesarotti, Mary Anna Fowler, Lynn W. Fromberg, Eugene W.
Hughes, Jr., Carol R. Owen and Joslyn Perkins have each entered into a voting
agreement with RSFC in which, among other things, each agrees to vote all shares
of Family Common Stock that he or she has the right to vote in favor of the
Merger. Such shares total 174,652, representing 27.4% of the shares outstanding
on the Record Date. See "Voting and Proxy Information."
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. The holders of Family Common Stock who
vote against the Merger Agreement and the Plan of Merger are entitled to
dissenters' rights of appraisal under Section 658.44 of the Florida Banking
Code. Pursuant to Section 658.44, each dissenting Family shareholder is entitled
to payment in cash of the value of only those shares held by such shareholder
only if such shareholder either (i) votes against the Plan of Merger at the
Family Special Meeting or (ii) gives written notice to Family, at or prior to
the Family Special Meeting, that the shareholder dissents from the Plan of
Merger. Family shareholders will also have the option of voting against the Plan
of Merger and electing to receive shares of RSFC Common Stock in accordance with
the exchange ratio described in the Merger Agreement rather than the cash
payment required by Section 658.44. See "Dissenters' Rights of Appraisal."
THE MERGER
GENERAL. Under the terms of the Merger Agreement, Family will be merged with
and into the Bank, a wholly owned subsidiary of RSFC, and Family 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 outstanding share of
Family Common Stock will be converted into the right to receive 13 shares of
RSFC Common Stock as more fully described herein (the "Exchange Ratio").
Additionally, at the Effective Time each outstanding option to purchase shares
of Family Common Stock issued pursuant to Family's stock option plans will be
assumed by RSFC and will constitute an option to acquire the same number of
shares of RSFC Common Stock into which such shares would have been converted
pursuant to the Merger
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had such options been exercised immediately prior to the Effective Time at a
price per share equal to (y) the aggregate exercise price for the shares of
Family Common Stock otherwise purchasable pursuant to such options divided by
(z) 13. Based upon the shares outstanding of Family and RSFC as of January 7,
1997 and the Exchange Ratio, the holders of the then outstanding shares of
Family Common Stock would own securities representing approximately 49% 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 March 31, 1997, the book value per share of Family Common Stock, for
which there is no established public trading market, was $37.37, and the closing
price per share of RSFC Common Stock was $7.75. On May 14, 1997, the closing
price per share of RSFC Common Stock was $7.625. Given the Exchange Ratio, the
equivalent market value of one of Family share on May 14, 1997 was $99.125, and
the aggregate dollar value of the shares of RSFC Common Stock to be issued in
the Merger was $63,087,214.
THE EXCHANGE RATIO IS FIXED AND NEITHER RSFC NOR FAMILY 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 FAMILY COMMON STOCK WILL RECEIVE IN THE MERGER IS SUBJECT TO FLUCTUATION
BASED ON THE MARKET PRICE OF RSFC COMMON STOCK. FAMILY SHAREHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR RSFC COMMON STOCK. FOR CERTAIN RECENT STOCK
PRICE DATA, SEE "MARKET PRICE AND DIVIDEND DATA."
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 Family, the RSFC Board
considered the Merger to be in the best interests of RSFC and its shareholders
for several reasons. The RSFC Board believed that the Merger provides RSFC an
opportunity to fulfill a strategic plan to enhance its long-term growth
prospects by expanding the Bank'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 RAYMOND JAMES & ASSOCIATES, INC. On December 27, 1996, Raymond
James & Associates, Inc. ("Raymond James") 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. Raymond James has updated
its opinion by delivery to the RSFC Board of a written opinion to the same
effect dated the date of this Joint Proxy Statement/Prospectus. The full text of
the written opinion of Raymond James, 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 Raymond James & Associates, Inc."
RECOMMENDATION OF FAMILY'S BOARD OF DIRECTORS. The Board of Directors of
Family (the "Family Board") has unanimously approved the Merger Agreement and
the Plan of Merger and recommends that the holders of Family Common Stock vote
for the proposal to approve both the Merger Agreement and the Plan of Merger.
The Family Board considered a number of factors in reaching its decision to
recommend approval of the Merger Agreement and the Plan of Merger. For Family,
the impetus to effect a Merger with RSFC was, among other things, the present
value of the consideration being received, to maximize the prospects for
long-term shareholder value through the benefits of a larger organization, to
expand geographical presence, to broaden and diversify the loan portfolio, to
provide for potential to increase earnings per share over the long-term, to
enhance capital and liquidity and to expand senior management. See "The
Merger--Family Reasons for the Merger; Potential Adverse Effects of the Merger;
and Recommendation of Family's Board of Directors."
OPINION OF RYAN, BECK & CO. On December 30, 1996, Ryan, Beck & Co. ("Ryan,
Beck") delivered its oral opinion to the Family Board to the effect that, as of
such date, the Merger was fair from a financial point of view to the
shareholders of Family. Ryan, Beck has updated its opinion by delivery to the
Family Board of a written opinion to the same effect dated May __, 1997. 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 D to this Joint Proxy Statement/Prospectus and should be read carefully
in its entirety. See "The Merger--Opinion of Ryan, Beck & Co."
CONDITIONS TO THE MERGER. The respective obligations of RSFC and Family to
effect the Merger are subject to
16
<PAGE>
various conditions, including, among others: (i) RSFC and Family 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 Family; (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 Family or RSFC and their respective businesses, financial conditions
or prospects, taken as a whole, since September 30, 1996; (vi) Family and RSFC
shall each have interim consolidated balance sheets reflecting specified
financial conditions; (vii) RSFC, the Bank and Family shall each have received
all material nongovernmental consents or approvals required in connection with
the Merger; (viii) RSFC 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; (ix) RSFC and Family
shall each have received a fairness opinion from their respective financial
advisors; (x) the representations and warranties of RSFC, the Bank and Family
set forth in the Merger Agreement will have been true and correct in all
material respects; (xi) holders of no more than 10% of the outstanding shares of
Family Common Stock will have properly demanded appraisal of and payment for
their shares in accordance with Section 658.44 of the Florida Banking Code; and
(xii) RSFC will have received from each director and any other person deemed to
be an "affiliate" of Family 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. RSFC will not be able to consummate the Merger unless the amendment
to the RSFC Articles of Incorporation to increase the number of authorized
shares of RSFC Common Stock is approved at the RSFC Annual Meeting. See "The
Merger--The Merger Agreement."
REGULATORY APPROVALS. The Merger is subject to prior approval by the Board
of Governors of the Federal Reserve System (the "FRB") and the Florida Banking
Department. Both the FRB and the Florida Banking Department have approved the
Merger. See "The Merger--Regulatory Approvals."
PLAN OF MERGER. The Plan of Merger restates the method, terms and conditions
of the Merger, which are contained in the Merger Agreement. The Plan of Merger
is the instrument to be filed with the Florida Banking Department to effect the
Merger. As a condition to granting regulatory approval of the Merger, the
Florida Banking Code requires that Family shareholders approve the Plan of
Merger. See "The Merger--Plan of Merger."
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. The consummation of the Merger is conditioned on the receipt
of an opinion of counsel as to the federal income tax consequences, but no
ruling will be requested from the Internal Revenue Service. Holders of Family
Common Stock should consult with their own tax advisors regarding the federal,
state, local and foreign tax consequences of the Merger to them individually.
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 Family 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 14 members, initially
comprised of the current RSFC Board members (Rudy E. Schupp, Richard J. Haskins,
H. Gearl Gore, Lennart E. Lindahl, Jr., Richard C. Rathke, Victor H. Siegel,
William F. Spitznagel, Bruce E. Wiita and William Wolfson) and five Family
designees (Paula Berliner, Joseph D. Cesarotti, Mary Anna Fowler, Eugene W.
Hughes, Jr. and Carol R. Owen). See "Management Following the Merger."
TERMINATION. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before
17
<PAGE>
or after approval of the Merger by RSFC or Family shareholders, (i) by mutual
consent of RSFC and Family, (ii) by either RSFC or Family 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 Family
if the other party has materially breached any representation, warranty or
covenant of the Merger Agreement, (iv) by either RSFC or Family if their
respective shareholders do not approve the Merger Agreement and the Merger, (v)
by either RSFC or Family 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 Family if all the conditions
precedent to its obligations to effect the Merger shall not have been fulfilled
and the Merger shall not have been consummated by September 30, 1997. See "The
Merger--The Merger Agreement."
TERMINATION FEE. If the Merger Agreement is terminated under certain
circumstances, the Merger Agreement provides for payment by RSFC or Family of
termination fees. In addition to any such termination fees paid by Family, in
the event that the Merger Agreement is terminated because a merger agreement
with a party other than RSFC or the Bank has been, or is anticipated to be,
entered into or a majority of the outstanding shares of Family Common Stock has
been, or is anticipated to be, acquired by a party other RSFC or the Bank,
Family is required to pay RSFC a $500,000 termination fee. See "The Merger--The
Merger Agreement."
NO SOLICITATION OF TRANSACTIONS. The Merger Agreement restricts the ability
of RSFC and Family 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, the Bank or a subsidiary of either is the surviving corporation.
Family 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. However, RSFC and Family 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 Family directors Carol R. Owen, Paula Berliner, Joseph D. Cesarotti, Mary
Anna Fowler and Eugene W. Hughes will be elected to the Boards of Directors of
RSFC and the Bank. In addition, Carol R. Owen and Bruce Keir have entered into
employment agreements with the Bank. The agreement with Mr. Owen provides for
his employment as Broward County Chairman of the Board through December 31, 1998
at an annual salary of $95,000 and, thereafter, as a consultant to the Bank for
an additional year for compensation of $60,000. The agreement with Mr. Keir
provides for his employment as Executive Vice President and Broward County
Executive at an annual salary of $100,000 plus performance incentive
compensation in an amount up to 28% of his salary. The agreements also provide
for severance compensation and contain noncompetition covenants. See "The
Merger--Interests of Certain Persons in the Merger."
RISK FACTORS
THE MERGER INVOLVES CERTAIN RISK FACTORS THAT SHOULD BE CAREFULLY CONSIDERED
BY THE SHAREHOLDERS OF RSFC AND FAMILY. SEE "RISK FACTORS."
18
<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 three-month periods ended March 31, 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 three
months ended March 31,1997 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.
19
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
================================================================================
NINE
THREE MONTHS MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, YEAR ENDED MARCH 31,
(Amounts in thousands, except per
share amounts) 1997 1996 1996(a) 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Interest income $6,512 $6,213 $24,796 $16,282 $16,514 $12,638 $11,412
Interest expense 2,930 2,679 10,613 7,775 7,397 5,512 4,560
- -------------------------------------------------------------------------------------------------------------
Net interest income 3,582 3,534 14,183 8,507 9,117 7,126 6,852
Provision for loan losses 25 25 155 100 200 214 1,003
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 3,557 3,509 14,028 8,407 8,917 6,912 5,849
Non-interest income 1,043 906 4,684 3,181 2,773 4,238 2,883
Operating expenses 3,226 3,273 14,601 8,442 9,860 8,739 6,932
- -------------------------------------------------------------------------------------------------------------
Income before income taxes and
accounting change 1,374 1,142 4,111 3,146 1,830 2,411 1,800
Income taxes 508 473 1,711 1,169 663 818 582
- -------------------------------------------------------------------------------------------------------------
Income before accounting change 866 669 2,400 1,977 1,167 1,593 1,218
Change in method of accounting for
income taxes 500
- -------------------------------------------------------------------------------------------------------------
Net income $866 $669 $2,400 $1,977 $1,167 $2,093 $1,218
=============================================================================================================
PER SHARE DATA:
Primary earnings per common share:
Income before change in accounting
forr income taxes $.09 $.06 $.20 $.32 $.23 $.42 $.50
=============================================================================================================
Net income $.09 $.06 $.20 $.32 $.23 $.55 $.50
=============================================================================================================
Fully diluted earnings per common share $.09 $.06 $.20 $.25 $.23 $.55 $.50
=============================================================================================================
Average common shares and common stock
equivalents outstanding:
Primary 8,034 7,008 7,474 5,175 4,474 3,927 2,895
Fully diluted 8,034 7,008 7,474 7,797 4,474 3,927 2,895
=============================================================================================================
Book value per common share $4.82 $4.44 $4.82 $4.75 $4.19 $4.08 $4.31
Dividends per common share $.03 $.025 $.115 $.07 $.07 $.04
=============================================================================================================
<FN>
(a) Includes one-time SAIF assessment of $669,000, net of tax (see Note 15 to
Consolidated Financial Statements).
</FN>
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA (Continued)
================================================================================
NINE
THREE MONTHS MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, YEAR ENDED MARCH 31,
(Amounts in thousands,
except per share amounts) 1997 1996 1996(a) 1995 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
AT PERIOD END:
Total assets $365,381 $323,038 $359,306 $303,661 $280,039 $206,637 $169,474
Investments 38,745 5,721 39,699 10,622 14,103 24,481 248
Loans (b) 272,577 252,761 253,268 219,187 230,447 156,365 127,257
Allowance for loan losses 2,600 2,675 2,273 2,431 2,507 1,071 1,247
Total deposits 262,196 264,549 272,587 223,535 229,735 156,651 145,911
Borrowed money 46,936 1,921 32,076 27,350 19,733 21,995 2,000
Shareholders' equity 45,611 45,085 45,573 43,834 20,446 19,648 10,793
Shares outstanding 7,855 6,902 7,855 6,588 3,653 3,610 1,942
- -----------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Assets $347,000 $318,000 $321,500 $272,270 $229,731 $185,764 $133,754
Shareholders' equity 46,000 45,000 45,000 27,280 20,446 16,574 8,358
Interest-earning assets 318,000 289,000 287,000 250,690 208,994 173,756 122,257
Interest-bearing
liabilities 258,000 233,000 234,000 217,970 185,742 154,371 108,357
- -----------------------------------------------------------------------------------------------------
OTHER DATA:
Return on average assets 1.00% .84% .95% .97% .50% 1.13% .91%
Return on average
shareholders' equity 7.53% 5.95% 6.82% 9.65% 5.82% 12.63% 14.57%
Average shareholders'
equity to average total
assets 13.26% 14.15% 14.00% 10.00% 8.60% 8.92% 6.25%
Shareholders' equity to
total assets 12.48% 13.96% 12.68% 14.44% 7.30% 9.50% 6.40%
Net interest spread 3.65% 4.00% 4.12% 3.89% 3.92% 3.70% 5.13%
Net interest margin 4.50% 4.89% 4.95% 4.52% 4.36% 4.10% 5.60%
Non-performing loans (c) $3,005 $2,768 $3,129 $2,422 $2,427 $1,357 $3,193
Non-performing assets (c) $4,017 $4,542 $4,573 $3,762 $3,436 $3,228 $4,125
Non-performing loans to
total loans and
mortgage backed
securities 1.02% 1.10% 1.09% 1.12% 1.04% .87% 2.53%
Non-performing assets to
total assets 1.10% 1.41% 1.27% 1.24% 1.23% 1.56% 2.43%
Allowance for loan losses
to total loans .95% 1.06% .90% 1.11% 1.09% .69% .98%
Allowance for loan losses
to nonperforming loans 86.52% 96.64% 73% 100% 103% 79% 39%
Net charge-offs to average
loans (.12)% .06% .26% .08% .09% .27% .75%
Efficiency ratio (d) 70% 74% 71% 72% 83% 77% 71%
Dividend payout ratio (e) 33% 42% 40% 22% 30% 7%
Number of full-service offices 10 10 10 8 7 5 5
Loan servicing portfolio
(in millions) $261 $300 $277 $307 $323 $189 $267
- -----------------------------------------------------------------------------------------------------
<FN>
(a) 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 include 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.
(e) Dividend payout ratio is calculated by dividends declared per share divided
by primary net income per share.
</FN>
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
=========================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS EXCEPT FIRST SECOND THIRD FOURTH
PER SHARE DATA) QUARTER QUARTER QUARTER(A) QUARTER
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $6,213 $6,203 $6,223 $6,157
Interest expense 2,679 2,646 2,634 2,654
- -----------------------------------------------------------------------------------------
Net interest income 3,534 3,557 3,589 3,503
Provision for loan losses 25 30 50 50
- -----------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 3,509 3,527 3,539 3,453
Non-interest income 906 1,107 1,280 1,391
Operating expense 3,273 3,512 4,454 3,362
- -----------------------------------------------------------------------------------------
Income before income taxes 1,142 1,122 365 1,482
Provision for income taxes 473 467 153 618
- -----------------------------------------------------------------------------------------
Net income $669 $655 $212 $864
- -----------------------------------------------------------------------------------------
PER SHARE DATA:
Net income per common share $.06 $.06 (b) $.09
Dividends per common share $.025 $.03 $.03 $.03
Average common shares and common
stock equivalents outstanding 7,008 7,065 7,823 7,999
=========================================================================================
<FN>
(a) Includes one-time SAIF assessment expense of $669,000, net of income tax
(see Note 15 to Consolidated Financial Statements)
(b) Less than $.01 per share
</FN>
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $5,336 $5,401 $5,538 $5,344
Interest expense 2,488 2,712 2,704 2,359
- -------------------------------------------------------------------------------------------------------------
Net interest income 2,848 2,689 2,834 2,985
Provision for loan losses 25 25 50 25
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,823 2,664 2,784 2,960
Non-interest income 717 832 1,283 1,064
Operating expense 3,104 2,678 2,896 2,867
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 436 818 1,171 1,157
Provision for income taxes 158 291 421 457
- -------------------------------------------------------------------------------------------------------------
Net income $278 $527 $750 $700
- -------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Primary earnings per common share $.05 $.10 $.15 $.09
Fully diluted earnings per common share .05 .10 .13 .08
Dividends per common share .02 .02 .025 .025
Average common shares and common stock equivalents
outstanding
Primary 4,466 4,459 4,629 6,120
Fully diluted 4,466 4,459 5,610 8,731
=============================================================================================================
</TABLE>
23
<PAGE>
FINANCIAL DATA--FAMILY BANK
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
The following selected financial data for each of the years ended December
31, 1996, 1995 and 1994 and the balance sheet data as of December 31, 1996 and
1995 are derived from financial statements of Family, contained elsewhere
herein, which have been audited by Ernst & Young LLP, independent certified
public accountants. The selected financial data for the years ended December 31,
1993 and 1992 and the balance sheets as of December 31, 1994, 1993 and 1992 have
been derived from unaudited financial statements not contained herein. The
financial data for the three-month periods ended March 31, 1997 and 1996 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which Family
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the three months
ended March 31,1997 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 Family's financial statements and related
notes thereto contained elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
=============================================================================================================
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Interest income $4,643 $4,162 $17,435 $15,547 $11,941 $10,390 $9,523
Interest expense 1,600 1,341 5,816 5,048 3,199 2,521 3,011
- -------------------------------------------------------------------------------------------------------------
Net interest income 3,043 2,821 11,619 10,499 8,747 7,869 6,512
Provision for loan losses 50 200 95 [37] 241 532
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 3,043 2,771 11,419 10,404 8,779 7,628 5,980
Non-interest income 566 540 2,255 1,896 1,611 1,803 1,470
Operating expenses 1,721 1,829 7,071 6,759 6,055 4,948 4,688
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 1,888 1,482 6,603 5,541 4,335 4,483 2,762
Income taxes 607 450 2,163 1,888 1,384 1,237 651
- -------------------------------------------------------------------------------------------------------------
Net income $1,281 $1,032 $4,440 $3,653 $2,951 $3,246 $2,111
=============================================================================================================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (Continued)
==============================================================================================================
THREE MONTHS ENDED
MARCH 31, 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 $252,921 $218,304 $247,853 $205,501 $181,029 $164,882 $150,281
Investments 53,191 42,771 55,789 37,528 27,637 27,028 34,395
Loans (d) 166,970 143,273 158,955 145,361 135,653 121,405 97,369
Allowance for loan losses 1,542 1,345 1,603 1,314 1,360 1,295 1,134
Total deposits 218,754 190,262 216,469 178,913 159,147 145,788 134,094
Borrowed money 8,257 5,044 6,937 5,310 3,293 2,659 2,754
Shareholders' equity 21,830 19,104 20,591 18,142 15,563 13,376 10,659
Shares outstanding 591,669 583,145 590,514 581,990 529,173 529,173 529,173
===============================================================================================================
AVERAGE BALANCES:
Assets $243,527 $218,958 $223,100 $194,700 $175,600 $156,700 $133,100
Shareholders' equity 21,226 19,067 19,400 16,900 14,400 12,000 9,600
Interest-earning assets 233,049 192,036 207,800 180,000 161,900 145,700 123,700
Interest-bearing liabilities 217,839 187,853 150,000 132,400 113,400 99,900 90,600
===============================================================================================================
OTHER DATA:
Return on average assets 2.10% 1.89% 1.99% 1.88% 1.68% 2.07% 1.59%
Return on average shareholders' equity 24.14% 21.65% 22.89% 21.62% 20.49% 27.05% 21.99%
Average shareholders' equity to
average total assets 8.72% 8.71% 8.70% 8.68% 8.20% 7.66% 7.21%
Shareholders' equity to total assets 8.63% 8.75% 8.31% 8.83% 8.60% 8.11% 7.09%
Net interest spread 5.39% 5.81% 4.62% 4.91% 5.23% 4.61% 4.38%
Net interest margin 5.46% 5.88% 5.70% 5.91% 6.07% 5.40% 5.26%
Non-performing loans (a) $858 $1,376 $1,344 $1,248 $480 $502 $803
Non-performing assets (a) $1,718 $1,690 $1,595 $1,702 $811 $688 $1,893
Non-performing loans to total loans and
mortgage-backed securities .49% .91% .82% .82% .34% .40% .77%
Non-performing assets to total assets .68% .77% .64% .83% .45% .42% 1.26%
Allowance for loan losses to total
loans .92% .94% 1.00% .90% 1.00% 1.07% 1.16%
Allowance for loan losses to
non-performing loans 179.72% 97.75% 119% 105% 283% 258% 141%
Net charge-offs to average loans 0% 0% (.06)% .10% (.08)% .07% .42%
Efficiency ratio (b) 48% 54% 54% 56% 58% 51% 59%
Dividend payout ratio (e) 0% 0% 49% 39% 62% 16% 25%
Number of full-service offices (c) 7 7 7 7 6 5 4
===============================================================================================================
25
<PAGE>
<FN>
(a) 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.
(b) The efficiency ratio is calculated by dividing non-interest expense by net
interest income plus non-interest income.
(c) One branch was placed in service in October, 1994 and one branch was placed
in service in July, 1995.
(d) Net of deferred loan fees and undisbursed loans in process.
(e) Dividend payout ratio is calculated by dividing dividends declared per share
by primary net income per share.
</FN>
</TABLE>
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 the Bank and other factors, including restrictions arising from federal and
state banking laws and regulations to which RSFC and the Bank are subject. In
addition, the holders of Series C Preferred (as defined below in "Comparison of
Rights of Holders of RSFC and Family 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 .025
Third Quarter ............................. 5 7/8 5 1/8 .025
YEAR ENDED DECEMBER 31, 1996
First Quarter ............................. 6 5 1/8 .025
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 3/8 .03
Second Quarter (through May 14, 1997)...... 7 7/8 6 7/8
<FN>
- -----------------------
(1) On July 26, 1995, as a consequence of the Bank's conversion to a commercial
bank charter, RSFC changed its fiscal year-end from March 31 to December 31.
</FN>
</TABLE>
On January 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 $6.375 per share. On May 14, 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
$7.625 per share.
26
<PAGE>
FAMILY
There is no established public trading market for Family 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, Family is aware of transactions that have resulted in shares of Family
Common Stock being sold or transferred since January 1, 1994 at prices ranging
from a low of approximately $24.25 per share to a high of approximately $34 per
share for the most recent trade prior to announcement of the Merger. To the
knowledge of Family, no trades in Family Common Stock have occurred since the
announcement of the Merger.
Family has declared dividends in each of the last four years. Family
declared dividends of $0.91, $2.50, $3.50 and $3.86 per share in 1994, 1995,
1996 and 1997, respectively. The 1994 dividends per share have been restated to
give effect to the 10% stock dividend declared in 1994.
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth certain information concerning the RSFC Common
Stock and the Family Common Stock. The tables also include certain pro forma per
share combined information which is based on the historical data of RSFC and
Family 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 contained elsewhere in this Joint Proxy
Statement/Prospectus. See also "Unaudited Pro Forma Combined Condensed Financial
Data."
<TABLE>
<CAPTION>
RSFC FAMILY
---- ------
PRO FORMA EQUIVALENT
PER PRO
SHARE FORMA PER
HISTORICAL DATA HISTORICAL SHARE DATA(1)
---------- --------- ---------- -------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE(2):
March 31, 1997 $4.82 $3.68 $32.10 $47.84
December 31, 1996 4.82 3.64 33.73 47.32
CASH DIVIDENDS DECLARED PER SHARE:
Three months ended March 31, 1997 $.03 $.03 -0- $.39
Year ended December 31, 1996 $.115 $.115 $3.50 $1.50
Nine months ended December 31, 1995 $.07 $.07 $2.50 $.91
Year ended March 31, 1995(4) $.07 $.07 $0.91 $.91
INCOME PER COMMON AND COMMON EQUIVALENT
SHARE:
Three months ended March 31, 1997 $.09 $.11 $2.04 $1.43
Year ended December 31, 1996(3) $.20 $.36 $7.33 $4.68
Nine months ended December 31, 1995 $.32 $.32 $4.55 $4.16
Year ended March 31, 1995 $.23 $.31 $5.13 $4.03
<FN>
- -----------------------
(1) The equivalent pro forma per share data represents the value of the pro
forma per share data multiplied by the Exchange Ratio.
(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 one time SAIF assessment of $669,000, net of tax, or $.09 per share
for RSFC. The Family equivalent pro forma income per common share excluding
the one time SAIF assessment is $5.96.
(4) The cash dividends of Family have been restated to give effect to the 10%
stock dividend declared during the twelve months ended March 31, 1995.
</FN>
</TABLE>
27
<PAGE>
RISK FACTORS
RSFC AND FAMILY 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, FAMILY 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 THE BANK AND FAMILY OPERATIONS IN A TIMELY
MANNER AND TO CONTAIN RESTRUCTURING EXPENSES; RAPID CHANGES IN INTEREST RATES;
ADVERSE ECONOMIC CONDITIONS IN PALM BEACH AND BROWARD 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 FAMILY." GIVEN THESE
UNCERTAINTIES, RSFC AND FAMILY SHAREHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. RSFC AND FAMILY 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.
FIXED EXCHANGE RATIO DESPITE POSSIBLE CHANGE IN STOCK PRICE. The Exchange
Ratio is expressed in the Merger Agreement as a fixed ratio. Accordingly, the
Exchange Ratio will not be adjusted in the event of any increase or decrease in
the price of RSFC Common Stock. The price of RSFC Common Stock at the Effective
Time may vary from its price at the date of this Joint Proxy
Statement/Prospectus and at the dates of the Shareholder Meetings, possibly by a
material amount. Such variations may be the result of changes in the business,
operations or prospects of RSFC, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, regulatory considerations,
general market and economic conditions, factors affecting the banking industry
in general and other factors. Because the Effective Time will occur at a date
later than the Shareholder Meetings, there can be no assurance that the price of
RSFC Common Stock on the dates of the Shareholder Meetings will be indicative of
its 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
Family are urged to obtain current market quotations for RSFC Common Stock. See
"Market Price and Dividend Data."
POTENTIAL ADVERSE IMPACT OF INTEGRATION OF OPERATIONS. RSFC and Family have
entered into the Merger Agreement with the expectation that the Merger will
result in certain benefits, ultimately 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 the Bank and Family 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, among other things, consolidation of certain operations, elimination of
duplicative corporate and administrative expenses and elimination of certain
positions at Family and within the Bank. 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 49.0% (excludes the impact of the exercise or conversion of all
outstanding options, warrants and convertible preferred stock).
28
<PAGE>
RISK OF NO SOLICITATION PROVISION. The Merger Agreement contains a "no
solicitation provision" that restricts the ability of RSFC and Family to solicit
transactions other than the Merger. 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 FAMILY. As a result of the Merger,
certain members of the Family Board and Family's management will receive shares
of RSFC Common Stock in exchange for shares of Family Common Stock on the same
terms as are applicable to the other shareholders of Family. In addition, all
stock options currently held by each officer and director of Family will, in
connection with the Merger, be converted into a right to receive shares of RSFC
Common Stock based on the Exchange Ratio. The Merger Agreement provides that at
the Effective Time certain Family directors and officers will be appointed to
the RSFC Board, 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 Family 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 Family, 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 Merger, the
composition of the loan portfolio of the Combined Bank will be different from
that of the respective loan portfolios of the Bank and Family. At March 31,
1997, the Bank's loan portfolio was composed of 10% commercial purpose loans,
24% commercial real estate loans, 48% residential real estate loans and 18%
consumer loans. At March 31, 1997, Family's loan portfolio was composed of 9%
commercial purpose loans, 50% commercial real estate loans, 32% residential real
estate loans and 9% consumer loans. On a pro forma basis, the Combined Bank's
loan portfolio is composed of 9% commercial purpose loans, 34% commercial real
estate loans, 43% residential real estate loans and 14% consumer loans.
Commercial and consumer loans are generally considered to carry different and
significantly greater risks than residential mortgage loans. Thus, as a result
of the Merger, the Combined Bank's loan portfolio may carry more risk than the
current loan portfolio of the Bank. Although the redistribution of the loan
composition is consistent with the Bank'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 the Bank and Family 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
security and problems affecting the credit of the borrower. Due to the
concentration of loans in South Florida, adverse economic conditions in that
area could result in a decrease in the value of a significant portion of the
Combined 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 THE BANK AND FAMILY. Vigorous
competition exists in all areas where the Bank and Family presently engage in
business. The Bank and Family 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 the
Bank and Family. Other banks, many of which have higher legal lending limits,
actively compete for loans, deposits and other services which the Bank and
Family each offer. Competitors of the Bank and Family include commercial banks,
savings banks, savings and loan associations, insurance companies, finance
companies, credit unions and mortgage companies. Trends toward the consolidation
of the banking industry may make it more difficult for smaller banks, such as
the Bank and Family, to compete with large national and regional banking
institutions.
EFFECT OF INTEREST RATES. The operations of the Bank and Family, and of
commercial banks in general, are significantly influenced by general economic
conditions, by the related monetary and fiscal policies of the federal
29
<PAGE>
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, the Bank's liabilities which would reprice within the
next twelve months exceeded the assets by approximately $23.4 million, or 6.5%
of total assets. As a result of this negative sensitivity gap, an increase in
market interest rates is likely to result in a reduction of net interest income
for the Bank because the level of interest paid on interest-bearing liabilities
is likely to increase more quickly than the level of interest earned on
interest-earning assets. At December 31, 1996, Family's liabilities which would
reprice within the next twelve months exceeded the assets by approximately $58.0
million, or 23.4% of total assets. As a result of this negative sensitivity gap,
an increase in market interest rates is likely to result in a reduction of net
interest income for Family because the level of interest paid on
interest-bearing liabilities is likely to increase more quickly than the level
of interest received on interest-earning assets. At December 31, 1996, the
Combined Bank's liabilities which would reprice within the next twelve months
exceed the assets by approximately $81.4 million, or 14% 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 the Bank and Family and,
similarly, the amount of loan and commitment fees, as well as the value of the
investment securities and other interest-earning assets of the Bank and Family.
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 banks, 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 the Bank. Because RSFC's principal business activity is limited to
owning the Bank, RSFC's payments of dividends on the RSFC Common Stock and
Series C Preferred will generally be funded from dividends received by RSFC from
the Bank. Federal and state regulations limit the aggregate amount of cash
dividends that the Bank may pay to RSFC, its sole shareholder. The Bank's
ability to make dividend payments to RSFC is subject to the Bank's continuing
profitable operations and there can be no assurance that future earnings of the
Bank will support sufficient dividend payments to RSFC.
DEPENDENCE ON KEY PERSONNEL. The success of the Bank and Family each
depends to a significant extent upon the performance of its respective Chairman
of the Board, President and Executive Vice President, the loss of any of whom
could have a materially adverse effect on the respective bank. Each of the Bank
and Family believes that its respective future success will depend in large part
upon its ability to retain such personnel. There can be no assurance that the
Bank or Family will be successful in retaining such personnel. Pursuant to the
Merger Agreement, the President and the Executive Vice President of Family will
become employees of the Combined Bank. See "The Merger--Interests of Certain
Persons in the Merger."
CONTROL BY MANAGEMENT. The executive officers and directors of RSFC and
Family own approximately 13% and 28.0%, respectively, of the outstanding shares
of the respective common stock, excluding currently exercisable options and
warrants. Such persons would own 16.5% and 31.0%, 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 14.5% of the outstanding shares of RSFC Common
Stock, excluding currently exercisable options and warrants, and approximately
18.6% 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 the Bank and Family 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.
30
<PAGE>
FAMILY AFFILIATES RESTRICTIONS. Shares of RSFC Common Stock issued to
"affiliates" (generally including, without limitation, directors, certain
executive officers and beneficial owners of 10% or more of RSFC Common Stock) of
Family for purposes of Rule 145 under the Securities Act as of the date of the
Family Special Meeting or for purposes of applicable interpretations regarding
pooling-of-interests accounting treatment may not be resold by such affiliates
except pursuant to an effective registration statement under the Securities Act
or other applicable exemption from the registration requirements of the
Securities Act and until such time as financial results covering at least 30
days of combined operations of RSFC and Family after the Merger have been
published.
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.
31
<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 the Bank and other factors, including restrictions arising from federal and
state banking laws and regulations to which RSFC and the Bank 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 DIVIDEND PER SHARE
RSFC COMMON STOCK 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 .025
Third Quarter ....................................... 5 7/8 5 1/8 .025
YEAR ENDED DECEMBER 31, 1996
First Quarter ....................................... 6 5 1/8 .025
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 3/8 .03
Second Quarter (through May 14, 1997) ............... 7 7/8 6 7/8
<FN>
- -------------
(1) On July 26, 1995, as a consequence of the Bank's conversion to a commercial
bank charter, RSFC changed its fiscal year-end from March 31 to December
31.
</FN>
</TABLE>
On January 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 $6.375 per share. On May 14, 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
$7.625 per share.
Following the Merger, the RSFC Common Stock will continue to trade on the
Nasdaq National Market.
Because the Exchange Ratio is fixed and because the market price of the
RSFC Common Stock is subject to fluctuation, the market value of the shares of
the RSFC Common Stock that holders of the Family Common Stock will receive in
the Merger may increase or decrease prior to and following the Merger.
Shareholders are urged to obtain current market quotations for the RSFC Common
Stock.
32
<PAGE>
FAMILY
There is no established public trading market for Family 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, Family is aware of transactions that have resulted in shares of Family
Common Stock being sold or transferred since January 1, 1994 at prices ranging
from a low of approximately $24.25 per share to a high of approximately $34 per
share for the most recent trade prior to announcement of the Merger. To the
knowledge of Family, no trades in Family Common Stock have occurred since the
announcement of the Merger.
Family has declared dividends in each of the last four years. Family
declared dividends of $.91, $2.50, $3.50 and $3.86 per share in 1994, 1995,
1996 and 1997, respectively. The 1994 dividends per share have been restated to
give effect to the 10% stock dividend declared in 1994.
33
<PAGE>
SHAREHOLDER MEETINGS
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of RSFC and Family in connection with the solicitation of proxies
by the RSFC Board for use at the RSFC Annual Meeting to be held on Friday, June
27, 1997, at 3:00 P.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 Family Board for use at the Family Special
Meeting to be held on Friday, June 27, 1997, at 10:00 A.M., local time, at the
main offices of Family located at 1000 East Hallandale Beach Boulevard,
Hallandale, Florida 33009 and at all adjournments and postponements thereof.
At the respective Shareholder Meetings, the holders of RSFC Common Stock
and Family 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) Family will
be merged with and into the Bank, (ii) each outstanding share of Family Common
Stock will be converted into the right to receive 13 shares of RSFC Common Stock
and (iii) Family will cease to exist as a separate legal entity. In addition, at
the RSFC Annual Meeting, the RSFC shareholders will be asked to vote on other
matters, and at the Family Special Meeting, the Family shareholders will be
asked to approve the Plan of Merger. The Plan of Merger is the instrument to be
filed with the Florida Banking Department. A copy of the Plan of Merger (with
the schedules thereto) is attached as Annex B to this Joint Proxy
Statement/Prospectus.
A representative of Ernst & Young LLP, independent certified public
accountants of RSFC and Family, will be present at each of the Shareholder
Meetings and will have an opportunity to make a statement, if such
representative so desires, and to respond to appropriate questions raised at
such Shareholder Meeting. Neither the Audit Committee of the RSFC Board nor the
Family Board has met to select independent auditors for the current year.
34
<PAGE>
VOTING AND PROXY INFORMATION
RSFC
The RSFC Board has fixed the close of business on May 1, 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 Annual Meeting or any adjournments or
postponements thereof. At the close of business on the RSFC Record Date, there
were outstanding 7,854,982 shares of RSFC Common Stock. As of such date, such
shares of RSFC Common Stock were held by approximately 3,700 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 Annual 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 Annual Meeting for each share of RSFC
Common Stock held by such persons. Votes may be cast in person at the RSFC
Annual Meeting or by proxy.
As of the RSFC Record Date, directors and executive officers of RSFC and
their affiliates had the right to vote 995,060 shares of RSFC Common Stock in
the aggregate (representing approximately 12.7% 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. H. Gearl Gore, Richard J. Haskins, Lennart E. Lindahl Jr., 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 Family
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
1,007,188, representing 12.8% 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 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 Annual Meeting and
voting in person. Attendance at the RSFC Annual 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.
FAMILY
The Family Board has fixed the close of business on May 15, 1997 as the
Family Record Date for determining the holders of Family Common Stock entitled
to receive notice of and to vote at the Family Special Meeting or any
adjournments or postponements thereof. At the close of business on the Family
Record Date, there were outstanding 636,441 shares of Family Common Stock. As of
such date, the shares of Family Common Stock were held by approximately
462 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 Family Common Stock will constitute a quorum at the Family 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 Family Common Stock
outstanding at the Family Record Date is required in order to approve the Merger
Agreement and the Plan of Merger. The holders of Family Common Stock are
entitled to one vote on all matters properly brought before the Family Special
Meeting for each share of Family Common Stock held by such persons. Votes may be
cast in person at the Family Special Meeting or by proxy.
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As of the Family Record Date, directors and executive officers of Family
and their affiliates had the right to vote 178,052 shares of Family Common
Stock in the aggregate (representing approximately 28.0% of the outstanding
shares of Family Common Stock as of the Family Record Date). The directors and
executive officers of Family who hold such shares have informed Family that they
intend to vote all such shares in favor of the approval of the Merger Agreement
and the Plan of Merger. Paula Berliner, Louis R. Bianculli, Joseph D. Cesarotti,
Mary Anna Fowler, Lynn W. Fromberg, Eugene W. Hughes, Jr., Carol R. Owen and
Joslyn Perkins have each entered into a voting agreement with RSFC in which,
among other things, each agrees to vote all shares of Family Common Stock that
he or she has the right to vote in favor of the Merger. Such shares total
174,652, representing 27.4% of the shares of Family Common Stock outstandingn on
the Record Date.
Any Family 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 Family
written notice of its revocation, (ii) executing and delivering to the Secretary
of Family a proxy bearing a later date or (iii) attending the Family Special
Meeting and voting in person. Attendance at the Family RSFC Special Meeting will
not in and of itself constitute a revocation of any proxy given to Family.
Written notice of revocation should be sent to Family, 1000 East Hallandale
Beach Boulevard, Hallandale, Florida 33009, 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 of the Plan of Merger.
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
Proposals. 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 Family Common Stock outstanding on the Record Dates is required to
approve the Proposals, 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 such proposals. Shares represented by "broker
non-votes" will, however, be counted for purposes of determining whether there
is a quorum at the Shareholder Meetings.
Neither management of RSFC nor of Family, 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 the respective Shareholder Meeting, 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 Family Common Stock--Rights of
Dissenting Shareholders." The holders of Family Common Stock who vote against
the Plan of Merger are entitled to dissenters' rights of appraisal under
Sections 658.44(2)-(5) of the Florida Banking Code. Family shareholders will
also have the option of voting against the Plan of Merger and electing to
receive shares of RSFC Common Stock in accordance with the Exchange Ratio rather
than the cash payment required by Section 658.44. The text of Sections
658.44(2)-(5) is set forth on Annex E to this Joint Proxy Statement/Prospectus.
Pursuant to Section 658.44, each dissenting Family shareholder is entitled
to payment in cash of the value of only those shares held by such shareholder
only if such shareholder either (i) votes against the Plan of Merger at the
Family Special Meeting or (ii) gives written notice to Family, at or prior to
the Family Special Meeting, that the shareholder dissents from the Plan of
Merger ("Qualified Dissenting Family Shareholders"). Consequently, a Family
shareholder's failure to vote against the Plan of Merger at the Family Special
Meeting or to give written notice to Family, at or prior to the Family Special
Meeting, that the shareholder dissents from the Plan of Merger will constitute a
waiver of such shareholder's appraisal rights. At or promptly after the
Effective Time, RSFC will announce an amount that it considers to be not more
than the fair market value per share of the shares of the Family Common Stock
(the "Offer Price") and will offer to pay such Offer Price to all Qualified
Dissenting Family Shareholders. The Qualified Dissenting Family Shareholders who
accept the Offer Price will be entitled to receive the Offer Price in cash upon
surrendering the respective stock certificates within 30 days after the
Effective Time.
The value of shares of Qualified Dissenting Family Shareholders who do not
accept the Offer Price will be determined as of the Effective Time by three
appraisers (one selected by such Qualified Dissenting Family Shareholders
holding two-thirds of such shares, one selected by the Combined Bank Board and
the third selected by the two so chosen).
The value agreed upon by any two of the appraisers shall control and, as
such, shall be final and binding on all parties. If two appraisers do not agree
to a value within 90 days from the Effective Time, the Florida Banking
Department shall cause an appraisal to be made which shall be final and binding
on all parties. The expenses of appraisals, if any, shall be paid by the
Combined Bank. The aggregate amounts, if any, paid to all Qualified Dissenting
Family Shareholders, whether determined by Offer Price or by appraisal, will
constitute a debt of the Combined Bank.
Any holder of Family Common Stock who is granted dissenters' rights by
reason of the Merger under Section 658.44 of the Florida Banking Code and
otherwise complies with the requirements of Section 658.44 shall not be entitled
to receive shares of RSFC Common Stock as of the Effective Time, unless such
holder effectively withdraws or loses his right to dissent from the Merger under
Section 658.44. Such holder shall be entitled to receive only the payment
provided by Section 658.44. If such holder effectively withdraws or loses his
right to dissent from the Merger under Section 658.44, the holder shall again be
entitled to receive shares of RSFC Common Stock in accordance with the Exchange
Ratio.
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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 FAMILY SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN
ITS ENTIRETY. ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
WITH RESPECT TO FAMILY, EXCEPT SUCH INFORMATION DESCRIBED UNDER "--OPINION OF
RYAN, BECK & CO." HAS BEEN SUPPLIED BY FAMILY FOR INCLUSION HEREIN AND HAS NOT
BEEN INDEPENDENTLY VERIFIED BY RSFC.
BACKGROUND TO THE MERGER
During October 1995, Family entered into discussions initiated by a south
Florida bank regarding the possible acquisition of Family by such bank. At a
special meeting on November 16, 1995, the Family Board discussed the proposed
terms put forth by such bank as well as such bank's ability to close the
proposed transaction before authorizing Family's President to execute a
non-binding letter of intent. Family signed a letter of intent with such bank on
November 28, 1995. However, negotiations terminated in February 1996 when it
became apparent that significant delays would occur in obtaining regulatory
approval of the proposed transaction because of such bank's indirect foreign
ownership. Beginning in early 1996, Family made written inquiries to certain
other banking institutions regarding their interest in acquiring Family. As a
result of such inquiries, Family met with several banks and reviewed various
proposals. Discussions with these banks were discontinued for various reasons,
including lack of synergy, proposed cash and/or stock consideration that
represented a lower multiple of Family's book value than Family was willing to
accept at the time and Family's doubts as to the ability of the potential
acquirors to consummate the proposed acquisition.
At a special meeting on April 16, 1996, the Family Board authorized the
retention of Ryan, Beck to advise Family on various matters relating to
alternative courses of action to maximize long-term shareholder value, including
the possible sale of Family or merger with another financial institution. Family
signed an engagement letter with Ryan, Beck on April 23, 1996. Subsequently,
Ryan, Beck made inquiries to various financial institutions, including RSFC in
late May 1996, regarding the possible acquisition of Family. Eleven financial
institutions responded and Ryan, Beck distributed a Confidential Offering
Memorandum to such entities upon their execution of a confidentiality agreement
with Family. Four recipients of such materials, including RSFC, two institutions
that had earlier discussions with Family, and a southeast bank larger than RSFC,
made additional inquiries concerning Family. Family ultimately rejected the
preliminary proposals of two institutions it had previous discussions with for
various reasons, including lack of synergy, Family's doubts as to the ability of
either of them to consummate the acquisition, and because the proposed
consideration was less than that being offered by RSFC and the larger southeast
bank and less than Family was willing to accept. In addition, one of the
proposals was comprised of a substantial non-voting common stock component.
Family also did not initially proceed with the larger southeast bank because its
response was received later than the others. Accordingly, Family initially
proceeded with RSFC.
On June 4, 1996, RSFC received from Ryan, Beck the confidentiality
agreement and the Confidential Offering Memorandum profiling Family. Two days
later Ryan, Beck reviewed with Mr. Schupp this book's contents in the context of
a possible business combination of RSFC and Family. On June 25, 1996, at the
place of business of one of Family's directors, Messrs. Schupp and Haskins met
with Messrs. Hughes and Owen to present RSFC and its outlook as to a merger
between RSFC and Family. At its regular board meeting on June 26, 1996, the RSFC
Board authorized senior management to proceed with negotiations regarding a
merger of Family into RSFC. On June 28, 1996, RSFC issued a letter of interest
in a merger transaction with Family to Messrs. Hughes and Owen along with
additional information about RSFC to consider while determining whether to
pursue such a transaction with RSFC.
On July 9, 1996, RSFC's senior management met with Mr. Hughes at the
offices of RSFC to discuss financial projections prepared by RSFC as to merger
prospects between RSFC and Family. On July 30, 1996, four members of the RSFC
Board, Messrs. Schupp, Haskins, Lindahl and Wolfson, hosted six members of the
Family Board at the offices of RSFC for a presentation regarding the current
operations of RSFC and the potential opportunities of a merger between
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RSFC and Family. This presentation was followed by an informal gathering between
the parties as well as certain additional RSFC officers.
On August 7, 1996, RSFC and Ryan, Beck exchanged information as to financial
projections of a merger between RSFC and Family. In mid-August Family and RSFC
discontinued discussions as Family became more interested in pursuing merger
discussions with the southeast bank because the southeast bank was larger in
size than RSFC and had shares listed on the New York Stock Exchange, which
Family believed (based on a review of weekly trading volume), would provide
greater liquidity and stability than the stock of RSFC. In a non-binding written
offer, this potential acquirer offered to acquire Family in a share exchange
transaction whereby Family's shareholders would receive consideration equal to
approximately 2.4 times Family's book value in the form of common stock of such
potential acquirer. The valuation was similar to that being proposed by RSFC. At
a special meeting on September 5, 1996, the Family Board decided to continue
discussions with only this potential acquiror for the reasons previously
described above in this paragraph. At such meeting, Ryan, Beck presented an
analysis of such potential acquiror's proposal and discussed with the Family
Board the positives and negatives of continuing negotiations with the potential
acquiror. Prior to the adjournment of such meeting and after discussion, the
Family Board agreed to enter into a standstill agreement for a period of 14 days
to permit Family and such potential acquiror to perform preliminary diligence
and to continue negotiations. During such period, Family reached tentative
verbal agreement on a number of material terms and reviewed and commented on a
proposed definitive agreement presented by such potential acquiror. However,
discussions were terminated by such potential acquiror after performance of its
initial due diligence. Although Family cannot be certain of the reason that
discussions were terminated, it was advised by the potential acquirer that
discussions were terminated over concerns about perceived lending philosophy
differences between the two institutions and the level of Family's loan loss
reserves. The Family Board was informed of such events during its September 17,
1996 board meeting.
In early October, after Family senior management contacted RSFC senior
management as a result of the termination of discussions with the larger
southeast bank, Messrs. Haskins and Schupp met with Messrs. Keir and Owen and
Ms. Fowler to compare lending practices and operating policies of the two
institutions. On October 3, 1996, representatives from Ryan, Beck met certain
members of the Family Board to discuss certain issues relating to a proposed
transaction with RSFC, including pricing considerations.
On October 18, 1996, RSFC and Family formally renewed merger discussions
when RSFC, in a letter to Mr. Hughes, reaffirmed its interest in a merger
transaction with Family. On the same date, the Family Board convened a special
meeting at which representatives from Ryan, Beck summarized the significant
terms of RSFC's proposal and discussed the trading history and certain financial
data of RSFC. After discussion and review of certain aspects of RSFC's proposal,
including the potential legal restrictions placed on shares of RSFC Common Stock
to be received by Family shareholders upon consummation of an acquisition of
Family by RSFC, the Family Board agreed to continue negotiations with RSFC with
the goal of entering into a definitive agreement. Three days later, Ryan, Beck
circulated a term sheet to the parties, which included the range of potential
exchange ratios (1 share of Family Common Stock for 12 to 13 shares of RSFC
Common Stock), a pooling of interests accounting and a tax-free exchange, as
well as possible board structure for the Combined Company. On October 24, 1996,
RSFC and Family entered into a stand-still agreement in which Family agreed, for
a period of 35 days, not to solicit or encourage negotiations or discussions
concerning any acquisition or other business combinations involving Family other
than those possible negotiations and discussions with RSFC, and in which Family
and RSFC mutually agreed to keep such discussions confidential.
From approximately November 4, 1996 through November 15, 1996, RSFC's
personnel conducted an on-site due diligence review of Family at its offices in
West Hollywood, Florida. From approximately November 5, 1996 through November
23, 1996, Family's personnel conducted an on-site due diligence review of RSFC
at its offices in West Palm Beach, Florida. Both of these on-site due diligence
efforts were combined with RSFC's and Family's continuing off-site due diligence
efforts. From mid-November 1996 through December 1996, negotiations between the
parties continued, addressing the exchange ratio and other terms of a merger
transaction, including employee agreements between Messrs. Owen and Keir and the
Bank.
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The parties agreed early in the negotiations that the consideration would
be stock instead of cash, as Family was interested in the potential for
increased future value through an exchange of stock. Discussions as to the form
of consideration involved a review and analysis of historical and prospective
information as to shareholder liquidity. Negotiations as to the pricing of the
transaction consisently focused on the exchange ratio. The parties debated the
merits of a floating exchange ratio as compared to a fixed exchange ratio. Other
material aspects of the negotiations related to representation of Family's Board
on the Board of RSFC, other aspects of management structure, treatment of Family
employees and the treatment of outstanding options to purchase shares of Family.
At its regular board meeting on November 20, 1996, the RSFC Board
authorized senior management to contract with Raymond James as the financial
advisor to RSFC in connection with a proposed merger transaction with Family. On
November 21, 1996, RSFC and Family signed an amended stand-still agreement
extending the no-solicitation period to December 13, 1996.
At a special board meeting on December 27, 1996, the RSFC Board heard
senior management's presentation of its due diligence review of the proposed
merger and Raymond James' conditional view that the proposed merger was fair
from a financial point of view to RSFC shareholders. Raymond James' view on the
fairness of the Merger from a financial point of view was considered conditional
on December 27, 1996 for the following reasons: 1) the Family audit was not
complete on that date and the fairness opinion was based on the assumption that
Family's financial information provided to Raymond James would not be materially
different from the audited financial results; and 2) significant changes in
RSFC's common stock price from December 27, 1996 to the date of the fairness
opinion could have affected Raymond James' view on the fairness of the Merger
because of the fixed exchange ratio. See "--RSFC Reasons for the Merger;
Potential Adverse Effects of the Merger; and Recommendation of RSFC's Board of
Directors" and "--Opinion of Raymond James & Associates, Inc." At a special
board meeting on December 30, 1996, the Family Board heard senior management's
presentation of its due diligence review of the proposed merger and Ryan, Beck's
view that the proposed merger was fair to Family shareholders. See "--Family
Reasons for the Merger; Potential Adverse Effects of the Merger; and
Recommendation of Family's Board of Directors" and "--Opinion of Ryan, Beck &
Co."
On January 7, 1997, senior management of RSFC and Family, each duly
authorized by its respective board of directors, executed the Merger Agreement,
shareholder agreement and related employment agreements for a merger between
RSFC and Family.
RSFC REASONS FOR THE MERGER; POTENTIAL ADVERSE EFFECTS OF THE MERGER; AND
RECOMMENDATION OF RSFC'S BOARD OF DIRECTORS
Since 1992 the RSFC Board 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 four acquisitions. If the Merger is
consummated, it will be RSFC's fifth acquisition over this time period. The RSFC
Board believes that a merger with Family represents an opportunity for RSFC to
enhance its long-term growth prospects by expanding the Bank's geographical
presence, diversifying its loan portfolio and providing for the potential to
increase earnings per share over the long term.
The RSFC Board considered the fact that by acquiring Family's operations,
the Bank will obtain an immediate and significant market presence in Broward
County, Florida, thereby enhancing long-term growth opportunities. Broward
County is contiguous to Palm Beach County, where the Bank's operations are
primarily located, and, like Palm Beach County, has favorable market
demographics: second largest ($22 billion) banking market in Florida, eighth
highest per capita income market in Florida, and the second largest population
base in Florida. Palm Beach County ranks third ($17 billion), first and third,
respectively, in these same categories. Because none of the branches of the Bank
or Family will be closed after the Merger, the Combined Bank will have 17
full-service banking centers from which to serve the
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attractive customer base of these two counties. In addition, the RSFC Board
believes that the Merger will allow RSFC to utilize its operational and
technological expertise to enhance the performance of Family's operations.
The RSFC Board also believes that the Merger presents an opportunity for
the Bank to broaden the composition of its loan portfolio. Family's loan
portfolio is comprised predominantly of business-oriented loans, specifically
commercial real estate loans, while the Bank'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 Family in connection with
the Merger is fair to RSFC and its shareholders from a financial point of view,
the RSFC Board 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 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 reviewed and considered deal values of recent bank merger transactions. In
addition, in reaching its decision, the RSFC Board considered the opinion of
Raymond James & Associates, Inc.
In reaching its decision to approve and adopt the Merger Agreement, the RSFC
Board also considered factors that are not favorable to the Merger, including,
(i) the potential adverse impact of Family's high concentration of commercial
real estate loans on the Combined Bank's loan portfolio, (ii) the potential
difficulties in managing the Combined Company, which will be approximately twice
the size of RSFC, and (iii) the decrease in RSFC's book value per share. In
reaching its determination to approve the Merger, the RSFC Board 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 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 UNANIMOUSLY DETERMINED TO APPROVE THE MERGER AND
RECOMMENDS THAT THE RSFC SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT.
OPINION OF RAYMOND JAMES & ASSOCIATES, INC.
At the meeting of the RSFC Board on December 27, 1996, at which meeting the
RSFC Board approved the Merger Agreement, Raymond James delivered its oral
opinion (the "Oral Opinion"), which was subsequently confirmed in a written
opinion dated the date of this Joint Proxy Statement/Prospectus (the "Written
Opinion"), to the effect that, as of the date of such opinion, the consideration
to be paid by RSFC to the holders of Family Common Stock in connection with the
Merger was fair to shareholders of RSFC from a financial point of view. No
limitations were imposed by the RSFC Board upon Raymond James with respect to
the investigations made or the procedures followed by Raymond James in rendering
its opinion.
The full text of the Written Opinion of Raymond James is set forth as Annex
C to this Joint Proxy Statement/Prospectus. RSFC shareholders are urged to read
the Written Opinion in its entirety for a complete description of the
assumptions made, matters considered and limits on the review undertaken. The
summary of the Oral Opinion is qualified in its entirety by reference to the
full text of the Written Opinion. The assumptions made, matters considered and
limits of the review undertaken contained in the Written Opinion are
substantially the same as the assumptions made, matters considered and limits of
the review undertaken in connection with the Oral Opinion. RAYMOND JAMES'
OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO
SHAREHOLDERS OF RSFC OF THE CONSIDERATION TO BE PAID BY RSFC IN THE MERGER AND
DOES NOT CONSTITUTE A RECOMMENDATION CONCERNING HOW RSFC SHAREHOLDERS SHOULD
VOTE WITH RESPECT TO THE MERGER.
In arriving at its opinion, Raymond James reviewed the Merger Agreement and
related exhibits. It also reviewed certain publicly available business and
financial information relating to RSFC and Family, as well as certain other
information, including financial projections, provided to Raymond James by RSFC.
Raymond James discussed the past and current operations and financial condition
and prospects of RSFC and Family with RSFC's and Family's senior management.
Raymond James also considered such other information, financial studies,
analyses, investigations and financial, economic, market and trading criteria
that it deemed relevant.
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In connection with its review, Raymond James assumed and relied on the
accuracy and completeness of the information it reviewed for the purpose of its
opinions and did not assume any responsibility for independent verification of
such information or for any independent evaluation or appraisal of the assets of
RSFC or Family. With respect to RSFC's financial projections, Raymond James
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of RSFC and
Raymond James expressed no opinion with respect to such forecasts or the
assumptions on which they were based. Raymond James' opinions were necessarily
based upon business, market, economic and other conditions as they existed on,
and could be evaluated as of, the date of its opinions. The opinions did not
address RSFC's underlying business decision to effect the Merger and do not
constitute a recommendation to any holder of RSFC Common Stock concerning the
Merger. Raymond James' opinions did not imply any conclusion as to the likely
trading range of RSFC Common Stock following the consummation of the Merger,
which may vary depending on, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities.
In connection with the Oral Opinion, Raymond James performed certain
financial analyses, which it discussed with the RSFC Board on December 27, 1996.
The following is a brief summary of the analyses performed by Raymond James in
connection with its Oral Opinion as updated by its Written Opinion. All analyses
summarized below assume a price for RSFC Common Stock of $7.38 per share (which
was the closing bid price on April 1, 1997) in calculating the value of the
consideration offered in the Merger. The price of RSFC Common Stock used in
performing the analyses to support the Oral Opinion was $6.00 per share.
(i) PRECEDENT TRANSACTION ANALYSIS. Raymond James reviewed the
consideration paid or proposed to be paid ("deal value") in other acquisitions
of southeastern banks with less than $1 billion in total assets, which were
completed in January 1996 through March 25, 1997. Raymond James analyzed the
deal value of these acquisitions (which ranged from $2.0 million to $156.8
million) as a multiple of (i) book value, which ranged from 1.01x to 3.58x, (ii)
tangible book value, which ranged from 1.11x to 3.58x and (iii) last-twelve
months earnings per share ("LTM EPS"), which ranged from 10.40x to 39.44x, and
determined the median deal value as a multiple of these same variables (2.02x,
2.05x and 18.81x, respectively). Raymond James then computed these multiples for
the Merger's deal value of $61.7 million: (i) book value of 3.00x, (ii) tangible
book value of 3.00x and (iii) LTM EPS of 13.90x.
No transaction used in the Precedent Transaction Analysis summarized above
is identical to the Merger. Accordingly, any such analysis of the value of the
Merger involves complex considerations and judgments concerning differences in
the potential financial and operating characteristics of the comparable
companies and other factors in relation to the trading and acquisition values of
the comparable companies and publicly announced transactions. Mathematical
analysis is not, in itself, a meaningful method of ensuring comparable
transaction data.
(ii)PRO FORMA MERGER ANALYSIS. Raymond James reviewed certain pro forma
financial effects projected to result from the Merger for fiscal years 1997,
1998 and 1999. This analysis was based upon certain assumptions, including that
the projections provided to Raymond James were accurate and that the price per
share of RSFC Common Stock was $6.00 for the Oral Opinion and $7.38 for the
Written Opinion. Raymond James performed the pro forma analysis based upon the
following three scenarios: (i) asset growth at 10% without any synergies ("Case
1"); (ii) RSFC's combined assumptions for 1997-98 ("Case 2"); and (iii) 20%
reduction in Family's 1997 net income from Family's 1996 net income, asset
growth thereafter at 10% without any synergies ("Case 3"). Raymond James
compared the estimated fiscal year 1997, 1998 and 1999 fully diluted earnings
per share of RSFC Common Stock on a stand alone basis to the pro forma fully
diluted earnings per share of the Combined Company after the Merger. Based on
this analysis, the estimated earnings per share of RSFC Common Stock are as
follows: (i) under the assumptions of Case 1, from $0.36, $0.40 and $0.44 for
the fiscal years 1997, 1998 and 1999, respectively, on a stand-alone basis, to
$0.43, $0.50 and $0.55 on a pro forma basis after giving effect to the Merger;
(ii) under the assumptions of Case 2, from $0.50 for the fiscal year 1997 on a
stand alone basis to $0.55, $0.63 and $0.68 in fiscal years 1997, 1998 and 1999
on a pro forma basis; and (iii) under the assumptions of Case 3, from $0.36,
$0.40 and $0.44 for the fiscal years 1997, 1998 and 1999, respectively, on a
stand-alone basis, to $0.39, $0.45 and $0.52 on a pro forma basis after giving
effect to the Merger.
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The actual results achieved by the Combined Company if the Merger is
consummated may vary from the projected results and such variations may be
material.
(iii) MARKET TRADING MULTIPLES IN COMPARABLE PUBLIC COMPANIES.
Using publicly available information, Raymond James analyzed, among other
things, the market values and trading multiples of 23 southeastern commercial
banks which they considered to be comparable to Family, and compared these
multiples to those of Family. This analysis showed that: (i) the range of
multiples of stock price to the most recently reported book value for the
comparable public companies was 1.23x to 3.37x while the Merger reflects a
multiple of approximately 3.00x Family's book value; (ii) the range of multiples
of the stock price to the earnings per share for the comparable public companies
for the most recently reported twelve-month period was 12.27x to 38.77x while
the Merger reflects a multiple of approximately 13.90x Family's earnings per
share for the Family twelve-month period.
The preparation of a fairness opinion is not susceptible to partial
analysis or summary descriptions. Raymond James believes that its analyses and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in its opinion and the presentation to the
RSFC Board. Raymond James has not indicated that any of the analyses which it
performed had a greater significance than any other. The ranges of valuations
resulting from any particular analysis described above should not be taken to be
the view of Raymond James of the actual value of RSFC, Family or the Combined
Company.
In performing its analyses, Raymond James made numerous assumptions with
respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
RSFC or Family. The analyses which Raymond James performed are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of Raymond James' analysis of the fairness, from a
financial point of view, to RSFC of the consideration to be paid by RSFC to the
holders of Family Common Stock. The analyses do not purport to be appraisals or
to reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or at any time in the future.
Raymond James is a nationally recognized investment banking firm that
provides financial services in connection with a wide range of business
transactions. As part of its investment banking business, Raymond James
regularly engages in the valuation of companies and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and for other purposes. The RSFC Board retained Raymond James based
on Raymond James' expertise in the valuation of companies.
Raymond James is not affiliated with RSFC or Family. In the ordinary course
of its business as a broker/dealer, Raymond James may from time to time have a
long or short position in and buy or sell equity securities of RSFC for its own
account and the accounts of its customers. Pursuant to an engagement letter
dated December 10, 1996, RSFC agreed to pay Raymond James for its services fees
aggregating $150,000. RSFC also agreed to indemnify Raymond James and certain
related person against certain liabilities, including liabilities under the
federal securities law, relating to or arising out of its engagement.
FAMILY REASONS FOR THE MERGER; POTENTIAL ADVERSE EFFECTS OF THE MERGER; AND
RECOMMENDATION OF FAMILY'S BOARD OF DIRECTORS
In reaching its conclusion to enter into the Merger Agreement and to
recommend approval of the Merger Agreement and the Plan of Merger by the Family
shareholders, at or prior to the December 30, 1996 special meeting at which the
Family Board approved the Merger Agreement, the Family Board considered a number
of factors and reasons of which Family shareholders should be aware in
determining whether to vote for approval of the Merger Agreement and the Plan of
Merger and whether the consideration being paid to the shareholders of Family in
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connection with the Merger is fair to Family's shareholders from a financial
point of view, including factors and reasons discussed below, which Family
believes represent the material factors considered by the Board. The Family
Board believes that a merger with the Bank represents an opportunity to maximize
the prospects for long-term shareholder value through the benefits of a larger
organization, by expanding Family's geographical presence, broadening and
diversifying the loan portfolio, providing for potential to increase earnings
per share over the long-term, enhancing capital and share liquidity and
expanding senior management. In addition, in reaching its decision, the Family
Board considered the opinion of its financial advisor and that the consideration
being received by Family's shareholders in connection with the Merger
represented a multiple of book value believed by the Family Board of Directors
to represent a fair value to Family's shareholders from a financial point of
view.
The Family Board considered the fact that the Merger represents an
opportunity to maximize the prospects for long-term shareholder value by merging
with a larger organization while maintaining the customer service advantages of
a smaller banking organization and of Family, in particular. The Family Board
believes that the Merger will allow the Combined Bank to benefit from and
utilize Family's service orientation and expertise to enhance the performance of
the Combined Bank.
The Family Board considered the fact that by being acquired by RSFC, Family
will become part of a Combined Bank with operations and significant market
presence in Palm Beach County, Florida, thereby enhancing long-term growth
opportunities. Palm Beach County is contiguous to Broward County, where Family's
operations are primarily located, and, like Broward County, has favorable market
demographics: third largest ($17 billion) banking market in Florida, highest per
capita income market in Florida, and the third largest population base in
Florida (Broward County ranks second ($22 billion), eighth and second,
respectively, in these same categories). Because none of the branches of Family
or the Bank will be closed after the Merger, the Combined Bank will have 17
full-service banking centers from which to serve the attractive customer base of
these two counties.
The Family Board also believes that the Merger presents an opportunity for
the Bank to broaden the composition of its loan portfolio. The Bank's loan
portfolio is comprised predominantly of consumer-oriented loans while Family's
loan portfolio is more business-oriented, specifically commercial real estate
loans. As a result, the composition of the Combined Bank's loan portfolio will
be more diversified. The increased diversity should provide the Combined Bank
with greater opportunities for growth, while at the same time helping to spread
risk across different types of loans. In addition, as a result of this
diversification, the Combined Bank may be able to offer additional products and
services to existing customers.
The Family Board also considered the anticipated financial benefits of the
Merger. The Merger is expected to be accretive to the Combined Bank'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 Combined Bank's capital will also increase
significantly. The increased capital base of the Combined Bank would increase
its loan limit to one borrower to approximately $12.6 million for the Combined
Bank from $5 million for Family, which could be particularly helpful in making
commercial real estate loans. This increase will also allow the Combined Bank to
compete more readily with the regional banks for larger dollar loans and more
creative financing terms.
Furthermore, the Family Board considered that the Merger would provide
liquidity for its shareholders. Family Common Stock is not traded or listed and
there is not a broad market for Family Common Stock, with trades being sporadic,
private and negotiated at arms' length. RSFC Common Stock is listed on the
Nasdaq National Market and several market makers regularly trade the RSFC Common
Stock. In addition, the Family Board considered the potential appreciation in
the Combined Bank's capital stock, both as a result of the Merger and otherwise.
The Family Board also concluded that the Combined Bank would benefit from
certain economies of scale not available to Family as a stand-alone bank. These
benefits would include certain operational savings, some of which would be the
result of the Bank's technological expertise.
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The Family Board also believed that Family would benefit from the Bank's
expanded senior management. The Merger would alleviate any shareholder concerns
about ultimately finding a successor to Family's current Chief Executive Officer
who is currently 61 years old.
Also, the Family Board believed that it was likely that the Merger would be
approved by the required regulatory authorities.
In reaching its decision to approve and adopt the Merger Agreement, the
Family Board also considered factors that are not favorable to the Merger
Agreement, the material factors of which include: (i) that the ratio of the
Bank's net income to revenues is not as favorable as Family's; (ii) the
potential adverse impact of RSFC's loan portfolio on the Combined Bank's loan
portfolio, considering the Bank's current level of reserves and charge-off
history; (iii) the potential difficulties in managing the Combined Bank, which
will be more than twice the size of Family; (iv) the Bank's smaller dividend per
share on a pro forma basis than that historically paid by Family; and (v) the
risk of receiving shares as consideration for the Merger, instead of cash, and
any potential decrease in the value of such shares.
In reaching its determination to approve the Merger, the Family Board did
not assign any relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors and
may have considered factors not identified here or discussed at the Board
meeting. After deliberating with respect to the Merger and the other
transactions contemplated by the Merger Agreement, and considering, among other
things, the matters discussed above, the Family Board unanimously approved the
Merger Agreement and the transactions contemplated thereby as being in the best
interests of Family and its shareholders.
AFTER EVALUATING THE FAVORABLE AND UNFAVORABLE FACTORS DISCUSSED ABOVE, THE
FAMILY BOARD UNANIMOUSLY DETERMINED TO APPROVE THE MERGER AND RECOMMENDS THAT
THE FAMILY SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND FOR
APPROVAL OF THE PLAN OF MERGER.
OPINION OF RYAN, BECK & CO.
On April 23, 1996 Family retained Ryan, Beck to advise Family on various
financial matters relating to alternative courses of action to maximize
long-term shareholder value, including the possible sale of Family or merger
with another financial institution. 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 Family because of its knowledge of,
experience with, and reputation in the financial services industry.
In its capacity as Family'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 accept the RSFC proposal and the
final pricing of the Merger was ultimately made by the Family Board. Ryan, Beck
rendered its oral opinion to the Family Board on December 30, 1996, updated its
analysis as of January 6, 1997, and rendered its formal written opinion (the
"Ryan, Beck Opinion") on May ___, 1997, that the Exchange Ratio is "fair" to
Family's shareholders from a financial point of view. No limitations were
imposed by the Family Board upon Ryan, Beck with respect to the investigations
made or procedures followed by it in arriving at its opinion.
THE FULL TEXT OF THE RYAN, BECK OPINION, DATED AS OF MAY ___, 1997, WHICH
SETS FORTH ASSUMPTIONS MADE AND MATTERS CONSIDERED, IS ATTACHED AS ANNEX D TO
THIS JOINT PROXY STATEMENT/PROSPECTUS. SHAREHOLDERS OF FAMILY ARE URGED TO READ
THIS OPINION IN ITS ENTIRETY. THE RYAN, BECK OPINION IS DIRECTED ONLY TO THE
EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY FAMILY
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE FAMILY SPECIAL
MEETING. THE SUMMARY OF THE RYAN, BECK OPINION 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 DECEMBER 30, 1996 WAS TO THE
SAME EFFECT AS SUCH OPINION.
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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 fiscal years ended December 31, 1996, 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
September 30, 1996, June 30, 1996 and March 31, 1996; (iv) reviewed Family's
audited financial statements for the year ended December 31, 1996 and 1995 and
the audited income statement for the year ended December 31, 1994; (v) reviewed
the historical stock prices and trading volume of the RSFC Common Stock; (vi) as
more particularly described below, reviewed the publicly available financial
data of commercial banking organizations which Ryan, Beck deemed generally
comparable to RSFC; (vii) as more particularly described below, reviewed the
publicly available financial data of commercial banking organizations which
Ryan, Beck deemed generally comparable to Family; (viii) as more particularly
described below, reviewed the terms of recent acquisitions of commercial banking
organizations which Ryan, Beck deemed generally comparable to Family; and (ix)
conducted such other studies, analyses, inquiries and examinations as Ryan, Beck
deemed appropriate. Ryan, Beck also reviewed certain projections provided by
Family for the year ending December 31, 1997 and met with certain members of
Family's senior management to discuss Family's past and current business
operations, financial condition, strategic plan and future prospects. Ryan, Beck
also reviewed RSFC's budget 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.
Ryan, Beck as part of its review of the Merger, also analyzed RSFC's ability to
consummate the Merger and considered the future prospects of Family in the event
it remained independent.
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 Family and RSFC provided to Ryan, Beck by Family and
RSFC 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 Family's and RSFC's balance sheets at
December 31, 1996, and Ryan, Beck assumed such allowances were adequate and
complied fully with applicable law, regulatory policy and sound 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 Family and RSFC. 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 Family or RSFC nor did
Ryan, Beck review any loan files of Family or RSFC. 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 Family and RSFC.
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 Ryan, Beck 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 factors and analyses, could
create an incomplete view of the analyses and the process underlying the Ryan,
Beck 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 Family and RSFC. Family and RSFC 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.
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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 Family or RSFC. 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.
COMPARABLE COMPANIES AND COMPARABLE TRANSACTIONS ANALYSES. Ryan, Beck
compared Family's financial data as of November 30, 1996 to a peer group of
eighteen selected commercial banks located in the southeast region of the United
States with assets between $200 million and $300 million. Ryan, Beck deemed this
group to be generally comparable to Family. At or for the eleven months
(annualized) ended November 30, 1996, Family had tangible equity to tangible
assets of 8.35%, a return on average assets of 1.96%, a return on average equity
of 22.86%, a net interest margin of 5.76%, a ratio of non-interest expenses to
average assets of 3.77%, a ratio of non-performing loans to total loans of 0.63%
and a ratio of non-performing assets to total assets of 0.60%. These ratios were
compared to the median ratios of the eighteen selected commercial banking
organizations, which were, as calculated, a tangible equity to tangible assets
ratio of 9.33%, a return on average assets of 1.25%, a return on average equity
of 12.21%, a net interest margin of 4.80%, a ratio of non-interest expense to
average assets of 3.25%, a ratio of non-performing loans to total loans of 0.87%
and a ratio of non-performing assets to total assets of 0.74%.
Ryan, Beck compared Family's financial data as of November 30, 1996 with
that of a group of eleven selected commercial banking organizations being
acquired in announced transactions since September 30, 1995 and for which
pricing data pertaining to the transactions was publicly available. The criteria
for this group were commercial banks with assets between $150 million and $600
million, with a return on average assets greater than 1.35% and an equity to
assets ratio of less than 10%. Ryan, Beck deemed this group to be generally
comparable to Family. The median ratios of the eleven selected companies, as
calculated, represented a 8.76% tangible equity to tangible assets ratio, a
non-performing assets to assets ratio of 0.32%, an annualized year-to-date
return on average assets of 1.52% and an annualized year-to-date return on
average equity of 19.34%.
Ryan, Beck also calculated certain ratios based on the Exchange Ratio of 13
shares of RSFC Common Stock for each share of Family and the 10 day average
closing stock price of RSFC for the period ended January 6, 1997 and the median
ratios for the eleven selected commercial bank acquisitions ("Comparable
Transactions"). The Comparable Transactions produced a median return on average
assets of 1.52% and a median return on average equity of 19.34%. The median
ratios for the Comparable Transactions, as calculated, represented a price to
fully diluted book value of 208.03%, a price to fully diluted tangible book
value of 209.18%, a price to latest twelve month earnings of 13.84 times and a
core deposit premium of 12.29%. The imputed value of Family based on the median
of the above mentioned acquisition peer group was $71.35 based on price to fully
diluted book value, $71.75 based on price to fully diluted tangible book value,
$95.36 based on price to latest twelve month earnings and $71.91 based on the
core deposit premium to tangible book value.
These Comparable Transactions were segmented into a group of seven
financial institutions with a return on average assets in excess of 1.5%
("Profitability Segmented"). These Profitability Segmented banks produced an
average return on average assets of 1.72% and an average return on average
equity of 19.62% The Profitability Segmented group as calculated, represented an
average price to book value of 188.86%, an average price to tangible book value
of 194.52% and a price to latest twelve month earnings of 11.96% and a core
deposit premium to tangible book value of 10.58%.
The comparable ratios for Family were an acquisition price of 252.64% of
book value (including the dilutive impact of stock options), a price to tangible
book value of 252.64%, a price to latest twelve month earnings of 11.66 times
and a core deposit premium to tangible book value of 15.04%. Ryan, Beck noted
that the value of the RSFC Common Stock to be received by Family shareholders
based upon the Exchange Ratio of 13 shares of RSFC Common Stock for each Family
share and the average closing price of RSFC Common Stock for the ten day period
ended January 6, 1997 was $80.34
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Ryan, Beck also compared RSFC's financial data as of September 30, 1996
with that of a group of sixteen selected commercial banking organizations with
assets between $250 million and $425 million, with an equity to assets ratio
greater than 9.0% and which are located in the southeast region of the United
States for which public trading and pricing information was available. Ryan,
Beck deemed this group to be generally comparable to RSFC. At or for the nine
months (annualized) ended September 30, 1996, RSFC had tangible equity to
tangible assets of 11.44%, a return on average assets ratio of 0.99% adjusted to
exclude the one-time SAIF assessment, a return on average equity ratio of 7.03%
adjusted to exclude the one-time SAIF assessment and non-recurring expenses, and
a dividend yield of 1.94%. At or for the twelve months ended September 30, 1996,
RSFC had a net interest margin of 5.21%, an efficiency ratio of 67.73%, a ratio
of non-performing assets to total assets of 1.56% and a ratio of reserves to
non-performing loans of 80.37%. These ratios were compared to the median ratios
of the sixteen selected commercial banking organizations, which were, as
calculated, a tangible equity to tangible assets of 9.47%, a return on average
assets ratio of 1.29%, a return on average equity ratio of 11.82%, a dividend
yield of 2.51%, a net interest margin of 4.74%, an efficiency ratio of 57.72%, a
ratio of non-performing assets to total assets of 0.34% and a ratio of reserves
to non-performing loans of 245.93%. Using a ten day average trading price for
RSFC Common Stock, its price to latest twelve month earnings adjusted to exclude
the one-time SAIF assessment was 20.6 times, price to book value was 134.35% and
price to tangible book value was 163.62%. The peer group's median price to
latest twelve month earnings was 13.5 times, price to book value was 152.58% and
price to tangible book value was 163.93%.
No company or transaction used in the COMPARABLE COMPANIES AND TRANSACTION
ACQUISITION ANALYSES section is identical to Family, 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 and tangible book value
based on Family's projected 1997 earnings which were derived from information
provided by the management of Family and RSFC. Based upon certain assumptions,
including those with respect to cost savings and other synergies from the Merger
and the stand alone earnings projections provided by RSFC and Family, the
analysis showed that the Merger would be accretive to RSFC's estimated 1997
earnings per share by approximately 14.4%, dilutive to fully diluted book value
per share by approximately 25.0% and dilutive to RSFC's fully diluted tangible
book value by approximately 19.6%. Ryan, Beck analyzed the impact of the Merger
on RSFC values per Family share based on the exchange ratio of 13 shares of RSFC
Common Stock for each share of Family Common Stock using pro forma projected
1997 earnings per share, book value per share, tangible book value per share and
dividends per share at September 30. That analysis found that, based on such
exchange ratio, Family's equivalent projected 1997 earnings per share would
increase by approximately 1.0%, fully diluted book value would increase by
approximately 44.3% and fully diluted tangible book value would increase by
approximately 24.3%, while dividends per share would decrease by approximately
64.3%. 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 present value of the future dividend streams that Family
could produce in perpetuity. Projection ranges for Family's five-year balance
sheet and income statement were provided by Family's management. Management's
projections were based upon various factors and assumptions, many of which are
beyond the control of Family. 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 favorable than suggested
by such projections. In producing a range of per share Family values, Ryan, Beck
utilized the following assumptions: discount rates range from 14.0% to 16.0%,
dividend payout ratio equal to 100% of net earnings, terminal price/earnings
multiples range from 9.0x to 11.0x (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 Family's
non-interest expense equal to 20.0% in 1997 and 40.0% in 1998, with an assumed
5% growth in synergies in years thereafter. The discounted dividend analysis
produced a range of net present values per share of Family Common Stock from
$73.79 to $92.88. These analyses do not purport to be indicative of actual
values or expected values or an appraisal range of the shares of Family Common
Stock. Ryan,
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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.
BREAK-EVEN RETURNS ANALYSIS. Ryan, Beck prepared a break-even returns
analysis based on the terms of the Merger Agreement. Using a normalized range of
public market price to latest twelve months earnings multiples of 8.0x to 10.0x,
a range of discount rates from 12.0% to 14.0%, Ryan, Beck calculated the
compound annual growth rate of earnings required through the year 2001 to
provide Family's shareholders with the same value on a present value basis as
the January 6 value as being approximately 9.3% to 16.4%.
In connection with its written Ryan, Beck Opinion dated as of May ___,
1997, Ryan, Beck confirmed the appropriateness of its reliance on the analyses
used to render its December 30, 1996 oral opinion by performing procedures to
update certain of such analyses and by reviewing the assumptions and conclusions
contained in the Ryan, Beck Opinion.
RYAN, BECK'S WRITTEN OPINION DATED MAY ___, 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. 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 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 the Ryan, Beck Opinion.
With regard to Ryan, Beck's services in connection with the financial
advisory agreement and the Merger Agreement, Family has paid to Ryan, Beck a
$10,000 retainer and has agreed to pay Ryan, Beck an advisory fee equal to 1.0%
of the aggregate dollar value of the consideration received by Family's
shareholders in the Merger. Based upon the estimated aggregate purchase price to
be paid in connection with the Merger, Ryan, Beck's aggregate fees will be
approximately $620,000 (including the $10,000 retainer fee). Ryan, Beck's
advisory fee will be paid at the time of the closing of this transaction. In
addition, Family has agreed to reimburse Ryan, Beck for its reasonable
out-of-pocket expenses, which shall not exceed $7,500 without the prior consent
of Family. Family 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 Family and Ryan, Beck.
Within the last three 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 options). Additionally, Ryan, Beck
acted as financial advisor with respect to RSFC's acquisition of Banyan Bank
which was consummated in January 1996. Ryan, Beck has also acted as financial
advisor to RSFC with respect to various other matters from time to time. For the
period from January 1, 1995 to the present, Ryan, Beck has been paid
approximately $56,000 for financial advisory work by RSFC. Ryan, Beck has
received no compensation from RSFC subsequent to the announcement of this
transaction. Additionally, Ryan, Beck was paid approximately $1.4 million in
underwriting fees for RSFC's 1995 securities offering. Subsequent to the
announcement of the acquisition, Ryan, Beck has continued to monitor certain
expansion opportunities considered by RSFC on behalf of Family. It is presently
anticipated that RSFC, as successor to Family, will compensate Ryan, Beck for
such activities. Ryan, Beck has not provided any services to RSFC with respect
to the Merger. Ryan, Beck's research department has issued research reports on
RSFC and comments on RSFC in its periodic commentaries. Ryan, Beck is also a
market maker in RSFC Common Stock and Series C Preferred and, in such capacity,
may from time to time own RSFC securities. As of the date hereof, Ryan, Beck has
no material investment in RSFC. Ryan, Beck had no prior relationship with
Family.
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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.
THE MERGER. The Merger Agreement provides that, following the approval and
adoption of the Merger Agreement by the shareholders of RSFC and Family and the
satisfaction or waiver of the other conditions to the Merger, at the Effective
Time, Family will be merged with and into the Bank, the separate existence of
Family will thereupon cease and the Bank will continue as the surviving
corporation (the "Combined Bank"). As a result of the Merger and the Exchange
Ratio, RSFC will issue 8,273,733 shares to holders of Family Common Stock.
Family shareholders are entitled to dissenters' rights in connection with the
Merger. See "Dissenters' Rights of Appraisal." The maximum amount of dissenters'
shares that will be accepted is 59,167, 10% of the outstanding shares of Family
Common Stock. If there are more than this number of dissenters' shares, RSFC and
the Bank are not obligated to effect the Merger. See "--Conditions Precedent to
the Merger."
If the Merger Agreement is approved by the shareholders of RSFC and Family,
the Plan of Merger is approved by the Family shareholders, and the other
conditions of the Merger are satisfied or waived, the Merger will become
effective at the Effective Time, as requested by the Bank and set forth on the
Certificate of Merger issued by the Florida Banking Department.
COMBINED BANK. At the Effective Time, each issued and outstanding share of
the Bank common stock shall remain issued and outstanding and unaffected by the
Merger. The Articles of Incorporation and Bylaws of the Bank 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 Family Common Stock, each outstanding share
of Family Common Stock will be converted into the right to receive 13 shares of
RSFC Common Stock. Additionally, at the Effective Time each outstanding option
to purchase shares of Family Common Stock issued pursuant to Family's stock
option plans will be assumed by RSFC and will constitute an option to acquire
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 (y) the
aggregate exercise price for the shares of Family Common Stock otherwise
purchasable pursuant to such options divided by (z) 13. Based upon the
capitalization of Family and RSFC as of January 7, 1997 and the Exchange Ratio,
the holders of the then outstanding shares of Family Common Stock would own
securities representing approximately 49% of the outstanding shares of RSFC
Common Stock as a result of the Merger.
At the Effective Time, the stock transfer books of Family shall be closed
and there shall be no further registration of transfers of Family Common Stock.
Immediately after the Effective Time, transmittal letters will be mailed to each
holder of record of Family 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 Family 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. FAMILY 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 Family Common Stock will cease to have any
rights with respect to Family Common Stock. The sole right of holders of
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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, Family, the transfer agent or any
other person will be liable to any holder of shares of Family 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 Family 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 Family Common Stock, see "Comparison of Rights of Holders
of RSFC and Family 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, the Bank and Family, regarding, without
limitation, (i) their respective due organization, good standing and similar
corporate matters, (ii) each of RSFC's and Family's 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 Family in connection with this Joint Proxy
Statement/Prospectus, (vi) financial statements of RSFC and Family, (vii) the
loan portfolios and deposits of the Bank and Family, (viii) undisclosed
liabilities and obligations of RSFC and Family (ix) 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 the Bank and Family, (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, (xx) agreements with regulators restricting the conduct of
their respective businesses, (xxi) compliance with environmental laws and
regulations, (xxii) compliance with the Community Reinvestment Act, (xxiii) the
absence of transactions with officers, directors and others, (xxiv) status of
fidelity bonds, (xxv) accuracy of statements in Merger Agreement and schedules
thereto, (xxvi) absence of regulatory communications and (xxvii) opinions of
financial advisors.
CERTAIN COVENANTS.
ALL PARTIES. Pursuant to the Merger Agreement, RSFC, the Bank and Family
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 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 the other party regarding all material
developments, transactions and proposals, (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
and (vii) not knowingly take any action that would affect the treatment of the
Merger as a "pooling of interests."
RSFC AND THE BANK. In addition to the covenants above, RSFC and the Bank
have each agreed that they will, among other things, (i) review RSFC's dividend
policy at least annually, (ii) have certain designees of Family
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elected to their respective boards of directors and (iii) provide employee
benefits and indemnification as specified in the Merger Agreement.
FAMILY. In addition to the convents above, Family has 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 it will
not, among other things, (i) amend its Articles of Incorporation or Bylaws, (ii)
change the number of shares of its 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 cash dividends consistent with, and in accordance
with, past practices, (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 $250,000, (viii) enter into, amend or renew any real
estate lease except in the ordinary course of business and (ix) enter into,
amend, modify or renew or otherwise change its arrangements with employees,
directors or officers.
NO SOLICITATION OF TRANSACTIONS. The Merger Agreement restricts the ability
of RSFC and Family 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 the Bank, neither RSFC nor any director,
executive officer, representative, agent or other person controlled by RSFC,
shall, and RSFC shall not 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 Family)
concerning any merger or acquisition involving RSFC or the Bank, other than
mergers or acquisitions in which RSFC, the Bank or a subsidiary of either is the
surviving corporation (an "Additional Acquisition"). RSFC has also agreed that
neither it nor the Bank will enter into a definitive agreement to effect an
Additional Acquisition without the prior consent of the Family Board. Family has
agreed that except as required by fiduciary obligations or by a court or
regulatory agency with jurisdiction over it, neither Family nor any director,
executive officer, representative, agent or other person controlled by Family,
shall, and Family shall not 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 RSFC)
concerning any merger, sale of substantially all of the assets, sale of shares
of capital stock or similar transactions involving Family.
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 Family
(each, an "Indemnified Party") against all liabilities arising out of actions or
omissions arising out of their employment by Family and occurring at or prior to
the Effective Time 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, or constitute a knowing breach of the Merger
Agreement. RSFC has agreed that such indemnification provisions shall continue
in full force and effect for such six-year period with respect to each such
Indemnified Party notwithstanding the Merger or any termination of employment by
Family or the Bank of any such Indemnified Party.
RSFC has also agreed to use its reasonable efforts to maintain Family's
existing directors' and officers' liability insurance policy (or a policy,
including RSFC's existing policy, providing comparable coverage) covering
persons who are currently covered by such insurance for a period of three years
after the Effective Time on terms no less favorable than those in effect on the
date of the Merger Agreement; PROVIDED that RSFC shall not be obligated to make
annual premium payments in respect of such policy (or coverage replacing such
policy) which exceed, for the portion related to Family's directors and
officers, 150% of the annual premium payments on Family's current policy in
effect as of the date of the Merger Agreement.
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EMPLOYEE ARRANGEMENTS. At the Bank's option, all employees of Family shall
become employees of the Bank. If certain employees named in the Merger Agreement
do not become employees of the Bank, they shall be entitled to receive from the
Bank severance pay equal to two weeks of pay for every year of employment at
Family. As of the Effective Time, all Family employees who become employees of
the Bank shall be entitled, to the extent permitted by law, to participate in
all benefit plans of the Bank to the same extent as the Bank's employees. To the
extent permitted by applicable law, the period of service with Family of all
Family employees who become employees of the Bank at the Effective Time shall be
recognized only for vesting and eligibility purposes under the Bank's benefit
plans.
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, the Bank and Family 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 Family Common Stock; and (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.
RSFC AND THE BANK. The obligation of RSFC and the Bank to effect the Merger
is subject to the fulfillment prior to or at the Effective Time, unless waived
by RSFC and the Bank, of various conditions, including, among others, (i) Family
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 have been no material adverse change in
Family, its business, financial condition or prospects, taken as a whole, since
September 30, 1996; (iii) the interim consolidated balance sheet of Family for
the calendar month end immediately prior to the Effective Time, and as of the
Effective Time, shall reflect total assets of not less than $225 million, total
deposits of not less than $200 million, total loans of not less than $145
million, Tangible Equity (as defined in the Merger Agreement) of not less than
$20 million, non-performing assets of not more than $2 million and an allowance
for loan losses of not less than $1.3 million; (iv) holders of not more than 10%
of the outstanding shares of Family Common Stock shall have duly delivered
proper demands stating an intention to demand appraisal of and payment for their
shares in accordance with Section 658.44, Florida Statutes; (v) RSFC and the
Bank shall have received all necessary consents to the transactions contemplated
herein required by any agreement material to the operation or conduct of
business of Family; (vi) employment agreements between the Bank and each of
Carol R. Owen and Bruce Keir, 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 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,
the Bank and Family will each be a party to such reorganization within the
meaning of Section 368(a) of the Code; (viii) RSFC shall have received from each
director of Family and any other person which would be an "affiliate" of Family
for purposes of Rule 145 under the Securities Act a duly executed letter
agreement, in form and substance acceptable to Family and RSFC, with regard to
their Rule 145 and "pooling" obligations; (ix) 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 Raymond James regarding the financial
fairness of the Merger; and (x) other customary closing conditions, such as
truth in all material respects of the representation and warranties of Family
and delivery of officers' certificates.
FAMILY. The obligation of Family to effect the Merger is subject to the
fulfillment prior to or at the Effective Time, unless waived by Family, of
various conditions, including, among others, (i) RSFC and the Bank 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
September 30, 1996; (iii) the interim
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consolidated balance sheet of RSFC for the calendar month end immediately prior
to the Effective Time, and as of the Effective Time, shall reflect total assets
of not less than $320 million, total deposits of not less than $260 million,
total loans of not less than $230 million, Tangible Equity of not less than $36
million, non-performing assets of not more than $6.5 million and an allowance
for loan losses of not less than $1.2 million; (iv) RSFC and the Bank 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
the Bank; (v) prior to the date on which the Registration Statement is filed by
RSFC with the Commission, Family shall have received in writing the opinion from
Ryan, Beck regarding the financial fairness of the Merger; and (vi) other
customary closing conditions, such as truth in all material respects of the
representation and warranties of RSFC and the Bank 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
Family shareholders, (i) by mutual consent of RSFC and Family, (ii) by either
RSFC or Family 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 Family if the other party has materially breached any
representation, warranty or covenant of the Merger Agreement, (iv) by either
RSFC or Family if their respective shareholders do not approve the Merger
Agreement and the Merger, (v) by either RSFC or Family 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 Family
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 September 30, 1997.
In the event of any termination of the Merger Agreement by either Family or
RSFC as provided above, the Merger Agreement will become void and there will be
no liability or obligation on the part of RSFC, Family, the Bank 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 knowing or intentional breach by a party thereto of
any of its representations, warranties, covenants or agreements set forth in the
Merger Agreement.
TERMINATION FEE. If the Merger Agreement is terminated under certain
circumstances, the Merger Agreement provides for payment by Family or RSFC of
termination fees. If such termination results from the knowing or intentional
breach by RSFC or the Bank of any representation, warranty or covenant set forth
in the Merger Agreement, then RSFC and the Bank shall pay all of the reasonable
fees and expenses incurred by Family in connection with the Merger Agreement. If
such termination results from the knowing or intentional breach by Family of any
representation, warranty or covenant set forth in the Merger Agreement or if
RSFC terminates the Merger Agreement because the parties are unable to agree to
an adjustment to the Exchange Ratio based on the results of Family's December
31, 1996 audited financial statements, then Family shall pay all of the
reasonable fees and expenses incurred by RSFC and the Bank in connection with
the Merger Agreement. In addition to any such termination fees paid by Family,
in the event that the Merger Agreement is terminated because a merger agreement
with a party other than RSFC or the Bank has been, or is anticipated to be,
entered into or a majority of the outstanding shares of Family Common Stock has
been, or is anticipated to be, acquired by a party other RSFC or the Bank,
Family is required to pay RSFC a $500,000 termination fee.
FEES AND EXPENSES. The Merger Agreement provides that if the Merger is not
consummated, 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. If the Merger is
consummated, RSFC and the Bank will pay any of such expenses of Family remaining
unpaid at the Effective Time. 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.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the 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 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, Family 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 Family. In addition, the following discussions
does not address the tax consequences of the Merger under foreign, state or
local tax laws. Holders of Family 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 has received from its counsel, 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(a) of the Code and that RSFC,
the Bank and Family will each be a party to that reorganization within the
meaning of Section 368(b) of the Code. This section of the Proxy
Statement/Prospectus contains a summary of such counsel's opinion of the
material federal income tax consequences of the Merger. 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 Family 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 Family. Any inaccuracy in those factual matters could
adversely affect the conclusions identified herein and, in particular, could
result in a shareholder, RSFC, the Bank and/or Family 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 counsel has relied
upon in rendering its respective opinion.
Assuming, in accordance with counsel's opinion, that 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, the
Bank or Family by reason of the Merger;
(b) no gain or loss will be recognized by a holder of
Family Common Stock upon the exchange of all of such holder's
shares of Family Common Stock solely for shares of RSFC Common
Stock pursuant to the Merger;
(c) the aggregate basis of the shares of RSFC Common
Stock received by a holder of Family Common Stock will be the
same as the aggregate basis of the shares of Family Common
Stock surrendered in exchange therefor;
(d) the holding period of the shares of RSFC Common
Stock received by a holder of Family Common Stock will include
the holding period of the shares of Family Common Stock
surrendered in exchange therefor; provided
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that such shares of Family Common Stock are held as
capital assets at the Effective Time; and
(e) a holder of Family Common Stock who receives cash
pursuant to dissenters' right under Section 658.44 of the
Florida Banking Code will recognize gain or loss equal to the
difference, if any, between such shareholder's basis in the
shareholder's Family 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 Family Common Stock is
held by such shareholder as a capital asset at the Effective
Time and the holding period is more than one year.
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. Family'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
Family 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
Family 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 Family at the time of the Family
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 Family at the time the Merger
Agreement is submitted to a vote of Family'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 and 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, (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
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not cover any resales of RSFC Common Stock received pursuant to the Merger
Agreement by persons who may be deemed to be Affiliates.
As a condition precedent to the obligation of RSFC and the Bank to effect
the Merger, RSFC must receive from each Family director and any other Affiliate
of Family 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 Family on a consolidated basis have been
published by RSFC.
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 Family 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, the Bank and Family
to effect the Merger that RSFC receives 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, the Bank and Family 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 Family with
those of RSFC.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Family Board and Family's management may be deemed
to have certain interests in the Merger which are in addition to their interests
as Family shareholders, generally. The Family Board was aware of these interests
and considered them, among other matters, in approving the Merger Agreement and
the transactions contemplated thereby.
FAMILY DIRECTORS AND OFFICERS. The Merger Agreement provides that at the
Effective Time certain Family directors and officers will be appointed to the
RSFC Board, the Combined Bank Board and/or as executive officers of the Combined
Bank. See "Management Following the Merger."
INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE FOR FAMILY 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 Family against all liabilities arising out of
actions or omissions arising out of their employment by Family and occurring at
or prior to the Effective Time to the full extent permitted under Florida law
and by RSFC's Articles and Bylaws. In addition, RSFC has agreed to use its
reasonable efforts to maintain Family's existing directors' and officers'
liability insurance policy for a period of three years from the Effective Time;
provided that RSFC is not obligated to make annual premium payments for such
policy which exceed 150% of the annual premium payments on Family's current
policy in effect as of the date of the Merger Agreement. See "--The Merger
Agreement."
AGREEMENTS WITH FAMILY DIRECTORS AND OFFICERS. Each of Carol R. Owen and
Bruce Keir is a party to an existing employment agreement with Family. Each has
entered into an employment agreement with the Bank, which agreement will be
effective as of the Effective Time. At the Effective Time, each employment
agreement will supersede the respective existing agreement, except for the
options granted to Mr. Keir pursuant to that certain Employment Contract by and
between Family and Mr. Keir, dated May 29, 1992. The agreement with Mr. Owen
provides for his employment as Broward County Chairman of the Board through
December 31, 1998 at an annual
57
<PAGE>
salary of $95,000 and, thereafter, as a consultant to the Bank for an additional
year for compensation of $60,000. In the event of termination without cause
prior to December 31, 1998, Mr. Owen will receive the value of the salary and
benefits he would have otherwise received under the agreement. Mr. Owen also
agrees not to engage in the banking business in Broward County, Florida for two
years after termination of employment under the agreement, other than
termination by the Bank without cause. The agreement with Mr. Keir provides for
his employment as Executive Vice President and Broward County Executive at an
annual salary of $100,000 plus performance incentive compensation in an amount
up to 28% of his salary. In the event of termination without cause prior to
December 31, 1998, Mr. Keir will receive an amount equal to one year's salary.
Mr. Keir also agrees not to engage in the banking business in Broward County,
Florida for two years after termination of employment under the agreement, other
than termination by the Bank without cause.
REGULATORY APPROVALS
RSFC, the Bank and Family have agreed to use their best efforts to obtain
all necessary government and regulatory approvals to effect the Merger (the
"Requisite Regulatory Approvals"). The Merger is subject to approval by the FRB
and the Florida Banking Department. Both the FRB and the Florida Banking
Department have approved the Merger.
PLAN OF MERGER AND MERGER AGREEMENT
The Plan of Merger restates the method, terms and conditions of the Merger,
which are contained in the Merger Agreement and also includes information as the
names and locations of the Bank and Family's main offices, the directors and
officers of each and dissenter's rights. The Plan of Merger is the instrument to
be filed with the Florida Banking Department to effect the Merger. As a
condition to granting regulatory approval of the Merger, the Florida Banking
Code requires that Family shareholders approve the Plan of Merger. Pursuant to
Section 658.44 of the Florida Banking Code, a Family shareholder is entitled to
payment in cash of the value of only those shares held by such shareholder only
if such shareholder either (i) votes against the Plan of Merger at the Family
Special Meeting or (ii) gives written notice to Family, at or prior to the
Family Special Meeting, that the shareholder dissents from the Plan of Merger.
Family shareholders will also have the option of voting against the Plan of
Merger and electing to receive shares of RSFC Common Stock in accordance with
the Exchange Ratio rather than the cash payment required by Section 658.44. See
"Dissenters' Rights of Appraisal."
58
<PAGE>
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 Family
at March 31, 1997, assuming that the proposed Merger had occurred as of March
31, 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 Family for the three months ended March 31, 1997 and each of the
periods in the three-year period ended December 31, 1996 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 Family 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 Family. 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.
59
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF FINANCIAL CONDITION
AT MARCH 31, 1997
===================================================================================================================================
PRO FORMA AND
RSFC FAMILY POOLING-OF-INTERESTS PRO FORMA
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
- -------------------------------------------- ------------ ------------ ----------- --------
ASSETS
<S> <C> <C> <C> <C>
Cash and amounts due from depository institutions $ 4,522 $ 13,491 $ 18,013
Interest-bearing deposits in other financial institutions 21,530 21,530
Federal funds sold 11,200 11,200
Investments held to maturity 7,782 41,051 48,833
Investments available-for-sale 30,963 12,140 43,103
Loans - net 269,977 165,428 435,405
Property and equipment - net 10,173 5,206 (400)(a) 14,979
Other real estate owned 792 860 1,652
Goodwill - net 7,534 0 -- 7,534
Other assets 12,108 3,545 -- 15,653
--------- --------- --------- ---------
TOTAL $ 365,381 $ 252,921 $ (400) $ 617,902
========= ========= ========= =========
Liabilities: Deposits $ 262,196 $ 218,754 $ 480,950
Securities sold under agreements to repurchase 1,936 7,877 9,813
Federal Home Loan Bank advances 45,000 0 45,000
Other liabilities 10,638 4,460 1,780(a) 16,878
--------- --------- --------- ---------
Total liabilities 319,770 231,091 1,780 552,641
--------- --------- --------- ---------
Shareholders' equity:
Preferred stock 10,350 0 10,350
Common stock 79 2,958 (2,881)(b) 156
Additional paid-in capital 31,101 3,398 2,881 (b) 37,380
Retained earnings 4,485 15,552 (2,180)(a) 17,857
Unrealized gain on investments available
for sale, net of taxes (404) (78) (482)
--------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 45,611 21,830 (2,180) 65,261
--------- --------- --------- ---------
TOTAL liabilities and shareholders' equity $ 365,381 $ 252,921 $ (400) $ 617,902
========= ========= ========= =========
Stated book value per share(g) $ 4.82 $ 32.10 $ 3.68
========= ========= ========= =========
Tangible book value per share(g) $ 3.95 $ 32.10 $ 3.23
========= ========= ========= =========
Total risk based capital 16.3% 12.7% 14.1%
========= ========= ========= =========
Tier 1 risk based capital 15.2% 11.8% 13.2%
========= ========= ========= =========
Leverage capital 10.9% 9.7% 10.0%
========= ========= ========= =========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
60
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
================================================================================
RSFC FAMILY PRO FORMA COMBINED
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA(a)
- -------------------------------------------- ------------ ------------ ----------- ------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest on loans $5,566 $3,775 $9,341
Interest on investments 946 868 1,814
------ ------ ---- -------
Total interest income $6,512 $4,643 $11,155
====== ====== ==== =======
Interest expense:
Interest on deposits $2,540 $1,531 $4,071
Interest on borrowings 390 69 459
------ ------ -------
Total interest expense $2,930 $1,600 $4,530
====== ====== =======
Net interest income 3,582 3,043 6,625
Provision for loan losses 25 0 25
------ ------ -------
Net interest income after provision 3,557 3,043 6,600
------ ------ -------
Total non-interest income 1,043 566 1,609
====== ====== =======
Operating expenses:
Employee compensation and benefit $1,493 $1,010 2,503
Occupancy and equipment 649 290 939
Professional fees 160 54 214
Communications 119 60 179
Data processing 182 9 191
Insurance 13 48 61
Goodwill amortization 142 142
Other 468 250 718
------ ------ -------
Total 3,226 1,721 4,947
====== ====== === =======
Income before income taxes 1,374 1,888 3,262
Income taxes 508 607 94 (c) 1,209
------ ------ ---- -------
Net income $866 $1,281 $(94) $2,053
====== ====== ==== =======
Earnings per common share:
Primary $.09 $ .11
Fully diluted $.09 $ .11
===== ======
Average common shares and
common stock equivalents outstanding:
Primary 8,034 16,549
Fully diluted 8,034 16,549
====== ======
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
RSFC FAMILY 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 $ 22,623 $14,170 $36,793
Interest on investments 2,173 3,265 5,438
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 24,796 17,435 42,231
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 10,366 5,619 15,985
Interest on borrowings 247 197 444
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 10,613 5,816 16,429
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 14,183 11,619 25,802
Provision for loan losses 155 200 355
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 14,028 11,419 25,447
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 4,684 2,255 6,939
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 6,067 4,094 10,161
Occupancy and equipment 2,478 1,255 3,733
Professional fees 706 257 963
Communications 459 219 678
Data processing 707 24 731
Insurance 1,649 106 1,755
Goodwill amortization 471 471
Other 2,064 1,116 3,180
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 14,601 7,071 21,672
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,111 6,603 10,714
Income taxes 1,711 2,163 197(c) 4,071
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $2,400 $4,440 $(197) $6,643
===============================================================================================================================
Earnings per common share:
Primary $ .20 $ .36
Fully diluted $ .20 $ .36
===============================================================================================================================
Average common shares and common stock equivalents outstanding:
Primary 7,474 15,941
Fully diluted 7,474 18,028
===============================================================================================================================
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
62
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
NINE MONTHS ENDED DECEMBER 31, 1995
==========================================================-----------------------------------------------=====----------==---=====
RSFC FAMILY 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 $15,201 $10,071 $25,272
Interest on investments 1,081 1,906 2,987
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 16,282 11,977 28,259
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 6,946 3,731 10,677
Interest on borrowings 829 112 941
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 7,775 3,843 11,618
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 8,507 8,134 16,641
Provision for loan losses 100 141 241
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 8,407 7,993 16,400
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 3,181 1,450 4,631
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 3,699 2,960 6,659
Occupancy and equipment 1,498 887 2,385
Professional fees 599 174 773
Communications 302 213 515
Data processing 339 26 365
Insurance 473 107 580
Goodwill amortization 165 165
Other 1,367 920 2,287
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 8,442 5,287 13,729
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,146 4,156 7,302
Income taxes 1,169 1,453 83 (c) 2,705
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $1,977 $2,703 $ (83) $4,597
=================================================================================================================================
Earnings per common share:
Primary $ .32 $ .32
Fully diluted $ .25 $ .31
=================================================================================================================================
Average common shares and common stock equivalents outstanding:
Primary 5,175 13,356
Fully diluted 7,797 14,694
=================================================================================================================================
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
63
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED MARCH 31, 1995
================================================================================================================================
RSFC FAMILY 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 $15,480 $10,818 $26,298
Interest on investments 1,034 1,927 2,961
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 16,514 12,745 29,259
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 6,244 3,615 9,859
Interest on borrowings 1,153 114 1,267
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 7,397 3,729 11,126
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 9,117 9,016 18,133
Provision for loan losses 200 (119) 81
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 8,917 9,135 18,052
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 2,773 1,676 4,449
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 4,595 3,431 8,026
Occupancy and equipment 1,488 915 2,403
Professional fees 652 190 842
Communications 352 136 488
Data processing 307 313 620
Insurance 570 430 1,000
Goodwill amortization 73 73
Other 1,823 972 2,795
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 9,860 6,387 16,247
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,830 4,424 6,254
Income taxes 663 1,531 44(c) 2,238
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $1,167 $2,893 $(44) $4,016
===============================================================================================================================
Earnings per common share:
Primary $ .23 $ .31
Fully diluted $ .23 $ .31
===============================================================================================================================
Average common shares and common stock equivalents outstanding:
Primary 4,474 11,990
Fully diluted 4,474 12,119
===============================================================================================================================
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
64
<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 Family
as of March 31, 1997, assuming that the proposed Merger had occurred as of March
31, 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 three months ended March 31, 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 $2.2 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, an additional
provision for loan losses, professional fees and miscellaneous
expenses. The adjustment to property and equipment, net, of $400,000,
represents the estimated book value of electronic data processing
hardware and software that will not be useful to the Combined Company.
Because such costs are non-recurring, they have not been recorded in
the accompanying unaudited pro forma combined condensed statement of
income. However, such costs will be charged to income in the period in
which the Merger is consummated. In addition, RSFC expects to record an
adjustment of approximately $370,000 to the allowance for loan losses
to conform Family's accounting and credit policies regarding loan
valuations to those of RSFC upon consummation of the Merger.
(b) To reflect issuance of approximately 7.7 million shares of RSFC Common
Stock in exchange for 100% of the outstanding shares of Family Common
Stock based upon applying the Exchange Ratio fixed at 13 times the
number of shares of Family Common Stock outstanding at March 31, 1997.
(c) THREE MONTHS ENDED MARCH 31, 1997
Adjustment to reflect pro forma tax expense at the effective tax rate
of 37% as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Historical income adjusted for pro forma tax rate $1,888 x (37% - 32%) = $94
YEAR ENDED DECEMBER 31, 1996
Adjustment to reflect pro forma tax expense at the effective tax rate
of 38% as follows:
Historical income adjusted for pro forma tax rate $4,111 x (38% - 41.62%) = (149)
$6,603 x (38% - 32.75%) = 346
---
$197
NINE MONTHS ENDED DECEMBER 31, 1995
Adjustment to reflect pro forma tax expense at the effective tax rate
of 37% as follows:
Historical income adjusted for pro forma tax rate $4,156 x (37% - 35%) = $83
YEAR ENDED MARCH 31, 1995
Adjustment to reflect pro forma tax expense at the effective tax rate
of 36% as follows:
Historical income adjusted for pro forma tax rate $4,424 x (36% - 35%) = $44
</TABLE>
65
<PAGE>
(d) 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 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.
66
<PAGE>
MANAGEMENT FOLLOWING THE MERGER
Following the consummation of the Merger, the composition of the RSFC Board
and the Combined Bank Board will each consist of 14 members, initially comprised
of the current RSFC and Bank Board's members (Rudy E. Schupp, Richard J.
Haskins, H. Gearl Gore, Lennart E. Lindahl, Jr., Richard C. Rathke, Victor H.
Siegel, William F. Spitznagel, Bruce E. Wiita and William Wolfson) and five
Family designees (Paula Berliner, Joseph D. Cesarotti, Mary Anna Fowler, Eugene
W. Hughes, Jr. and Carol R. Owen) to be elected as directors of RSFC and the
Combined Bank upon consummation of the Merger (the "Designees"). The RSFC Board
and the Combined Bank Board are divided into three classes, each of which have a
term of three years. Ms. Berliner will be elected a Class 2 director for a term
expiring in 1998. Ms. Fowler and Mr. Owen will be elected Class 3 directors for
terms expiring in 1999. Mr. Cesarotti and Mr. Hughes will be elected Class 1
directors for terms expiring in 2000.
Certain information with respect to each director and Designee to the RSFC
Board and the Combined Bank 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
</TABLE>
DIRECTORS OF THE RSFC AND BANK BOARDS
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 the
Bank. 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 the Bank since 1989, Senior Vice President of RSFC
and the Bank since August 1984, and a Director of RSFC and the Bank 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.
67
<PAGE>
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.
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.
Rudy E. Schupp, 46, has been President and Chief Executive Officer of RSFC
since 1985, and the President and Chief Executive Officer of the Bank since its
inception. From 1980 to 1984, Mr. Schupp was employed by AmeriFirst Bank, FSB,
Miami, Florida, where he held the position of Division Vice President and,
previously, was Senior Vice President and Division Manager of the Orlando
Division of AmeriFirst Bank, FSB. Mr. Schupp was Manager in Consumer Bank
Planning and Marketing 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 COMBINED BANK BOARDS
Carol R. Owen, 61, has been Chief Executive Officer, President and a
Director of Family since its inception.
Paula Berliner, 53, has been 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 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.
68
<PAGE>
Mary Anna Fowler, 69, has been a Director of Family since its inception.
Since 1991, Ms. Fowler has been Vice President of Exotic Gardens, Inc., a
florist company.
Eugene W. Hughes, Jr., 64, has been 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.
CERTAIN TRANSACTIONS
Mr. Gore owns a real estate appraisal firm that received fees from the Bank
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.
69
<PAGE>
RSFC EXECUTIVE COMPENSATION, BENEFITS AND RELATED MATTERS
The Summary Compensation Table below sets forth a summary of the
compensation paid for the year ended December 31, 1996, the nine months ended
December 31, 1995 and the year ended March 31, 1995 to each RSFC executive
officer, whose total salary and bonus for 1996 exceeded $100,000:
<TABLE>
<CAPTION>
=====================================================================================================================
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
(A) (B) (C) (D) (E)
- --------------------------------------------------------------------------------------------------- -----------------
SECURITIES
FISCAL RESTRICTED STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) SARS (#) COMPENSATION ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rudy E. Schupp
Chairman and Dec 31, 180,760 122,910 0 0 29,770
1996
Chief Executive Officer Dec 31, 116,760 97,060 25,500 500,000 5,006
1995
of RSFC and the Bank Mar 31, 148,000 78,077 16,400 0 6,965
1995
- -------------------------------------------------------------------------------------------------------------------
Richard J. Haskins
Executive Vice President Dec 31, 130,680 65,420 0 0 19,740
1996
and Chief Financial Officer Dec 31, 91,680 45,530 12,750 200,000 5,633
1995
of RSFC and the Bank Mar 31, 115,993 39,039 8,400 0 6,784
1995
===================================================================================================================
<FN>
- ------------------
FOOTNOTES:
(a) Fiscal Year: On July 26, 1995, the RSFC Board approved a
change in RSFC's fiscal year end to December 31
from March 31. As a result, the information
presented for fiscal year 1995 is for the nine
months transition period from April 1, 1995 to
December 31, 1995.
(b) Salary: Total base salary paid for the year
ended December 31, 1996, the nine months ended
December 31, 1995 and for the fiscal year ended
March 31, 1995 for RSFC and the Bank.
(c) Bonus: Annual incentive compensation paid
for financial results achieved during the
fiscal year.
(d) Restricted Stock Awards: The amounts represent the dollar value of RSFC
awards on the date of grant for stock grants.
Restricted stock awards vest after three years
provided the executive does not resign or is
not terminated for cause. Dividends are paid on
restricted stock. The aggregate number of
shares and market value of restricted stock as
of December 31, 1996 held by each named
executive was as follows: Mr. Schupp 10,100
shares ($61,230); and Mr. Haskins 5,100 shares
($30,920).
(e) All Other Compensation: Includes for 1996 for Schupp: $5,615 of 401(k)
matching contributions, $522 of term life
insurance, $2,193 of automobile allowance and
$21,440 of unrestricted stock grants. Includes
for 1996 for Haskins: $5,918 of 401(k) matching
contributions, $522 of term life insurance,
$2,740 of automobile allowance and $10,560 of
unrestricted stock grants.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Schupp and Haskins have employment agreements with RSFC which
provide for the payment of incentive compensation equal to 2.7% for Mr. Schupp,
and 1.5% for Mr. Haskins, of RSFC's quarterly consolidated income before taxes.
These amounts are reflected in column (c) of the Summary Compensation Table. The
agreements also provide for a severance payment equal to 200% for Mr. Schupp and
150% for Mr. Haskins of base salary and incentive compensation in the event of
termination without cause and provide for benefits including the use of an
automobile and $200,000 term life insurance for the benefit of the executive.
Mr. Schupp's employment agreement is renewable annually but will continue for
two years after the date on which the agreement is not renewed. Mr. Haskins'
employment agreement is renewable annually.
If a change in control of RSFC should occur and (1) the executive's
employment is involuntarily terminated or not extended (other than for cause or
physical or mental incapacity) or (2) he resigns due to his reasonable
70
<PAGE>
determination that he is prevented from exercising his authority or performing
his duties and functions as an officer, then he would be entitled under the
employment agreements to receive a lump sum payment equal to three times his
annual salary. The agreements also provide for payments the executive would have
received in respect to cash incentive compensation and contemplate an additional
payment of 20% of three times his annual salary as compensation for discounted
fringe benefits, as well as for the continuation of any applicable employee
benefit plans for a thirty-six month period. A "Change of Control" is defined in
the agreements as the acquisition by any person or group of 25% or more of the
combined voting power of RSFC's then outstanding securities.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In 1987 RSFC initiated a non-qualified pension plan for senior officers and
division heads of RSFC and the Bank. Eligibility to participant in the plan
requires that the employee be a division head with the title of Vice President
or above, have three years of consecutive service and be approved by the RSFC
Board. The number of persons eligible for this plan in the current year is four.
The expected cost of the plan for the current year is $160,000. Those executives
currently participating in the plan are Messrs. Schupp, Haskins, one senior vice
president and one former executive officer. 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. Participants vest 20% in the plan in the year they enter the
plan and become fully vested under various vesting schedules depending on their
retirement benefit.
RESTRICTED STOCK AWARDS
The RSFC Board has awarded RSFC Common Stock to senior officers of RSFC and
the Bank. Under the terms of the award, the shares are forfeited by the
executive during the three year period after the effective date of the award if
the executive resigns or is terminated for cause. The awards are administered by
the Compensation Committee and the committee can select, at its sole discretion,
key executives of RSFC and its subsidiary who the committee determines are in a
position to have a significant impact on the long-term profitability of RSFC. In
addition to the stock grants, RSFC makes a cash payment equal to 28% of the
taxable value of the shares of RSFC Common Stock granted in an award as of the
date on which the shares are valued for federal income tax purposes. No
restricted stock awards were made in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Messrs. Lindahl, Spitznagel and
Wiita. None of the members of the committee has ever been an officer or employee
of RSFC or the Bank.
71
<PAGE>
REPORT OF THE RSFC COMPENSATION COMMITTEE
GENERAL POLICY
The Compensation Committee of the RSFC Board is responsible for making
recommendations to the RSFC Board as to compensation of RSFC's executive
officers. In addition, the Compensation Committee makes recommendations to the
Board of Director's as to outside director compensation, company-wide benefit
programs, including RSFC's 401(k) program and employee stock purchase program,
as well as executive retirement plans. In terms of executive compensation, the
Compensation Committee bases its compensation decisions primarily on its overall
assessment of the executive's contribution to the profitability of RSFC on both
a long-term and short-term basis, the executive's performance in connection with
the overall and specific strategic and tactical plans in the prior year, as well
as an assessment of the executive's role in ensuring the overall financial
success of RSFC in future periods. In this respect, the Compensation Committee
seeks to reward leadership, innovation, strategic and tactical achievements and
entrepreneurship. In its deliberations, the Compensation Committee generally
does not perform a rote application of specific criteria in making its decisions
and such decisions are necessarily based in part on the committee's subjective
assessment of the executive's performance. Given the differences in magnitude of
a business unit or division, its line or staff configuration, goal achievement
may or may not be weighted heavily on financial performance of the business unit
or division as the amount of non-financial accountability varies materially
among executives of RSFC. The Compensation Committee continues to place emphasis
on the close link between the strategic and financial interests of shareholders
and executive compensation as the committee believes that this orientation is
both motivating to the executives and supports the highest levels of corporate
strategic performance over RSFC's planning horizon. The Compensation Committee
approaches the mix of executive cash compensation with a belief that it should
involve a fair base salary combined with emphasis on incentive compensation as
this approach has served RSFC well in the motivation and retention of its senior
executives.
1996-1997 COMPENSATION
In planning and deliberating 1996-1997 compensation decisions, the
Compensation Committee reviewed RSFC's financial performance on both a long-term
and short-term basis, the job performance of each executive officer, both
financial and non-financial, compensation survey information provided by outside
professional compensation consultants with national and regional peer group
data, internally prepared performance review analyses and various other
information that the Compensation Committee viewed as relevant. In its
deliberations, the Compensation Committee reviewed the referenced information
for comparison purposes, and in doing so, did not set the compensation for any
of RSFC's executive officers at a specific level due solely to comparisons with
the peer group. Instead, the committee's compensation decisions generally
reflect competitive factors, job performance in relation to account abilities,
goal achievement, as well as circumstances and events that are unique to each
executive such as extraordinary efforts and expanded responsibilities. In
assessing RSFC's performance, the Compensation Committee considered, among other
things, the profitability of RSFC as a whole, progress with the overall
shareholder value plan, with special emphasis on the executive's progress with
the long-term strategic plan.
The Compensation Committee's compensation decisions reflect the factors
described, including objective factors and the subjective assessment of
executive performance with no specific rigid criteria applied to compensation
decisions.
BASE SALARY AND CASH INCENTIVE COMPENSATION
Cash compensation decisions by the Compensation Committee take the form of
base salary and cash incentive compensation for the senior executive team. The
committee takes both a long-term and short-term view in arriving at its
determinations for overall cash compensation. The evaluation of varied criteria,
including objective and subjective factors, is brought to the Compensation
Committee's executive cash compensation decisions. In this connection, the
committee awarded increases in base salary to two of the four senior executives
- - the Senior Vice President of Business Banking and the Vice President of
Personal Banking. The Compensation Committee also elevated the quarterly cash
incentive compensation programs for these two executives based upon achievement
of a myriad of financial and non-financial goals. The Compensation Committee
continues to place emphasis on "at risk"
72
<PAGE>
compensation related to executive performance as it believes that such
compensation is aligned with RSFC's and shareholders' short-term and long-term
interests and such compensation also presents a traceable record of motivating
and retaining such executives. Base salary and the rate of cash incentive
compensation for RSFC's Executive Vice President will remain unchanged from 1996
for fiscal 1997, as the Compensation Committee determined that the existing base
salary was considered fair and an unchanged rate of cash incentive compensation
would place emphasis on achieving overall company performance goals while
placing clear emphasis on "at risk" compensation.
LONG-TERM INCENTIVE COMPENSATION
The Compensation Committee made no long-term, non-cash incentive
compensation awards to RSFC's senior executive officers. Instead, the
Compensation Committee thoroughly deliberated and has recommended to the RSFC
Board the adoption of the Republic Security Financial Corporation 1997
Performance Incentive Plan (the "Plan") and its subsidiaries. The Plan will be a
vehicle for officer, director and employee equity-related incentive compensation
awards in the future. Under the proposed plan, 2,000,000 shares of RSFC Common
Stock would be authorized for issuance over the years under the Plan. The Plan
permits a committee of non-employee directors, appointed under the Plan, the
flexibility to issue incentive compensation from time-to-time in the various
forms, including stock options, stock appreciation rights and restricted stock
grants, as may be determined. The Plan is subject to shareholder approval at the
RSFC Annual Meeting. See "RSFC Annual Meeting--Proposal 3: 1997 Performance
Incentive Plan." The Compensation Committee believes that the adoption of such a
plan would provide the architecture as well as the vehicle for providing
long-term, non-cash incentive compensation to RSFC's directors and senior
executives for the purpose of motivating and retaining such directors and
executives and insuring that a meaningful part of their overall compensation is
tied closely to the performance of RSFC and the shareholders' interests over the
long-term. A complete description of the Plan is set forth as Annex F to this
Joint Proxy Statement/Prospectus.
CHIEF EXECUTIVE OFFICER COMPENSATION
In determining Mr. Schupp's compensation, the Committee's review emphasizes
RSFC's current and prior year's financial performance, achievement of RSFC's
overarching strategic plan goals as well as the prevailing market rates of
compensation for the position. RSFC's net income for 1996, before the special
SAIF assessment, was $3,069,000, up 36% when compared to net income of
$2,255,000 for the year ending December 31, 1995. With regard to its strategic
plan, merger and acquisition goals were achieved as well as the significant
transformation of the Bank to a commercial bank. A variety of market data was
analyzed by the committee in order to assess Mr. Schupp's relative compensation.
It is the Compensation Committee's conclusion that Mr. Schupp's current base
salary and rate of cash incentive compensation are considered fair and
appropriate and will remain unchanged from 1996 for fiscal 1997. This decision
continues to place an emphasis on "at risk" incentive compensation for Mr.
Schupp revolving around the achievement of long-term and short-term strategic
and earnings goals for RSFC. In this connection, Mr. Schupp's compensation can
expand and contract according to the performance of RSFC. As a result, a
significant portion of Mr. Schupp's cash compensation bears a close relationship
to the shareholders' interests.
COMPENSATION COMMITTEE
Lennart E. Lindahl, Jr.
William F. Spitznagel
Bruce E. Wiita, M.D.
73
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table summarizes the options and SARs exercised in the last
fiscal year and the value of unexercised options and SARs held at year end by
persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
===================================================================================================================
NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END (#) AT FY-END ($)
ACQUIRED ON
NAME EXERCISE (#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rudy E. Schupp 4,622 $13,865 32,946 500,000 $116,330 $31,250
Richard J.Haskins 0 $0 22,800 200,000 $ 80,185 $15,625
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FAMILY EXECUTIVE COMPENSATION
===================================================================================================================
ANNUAL COMPENSATION
ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION($)(A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carol Owen
President and 1996 150,000 (b) 39,790 24,943 (c)
Chief Executive Officer 1995 150,000 (b) 25,734 12,128 (c)
of Family 1994 150,000 (b) 7,943 9,978 (c)
- --------------------------------------------------------------------------------------------------------------
Bruce Keir
Executive Vice President 1996 91,054 (d) 38,724 0
of Family 1995 91,054 (d) 22,874 0
1994 86,500 (d) 12,089 0
==============================================================================================================
<FN>
- --------------
FOOTNOTES:
(a) Represents compensation earned solely in connection with service as a
director of Family during the years indicated.
(b) Mr. Owen's salary includes the following: $8,908, $6,100 and $0 in an IRC
ss.125 Plan, $9500, $8,569 and $9,500 in a 401(k) Plan and $40,000,
$30,000 and $40,000 in an interest-bearing account deferred until
retirement for the years ended December 31, 1996, 1995 and 1994,
respectively.
(c) Represents $7,600, $6,800 and $7,000 of base compensation and $17,343,
$5328 and $2,978 of special compensation received for the years ended
December 31, 1996, 1995 and 1994, respectively.
(d) Mr. Keir's salary includes the following: $6,908, $7,198 and $5,529 in an
IRC ss. 125 Plan and $8,256.66, $7,150 and $6,192 in a 401(k) Plan for the
years ended December 1996, 1995 and 1994, respectively.
</FN>
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT INDEBTEDNESS
RSFC
==================================================================================================================
LARGEST AMOUNT
OUTSTANDING
DURING THE YEAR BALANCE
ENDED
OFFICER AND/OR DIRECTOR PURPOSE DECEMBER 31, 1996 DECEMBER 31, INTEREST RATE
1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. Gearl Gore 1 $44,117 $35,657 10.25%
H. Gearl Gore 1 174,506 170,195 3.90
H. Gearl Gore 3 23,490 2,148 9.25
H. Gearl Gore 3 39,766 38,471 9.25
Gulfstream Exterminating (Gore) 3 3,000 3,000 10.25
Gulfstream Exterminating (Gore) 3 4,611 2,580 10.25
Richard J. Haskins 2 21,433 1,520 9.25
Richard J. Haskins 2 30,000 0 8.09
Lennart Lindahl 2 95,909 0 9.25
Lennart Lindahl 3 40,570 14,800 9.25
Lennart Lindahl 2 7,123 4,322 8.50
Rudy E. Schupp 1 19,999 18,685 9.25
Rudy E. Schupp 1 22,029 0 9.25
Rudy E. Schupp 1 55,000 52,062 9.25
Victor Siegel 2 144,666 134,881 9.25
Victor Siegel 2 61,172 61,172 7.75
Victor Siegel 2 4,127 0 9.50
Victor Siegel 3 12,545 0 9.25
Victor Siegel 3 34,080 27,534 7.50
Bruce Wiita 2 75,050 71,187 9.25
Bruce Wiita 3 43,160 0 10.25
Devmed Group, Inc. (Wiita) 3 200,000 0 9.25
==================================================================================================================
</TABLE>
1 - Personal Residence
2 - Consumer
3 - Business
All loans to officers and directors are made by the Bank in the ordinary
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons. In addition, all such loans did not involve more than the normal
risk of collectibility or present other unfavorable features.
75
<PAGE>
Family
===============================================================================
BALANCE
OFFICER AND/OR DIRECTOR MARCH 31, 1997 INTEREST RATE
- -------------------------------------------------------------------------------
Joseph Cesarotti $574,474 8.25
Sungraf, Inc. (Cesarotti) 58,023 8.50
Paula Berliner 284,786 8.25
Paula Berliner 217,516 8.25
===============================================================================
76
<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 March 31, 1997 (including
options exercisable within 60 days) by (1) each nominee for the RSFC Board, (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
PERCENTAGE OF PERCENTAGE OF
AMOUNT AND NATURE OF OUTSTANDING RSFC AMOUNT AND NATURE OUTSTANDING
NAME OF BENEFICIAL BENEFICIAL OWNERSHIP COMMON STOCK OF BENEFICIAL OWNERSHIP COMMON STOCK
------------------ -------------------- ---------------- ----------------------- ------------
<S> <C> <C> <C> <C>
Rudy E. Schupp 122,356 (1)(2)(3) 1.5% 122,356 (1)(2)(3) 0.78%
Carol R. Owen ---- ---- 1,109,290 (7) 7.06
Richard J. Haskins 81,550 (1)(2) 1.0 81,550 (1)(2) 0.52
Paula Berliner ---- ---- 260,793 (8) 1.67
Joseph D. Cesarotti ---- ---- 160,381 (9) 1.03
Mary Anna Fowler ---- ---- 89,297 0.01
H. Gearl Gore 142,424 (1)(2)(4)(5) 1.8 142,424 (1)(2)(4)(5) 0.91
Eugene W. Hughes, Jr. ---- ---- 300,326 (10) 1.30
Lennart E. Lindahl, Jr. 131,193 (1)(2)(4)(5) 1.7 131,193 (1)(2)(4)(5) 0.84
Richard C. Rathke 140,599 (1)(2)(4)(5) 1.8 140,599 (1)(2)(4)(5) 0.90
Victor H. Siegel 267,706 (1)(4) 3.4 267,706 (1)(4) 1.72
William F. Spitznagel 310,964 (1)(2)(4)(5) 3.9 310,964 (1)(2)(4)(5) 1.99
Bruce E. Wiita 145,325 (1)(2)(4)(5) 1.8 145,325 (1)(2)(4)(5) 0.93
William Wolfson 9,274 (4) 0.1 9,274 (4) 0.06
All directors and 1,351,364 (6) 16.5% 3,174,771 (11) 18.60%
executive officers as
a group
(9 persons)
<FN>
- ------------
(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 the 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 options and warrants for 344,176 shares of RSFC Common Stock.
Actual RSFC Common Stock owned is 13% of the total outstanding.
(7) Includes 11,791 shares of RSFC Common Stock held by Mr. Owen's wife; 96,707
shares of RSFC Common Stock held by the Family Bank Employee Stock
Ownership Trust of which Mr. Owen is a trustee; 332,059 and 44,759 and
182,309 shares of RSFC Common Stock held by the Mary Hughes Owen Living
Trust
77
<PAGE>
No.2, Mary Hughes Owen Testamentary Trust and Residuary Trust Estate
pursuant to Article IV-B Will of Mary Hughes Owen Deceased, respectively,
each of which Mr. Owen is a trustee; and options to purchase 82,797 shares
of RSFC Common Stock.
(8) Includes 27,118 shares of RSFC Common Stock held by Ms. Berliner's husband
and options to purchase 82,797 shares of RSFC Common Stock.
(9) Includes 7,046 shares of RSFC Common Stock held jointly by Mr. Cesarotti
and his wife, 35,269 shares of RSFC Common Stock held by Mr. Cesarotti's
wife and options to purchase 82,797 shares of RSFC Common Stock.
(10) Includes 96,707 shares of RSFC Common Stock held by the Family Bank
Employee Stock Ownership Trust of which Mr. Hughes is a trustee and
options to purchase 41,847 shares of RSFC Common Stock.
(11) Includes options and warrants for 700,146 shares of RSFC Common Stock.
Actual RSFC Common Stock owned is 17%.
</FN>
</TABLE>
FAMILY
The following table sets forth certain information with regard to the
beneficial ownership of Family Common Stock as of May 15, 1997 (including
options exercisable within 60 days) by (1) the "named executives" of Family, (2)
each director of Family, (3) all directors and executive officers of Family as a
group, and (4) each person known by Family to be the beneficial owner of more
than 5% of the outstanding class of Family 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.
<TABLE>
<CAPTION>
PRE-MERGER
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP FAMILY COMMON STOCK
-------------------- --------------------- -------------------
<S> <C> <C>
Carol R. Owen 85,330(2) 13.3%
Paula Berliner 20,061(3) 3.1
Louis Bianculli 34,379(4) 5.4
Joseph Cesarotti 12,337(5) 2.0
Mary Anna Fowler 6,869 1.1
Lynn W. Fromberg 15,518(6) 2.4
Eugene W. Hughes, Jr. 23,102(7) 3.6
Bruce Keir 5,819(8) 1.0
Joslyn Perkins 13,190(9) 2.0
All directors and executive 209,166 31.0
officers as a group (9 persons)
</TABLE>
- ------------
(1) The address of each beneficial owner identified above is c/o Family Bank,
1000 East Hallandale Beach Boulevard, Hallandale, Florida 33309.
(2) Includes 907 shares of Family Common Stock held by Mr. Owen's wife; 7,439
shares of Family Common Stock held by the Family Bank Employee Stock
Ownership Trust of which Mr. Owen is a trustee; 25,543 and 3,443 and 14,030
shares of Family Common Stock held by the Mary Hughes Owen Living Trust
No.2, Mary Hughes Owen Testamentary Trust and Residuary Trust Estate
pursuant to Article IV-B Will of Mary Hughes Owen Deceased, respectively,
each of which Mr. Owen is a trustee; and options to purchase 6,369 shares
of Family Common Stock.
(3) Includes 2,086 shares of Family Common Stock held by Ms. Berliner's husband
and options to purchase 6,369 shares of Family Common Stock.
(4) Includes 25,161 shares of Family Common Stock held jointly by Mr. Bianculli
and his wife and 2,849 shares of Common Stock held in the Doris Bianculli
Revocable Trust of which Mr. and Mrs. Bianculli are trustees.
(5) Includes 542 shares of Family Common Stock held jointly by Mr. Cesarotti
and his wife, 2,713 shares of Family Common Stock held by Mr. Cesarotti's
wife and options to purchase 6,369 shares of Family Common Stock.
(6) Includes 3,580 shares of Family Common Stock jointly held by Mr. Fromberg
and his wife, 5,170 shares of Family Common Stock held by Mr. Fromberg's
wife, 399 shares of Family Common Stock held under the Bernard Fromberg
Revocable Trust Agreement dated February 1, 1993, which includes Mr.
Fromberg as a co-trustee, and options to purchase 3,219 shares of Family
Common Stock.
(7) Includes 7,439 shares of Family Common Stock held by the Family Bank
Employee Stock Ownership Trust of which Mr. Hughes is a trustee and
options to purchase 3,219 shares of Family Common Stock.
(8) Includes options to purchase 2,419 shares of Family Common Stock.
(9) Includes 574 shares of Family Common Stock held jointly with Ms. Perkins'
daughter.
78
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF RSFC AND FAMILY COMMON STOCK
The rights of holders of Family Common Stock are governed by the Family
Articles of Incorporation (the "Family Articles"), Bylaws, the Florida Banking
Code and, where not in direct conflict with such code, the Florida Business
Corporation Act (the "FBCA"). As a result of the Merger, the rights of the
holders of Family Common Stock, which will be converted into shares of RSFC
Common Stock, will be governed by the RSFC Articles, Bylaws, 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 Family. This summary does not purport to be a complete
discussion of, and is qualified in its entirety by reference to, the Family
Articles and Bylaws, the RSFC Articles and Bylaws, the Florida Banking Code, the
Bank Holding Company Act and the FBCA.
AUTHORIZED CAPITAL STOCK
RSFC. The RSFC Articles authorize the issuance of up to 20,000,000 shares
of RSFC Common Stock, par value $0.01 per share, of which, as of March 31, 1997,
7,854,982 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"), 396,422 shares were reserved for issuance
pursuant to RSFC stock options 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 has the authority to divide the 10,000,000
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 these
authorized shares of preferred stock, the following series have been designated
as of March 31, 1997: 402,500 shares of 7.5% Cumulative Convertible Preferred
Stock, Series A, stated value of $10.00 per share, (the "Series A Preferred"),
no shares of which are outstanding; 100,000 shares of Series B Junior
Participating Preferred Stock (the "Series B Preferred"), no shares of which are
outstanding; 1,035,000 shares of the Series C Preferred of which 1,035,000
shares were issued and outstanding.
FAMILY. The Family Articles authorize the issuance of up to 1,200,000
shares of Family Common Stock, par value $5.00 per share, of which, as of March
31, 1997, 591,669 shares were issued and outstanding, and 96,360 shares were
reserved for issuance upon the exercise of outstanding options pursuant to
Family's stock option plans.
BOARD OF DIRECTORS
RSFC. The RSFC Bylaws currently provide that the RSFC Board will consist of
nine members. The RSFC Board presently has nine directors. The RSFC Articles
divide the RSFC Board 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 (as defined in the RSFC Bylaws) 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 14.
FAMILY. The Family Articles provide that the Family Board will consist of
at least five members. The Family Board presently has eight directors. The
Family Board is not divided into classes. Under the Family Bylaws, directors may
be removed, with or without cause, by (i) the majority vote of the shares of
Family Common Stock at any meeting of shareholders called for such purpose or
(ii) a vote of two-thirds of all directors.
CUMULATIVE 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.
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FAMILY. Pursuant to the FBCA and the Family Articles, holders of Family
Common Stock are entitled to one vote for each share held, except that such
holders are entitled to 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.
FAMILY. The holders of Family's Common Stock have no preemptive rights to
acquire any additional shares of Family Common Stock or any other shares of
Family 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 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.
FAMILY. Under the Family Bylaws, a special meeting of Family shareholders
may be called by (i) the President, (ii) one-half of the directors or (iii) by
the holders of not less than a majority of the shares entitled to vote at the
meeting.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
RSFC. 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. The RSFC Articles
and Bylaws do not 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.
FAMILY. The Florida Banking Code requires that if the resulting bank of a
merger will be a Florida state bank, a plan of merger and merger agreement,
stating the method, terms and conditions of the merger, must be (i) adopted by
the constituent banks, (ii) approved by a majority of the board of directors of
each constituent bank, (iii) approved by the Florida Banking Department and (iv)
approved by a majority of the holders of at least a majority of the shares
entitled to vote thereon of each constituent bank.
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 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 may
adopt, alter, amend or repeal the RSFC Bylaws by a majority vote.
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FAMILY. Under the Florida Banking Code, amendments to the Family Articles
must receive the prior written approval of the Florida Banking Department.
Pursuant to the FBCA, except in limited circumstances, amendments to the Family
Articles must also be recommended by the RSFC Board and approved by a majority
of votes entitled to be cast by each voting group entitled to vote on the
amendment. Under the Florida Banking Code, the Family Board may adopt or amend
the Family Bylaws.
RIGHTS OF DISSENTING SHAREHOLDERS
RSFC. 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.
FAMILY. Pursuant to Section 658.44 of the Florida Banking Code,
shareholders of each constituent state bank to a plan of merger are generally
entitled to receive payment in cash of the value of his or her shares if such
shareholder votes against the approval of, or dissents from, a plan of merger
and merger agreement and complies with the procedures set forth in Section
658.44 for exercising such rights. See "Dissenters' Rights of Appraisal."
DIVIDENDS
RSFC. 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.
FAMILY. The Florida Banking Code provides that, after charging off bad
debts, depreciation and other worthless assets, if any, and after making
provision for reasonably anticipated future losses on loans and other assets,
the board of directors of a state bank may declare (i) quarterly, semi-annually
or annually a dividend out of the aggregate of the net profits of that period
combined with its retained net profits of the preceding two years and (ii) with
the prior approval of the Florida Banking Department, a dividend from retained
net profits which accrued prior to the preceding two years; PROVIDED, HOWEVER,
that (x) no dividend may be declared on the bank's common stock until the bank
carries 20% of its net profits for such preceding period as is covered by the
dividend to its surplus fund, until the surplus fund equals at least the amount
of its common and preferred stock then issued and outstanding; and that (y) no
dividend may be declared if the bank's net income from the current year combined
with the retained net income from the preceding two years is a loss or would
cause the capital accounts of the bank to fall below the minimum amount required
by law, regulation, order or any written agreement with the Florida Banking
Department or a state or federal regulatory agency. Under the Florida Banking
Code, a stock split or dividend on shares of capital stock of a bank which
results in a greater number of shares without increasing or decreasing the
capital accounts of the bank does not constitute a dividend.
CERTAIN ANTI-TAKEOVER PROVISIONS
RSFC AND FAMILY. Both RSFC and Family 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
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law, unless a corporation has elected to opt out of these provisions in its
articles of incorporation or bylaws. Neither RSFC nor Family has elected to opt
out of those provisions. The Control Share provisions prohibit a shareholder
from voting shares of RSFC or Family 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
bymajority vote at a special meeting called for that purpose. The Fair Price
provisions require that, in any merger of RSFC or Family 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 Family Common Stock, as the case may be,
during the preceding two years or the fair market value of the RSFC or Family
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 Family Common Stock not affiliated with the Interested Shareholder.
RSFC -- RIGHTS PLAN. On March 29, 1995, the RSFC Board 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 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's 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
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
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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, with, where required, the concurrence of the
continuing directors, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.01 redemption price.
RSFC -- 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, 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. 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.
FAMILY. Under the Florida Banking Code, a person or group of persons
proposing to acquire "control" of a Florida state bank must submit an
application to, and obtain a certificate of approval from, the Florida Banking
Department. The Florida Banking Department may only issue a certificate of
approval after it investigates and determines that (i) such person or group of
persons is qualified by reputation, character, experience and financial
responsibility to control and operate the bank and (ii) the interests of the
bank's shareholders, depositors, creditors and the public generally will not be
jeopardized by the proposed acquisition of control. Under a rebuttable
presumption established by the Florida Banking Department, the acquisition of
10% or more of a class of voting stock of a Florida state bank would constitute
the acquisition of control. In such circumstances, the person or group of
persons proposing to acquire 10% or more of a class of voting stock must first
give written notice of the proposal to the Florida Banking Department.
Under federal law, a person or group of persons is prohibited from
acquiring "control" of Family unless the FDIC has been given 60 days' prior
written notice of such proposed acquisition and within that time period the FDIC
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 approval under the Bank Holding Company
Act. An acquisition may be made prior to the expiration of the disapproval
period if the FDIC issues written notice of its intent not to disapprove the
action. Under a rebuttable presumption established by the FDIC, the acquisition
of more than ten percent of a class of voting stock of Family would constitute
the acquisition of control if the acquiror would be the largest shareholder.
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 Family, or otherwise obtaining "control" over Family.
Under the Bank
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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's directors, or (iii)
the ability otherwise to exercise a controlling influence over the management
and policies of the bank.
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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 the Bank, its wholly owned subsidiary, a state chartered commercial
bank. The Bank 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 the Bank 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 January 19, 1996, the Bank 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 the Bank with a geographic presence in
South Palm Beach County. The acquisition was accounted for as a purchase and
resulted in the Bank acquiring assets of $61.7 million and liabilities of $57.0
million.
On November 30, 1994, the Bank 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 the Bank acquiring assets of $64.3
million, liabilities of $62.3 million and two additional branch locations.
LENDING ACTIVITIES
GENERAL. Under applicable regulations, the Bank originates, purchases and sells
loans or participating interests in loans. The Bank originates, purchases and
participates in loans for its own portfolio and for sale in the secondary
market. Lending activities include the origination and purchase of long-term
adjustable-rate and to a lesser extent fixed-rate residential mortgage loans,
construction loans, commercial business loans, commercial real estate 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 the Bank's mortgage loans are secured by property
located in Florida.
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The following tables set forth the composition of the Bank's loan portfolio by
type of loan at the periods indicated:
<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)
- --------------------------------------------------------------------------------------------------------------------
Real estate loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
* Residential property $102,266 40% $116,328 50% $124,750 49% $105,752 59% $79,236 54%
* Construction loans 27,569 11 33,990 15 45,511 18 49,280 27 43,177 29
* Commercial real estate 58,842 23 25,884 11 26,910 11 12,446 7 13,498 9
* Residential lot 2,224 1 2,873 1 2,989 1 1,972 2 3,115 2
- --------------------------------------------------------------------------------------------------------------------
Total real estate loans 190,901 75 179,075 77 200,160 79 169,450 95 139,026 94
- --------------------------------------------------------------------------------------------------------------------
Consumer Loans:
* Home equity lines of credit 3,869 1 2,918 1 2,852 1 2,192 1 2,150 2
* Personal and Other 7,841 3 3,712 2 2,587 1 1,271 1 2,343 2
* Automobile 31,653 12 30,797 14 30,134 12 3,763 2 221 *
* Savings accounts 398 * 557 * 712 * 415 * 586 *
- --------------------------------------------------------------------------------------------------------------------
Total consumer loans 43,761 16 37,984 17 36,285 14 7,641 4 5,300 4
- --------------------------------------------------------------------------------------------------------------------
Commercial business loans: 23,844 9 14,868 6 16,484 7 2,356 1 2,528 2
- --------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 258,506 100% 231,927 100% 252,929 100% 179,447 100% 146,854 100%
==== ==== ==== ==== ====
Less:
Loans in process 12,913 12,104 21,460 22,876 19,290
Discounts, premiums and 98 636 1,022 206 307
deferred loan fees
Allowance for losses 2,273 2,431 2,507 1,071 1,247
- --------------------------------------------------------------------------------------------------------------------
TOTAL $243,222 $216,756 $227,940 $155,294 $126,010
====================================================================================================================
<FN>
- -------------
* Less than one percent
</FN>
</TABLE>
The following table sets forth at December 31, 1996, the principal
amounts of the Bank'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) $ 6,270 $14,289 $81,707 $102,266
Construction and lot(2) 12,900 3,526 454 16,880
Commercial 13,767 27,756 17,319 58,842
COMMERCIAL BUSINESS 13,209 9,535 1,100 23,844
CONSUMER 13,957 26,045 3,759 43,761
- --------------------------------------------------------------------------------------------------------------------
Total $60,103 $81,151 $104,339 $245,593
- --------------------------------------------------------------------------------------------------------------------
Maturing after one year with:
Variable interest rates $38,778 $82,033
Fixed interest rates 42,373 22,306
- --------------------------------------------------------------------------------------------------------------------
Total $81,151 $104,339
====================================================================================================================
<FN>
- ------------
(1) Excludes loans held for sale
(2) Net of loans-in-process
</FN>
</TABLE>
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The Bank provides residential real estate construction and mortgage loans,
consumer loans and commercial business loans. Loans secured by real estate
generally include construction loans, loans to refinance or purchase existing
properties, home equity loans and land acquisition and development loans.
REAL ESTATE MORTGAGE LOANS. The Bank's real estate mortgage loans consist
of commercial and residential mortgage loans, which are secured by existing
properties. The Bank's residential mortgage loans have terms which do not exceed
30 years and are secured by one- to four-family residences. The majority of
residential mortgages which the Bank holds in its portfolio 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 the Bank in
accordance with guidelines of the Federal Home Loan Mortgage Corporation (the
"FHLMC"). The Bank is an approved seller/servicer for the Federal National
Mortgage Association (the "FNMA") and the FHLMC.
Loans secured by commercial properties generally have terms ranging from
five to ten years and interest rate adjustment periods ranging from monthly to
three years. Amortization periods for commercial mortgage loans generally do not
exceed 25 years. Commercial real estate loans originated by the Bank are
primarily secured by income-producing properties such as office buildings and
retail space. Generally, in underwriting commercial real estate loans, the Bank
requires the personal guaranty of borrowers, a maximum loan to value ratio of
80%, and a cash flow to debt service ratio of 1.25 to 1.
CONSTRUCTION LOANS. Residential real estate construction loans comprised
approximately 11% of the Bank's total loan portfolio as of December 31, 1996.
The total construction loan portfolio of $27.6 million as of December 31, 1996,
are all for one- to four-family residential properties.
The Bank originates one- to four-family residential loans to individuals on
a pre-sold basis and through developers on a pre-sold and speculative basis. The
Bank's underwriting guidelines regarding residential construction loans require
an analysis of the financial condition of the developer or the borrower, the
appraised value of the property, and the marketability of the proposed
residence, including location, and overall portfolio concentrations. Limitations
are imposed by the Bank on the amount of loans for the purpose of construction
of residences that have not been pre-sold.
Construction loans generally have terms of between six and 12 months and
interest rates which adjust monthly based upon a designated prime rate. Loan
proceeds are advanced as construction progresses and inspections warrant.
Construction loans are structured either to be converted to permanent loans at
the end of the construction phase, or to be paid off upon receipt of financing
from another lender.
The Bank's construction loans are secured by first mortgages on the
underlying real estate and have loan-to-value ratios which generally do not
exceed 80%. All such loans provide for recourse to the borrower or a related
individual in the event of a default. The loan agreements generally require the
Bank to advance funds for fees. The amount of the loan generally provides
borrowers with sufficient funds to pay the interest on the loan during
construction since interest is considered part of the total cost of the
property.
Construction loans afford the Bank the opportunity to increase the interest
rate sensitivity of its loan portfolio and to receive yields higher than those
obtainable on adjustable-rate mortgage loans secured by existing residential
properties. These higher yields correspond to the higher credit risks associated
with construction lending. Historically, the Bank has obtained its construction
loans through its retail loan officer network and also through the wholesale
broker network. These loans are generally made to the homeowner and may or may
not involve an end
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loan commitment. More recently, because of the reduction in the Bank's retail
residential loan officer network, the Bank has become more dependent upon the
wholesale broker network for its construction loans.
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
the Bank is forced to foreclose on a project prior to or at completion due to a
default, there can be no assurance that the Bank will be able to recover all of
the unpaid balance of, and accrued interest on, the loan as well as the related
foreclosure and holding costs. In addition, the Bank may be required to fund
additional amounts to complete a project and may have to hold the property for
an indeterminable period of time. The Bank has underwriting procedures designed
to identify what it believes to be acceptable levels of risk.
CONSUMER LOANS. Consumer loans are extended for a variety of purposes
including the purchase of automobiles, home improvement, lines of credit,
unsecured personal loans and education. As of December 31, 1996, consumer loans
were approximately $43.8 million or 16% of total loans. Loans secured by
automobiles are the dominant consumer loans and represented $31.7 million or 72%
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 the Bank'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 the Bank's loan yield and its cost of funds.
COMMERCIAL BUSINESS LOANS. Commercial business loans (excluding Small
Business Administration ("SBA") loans) totaled $21.7 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, the Bank
expanded its commercial business lending activities and expects to continue to
pursue the commercial business loan area.
SBA loans which totaled $2.1 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 the
Bank from the borrower. Typically, the SBA guarantees 80% to 90% of the loan
balance with the remaining portion unguaranteed. Although the Bank is permitted
to sell the SBA-guaranteed portion of the loan in secondary markets, with the
Bank retaining the portion that is not guaranteed, the Bank does not typically
sell such portions in secondary markets. SBA loans are similar to commercial
business loans in yield and credit risk.
OTHER LENDING ACTIVITIES. The Bank may also extend loans for other purposes
from time to time, including land acquisition and development and residential
lot loans.
88
<PAGE>
The following table sets forth total loans and loans held for sale that
were originated, purchased, sold and repaid during the periods indicated:
<TABLE>
<CAPTION>
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 614 386 (816)
and discounts
Net (decrease) increase in loans in process (809) 9,356 1,416
Net decrease (increase) in allowance for loss 158 76 (1,436)
- --------------------------------------------------------------------------------------------------------------------
/bullet/ NET INCREASE (DECREASE) IN LOANS AND LOANS HELD FOR $34,239 ($11,184) $70,841
SALE
====================================================================================================================
</TABLE>
LENDING PROCEDURES. Loan applications may be approved by the Bank 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 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 or the Board Loan Committee.
With respect to any approved real estate loan, the Bank issues a written
commitment to the applicant, setting forth the terms under which the loan will
be extended. A title insurance commitment for the mortgaged property is obtained
from an approved title company prior to the closing. Fire, casualty, and flood
insurance (where applicable) are obtained, naming the Bank as a mortgagee.
In accordance with the Bank's policies and applicable law, the
documentation of each real estate loan includes: an application signed by the
applicant, disclosing the purpose for which the loan is sought and the identity
of the property; one or more written appraisal reports disclosing the fair
market value of the security offered by the applicant; a signed financial
statement of the applicant or a written credit report prepared by the Bank or by
others at its request; documentation showing the date, amounts, purpose, and
recipient of every disbursement of loan proceeds; an opinion of the Bank's
attorney; a title insurance policy or other documentary evidence customarily
used in the appropriate jurisdiction, affirming the quality and validity of the
Bank's lien on the relevant real estate;
89
<PAGE>
documentation covering all modifications of the original mortgage contract
showing appropriate approval for each such modification; and documentation
covering all releases of any portion of the collateral supporting the loan.
SERVICING OF MORTGAGE LOANS
The Bank services virtually all of its loan portfolio. As of December 31,
1996, the Bank was also servicing $277 million in loans and loan participations
for other lenders. The Bank services both loans and loan participations it has
sold to others, as well as loans pursuant to the purchase of servicing rights.
From time to time, the Bank purchases mortgage loan servicing to generate
servicing income and to utilize effectively excess servicing capacity. The Bank
has such excess servicing capacity due to its regular needs for a minimum level
of personnel and facilities to service the Bank's own portfolio. Management
believes that it is cost- effective to use its personnel base to 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. The Bank 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 the Bank. A computer model is utilized in the
evaluation process which assesses prepayment expectations, costs to establish
servicing files, the on-going costs of servicing, the mortgage loan coupon range
and concentrations, servicing margin, payment remittance cycles and utilization
of escrow funds.
Although the originator or its assignee retains title and reimburses the
servicer for the majority of expenses should foreclosure be required, the
purchase of servicing rights involves risks to the servicer, particularly should
the underlying loans be prepaid faster than that assumed in the servicing rights
valuation process. Should loan prepayments be accelerated, the amortization of
the amount paid for servicing rights (which amount is amortized over the
estimated life of the underlying loan utilizing the interest method) must also
be accelerated thereby reducing income. See Note 8 to Consolidated Financial
Statements. The Bank seeks to mitigate such risks by diversifying the servicing
portfolio between fixed-rate and adjustable-rate mortgage loans and among
various states, including Florida, California, Iowa and Illinois.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The Bank's non-performing assets consist of real estate acquired through
foreclosures ("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 $4.6 million, representing 1.27% of the Bank's total assets.
90
<PAGE>
The following table details the Bank'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,
(IN THOUSANDS) 1996 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOANS:
Consumer $157 $303 $352 $61 $241
Commercial business 583 101 630 377 398
Residential mortgage 1,911 1,774 1,050 591 2,167
Residential construction 183 107 115 84 70
Commercial mortgage 294 162 244 317
Repossessed automobiles 196 137 118
- -------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 3,324 2,422 2,427 1,357 3,193
- -------------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED:
Residential construction 107 90 26 468
Residential mortgage 898 483 219 787 306
Land for residential use 61
Land for commercial use 243 767 764 555 574
Commercial real estate 52
- -------------------------------------------------------------------------------------------------------------------
TOTAL OTHER REAL ESTATE OWNED 1,248 1,340 1,009 1,871 932
- -------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $4,572 $3,762 $3,436 $3,228 $4,125
===================================================================================================================
</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.
The Bank's non-residential portfolios in excess of $100,000 are reviewed
annually by a committee comprised of three members of the Bank'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. The Bank will
charge off 100% of the assets classified as loss. The Bank's determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review by the FRB and the Florida Banking Department, which can order
the establishment of additional general or specific loss allowances.
Although the Bank uses its best judgment in underwriting each loan,
industry experience indicates that a portion of the Bank's loans will become
delinquent. Regardless of the underwriting criteria utilized by 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 the
Bank's collateral.
91
<PAGE>
In the normal course of business, the Bank has recognized and will continue
to recognize losses resulting from the inability of certain borrowers to repay
loans and the insufficient realizable value of collateral securing such loans.
Accordingly, management has established an allowance for loan losses, which
totaled approximately $2.3 million at December 31, 1996, which is allocated
according to the following table:
<TABLE>
<CAPTION>
===================================================================================
DECEMBER 31, DECEMBER 31,
1996 1995
ALLOW % OF LOANS ALLOW % OF LOANS
FOR TO TOTAL FOR TO TOTAL
LOAN LOSS(2) LOANS LOAN LOSS LOANS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate construction and lot $ 48 12% $ 179 16%
Residential mortgage 540 41 545 50
Commercial mortgage 440 22 371 11
Commercial business 267 9 520 6
Consumer 475 16 506 17
Unallocated (1) 503 310
- -----------------------------------------------------------------------------------
TOTAL $2,273 100% $2,431 100%
===================================================================================
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
==============================================================================================================
MARCH 31,
1995 1994 1993
ALLOW %OF LOANS ALLOW % OF LOANS ALLOW % OF LOANS
FOR TO TOTAL FOR TO TOTAL FOR TO TOTAL
LOAN LOSS LOANS LOAN LOSS LOANS LOAN LOSS LOANS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate construction and lot $ 281 19% $ 212 29% $ 137 31%
Residential mortgage 192 49 283 59 408 54
Commercial mortgage 343 11 198 7 224 9
Commercial business 531 7 114 1 152 2
Consumer 406 14 163 4 201 4
Unallocated (1) 754 101 125
- --------------------------------------------------------------------------------------------------------------
TOTAL $2,507 100% $1,071 100% $1,247 100%
==============================================================================================================
<FN>
- --------------
(1) The unallocated portion of the allowance for loan losses decreased from
March 31, 1995 to December 31, 1996 and 1995 due to the Bank 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 $439,000.
(2) The Bank changed the risk factors applied to the performing loan portfolio
to risk factors more similar to the Bank's actual three loss history (see
discussion below).
</FN>
</TABLE>
In evaluating the adequacy of the allowance for loan losses, management has
taken into consideration the loan portfolio, past loan loss experience, current
economic conditions, workout arrangements, pending sales, the financial strength
of the borrowers, and the appraised value of the collateral at the time reserves
were established. Although management believes the allowance for losses is
adequate, their evaluation is dependent upon future events. Management's
evaluation of losses is a continuing process which may necessitate adjustments
to the allowance in future periods.
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 the Bank'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 the Bank did not have a relevant loss history for
these loans. After several years of transitioning to a commercial bank, the Bank
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%.
92
<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 AT OR FOR THE
YEAR ENDED, NINE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(IN THOUSANDS) 1996 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning balance $2,431 $2,507 $1,071 $1,247 $775
Reserves acquired in connection with merger 374 1,399 319
CHARGE-OFFS:
/bullet/ Real estate mortgage 228 213 344 274 530
/bullet/ Real estate construction 10 11 138
/bullet/ Consumer 550 458 105 8 102
/bullet/ Commercial business 76 137 158 459 226
- -------------------------------------------------------------------------------------------------------------------
SUBTOTAL - CHARGE-OFFS 854 808 617 752 996
- -------------------------------------------------------------------------------------------------------------------
RECOVERIES:
/bullet/ Real estate mortgage 34 26 166 235 138
/bullet/ Consumer 76 57 15 8
/bullet/ Commercial 57 549 273 127
- -------------------------------------------------------------------------------------------------------------------
SUBTOTAL - RECOVERIES 167 632 454 362 146
- -------------------------------------------------------------------------------------------------------------------
Net charge-offs 687 176 163 390 850
- -------------------------------------------------------------------------------------------------------------------
Provision for losses 155 100 200 214 1,003
- -------------------------------------------------------------------------------------------------------------------
ENDING BALANCE $2,273 $2,431 $2,507 $1,071 $1,247
- -------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs during the period to
average loans
outstanding during the period .26% .08% .09% .27% .75%
===================================================================================================================
</TABLE>
INVESTMENT ACTIVITIES
The Bank 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." The Bank considers such factors
as liquidity, yields, interest rate exposure and general economic conditions in
determining the composition of its investments portfolio. As of December 31,
1996, RSFC had cash and cash equivalents of $39.3 million and investments of
$39.7 million representing, in the aggregate, 22% of its total assets. See Note
3 of Notes to Consolidated Financial Statements.
DEPOSITS
The Bank offers a variety of deposit programs, including NOW accounts,
money market deposit accounts, statement savings accounts, and variable- or
fixed-rate certificates of deposit with maturities ranging from 30 days to five
years. The principal 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 $25.2 million, representing 9% of total deposits.
93
<PAGE>
The following tables set forth the amounts and the weighted-average
interest rate on each category of the Bank's deposit accounts as of the dates
indicated:
<TABLE>
<CAPTION>
===================================================================================================================
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 DEPOSITS AMOUNT STATED DEPOSITS
RATE RATE RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearings
accounts $ 30,341 11% $ 23,867 11% $ 26,149 11%
NOW accounts 35,372 1.50% 13 28,202 1.50% 13 26,688 2.00% 12
Savings accounts 19,137 2.55 7 19,699 2.55 9 19,395 2.45 9
Money market deposit 39,902 3.20 15 14,536 2.88 6 14,581 2.45 6
accounts
Certificates of deposit 147,835 5.41 54 137,231 5.61 61 142,922 5.47 62
- -------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $272,587 3.78% 100% $223,535 4.02% 100% $229,735 4.00% 100%
===================================================================================================================
</TABLE>
The following table presents, by stated interest rate ranges, the amount of
certificates of deposit outstanding (in thousands) at December 31, 1996 and the
periods to maturity of the certificates of deposit by the stated interest rate
ranges at December 31, 1996:
<TABLE>
<CAPTION>
===================================================================================================================
DECEMBER 31, 1996
DECEMBER 31, MARCH 31, 0-6 7-12 13-18 19-24
1996 1995 1995 1994 1993 MONTHS MONTHS MONTHS MONTHS THEREAFTER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to 4.00% $ 3,006 $ 3,490 $ 7,768 $71,641 $62,060 $ 2,834 $ 172
4.01 to 5.00% 37,671 33,810 37,616 14,415 11,404 29,121 5,846 $ 944 $1,108 $ 652
5.01 to 6.00% 91,298 55,888 48,575 4,180 9,258 41,863 33,556 9,038 4,173 2,668
6.01 to 7.00% 15,162 38,049 44,725 1,237 4,382 2,199 2,979 948 988 8,048
Over 7.01% 698 5,994 4,238 1,551 3,102 346 352
- -------------------------------------------------------------------------------------------------------------------
TOTAL $147,835 $137,231 $142,922 $93,024 $90,206 $76,363 $42,553 $10,930 $6,269 $11,720
- -------------------------------------------------------------------------------------------------------------------
% of Total 100% 52% 29% 7% 4% 8%
===================================================================================================================
</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. The Bank has a credit facility from the FHLB in the
amount of $39.0 million.
94
<PAGE>
FHLB advances are collateralized by FHLB stock, mortgage loans and mortgage
backed securities pledged in accordance with agreements the Bank entered into
with the FHLB. In accordance with the agreements, the Bank 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, the Bank also had pledged mortgage
backed securities in the amount of $25.7 million. The Bank had $30.0 million in
outstanding advances at December 31, 1996.
From time to time the Bank 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 the Bank 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 the Bank's agreement to repurchase the securities at a later date.
The Bank 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 the
Bank. The amounts of securities sold under such agreements vary widely and
depend on many factors which include the terms available for such transactions,
the ability of the Bank to apply the proceeds to investments having higher
returns, the demand for such transactions, and management's perception of trends
in short-term interest rates. The Bank, in each such transaction, requires the
broker or dealer to adhere to procedures for the safekeeping of the Bank's
securities. As of December 31, 1996, the Bank had $2.1 million outstanding in
repurchase agreements.
The following tables present selected information on borrowings:
<TABLE>
<CAPTION>
===================================================================================================================
YEAR ENDED NINE MONTHS ENDED YEARS ENDED
DECEMBER DECEMBER 31, MARCH 31,
31,
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <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 $1,953 $ 7,939 $ 6,000 $15,000
during year
Approximate weighted average rate for year 5.99% 5.78% 4.71% 3.45%
- -------------------------------------------------------------------------------------------------------------------
Other Borrowed Money:
Amounts outstanding at end of year $2,076 $2,350 $2,748
Weighted average rate at end of year 4.96% 5.05% 5.96%
Maximum amount outstanding at any month end $2,352 $2,651 $2,748
Approximate average outstanding during year $1,911 $2,385 $663
Approximate weighted average rate for year 4.87% 5.15% 5.60%
- -------------------------------------------------------------------------------------------------------------------
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>
95
<PAGE>
COMPETITION
The Bank experiences strong competition both in attracting deposits and
originating loans in its South Florida market area. Direct competition for
deposits comes from other 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. The Bank 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 the Bank. The
primary methods used to attract deposit accounts include interest rates, variety
and quality of services, convenience of branches and advertising and promotions.
The Bank competes for loans through interest rates, loan fees and efficient,
quality service provided to customers.
EMPLOYEES
RSFC employed approximately 150 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.
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 the Bank, a state chartered commercial bank. With nine
full-service branches located in Palm Beach County, Florida and one full-service
branch in Dade County, Florida, the Bank serves primarily Palm Beach County.
Over the past several years, the Bank 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,
the Bank acquired Governors, a commercial bank headquartered in West Palm Beach
with a concentration on the types of loans and deposits targeted by the Bank.
Total assets acquired in connection with the merger was approximately $64.31
million.
Consistent with the Bank's shift in business focus, on November 6, 1995,
RSFC and the Bank 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 the Bank's
charter conversion, and the Bank changed their fiscal year ends from March 31 to
December 31.
On December 15, 1995, the Bank 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 the Bank.
On January 19, 1996, the Bank 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
96
<PAGE>
and deposit portfolios, the acquisition provides the Bank with a geographic
presence in South Palm Beach County. Total assets acquired in connection with
the merger was approximately $61.7 million.
Looking forward, the Bank'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 depositservice 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.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
RESULTS OF OPERATIONS
RSFC had net income of $866,000 or $.09 per common share for the three
months ended March 31, 1997, compared to net income of $669,000 or $.06 per
common share for the three months ended March 31, 1996. The increase in net
income is due to an increase of $48,000 in net interest income and an increase
of $137,000 in non-interest income as well as a decrease of $47,000 in operating
expenses. Earnings per share increased $.03 per common share to $.09 per common
share for the quarter ended March 31, 1997 compared to $.06 per common share for
the quarter ended March 31, 1996. The increase in earnings per common share was
due to a $197,000 increase in net income and a decrease in preferred dividends
as a result of the redemption of RSFC's Series A Preferred Stock in July 1996.
NET INTEREST INCOME
Net interest income for the quarter ended March 31, 1997 increased $48,000
compared to the quarter ended March 31, 1996 due to an increase in
interest-earning assets offset by a decrease in net interest yield. The Bank
purchased $25.0 million of mortgage-backed securities in December 1996 which
were funded by a $25.0 million Federal Home Loan Bank advance. This transaction
is the primary contributor to the increases in interest-earning assets and
interest-bearing liabilities for the quarter ended March 31, 1997 compared to
the quarter ended March 31, 1996. The net interest income resulting from the
$25.0 million transaction is approximately $112,000 for the quarter ended March
31, 1997 which was partially offset by a decrease in interest income on
interest-bearing deposits in other financial institutions. The decrease in
interest-bearing deposits in other financial institutions was due to the
decrease in non-interest bearing deposits for the quarter ended March 31, 1997
compared to the quarter ended March 31, 1996.
NON-INTEREST INCOME
Non-interest income increased $137,000 or 15% for the quarter ended March
31, 1997 compared to the quarter ended March 31, 1996 primarily due to an
increase of $148,000 in gain on sale of investments.
OPERATING EXPENSES
Operating expenses decreased $47,000 for the quarter ended March 31, 1997
compared to the quarter ended March 31, 1996. The decrease in operating expenses
is primarily related to decreases of $120,000 in employee compensation and
benefits, $69,000 in insurance expense and $46,000 in other operating expenses
offset by increases of $79,000, $39,000, and $88,000 in occupancy and equipment,
data processing and goodwill amortization, respectively. Employee compensation
and benefits decreased for the three months ended March 31, 1997 compared to the
three months ended March 31, 1996 due to approximately $50,000 of non-recurring
costs associated with the absorption of Banyan Bank in the first quarter 1996.
In addition, employee compensation and benefits decreased due to the elimination
of certain positions which took place in June 1996. The decrease in insurance
expense is due to a $50,000 refund of FDIC premiums and an overall decrease in
FDIC premiums beginning in January 1997. The increase in occupancy and equipment
is due to the depreciation expense and rent associated with one new banking
center which opened in June 1996 as well as increased depreciation expense
97
<PAGE>
associated with new data processing equipment. Data processing expense increased
due to the change in data processing service bureaus. Goodwill amortization
increased for the quarter ended March 31, 1997 compared to the quarter ended
March 31, 1996 due to an increase in goodwill associated with the Banyan
acquisition.
PROVISION FOR INCOME TAXES
Income tax expenses increased $35,000 for the three months ended March 31,
1997 compared to the three months ended March 31, 1996. The increase is
attributable to an increase in income before taxes of $232,000 offset by a
decrease in the effective tax rate to approximately 37% for the quarter ended
March 31, 1997 from 41% for the quarter ended March 31, 1996. The effective
income tax rate decreased primarily due to an increase in taxable income which
reduced the impact of non-deductible goodwill amortization.
LIQUIDITY, SOURCES OF CAPITAL AND CAPITAL REQUIREMENTS
As a member of the Federal Home Loan Bank System, the Bank is subject to
regulations which require it to maintain "long term" liquidity ratios. The
majority of the liquid assets of the bank are investments available-for-sale and
deposits with the Federal Home Loan Bank of Atlanta. The Bank was in compliance
with liquidity requirements during the three months ended March 31, 1997.
On certain occasions, demand for loan funds may exceed cash available from
deposits. On such occasions, the Bank may borrow funds from the Federal Home
Loan Bank of Atlanta, draw on lines of credit with commercial banks and/or enter
into repurchase agreements on eligible investments.
Cash and cash equivalents decreased by approximately $13.2 million during
the three months ended March 31, 1997 due to $35.0 million loan originations and
purchases and $10.0 million in deposit run-off offset by $15.0 million in FHLB
advances, $10.0 million in principal collected on loans and $10.0 million in
proceeds from loan sales. A purchase of 1-4 family residential loans was made
during the quarter ended March 31, 1997 while the majority of loan originations
related to commercial business and commercial real estate loans. The decrease in
deposits is primarily attributable to lowering interest rates paid on
certificates of deposits to become aligned with the commercial bank market.
The following table shows the capital amounts and ratios of the Bank at
March 31, 1997
================================================================================
(DOLLARS IN THOUSANDS) Amount Ratio
- -------------------------------------------------------------------------------
Total risk based capital $31,099 12.8%
Tier 1 risk based capital $28,499 11.7%
Leverage capital $28,499 8.4%
===============================================================================
The Bank was in compliance with its' capital requirements at March 31,
1997.
FINANCIAL CONDITION
As of March 31, 1997, total assets increased approximately $6.0 million
million from December 31, 1996. Loans net increased approximately $24.5 million
which was funded by a decrease in interest bearing deposits in other
institutions and an increase in FHLB advances. The decrease in deposits is
primarily related to the run-off of certificate of deposits associated with
lower interest rates offered at the Bank since it's conversion to a commercial
bank.
98
<PAGE>
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. 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 $2.4 million for the year ended December 31, 1996
compared to $2.3 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 14 to the
Consolidated Financial Statements). Net income for the year ended December 31,
1996 increased 36% to $3.1 million, excluding the one-time FDIC SAIF assessment,
from $2.3 million for the year ended December 31, 1995. The increase in net
income is due to a $2.8 million increase in net interest income, a $788,000
increase in non-interest income partially offset by increases of $1.9 million in
operating expenses, $30,000 in provision for loan losses and $384,000 in income
taxes. Net income per common share was $.29 on a primary and fully diluted
basis, excluding the one-time FDIC SAIF assessment, for the year ended December
31, 1996 compared to $.39 on a primary basis and $.37 on a fully diluted basis
for the year ended December 31, 1995. Earnings per share 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 $.20. The one-time FDIC SAIF assessment resulted in
a reduction of EPS of $.09.
RSFC's net income for the nine months ended December 31, 1995 was
$1,977,000 compared with net income of $889,000 for the nine months ended
December 31, 1994. Net income per common share was $.32 on a primary basis and
$.25 on a fully diluted basis for the nine months ended December 31, 1995
compared to $.18 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 $2.1 million in net interest
income and $1.2 million in non-interest income partially offset by increases of
approximately $1.7 million in non-interest expense and $664,000 in income tax
expense.
RSFC's net income decreased by $926,000 from $2.1 million for the year
ended March 31, 1994 to $1.2 million for the year ended March 31, 1995. Earnings
per share declined to $0.23 in 1995 from $0.42 in 1994 (before the cumulative
effect of a change in accounting principle). Net income for the year ended March
31, 1994 included a $500,000 ($.13 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 $426,000,
excluding the cumulative effect of a change in accounting principle, is
primarily due to increases of $1.92 million in net interest income and $1.30
million in other non-interest income and service charges on deposit accounts
which were more than offset by a decrease of $2.48 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 $1.12 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 25% to $14.2 million for the year ended
December 31, 1996 compared to $11.4 million for the year ended December 31,
1995. The increase in net interest income is primarily due to an increase of
99
<PAGE>
$21.7 million in average net interest-earning assets as a result of a $35.1
million increase in average interest-earning assets offset by an increase of
$13.4 million in average interest-bearing liabilities. Average loans outstanding
increased $26.1 million and average investments and interest-bearing deposits in
other financial institutions increased $9.0 million while average
interest-bearing deposits increased $28.4 million and average borrowed money
outstanding decreased $15.0 million. The increases in the loan and deposit
portfolios are primarily due to the Banyan Bank acquisition. In addition, an
increase of 17 basis points in the Bank's net interest spread contributed
$485,000 to the increase in net interest income for the year ended December 31,
1996 compared to the year ended December 31, 1995. Net interest spread increased
due to a 5 basis point increase in the yield on interest earning assets and a 12
basis point decrease in the rate on interest-bearing liabilities. The 17 basis
point increase is a result of the Bank's efforts to change the compositions of
the loan and deposit portfolios to that of a traditional commercial bank.
Net interest income for the nine months ended December 31, 1995 increased
$2.2 million or 35% from the nine months ended December 31, 1994 due primarily
to an increase of $4.7 million in interest income on loans, partially offset by
an increase of $2.7 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. In addition the Bank's net interest margin increased to 4.52% for the nine
months ended December 31, 1995 from 4.17% for the nine months ended December 31,
1994, primarily as a result of a change in the composition of the Bank's loan
portfolio. The composition of the Bank'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 27% to $8.9 million for the year ended
March 31, 1995 compared to $7.0 million for the year ended March 31, 1994,
primarily due to an increase in interest income on loans of $3.7 million as a
result of an increase in loan volume during 1995, partially offset by an
increase in interest expenses of $1.9 million due to an increase in the rate and
volume of interest-bearing liabilities. The increase in loan volume for the 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 $3.2 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
$2.5 million in interest and fees on loans, a $552,000 increase in interest on
interest-bearing deposits and a $162,000 increase in interest and dividends on
investments. The increase in interest and fees on loans is primarily due to an
increase of $26.1 million in the average balance of loans outstanding during the
year ended December 31, 1996 compared to the year ended December 31, 1995. The
increase in loans outstanding is primarily a result of the Banyan Bank
acquisition.
Interest income increased approximately $5.1 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 $45.0 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 $3.5 million. Approximately $1.1
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. The average investment balance
increased approximately $6.7 million as a result of the Governors acquisition
which was the primary reason for the increase in interest income on investments
of $465,000 for the nine months ended December 31, 1995 compared to the nine
months ended December 31, 1994.
The increases in loan volume and loan portfolio yield are the result of
increased consumer and commercial loans due to the acquisition of Governors as
well as an increase in these types of loan originations. Thirty six percent of
the Bank's loan portfolio was comprised of consumer, commercial and commercial
real estate loans at December 31, 1995.
100
<PAGE>
Of the $3.8 million increase in interest income for the year ending March
31, 1995 compared to the year ending March 31, 1994, $2.9 million was
attributable to an increase in interest-earning asset volume, and the remainder
was due to an increase in average yield. The average yield on interest-earning
assets increased from 7.27% in 1994 to 7.90% 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 $533,000 is due to an increase in the
average balance of interest-bearing liabilities, which was partially offset by a
decrease in interest expense of $183,000 due to a decrease in the rate paid on
interest-bearing liabilities during the year ended December 31, 1996 compared to
the year ended December 31, 1995. The decrease in the rate paid on
interest-bearing liabilities of 12 basis points for the year ended December 31,
1996 compared to the year ended December 31, 1995 is primarily a result of
reducing the rates paid on certificates of deposit by approximately 10 basis
points. The Bank 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 $10.2 million or 52%
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 $10.5 million to $18.6 for the nine
months ended December 31, 1995 from $8.1 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 contributed to the $2.9
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 $36.9
million in the average balance of certificates of deposit resulted in an
increase of $1.6 million in interest expense while an increase in the rate paid
on certificates of deposit increased interest expense $1.2 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 certificate
of deposit of approximately $28.0 million.
Of the $1.89 million increase in interest expense for the year ended March
31, 1995, $1.1 million was a result of increased average volume of
interest-bearing liabilities to $185.7 million in 1995 from $154.4 million in
1994 and $757,000 was due to an increase in the average rate on interest-bearing
liabilities to 3.98% in 1995 from 3.57% in 1994. The primary contributor to
these rates and volume increases was certificates of deposit.
101
<PAGE>
<TABLE>
<CAPTION>
NET INTEREST INCOME, AVERAGE BALANCE AND RATES:
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 $251,915 $ 22,623 8.98% $ 225,789 $ 20,160 8.93%
Interest-bearing deposits 19,042 974 5.12 12,806 422 3.30
Investments 15,615 1,199 7.68 12,889 1,037 8.05
- ---------------------------------------------------------------------------------------------------------------
Total interest-earning assets $286,572 24,796 8.65 251,484 21,619 8.60
Other assets 34,978 -- -- 22,506
- ---------------------------------------------------------------------------------------------------------------
Total $321,550 -- -- $273,990
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts $ 33,192 508 1.53 $ 33,453 597 1.78
Money market accounts 28,250 1,127 3.99 14,214 417 2.93
Savings deposits 19,341 522 2.70 18,763 551 2.94
Certificate of deposits 148,925 8,209 5.51 134,853 7,566 5.61
Borrowed money 4,554 247 5.42 19,618 1,134 5.78
- --------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 234,262 10,613 4.53 220,901 10,265 4.65
- --------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 29,115 18,932
Other liabilities 13,173 8,597
Shareholders' equity 45,000 -- -- 25,560 -- --
- --------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $321,550 -- -- $273,990 --
- --------------------------------------------------------------------------------------------------------------
Net interest/income rate spread -- $ 14,183 4.12% -- $ 11,354 3.95%
- --------------------------------------------------------------------------------------------------------------
Net average interest-earning
assets/net interest margin $ 52,310 -- 4.95% $ 30,583 -- 4.51%
- --------------------------------------------------------------------------------------------------------------
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.22X -- -- 1.14X -- --
==============================================================================================================
</TABLE>
(PREVIOUS TABLE CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1995 1994
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $224,405 $ 15,201 9.03% $179,256 $ 10,522 7.83%
Interest-bearing deposits 12,985 339 3.48 14,639 379 3.45
Investments 13,300 742 7.44 6,568 277 5.62
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 250,690 16,282 8.65 200,463 11,178 7.43
Other assets 21,580 -- -- 12,506
- -----------------------------------------------------------------------------------------------------------------------------------
Total $272,270 -- -- $212,969
LIABILITIES AND SHAREHOLDERS'
EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts $ 34,762 454 1.74 $ 26,247 278 1.41
Money market accounts 12,958 312 3.20 12,334 308 3.30
Savings deposits 18,354 405 2.94 19,228 460 3.19
Certificate of deposits 133,200 5,775 5.78 96,328 3,053 4.23
Borrowed money 18,696 829 5.91 19,656 810 5.49
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 217,970 7,775 4.76 173,793 4,909 3.77
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 18,576 8,126
Other liabilities 8,444 11,087
Shareholders' equity 27,280 -- -- 19,963 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders'
equity $272,270 -- -- $212,969 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest/income rate spread 8,507 3.89% $6,269 3.66%
- -----------------------------------------------------------------------------------------------------------------------------------
Net average interest-earning
assets/net interest margin $ 32,720 -- 4.52% $ 26,670 -- 4.17%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of average interest-earning
assets to average
interest-bearing liabilities 1.15X -- -- 1.15X
===================================================================================================================================
</TABLE>
(PREVIOUS TABLE CONTINUED)
YEAR ENDED MARCH 31,
1995
AVERAGE YIELD/
BALANCE INTEREST RATE
INTEREST-EARNING ASSETS:
Loans $191,442 $ 15,480 8.09%
Interest-bearing deposits 10,743 462 4.30
Investments 6,809 572 8.40
- ------------------------------------ -------- -------- -----------
Total interest-earning assets 208,994 16,514 7.90
Other assets 20,737 -- --
- ------------------------------------ -------- -------- -----------
Total $229,731 -- --
- ------------------------------------ -------- -------- -----------
LIABILITIES AND SHAREHOLDERS'
EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts $ 19,393 607 3.13
Money market accounts 27,794 419 1.51
Savings deposits 14,067 437 3.11
Certificate of deposits 105,659 4,781 4.52
Borrowed money 18,829 1,153 6.12
- ------------------------------------ -------- -------- -----------
Total interest-bearing liabilities 185,742 7,397 3.98
- ------------------------------------ -------- -------- -----------
Non-interest-bearing deposits 10,428 -- --
Other liabilities 13,115 -- --
Shareholders' equity 20,446 -- --
- ------------------------------------ -------- -------- -----------
Total liabilities and
shareholders'
equity $229,731 -- --
- ------------------------------------ -------- -------- -----------
Net interest/income rate spread -- $ 9,117 3.92%
- ------------------------------------ -------- -------- -----------
Net average interest-earning
assets/net interest margin $ 23,252 -- 4.36%
- ------------------------------------ -------- -------- -----------
Ratio of average interest-earning
assets to average
interest-bearing liabilities 1.13X
==================================== ======== ======== ===========
102
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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 INCREASE (DECREASE) DUE TO
CHANGE IN: CHANGE IN:
-------------------------------- ---------------------------------
(DOLLARS IN THOUSANDS) AVERAGE AVERAGE NET AVERAGE AVERAGE NET
RATE VOLUME CHANGE RATE VOLUME CHANGE
- --------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C> <C> <C> <C>
Loans - net $117 $2,346 $2,463 $1,146 $3,533 $4,679
Interest-bearing deposits 233 319 552 17 (57) (40)
Investments (48) 210 162 86 379 465
- --------------------------------------------------------------------------------------------------------------------
302 2,875 3,177 1,249 3,855 5,104
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings deposits (45) 16 (29) (27) (28) (55)
NOW accounts (85) (4) (89) 56 120 176
Money Market accounts 150 560 710 (17) 21 4
Certificates of deposit (133) 776 643 1,164 1,558 2,722
Borrowed money (72) (815) (887) 72 (53) 19
- --------------------------------------------------------------------------------------------------------------------
(185) 533 348 1,248 1,618 2,866
- --------------------------------------------------------------------------------------------------------------------
Net interest income $487 $2,342 $2,829 $1 $2,237 $2,238
====================================================================================================================
</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 $30,000 or 24% 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 the Bank'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
.90% which management believes to be adequate considering the Bank's loan
composition at December 31, 1996 and the Bank'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 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 19% compared to the ratio of 1.11% 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 $193,000 or 62%
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 100% at December 31,1995 to 73% at
December 31, 1996. The decrease in the allowance for loan losses to
non-performing loans is primarily a result of an increase of $707,000 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 the Bank'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 the Bank'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.
103
<PAGE>
In accordance with the Bank'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 the Bank 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 the Bank had $3.1 million in non-performing loans
representing 1.22% of total loans compared to $2.4 million representing 1.11% 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 $75,000 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 1.11% at December 31, 1995 compared to 1.12% at December 31, 1994. In
addition, the amount of non-performing loans decreased approximately $770,000 at
December 31, 1995 compared to December 31, 1994.
Although the percent of non-performing loans to total loans increased from
.87% at March 31, 1994 to 1.06% 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 $788,000 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.
Non-interest income increased approximately 56% to $3.43 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 $3.00 million for the year
ended March 31, 1995 from $4.39 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 the Bank's goal to
increase service fee income on deposit accounts, service charges on deposit
accounts increased approximately 35% to $1.8 million for the year ended December
31, 1996 compared to the year ended December 31, 1995. Average transaction
account balances increased approximately $9.9 million or 19% 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. In addition, the composition of
the Bank'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 more than doubled 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 $19.0 million for the nine months ended December 31,1995
compared to the nine months ended December 31, 1994. In addition, the
composition of the Bank's
104
<PAGE>
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 84% 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 $55.68 million to $71.68 million.
The increase in the number of commercial accounts was due to the acquisition of
Governors as well as the Bank'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 1995, the Bank reduced its mortgage
banking operations to a level where income from mortgage banking activities is
less significant to the overall earnings of the Bank than in prior years while
increasing non-interest income from "core" banking operations.
MORTGAGE TRADING INCOME. The Bank'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 and
other miscellaneous fee income.
Other income increased $144,000 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. 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 $453,000 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
105
<PAGE>
volumes as well as new services offered during the nine months ended December
31, 1995 particularly to serve better commercial services.
Other income increased $847,000 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. The Bank 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 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 $1.9 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 $1.0 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 $428,000 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, a new
branch which opened in June 1996 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 upgrade. Data processing expenses
increased $368,000 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 $1.69 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. Increases in compensation, occupancy and
equipment and data processing expenses are a result of the acquisition of
Governors and the Bank'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 $165,000 as a
result of goodwill amortization associated with the Governors acquisition.
Additional increases in other operating expenses are a result of the Bank's
growth. Professional fees increased $162,000 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 4.1% for the nine months
ended December 31, 1995 compared to 4.2% for the nine months ended December 31,
1994.
Operating expenses increased from $8.74 million for the year ended March
31, 1994 to $9.86 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 the Bank's
growth in 1995 and employee severance costs associated with reducing staffing
levels in the mortgage banking operations. Growth in 1995 included expansion of
the banking center network from five branches in 1994 to seven branches in 1995
and the addition of item processing and proof-of-deposit departments as well as
growth in the commercial/consumer loan and loan servicing departments. Other
causes of the increase were higher volumes of deposit transaction accounts and
additional expenses associated with operations acquired as a result of the
merger.
106
<PAGE>
INCOME TAXES
Income tax expense increased $384,000 for the year ended December 31, 1996
compared to the year ended December 31, 1995 due to an increase in net income
before taxes and a 5% increase in the effective tax rate to 42% in 1996. The
effective tax rate increased due to an increase in the amortization of goodwill
which results in permanent tax differences.
Income tax expense increased $664,000 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 1% increase in the effective tax
rate to 37%. Income tax expense decreased for the year ended March 31, 1995
compared to the year ended March 31, 1994 due to a decreasein net income before
taxes offset by an increase in the effective tax rate from 34% to 36%. 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 the Bank's net operating loss carryforward was
more likely than not based on RSFC's projected future 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.
LIQUIDITY
Liquidity is defined as the ability to meet current and future obligations
of a short-term nature. The liquidity portfolio of RSFC totaled approximately
$53.9 million and $58.2 million at December 31, 1996 and 1995, respectively. The
Bank's liquidity position is strong with a regulatory liquidity ratio (cash,
short-term and marketable assets to net deposits and short-term liabilities) of
27% and 24% at December 31, 1996 and 1995, respectively. The Bank's liquid
assets consist primarily of interest-bearing deposits in the FHLB and marketable
securities.
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 commercial bank lines of
credit.
Access to funds from depositors is affected by the rate the Bank pays on
certificates of deposit and convenience and service provided to transaction
based account holders. The rate the Bank pays on certificates of deposit is
dependent on rates paid by other financial institutions within the Bank's area.
The Bank manages the cash inflows and outflows from certificates of 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.
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<PAGE>
CAPITAL COMPLIANCE
The Bank and RSFC are in compliance with regulatory capital requirements at
December 31, 1996. See Note 12 to Consolidated Financial Statements.
The Bank 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 the Bank.
ASSET/LIABILITY MANAGEMENT
Management of interest rate sensitivity involves matching the maturity and
repricing dates of interest-earning assets with those of interest-bearing
liabilities in an effort to manage the impact of fluctuating interest rates on
net interest margins.
The Bank'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.
The Bank manages its interest rate risk exposure by limiting the amount of
long-term fixed rate loans it holds for investment, increasing emphasis on
shorter-term, higher yield loans for portfolio, increasing or decreasing the
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relative amounts of long-term and short-term borrowings and deposits and/or
purchasing commitments to sell loans. The following table presents the Bank's
exposure to interest rate risk at 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 $197,020 $62,795 $19,365 $48,240 $327,420
Total interest-bearing liabilities 220,403 21,083 32,836 274,322
- -------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $(23,383) $41,712 $(13,471) $48,240 $53,098
===================================================================================================================
Cumulative interest rate sensitivity gap $(23,383) $18,329 $4,858 $53,098
===================================================================================================================
Cumulative interest rate sensitivity
gap as a percent of total assets (6.5)% 5.1% 1.4% 15%
</TABLE>
In preparing the table above, certain assumptions have been made with
regard to prepayments on fixed rate mortgage and consumer loans and withdrawals
of checking, NOW, Money Market and savings account deposits. These assumptions
are that the Bank 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 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, the Bank is committed to fund $22.8 million in
new loans and $12.9 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 the Bank has obtained commitments to sell in the secondary market.
This relationship is not linear or consistent with other interest rate assets
and liabilities on 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.
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FINANCIAL CONDITION
RSFC's consolidated total assets increased $55.6 million or 18% to $359.3
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, FHLB advances increased $5.0
million and shareholders' equity increased $1.0 million as a result of the
exercise of outstanding warrants and $0.7 million as a result of changes in
retained earnings. These increases were offset by $7.4 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 $35.9 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 $34.2 million
primarily due to loans acquired in connection with the Banyan Bank acquisition.
Loan originations and purchases of approximately $99 million offset loan
repayments and sales during the year ended December 31, 1996. Investments
increased by $29.1 million due to the purchase of $32.9 million of
mortgage-backed securities partially funded with a $25.0 million FHLB advance
and partially funded with maturities of investments held to maturity and cash.
Cash decreased approximately $15.1 million due primarily to deposit run-off, the
purchase of property and equipment and an increase in other assets. The increase
of $1.8 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
$1.4 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 $23.6 million or 8% to $303.7 million
at December 31, 1995 from $280.0 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 $35.9 million in net deposit run-off. Interest bearing
deposits in other financial institutions increased $37.1 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. Investments
decreased $3.5 million due to maturity and calls. The net decrease of $11.2
million in loans receivable is primarily a result of loan repayments and sales
offset by $12.3 million of loans received in connection with the branch
purchase. 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 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 $73.4 million or 36% from $206.6
million at March 31, 1994 to $280.0 million at March 31, 1995. Assets increased
$64.3 million as a result of the acquisition of Governors. The remaining
increase was a direct result of increases in loan and deposit demand. Net loans
increased 46.7% from $155.3 million at March 31, 1994 to $227.9 million at March
31, 1995. Loans acquired in the acquisition of Governors contributed $40.3
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 from $13.1 million to $17.6 million from 1994 to
1995 as a result of the sale of $24 million of trading investments offset by
increased loan and deposit demand. Investments, including the trading account,
decreased $10.3 million from 1994 to 1995 primarily due to an increase in loan
demand and the purchase of Governors for $5.3 million. Deposits increased $73
million or 46.6% from $156.7 million at March 31, 1994 to $229.7 million at
March 31, 1995 as a result of the merger with Governors and an increase in
deposit demand. FHLB advances decreased from $20 million to $15 million from
1994 to 1995, while securities under agreements to repurchase increased from nil
to $2.7 million at March 31, 1995.
110
<PAGE>
In line with RSFC's strategic objective to penetrate the non-residential
consumer and commercial business markets, the composition of the Bank's loan
portfolio reflects significant increases in consumer, commercial business and
commercial real estate loans since March 31, 1994. Commercial real estate and
commercial business loans increased $33.0 million and $8.9 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
increases of $15.0 million in commercial real estate loans and $1.9 million in
commercial business loans were achieved by the Bank's business banking unit
targeting high quality commercial businesses. Consumer loans increased $5.8
million or 15% at December 31, 1996 compared to December 31, 1995 primarily due
to an increase in direct consumer loan originations. The Bank'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 $6.0 million from December 31, 1995 to December 31, 1996, which
is in line with the Bank's strategy to change the loan portfolio composition
more similar to the composition of a traditional commercial bank.
Consumer loans increased $28.6 million and commercial real estate and
commercial business loans increased $29.0 million during the year ended March
31, 1995. The acquisition of Governors contributed $13 million in consumer loans
and $19 million in commercial business and commercial real estate loans. The
remaining increase of $15.6 million and $10 million in consumer and commercial
loans, respectively, were achieved through the efforts of the Bank's business
banking unit. No significant changes in the composition of the Bank's loan
portfolio occurred from March 31, 1995 to December 31, 1995.
While the Bank's strategy is to target growth primarily in the commercial
business, commercial real estate and consumer markets, the Bank 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 1997 with the anticipation of increasing RSFC's net
interest margin through increases in higher interest-earning assets and
reductions in higher interest-bearing liabilities.
RECENT DEVELOPMENTS
On May 2, 1997, RSFC entered into a Standstill Agreement (the "Agreement")
with a Florida depository institution (the "Institution") with two branch
locations. The Institution and RSFC are in discussions regarding a possible
acquisition of the Institution by RSFC. The Agreement is in effect for thirty
days and allows RSFC to perform due diligence procedures. The Institution agrees
not to solicit discussions concerning an acquisition by another party.
The following summarizes the assets and liabilities of the Institution as of
March 31, 1997:
(AMOUNTS IN THOUSANDS)
Cash $ 13,789
Loans, net 113,563
Other assets 16,071
--------
Total assets $143,423
--------
Deposits $129,330
Other liabilities 5,979
--------
Total liabilities $135,309
--------
Stockholders' equity $8,114
The following summarizes the Institution's statements of operations for the
years ended 1996 and 1995:
111
<PAGE>
1996 1995
(AMOUNTS IN THOUSANDS)
Total interest income $10,550 $10,480
Net interest income after provision for loan losses 2,999 3,568
Non-interest income 136 101
Operations expenses(1) 4,250 3,648
Income (loss) before taxes (1,115) 22
Net income (loss) (917) 15
(1) Includes one-time non-recurring charge of $809,000
The transaction is subject to satisfactory due diligence and negotiations
as well as regulatory approvals and approval by the Institution's shareholders.
The consideration paid is expected to be a mixture of cash and RSFC Common
Stock. If the transaction is consummated, RSFC anticipates the transaction to be
accounted for under the purchase method of accounting for business combinations.
The Combined Bank with the Institution would have total assets of approximately
$745 million, total deposits of approximately $615 million and total equity of
approximately $64 million with 19 full service banking offices.
112
<PAGE>
CERTAIN INFORMATION CONCERNING FAMILY
BUSINESS
Family, incorporated in Florida in 1986, is a state of Florida chartered
commercial bank and member of the Federal Reserve System and is subject to
regulation by the Florida Banking Department. Family commenced operations on
June 20, 1986. Its deposits are insured by the FDIC up to applicable limits.
Family has seven full-service branches, all of which are located in Broward
County, Florida.
Family offers the full range of deposit services that are typically
available in most banks and savings associations, including checking accounts,
NOW accounts, savings accounts and other time deposits of various types ranging
from daily money market deposit accounts to longer-term certificates of deposit.
The transaction accounts and time certificates are tailored to Family's
principal market area. Family believes that the combination of its rates offered
on its accounts and the quality of service it provides enables Family to be
competitive in its market area. All deposit accounts are insured by the FDIC up
to the maximum amount ($100,000 per depositor, subject to aggregation rules).
Family solicits these accounts from individuals, businesses, associations and
organizations.
Family offers short- to medium-term commercial and residential real estate,
commercial, consumer and construction loans, with business lending constituting
its primary focus. Commercial business and real estate loans include both
secured and unsecured loans (including loans partially guaranteed by the SBA)
for business expansion (including acquisition of real estate and improvements),
working capital (including inventory and receivables) and purchases of equipment
and machinery. Consumer loans include secured and unsecured loans for home
improvements and financing automobiles.
Other services include safe deposit boxes, travelers checks, direct deposit
of payroll and Social Security checks and automatic draft payments for various
accounts. Family is a member of the Honor network of automated teller machines
that may be used by bank customers in major cities throughout Florida and the
United States, as well as in various cities worldwide.
LENDING ACTIVITIES
GENERAL. Under applicable regulations, Family originates loans for its own
portfolio. Lending activities include the origination and purchase of long-term,
adjustable-rate and, to a lesser extent, fixed-rate commercial and residential
real estate mortgage loans, commercial business loans, consumer loans and
construction loans. During 1996 and 1995, the level of commercial real estate
and commercial business loan originations continued to steadily increase. One
hundred percent of Family's mortgage loans are secured by property located in
Florida.
113
<PAGE>
The following tables set forth the composition of Family's loan portfolio
by type of loan at the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995 1994 1993 1992
TYPE OF LOAN AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
/bullet/ Residential property $48,645 30% $ 48,671 33% $ 52,644 39% $ 46,829 38% $37,705 39%
/bullet/ Construction loans 3,992 2 3,477 2 307 - 211 - 159 -
/bullet/ Commercial real estate 79,832 50 64,764 45 55,761 41 47,820 39 32,958 34
- -----------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Loans 132,469 82 116,912 80 108,712 80 94,860 77 70,822 73
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Loans:
/bullet/ Home equity lines of credit 3,749 2 3,039 2 2,899 2 1,957 2 1,817 2
/bullet/ Personal and other 2,389 1 2,038 1 2,913 2 1,584 1 2,158 2
/bullet/ Automobile 5,031 3 4,963 4 5,365 4 4,205 4 3,558 4
/bullet/ Savings accounts 3,397 2 3,260 2 2,546 2 2,530 2 3,123 3
- -----------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 14,566 9 13,300 9 13,723 10 10,276 9 10,656 11
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial business loans: 14,050 9 16,048 11 13,739 10 16,795 14 16,234 16
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 161,085 100% 146,260 100% 136,174 100% 121,931 100% 97,712 100%
- -----------------------------------------------------------------------------------------------------------------------------------
==== ==== ==== ==== ====
Less:
Loans in process 1,549 316 - - -
Net deferred loan fees 581 583 521 526 343
Allowance for losses 1,603 1,314 1,360 1,295 1,134
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $157,352 $144,047 $134,293 $120,110 $96,235
===================================================================================================================================
</TABLE>
The following table sets forth at December 31, 1996, the principal amounts
of Family'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
- -----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE:
<S> <C> <C> <C> <C>
Residential $ 1,791 $ 2,631 $44,223 $48,645
Construction (1) 334 55 2,054 2,443
Commercial 4,025 3,412 72,395 79,832
Commercial business 5,321 6,483 2,246 14,050
Consumer 4,378 5,311 4,877 14,566
- ----------------------------------------------------------------------------------------------------------------------------------
Total $15,849 $17,892 $125,795 $159,536
- ----------------------------------------------------------------------------------------------------------------------------------
Maturing after one year with:
Variable interest rates $8,878 $120,901
Fixed interest rates 9,014 4,894
- ----------------------------------------------------------------------------------------------------------------------------------
Total $17,892 $125,795
==================================================================================================================================
<FN>
- -------------
(1) net of loans in process
Family provides commercial and residential real estate mortgage loans,
commercial business loans, consumer loans and construction loans. Loans secured
by real estate generally include commercial and residential real estate loans,
construction loans, loans to refinance or purchase existing properties, land
acquisition and development loans and home equity loans.
</FN>
</TABLE>
114
<PAGE>
REAL ESTATE MORTGAGE LOANS. Family's real estate mortgage loans consist of
commercial and residential mortgage loans, which are secured by existing
properties. As disclosed in the table above, commercial real estate mortgage
loans represent the largest single component of Family's loan portfolio, and
have steadily increased over the last three years. 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 do not exceed 20 years.
Commercial real estate loans originated by Family are primarily secured by
income-producing properties such as warehouse buildings and retail space.
Generally, in underwriting commercial real estate loans, Family requires the
personal guaranty of borrowers, a maximum loan to value ratio of not greater
than 75% and a cash flow to debt service ratio of 1.25 to 1.
As disclosed in the table above, Family's residential real estate mortgage
loans comprise the second largest component of Family's loan portfolio. These
loans have terms which do not exceed 20 years and are secured by one- to
four-family residences. The majority of residential mortgages which Family holds
in its portfolio provides for interest rate adjustments every year and such
adjustments are limited to 6% over the term of the loan.
COMMERCIAL BUSINESS LOANS. Commercial business loans represent 9% of the
total loans outstanding at December 31, 1996. Commercial business loans include
loans for business expansion, working capital and purchases of business and
machinery. In making such loans, Family assesses the borrower's creditworthiness
and ability to repay, including an evaluation of the value of any collateral
securing the proposed loan.
SBA loans, which totaled $3.1 million at December 31, 1996, are
underwritten in accordance with the guidelines of the SBA. The loans are made to
small businesses and usually require that significant collateral be assigned to
Family from the borrower. Typically, the SBA guarantees 70% to 80% of the loan
balance with the remaining portion unguaranteed. The SBA-guaranteed portion of
the loan is then salable in secondary markets.
CONSUMER LOANS. Consumer loans are extended for a variety of purposes
including home improvement, purchase of automobiles, lines of credit, unsecured
personal loans and education. Loans secured by automobiles represent the largest
segment of consumer loans held by Family. At December 31, 1996, Family had
outstanding approximately $5.0 million of consumer loans secured by automobiles,
which represent approximately 34% of total consumer loans held by Family at that
date.
Consumer loan underwriting standards include an examination of the
applicant's payment history on other debts and an evaluation of his or her
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 collateral, 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 Family's loan yield and its cost of funds.
CONSTRUCTION LOANS. Commercial and residential real estate construction
loans comprised approximately 2.5% of Family's total loan portfolio as of
December 31, 1996.
OTHER LENDING ACTIVITIES. Family may also extend loans for other purposes
from time to time, including land acquisition and development and residential
lot loans.
LENDING PROCEDURES. Loan applications submitted to Family may be approved
by either the Family Board, a committee of any four Family directors, the
President of Family or a Family loan officer if the loan is within delegated
authority limits. With respect to loan approvals, any committee of four Family
directors or the entire Family Board has authority to approve all loan
applications under review by Family within statutory limits, Family loan
officers are authorized to approve loan applications for unsecured loans up to a
maximum of $25,000 and secured loans up to a maximum of $100,000, and Family's
President has authority to approve loan applications representing secured loans
up to a maximum of $300,000.
115
<PAGE>
The review of each loan application includes an analysis of the applicant's
credit history, income level, financial condition and the value of any
collateral to secure the loan (which, with respect to real estate loans, is
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.
With respect to any approved loan, Family 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 Family as a mortgagee.
In accordance with Family'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 Family or by others at its
request; documentation showing the dates, amounts, purpose, and recipient of
every disbursement of loan proceeds; an opinion of Family's attorney; a title
insurance policy, or other documentary evidence customarily used in the
appropriate jurisdiction, affirming the quality and validity of Family's lien on
the relevant real estate; documentation covering all modifications of the
original mortgage contract showing appropriate approval for each such
modification; and documentation covering all releases of any portion of the
collateral supporting the loan.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Family'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 $1.6 million, representing 0.6% of Family's total assets. The
following table details Family's non-performing assets for each of the years in
the five year period ended December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
LOANS:
<S> <C> <C> <C> <C> <C>
Consumer $ - $ - $ 44 $ 2 $ 6
Commercial business - - 46 70 3
Residential mortgage 258 533 390 20 112
Commercial mortgage 1,086 715 - 410 682
Repossessed automobiles - 58 74 17 -
- -------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 1,344 1,306 554 519 803
- -------------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED:
Residential construction - 178 - - -
Residential mortgage 251 218 - - 190
Commercial real estate - - 257 169 900
- -------------------------------------------------------------------------------------------------------------------
TOTAL OTHER REAL ESTATE OWNED 251 396 257 169 1,090
- -------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $1,595 $1,702 $811 $688 $1,893
</TABLE>
Family's loan portfolio is reviewed quarterly by a committee comprised of
any four members of the Family Board for the purpose of reclassifying, if
necessary, a loan 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
116
<PAGE>
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 their continuance as assets is not warranted. Family will
charge off 100% of the assets classified as loss. Family's determination as to
the classification of its assets and the amount of its valuation allowance is
subject to review by the FRB and the Florida Banking Department, which can order
the establishment of additional amounts to the general or specific loss
allowance.
Although Family uses its best judgment in underwriting each loan, industry
experience indicates that a portion of Family'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
Family's collateral.
In the normal course of business, Family 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 approximately $1.6 million at December 31, 1996, which is allocated
according to the following table:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 1995 1994 1993 1992
% OF
ALLOW LOANS ALLOW % OF ALLOW % OF ALLOW % OF ALLOW % OF
FOR TO FOR LOANS FOR LOANS FOR LOANS FOR LOANS
LOAN TOTAL LOAN TO TOTAL LOAN TO TOTAL LOAN TO TOTAL LOAN TO TOTAL
(IN THOUSANDS) LOSS LOANS LOSS LOANS LOSS LOANS LOSS LOANS LOSS LOANS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate construction $ 16 3% $ 21 2% $ 2 -% $ 1 -% $ 1 -%
Residential mortgage 249 30 241 33 265 39 236 38 190 39
Commercial mortgage 491 49 481 45 379 41 325 39 224 34
Commercial business 49 9 55 11 48 10 58 14 56 16
Consumer 76 9 67 9 70 10 53 9 55 11
Unallocated 722 449 $ 596 $ 622 $ 608
- -------------------------------------------------------------------------------------------------------------------
TOTAL $1,603 100% $1,314 100% $1,360 100% $1,295 100% $1,134 100%
===================================================================================================================
</TABLE>
In evaluating the adequacy of the allowance for loan losses, management has
taken into consideration the loan portfolio, past loan experience, current
economic conditions, workout arrangements, pending sales, the financial strength
of the borrowers, and the appraised value of the collateral at the time reserves
were established. Although management believes the allowance for losses is
adequate, its 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 Family's past three year loss history considering
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. At December 31, 1996 the following risk
factors are applied to the carrying value of each classified loan: (i)
substandard at 5%, (ii) doubtful at 50%, and (iii) loss charged-off at 100%.
117
<PAGE>
The following table details the charge-offs, recoveries, net charge-offs
and ending balance of the allowance for loan losses for each of the years in the
five year period ended December 31, 1996:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning balance $1,314 $1,360 $1,295 $1,134 $ 958
CHARGE OFFS:
- -----------
/bullet/ Real estate mortgage 2 50 34 121 418
/bullet/ Real estate construction - 75 - - -
/bullet/ Consumer 17 1 26 12 30
/bullet/ Commercial business 22 58 15 73 218
- -------------------------------------------------------------------------------------------------------------------
SUBTOTAL - CHARGE-OFFS 41 184 75 206 666
- -------------------------------------------------------------------------------------------------------------------
RECOVERIES:
/bullet/ Real estate mortgage 1 18 137 20 179
/bullet/ Consumer 6 5 36 17 21
/bullet/ Commercial 123 20 4 89 110
- -------------------------------------------------------------------------------------------------------------------
SUBTOTAL -RECOVERIES 130 43 177 126 310
- -------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) (89) 141 (102) 80 356
- -------------------------------------------------------------------------------------------------------------------
Provision for loan losses 200 95 (37) 241 532
- -------------------------------------------------------------------------------------------------------------------
ENDING BALANCE $1,603 $1,314 $1,360 $1,295 $1,134
- -------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs during the period to
average loans
outstanding during the period (.06)% .10% (.08)% .07% .42%
===================================================================================================================
</TABLE>
Investment Activities
Family is required by federal regulations to maintain minimum levels of
liquid assets. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation-Liquidity." Family 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, Family
had cash and cash equivalents of $25.8 million and investments of $55.8 million
representing, in the aggregate, 33% of its total assets. See Note 3 of Notes to
Financial Statements.
118
<PAGE>
The following tables summarize the maturities and weighted average yields
of Family's investment portfolio at December 31, 1996.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE: DECEMBER 31, 1996
===================================================================================================================================
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
--------------- ----------------- ---------------- ---------------
(IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL
- ------------------- ------------- ---------- -------------- ---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government
and agency
securities $5,532 6.25% $5,693 6.72% $ - -% $ - -% $11,225
Foreign 75 7.50 75 6.88% 150
government
securities
Corporate and 2,500 5.44% 2,500
debt securities
- -----------------------------------------------------------------------------------------------------------------------------------
Total $8,032 6.00% $5,693 6.72% $75 7.50% $75 6.88% $13,875
- -----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities ** 2,878
=================================================================================================================================
Total $16,753
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY: DECEMBER 31, 1996
=================================================================================================================================
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
--------------- ----------------- ---------------- ---------------
(IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL
- ------------------- ------------- ---------- -------------- ---------- -------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government
and agency
securities $4,001 6.15% $14,193 6.14% $ - % $ - % $18,194
State and
municipal
securities * 1,623 8.17 8,380 6.52 6,716 7.11 99 9.21 16,818
Foreign
government
securities 75 7.88 350 7.67 425
- ----------------------------------------------------------------------------------------------------------------------------------
Total $5,624 6.73% $22,648 6.29% $7,066 7.21% $99 9.21% $35,437
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities ** 3,599
Total $39,036
=================================================================================================================================
<FN>
- -----------------
* Tax equivalent yield, assuming a 34% tax rate.
** The anticipated maturities for mortgage-backed securities are not readily
determinable since they may be prepaid without penalty.
</FN>
</TABLE>
DEPOSITS
Family offers a variety of deposit programs, including NOW accounts,
non-interest-bearing checking accounts, money market deposit accounts statement
savings accounts, and variable- or fixed-rate certificates of deposit with
maturities ranging from 30 days to two years. The principal differences among
certificate accounts relate to minimum balance, term, interest rate, and method
of compounding.
119
<PAGE>
The following table sets forth the amounts and the weighted average
interest rate on each category of Family's deposit accounts as of the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995 1994
WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED PERCENT
AVERAGE OF TOTAL AVERAGE OF TOTAL AVERAGE OF TOTAL
(DOLLARS IN THOUSANDS) AMOUNT STATED DEPOSITS AMOUNT STATED DEPOSITS AMOUNT STATED DEPOSITS
RATE RATE RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearings $ 55,584 26% $ 46,652 26% $ 41,990 26%
accounts
NOW accounts 28,826 1.72% 13 26,817 1.92% 15 28,229 1.94% 18
Savings accounts 39,675 3.67 18 22,826 3.52 13 9,304 2.71 6
Money Market deposit 24,021 2.76 11 25,194 2.95 14 30,222 3.05 19
accounts
Certificate of deposits 68,363 5.33 32 57,424 5.24 32 49,402 4.59 31
- -------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $216,469 2.89% 100% $178,913 2.81% 100% $159,147 2.51% 100%
</TABLE>
BORROWINGS
Family does not engage in significant borrowing activity. When additional
funds are needed, Family may draw on existing lines of credit with two
commercial banks for an aggregate amount of $6.5 million. In addition, Family
may borrow federal funds or enter 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
Family 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 Family's agreement to repurchase the securities at a later date. Family
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 Family. The
amounts of securities sold under such agreements depend on many factors which
include the terms available for such transactions, the ability of Family 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. Family, in each such transaction, requires the broker or dealer to adhere
to procedures for the safekeeping of Family's securities. As of December 31,
1996, Family had $6.6 million outstanding in repurchase agreements.
The following tables present selected information on borrowings:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHORT TERM BORROWINGS:
Other Borrowed Money:
Amounts outstanding at end of year $6,557 $4,930 $2,913 $2,279 $2,374
Weighted average rate at end of year 4.79% 5.30% 3.84% 2.10% 2.00%
Maximum amount outstanding at any month end $6,557 $4,930 $2,913 $3,157 $2,982
Approximate average outstanding during year $3,977 $2,615 $2,772 $2,595 $2,080
Approximate weighted average rate for year 4.10% 4.21% 2.49% 2.12% 2.60%
===========================================================================================================
</TABLE>
120
<PAGE>
COMPETITION
Family 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. Family competes with other commercial banks,
mortgage banking companies, savings and loan associations and credit unions for
loans. Many of these competitors have greater financial resources, larger branch
network, better name recognition, greater economies of scale, less regulatory
burden, greater capital resources, less stringent lending requirements and
larger employee bases than Family. The primary methods used to attract deposit
accounts include interest rates, variety and quality of services, convenience of
branches and advertising and promotions. Family competes for loans through
interest rates, loan fees and efficient, quality service provided to customers.
EMPLOYEES
Family employed approximately 110 persons as of December 31, 1996. Family
places a high priority on staff development which involves training in
operational procedures, customer service and regulatory compliance. Incentive
programs that focus on and are dependent on the achievement of certain financial
and customer service goals are in place for officers of Family.
None of Family's employees are subject to a collective bargaining
agreement, and Family believes that its employee relations are good.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CORPORATE OVERVIEW
Family Bank, incorporated in Florida in 1986, is a state of Florida
chartered commercial bank and member of the Federal Reserve System and is
subject to regulation by the Florida Banking Department. Family commenced
operations on June 20, 1986. Its deposits are insured by the FDIC up to
applicable limits. Family has seven full-service branches, all of which are
located in Broward County, Florida.
Family offers the full range of deposit services that are typically
available in most banks and savings associations, including checking accounts,
NOW accounts, savings accounts and other time deposits of various types ranging
from daily money market deposit accounts to longer-term certificates of deposit.
The transaction accounts and time certificates are tailored to Family's
principal market area. Family believes that the combination of its rates offered
on the aforementioned types of accounts and the quality of service it provides
enables Family to be competitive in its market area. All deposit accounts are
insured by the FDIC up to the maximum amount ($100,000 per depositor, subject to
aggregation rules).
Family solicits these accounts from individuals, businesses, associations and
organizations.
Family offers a full range of short- to medium-term commercial and
residential real estate, commercial, consumer and construction loans, with
business lending constituting its primary focus. Commercial business and
residential real estate loans include both secured and unsecured loans
(including loans partially guaranteed by the SBA) for business expansion
(including acquisition of real estate and improvements), working capital
(including inventory and receivables) and purchases of equipment and machinery.
Consumer loans include secured and unsecured loans for home improvements and
financing automobiles.
Other services include safe deposit boxes, travelers checks, direct deposit
of payroll and Social Security checks and automatic draft payments for various
accounts. Family is a member of the Honor network of automated teller
121
<PAGE>
machines that may be used by bank customers in major cities throughout Florida
and the United States, as well as in various cities worldwide.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
RESULTS OF OPERATIONS
The following is a discussion and analysis of Family's results of
operations. The discussion and analysis should be read in conjunction with
Family's financial statements and corresponding notes included elsewhere in this
Joint Proxy Statement/Prospectus.
Family had net income of $1,281,000 for the three months ended March 31,
1997, compared to net income of $1,032,000 for the three months ended March 31,
1996. The increase in net income is primarily due to an increase of $222,000 in
net interest income and a decrease of $108,000 in operating expenses, offset by
an increase in income tax expense of $157,000. The remaining increase is
attributable to a $50,000 decrease in the provision for loan losses and a
$26,000 increase in non-interest income.
The primary component of earnings for most financial institutions,
including Family, 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-paying assets and interest-bearing liabilities.
NET INTEREST INCOME
Net interest income for the quarter ended March 31, 1997 increased $222,000
or 7.9% compared to the quarter ended March 31, 1996. This increase is primarily
due to an increase of $31.0 million in average interest-earning assets, of which
$20.5 million is an increase in average loans, partially offset by an increase
of $30.0 million in average interest-bearing liabilities, resulting in an
increase to net interest income of approximately $412,000. This increase was
offset by a decrease in the net interest spread from 5.81% for the three months
ended March 31, 1996 to 5.39% for the three months ended March 31, 1997,
resulting in a decrease of approximately $190,000 in net interest income.
NON-INTEREST INCOME
Non-interest income increased $26,000 or 4.8% for the quarter ended March
31, 1997 as compared to the quarter ended March 31, 1996. The increase is due in
part to a $65,000 increase in service charges on deposit accounts which is
attributable to the increased deposit base, offset by a $53,000 decrease in
other income resulting primarily from a $51,000 decrease in gains on sales from
repossessed assets.
OPERATING EXPENSES
Operating expenses decreased $108,000 or 5.9% for the quarter ended March
31, 1997 compared to the quarter ended March 31, 1996. The decrease is due
primarily to a $128,000 decrease in other expenses resulting from expenses
accrued in the three months ended March 31, 1996 related to certain legal
matters.
PROVISION FOR INCOME TAXES
Income tax expense increased $157,000 or 35% to $607,000 for the three
months ended March 31, 1997 compared to the three months ended March 31, 1996
due to an increase in net income before income taxes.
LIQUIDITY, SOURCES OF CAPITAL AND CAPITAL REQUIREMENTS
Family's liquid assets consist primarily of cash and cash equivalents and
marketable securities. On certain occasions, demand for loan funds may exceed
cash available from deposits. On such occasions, Family obtains advances from
federal funds, commercial bank lines of credit and securities repurchase
agreements with customers, securities dealers and commercial banks.
Cash and cash equivalents decreased by approximately $1.1 million during
the three months ended March 31, 1997 due primarily to a net increase in loans
of $8.8 million and investment purchases of $4.2 million offset by investment
maturities of $6.6 million, and increases in deposits and securities sold under
agreements to repurchase of $2.3 million and $1.3 million, respectively.
The following table shows the capital amounts and ratios of Family at
March 31, 1997:
122
<PAGE>
- ------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO
- ------------------------------------------------------------------------------
Total risk based capital $23,552 12.7%
Tier 1 risk based capital $21,830 11.8%
Leverage capital $21,830 9.7%
==============================================================================
Family was in compliance with its capital requirements at March 31, 1997.
FINANCIAL CONDITION
As of March 31, 1997, total assets increased approximately $5.1 million
from December 31, 1996 due primarily to an increase in loans, net of $8.1
million which was funded by a decrease in federal funds sold and a net decrease
in investments of $1.8 million and $2.6 million, respectively, as well as an
increase in deposits and securities sold under agreements to repurchase of $2.3
million and $1.3 million, respectively.
Family's strategy is to continue to target growth primarily in the
commercial business, commercial real estate and consumer markets. Continued
growth in commercial and consumer business is expected during the remainder of
1997.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
RESULTS OF OPERATIONS
The following is a discussion and analysis of Family's results of
operations. The discussion and analysis should be read in conjunction with
Family's financial statements and corresponding notes included elsewhere in this
Joint Proxy Statement/Prospectus.
Family's net income increased $787,000 or 21.5% to $4.4 million for the
year ended December 31, 1996 compared to $3.7 million for the year ended
December 31, 1995. The increase in net income was primarily due to a $1.1
million increase in net interest income and a $359,000 increase in non-interest
income partially offset by increases of $312,000 in operating expenses and
$275,000 in income taxes.
Family's net income increased $702,000 or 23.8% to $3.7 million for the
year ended December 31, 1995 compared to $3.0 million for the year ended
December 31, 1994. The increase in net income was due to a $1.7 million increase
in net interest income and a $285,000 increase in non-interest income partially
offset by increases of $704,000 in operating expenses and $504,000 in income
taxes.
The primary component of earnings for most financial institutions,
including Family, 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-paying assets and interest-bearing liabilities.
NET INTEREST INCOME
Net interest income increased $1.1 million or 10.7% to $11.6 million for
the year ended December 31, 1996 compared to $10.5 million for the year ended
December 31, 1995. The increase in net interest income was primarily due to an
increase of $27.7 million in average interest-earning assets partially offset by
an increase of $17.6 million in average interest-bearing liabilities. Average
loans outstanding increased $10.8 million and average investments and
interest-bearing deposits in other financial institutions increased $16.9
million, while average interest-bearing deposits increased $16.3 million and
average borrowed money outstanding increased $1.4 million. The increases in the
loan and deposit portfolios were primarily due to success in attracting new
customers through advertising and referrals and continued improvement in
business conditions in Broward County, Florida during the year ended December
31, 1996. These increases were offset by a decrease in the net interest rate
spread from 4.91% in 1995 to 4.62% in 1996.
123
<PAGE>
Net interest income increased $1.8 million or 20.1% to $10.5 million for
the year ended December 31, 1995 compared to $8.7 million for the year ended
December 31, 1994. This increase is primarily due to an increase in interest
income on loans and investments of $3.6 million or 30% offset by an increase of
$1.8 million or 58% in interest expense on deposits. Average interest-earning
assets increased $18.3 million or 11.3% from 1994 to 1995 as a result of success
in attracting new customers and improvements in the business conditions in
Broward County, Florida. The yield on interest-earning assets increased from
8.05% to 8.72% due to increases in the prime lending rate during this period.
These increases were partially offset by an increase in average interest-bearing
liabilities of $18.9 million or 16.7% and an increase in the rate paid on
interest-bearing liabilities from 2.82% in 1994 to 3.81% in 1995. These volume
and rate increases are attributable to increases in the rates offered by Family
to depositors during 1994 and 1995.
INTEREST INCOME
Interest income increased $1.9 million or 12.1% to $17.4 million for the
year ended December 31, 1996 compared to $15.5 million for the year ended
December 31, 1995. The increase in interest income was primarily due to an
increase of $10.8 million in the average balance of loans outstanding during the
year ended December 31, 1996 compared to the year ended December 31, 1995.
Correspondingly, Family experienced a 23.3% increase in its generally higher
yielding commercial real estate loan portfolio in 1996 compared to 1995. The
increase in loans outstanding was primarily a result of success in attracting
customers through advertising and referrals and continued improvement in
business conditions in Broward County, Florida during the year ended December
31, 1996.
Interest income increased $3.6 million or 30.2% to $15.5 million for the
year ended December 31, 1995 compared to $11.9 million for the year ended
December 31, 1994. Approximately $1.9 million of the increase in interest income
for the year ended December 31, 1995 compared to the year ended December 31,
1994 resulted from an increase in the average rate earned on loans to 9.34% in
1995 from 7.84% in 1994. This rate increase was driven in part by an increase in
the prime rate from 6% at the beginning of 1994 to a high of 9%, before ending
at 8.5% at December 31, 1995. Another factor contributing to the increase in
interest income was a $9.9 million increase in the average loan balances
outstanding for the year ended December 31, 1995 compared to the year ended
December 31, 1994. The increase in loans outstanding was primarily a result of
success in attracting customers through advertising and referrals and continued
improvement in business conditions in Broward County, Florida during the year
ended December 31, 1995.
INTEREST EXPENSE
The increase of $768,000 or 15.2% to $5.8 million in interest expense for
the year ended December 31, 1996 compared to $5.0 million for the year ended
December 31, 1995 was due primarily to a $16.3 million increase in the average
balance of deposit accounts. Increases in the average balance of deposits
resulted primarily from Family's introduction of a high-yield savings account
during the beginning of 1996 that became popular with Family customers.
The increase of $1.8 million or 57.7% to $5.0 million in interest expense
for the year ended December 31, 1995 compared to $3.2 million for the year ended
December 31, 1994 was due in part to an increase in the average balance of
interest bearing-liabilities, which rose primarily because of increases in the
volume of certificates of deposit. An increase of 144 basis points in the
average rate paid on certificates of deposit also contributed to the increase in
interest expense for the year ended December 31, 1995 compared to the year ended
December 31, 1994. This rate increase is due in part to the increases in rates
offered by Family to its depositors.
124
<PAGE>
<TABLE>
<CAPTION>
NET INTEREST INCOME, AVERAGE BALANCE AND RATES:
YEAR ENDED DECEMBER 31,
1996 1995 1994
----------------------------- ------------------------------ -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans * $150,392 $14,170 9.42% $139,610 $13,038 9.34% $129,726 $10,174 7.84%
Interest-bearing deposits 11,058 589 5.33 6,935 409 5.90 5,322 221 4.15
Taxable Investment securities 31,002 1,983 6.40 24,156 1,640 6.79 13,525 839 6.20
Non-taxable investment securities 15,352 928 6.05 9,444 616 6.52 13,291 949 7.14
**
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $207,804 17,670 8.50 180,145 15,703 8.72 161,864 12,183 8.05
Other assets 15,341 14,527 13,708
- ------------------------------------------------------------------------------------------------------------------------------
Total $223,145 $194,672 $175,572
- ---------------------------------------------------------------------------------------------------------- --------- ---------
LIABILITIES AND SHAREHOLDERS'
EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts $ 26,035 $ 455 1.75% $ 25,585 $ 494 1.93% $ 26,460 $ 511 1.93%
Money market accounts 25,968 747 2.88 31,305 941 3.01 32,648 816 2.50
Savings deposits 32,972 1,202 3.65 12,236 330 2.70 9,601 203 2.11
Certificate of deposits 60,665 3,215 5.30 60,264 3,139 5.21 41,579 1,566 3.77
Borrowed money 4,357 197 4.52 2,995 144 4.81 3,152 103 3.27
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 149,997 5,816 3.88 132,385 5,048 3.81 113,440 3,199 2.82
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 49,560 43,976 43,275
Other liabilities 4,200 1,454 4,413
Shareholders' equity 19,388 16,857 14,444
- ---------------------------------------------------------------------------------------------------------- -----------------------
Total liabilities and $223,145 $194,672 $175,572
shareholders' equity
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income/net interest $11,854 4.62% $10,655 4.91% $8,984 5.23%
rate spread
- ------------------------------------------------------------------------------------------------------------------------------
Net average interest-earning
assets/net interest margin $57,807 5.70% $47,760 5.91% $48,938 6.07%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of average interest-earning
assets to average 1.39x 1.36x 1.43x
interest-bearing liabilities
<FN>
- -----------
* Includes non accrual loans which are not significant
** Tax equivalent basis based on a 34% effective tax rate
</FN>
</TABLE>
125
<PAGE>
Net interest income before the 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 YEAR ENDED
DECEMBER 31, 1996 VERSUS 1995 DECEMBER 31, 1995 VERSUS 1994
-------------------------------- --------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
CHANGE IN: CHANGE IN:
-------------------------------- --------------------------------
(DOLLARS IN THOUSANDS) AVERAGE AVERAGE NET AVERAGE AVERAGE NET
RATE VOLUME CHANGE RATE VOLUME CHANGE
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C> <C> <C> <C>
Loans - net $ 112 $1,020 $1,132 $1,946 $918 $2,864
Interest-bearing deposits (40) 220 180 121 67 188
Taxable investment securities (121) 464 343 143 658 801
Non-taxable investment securities * (72) 384 312 (274) (59) (333)
- -------------------------------------------------------------------------------------------------------------------
(121) 2,088 1,967 1,936 1,584 3,520
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings deposits 116 756 872 57 70 127
NOW accounts (46) 7 (39) - (17) (17)
Money Market accounts (41) (153) (194) 166 (41) 125
Certificates of deposit 54 22 76 599 974 1,573
Borrowed money (9) 62 53 49 [8] 41
- -------------------------------------------------------------------------------------------------------------------
74 694 768 871 978 1,849
- -------------------------------------------------------------------------------------------------------------------
Net interest income $(195) $1,394 $1,199 $1,065 $606 $1,671
===================================================================================================================
<FN>
- -------------
* Tax equivalent basis based on a 34% effective tax rate
</FN>
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's assessment of the
adequacy of the allowance for loan losses. The amount of future provisions is a
function of the ongoing evaluation of the allowance for loan losses, which
considers the characteristics of the loan portfolio, economic conditions and
other relevant factors.
The provision for loan losses increased $105,000 or 110.5% to $200,000 for
the year ended December 31, 1996 compared to $95,000 for the year ended December
31, 1995. The allowance for loan losses as a percent of total loans is
approximately 1.0% at December 31, 1996, which represents a slight increase over
the ratio of 0.9% at December 31, 1995. Family had $1.3 million in
non-performing loans at December 31, 1996 representing 0.83% of total loans.
This amount is consistent with non-performing loans at December 31, 1995 which
totalled $1.2 million, representing 0.85% of total loans. Additionally, there
were no significant changes in the risk composition of Family's loan portfolio
from December 31, 1995 to December 31, 1996.
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 Family's past three 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 amount
126
<PAGE>
of the provision for loan losses is a function of management's evaluation of the
allowance for loan losses. Based upon the procedures performed in evaluating the
analysis of the allowance for loan losses at December 31, 1996, management
believes the allowance is adequate.
In accordance with Family'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 Family and should not have a future
impact on the allowance for loan losses unless the condition of the loan further
deteriorates.
The provision for loan losses increased $132,000 to $95,000 for the year
ended December 31, 1995 compared to $(37,000) for the year ended December 31,
1994. However, the allowance for loan losses as a percent of total loans was
0.9% which management believed to be adequate considering Family's loan
composition at December 31, 1995 and Family's historical losses.
NON-INTEREST INCOME
Non-interest income increased $359,000 or 18.9% to $2.3 million for the
year ended December 31, 1996 compared to $1.9 million for the year ended
December 31, 1995, primarily due to an increase of $253,000 in service charges
on deposit accounts, which resulted from an increase in Family's deposit base,
and an $84,000 increase in gains from the sale of other real estate and
repossessed assets.
Non-interest income increased $285,000 or 17.7% to $1.9 million for the
year ended December 31, 1995 compared to $1.6 million for the year ended
December 31,1994, primarily as a result of an increase of $224,000 in service
charges on deposit accounts, which resulted from an increase in Family's deposit
base, and an increase in gains from the sale of other real estate and
repossessed assets of $34,000.
OPERATING EXPENSES
Operating expenses increased $312,000 or 4.6% to $7.1 million for the year
ended December 31, 1996 compared to $6.8 million for the year ended December 31,
1995, primarily due to increases in employee compensation and benefits and
occupancy expenses. Employee compensation and benefits increased approximately
$217,000 or 5.6% to $4.1 million primarily due to increases in the amount of
incentive bonuses paid to Family officers as a result of Family's earnings
growth during 1996. Occupancy expenses increased $100,000 for the year ended
December 31, 1996 compared to the year ended December 31, 1995 due to the
accrual of a full year of expenses related to a branch which opened in the
middle of 1995.
Operating expenses increased $704,000 or 11.6% to $6.8 million for the year
ended December 31, 1995 compared to the year ended December 31, 1994 as a result
of increases in employee compensation and occupancy expenses offset by decreases
in insurance and data processing expenses. Employee compensation and benefits
increased approximately $616,000 or 18.9% to $3.9 million primarily due to the
opening of an additional branch office in the middle of 1995 and to an increase
over the prior year in the amount of incentive bonuses paid to Family officers
as a result of Family's earnings growth in fiscal 1995. Occupancy expenses
increased $332,000 or 40.3% to$1.2 million primarily due to the opening of the
previously mentioned new Family branch office in July, 1995. Additionally, 1995
includes a full year of expenses related to a branch which opened in October
1994. Insurance decreased $323,000 or 75% to $107,000 due to a decrease in FDIC
assessments. Data processing decreased $287,000 or 91.7% as a result of Family's
conversion to an in-house system in 1994.
127
<PAGE>
INCOME TAXES
Income tax expense increased $275,000 or 14.6% to $2.2 million for the year
ended December 31, 1996 compared to the year ended December 31, 1995 due to an
increase in net income before taxes.
Income tax expense increased $504,000 or 36.4% to $1.4 million for the year
ended December 31, 1995 compared to the year ended December 31, 1994 due to an
increase in net income before taxes and an approximate 2% increase in the
effective tax rate to 34%.
LIQUIDITY
Family's liquid assets consist primarily of cash and cash equivalents 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.
Family's cash inflows consist primarily of amounts generated from new
deposits, loan repayments, maturities and calls of investments held to maturity
and sales of investments. Cash outflows consist primarily of originations of
loans and purchases of investments. Sources of borrowings include advances of
federal funds, commercial bank lines of credit and securities repurchase
agreements with customers, securities dealers and commercial banks.
Access to funds from depositors is affected by the rate Family pays on
certificates of deposit and convenience and service provided to
transaction-based account holders. The rate Family pays on certificates of
deposit is dependent on, among other things, economic conditions and rates paid
by other financial institutions within Family's area. Family manages the cash
inflows and outflows from certificates of deposit by increasing or decreasing
its certificate of deposit rates.
Family's sources of liquidity are impacted by various matters, some of
which are beyond the control of Family. Scheduled loan repayments are a
relatively stable source of funds while loan prepayments and deposit flows vary
widely in reaction to market conditions, primarily prevailing interest rates.
Investment sales are influenced by general market demand and other market
conditions. Family'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, Family
continually evaluates alternate sources of funds and attempts to maintain and
develop diversity and flexibility in the number of such sources. The effect of a
decline in any one source of funds often can be offset by use of an alternative
source, although potentially at a different cost to Family.
CAPITAL COMPLIANCE
Family is 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, action by
regulators that, if undertaken, could have a direct material effect on Family's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action. Family must meet specific capital
guidelines that involve quantitative measures of Family's assets, liabilities
and certain off-balance sheet items as calculated under regulatory accounting
practices. Family's capital amounts and classification are also subject to
quantitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Family to maintain minimum amounts and ratios of total and Tier I
capital to risk weighted assets and of Tier I capital to average assets. As of
December 31, 1996, Family exceeded all adequacy requirements to which it is
subject. See Note 10 to Family's Financial Statements.
128
<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.
Family'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 Family's interest-sensitive assets and liabilities consistent with
Family'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 Family'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.
Family 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 Family'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 $135,998 $52,451 $25,398 $14,902 $228,749
Total interest-bearing liabilities 193,991 20,577 7,902 936 223,406
- ------------------------------------------------------------------------------------------------------ ------------
Interest rate sensitivity gap $(57,993) $31,874 $17,491 $13,966 $5,343
===================================================================================================================
Cumulative interest rate sensitivity gap $(57,993) $(26,119) $(8,623) $5,343
===================================================================================================================
Cumulative interest rate sensitivity gap as a
percent of total assets (23.4%) (10.5%) (3.5)% 2.2%
===================================================================================================================
</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 Family will experience average annual prepayments of 6% on fixed rate
mortgage loans and 10% on consumer loans. Checking, NOW, Money Market and
savings account deposit 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 Family. 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 change 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 assets, such as ARM loans, have features that restrict
changes in interest rates on a short-term
129
<PAGE>
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.
IMPACT OF INFLATION
The financial statements and related 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
Family's total assets increased $42.4 million or 20.6% to $ 247.9 million
at December 31, 1996 compared to $205.5 million at December 31, 1995. This
increase in total assets generally reflects increases in loans-net, investments
and cash and cash equivalents. The overall increase in Family assets was
facilitated by an increase in Family deposits of $37.6 million or 21.0% to
$216.5 million at December 31, 1996 compared to $178.9 million at December 31,
1995. This increase in deposits was primarily a result of success in attracting
customers through advertising and referrals and continued improvement in
business conditions in Broward County, Florida during the year ended December
31, 1996.
Loans, net increased $13.3 million or 9.2% to $157.4 million at December
31, 1996 compared to $144.0 million at December 31, 1995; investments increased
by $18.3 million or 48.8% to $55.8 million at December 31, 1996 compared to
$37.5 million at December 31, 1995; and cash and cash equivalents increased
$10.5 million or 68.9% to $25.8 million at December 31, 1996 compared to $15.3
million at December 31, 1995. These increases were primarily a result of success
in attracting customers through advertising and referrals and continued
improvement in business conditions in Broward County, Florida during the year
ended December 31, 1996.
CERTAIN ACCOUNTING STANDARDS
The FASB issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
impairment 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 assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. Family adopted Statement 121 in the first
quarter of 1996, which did not have a material impact on the financial condition
or operations of Family.
The FASB issued Statement No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," 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.
Family will apply the new rules prospectively to transactions beginning in the
first quarter of 1997. Based on current circumstances, Family believes the
application of the new rules will not have a material impact on the financial
statements.
130
<PAGE>
PROXY SOLICITATION
Proxies are being solicited from RSFC and Family shareholders by and on
behalf of the respective Boards of Directors of each of RSFC and Family. Each of
RSFC and Family 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 Family shareholders by directors, officers and
regular employees of RSFC and Family, 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 Family Common Stock. Although there
is no formal agreement to do so, RSFC and Family, 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 Family 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 financial statements of Family at December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996, 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.
SHAREHOLDER PROPOSALS
Proposals which RSFC shareholders intend to present at the next Annual
Meeting of Shareholders in April 1998 must be received by the Secretary of RSFC
at its principal executive offices P.O. Box 4298, West Palm Beach, Florida
33402-4298 no later than November 28, 1997 for inclusion in RSFC's Proxy
Statement and the proxy for that meeting and must be otherwise in compliance
with applicable Commission regulations. Use of certified mail is suggested.
131
<PAGE>
INDEX TO FINANCIAL STATEMENTS
REPUBLIC SECURITY FINANCIAL CORPORATION
Condensed Consolidated Statements of Financial Condition at
March 31, 1997 (unaudited) and December 31, 1996 ................... F-4
Condensed Consolidated Statements of Income for the three months
ended March 31, 1997 and 1996 (unaudited) .......................... F-5
Condensed Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1997 (unaudited) and the year ended
December 31, 1996 .................................................. F-6
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 (unaudited) ............. F-7
Notes to Condensed Consolidated Financial Statements (unaudited) ..... F-8
Report of Independent Certified Public Accountants ................... F-10
Consolidated Statements of Financial Condition at
December 31, 1996 and 1995 ......................................... F-11
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-12
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-13
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-14
Notes to Consolidated Financial Statements ........................... F-15
FAMILY BANK
Condensed Statements of Financial Condition at March 31,
1997 (unaudited) and December 31, 1996 ............................ F-42
Condensed Statements of Income for the three months ended
March 31, 1997 and 1996 (unaudited) ................................ F-43
Condensed Statements of Shareholders' Equity for the three months
ended March 31, 1997 (unaudited) and the year ended December 31,
1996 ............................................................... F-44
F-1
<PAGE>
Condensed Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 (unaudited) ................................ F-45
Notes to Condensed Financial Statements (unaudited) .................. F-46
Report of Independent Certified Public Accountants ................... F-48
Statements of Financial Condition at December 31, 1996 and 1995 ...... F-49
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 ................................... F-50
Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 ............................. F-51
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 ............................. F-52
Notes to Financial Statements ........................................ F-53
F-2
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
FINANCIAL STATEMENTS
F-3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
====================================================================================================================
MARCH 31, DECEMBER 31,
1997 1996
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $4,522 $4,874
Interest-bearing deposits in other financial institutions 21,530 34,430
Investments available-for-sale 30,963 32,917
Investments held to maturity (market value of $7,778 and $6,830 at
March 31, 1997 and December, 31, 1996, respectively) 7,782 6,782
Loans - net 267,717 243,222
Loans held for sale (Market value of $2,295 and $7,850 at March 31, 1997
and December 31, 1996, respectively) 2,260 7,773
Property and equipment - net 10,173 9,000
Other real estate owned - net 792 1,248
Goodwill - net 7,534 7,675
Loan servicing rights - net 1,904 2,032
Accrued interest receivable 1,890 1,976
Other assets 8,314 7,377
- --------------------------------------------------------------------------------------------------------------------
TOTAL $365,381 $359,306
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $262,196 $272,587
Federal Home Loan Bank advances 45,000 30,000
Securities sold under agreements to repurchase 1,936 2,076
Advances from borrowers for taxes and insurance 2,589 1,613
Bank drafts payable 4,363 3,778
Other liabilities 3,686 3,679
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 319,770 313,733
- --------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock $10.00 stated value; 10,000,000 shares authorized: SERIES "C" -
1,035,000 shares issued and outstanding at March 31, 1997 and
December 31, 1996, respectively. 10,350 10,350
Common stock $.01 par value; 20,000,000 shares authorized;
7,854,982 shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively 79 79
Additional paid-in capital 31,101 31,101
Retained earnings 4,485 4,035
Unrealized (loss)/gain on investments available-for-sale, net of taxes (404) 8
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 45,611 45,573
- --------------------------------------------------------------------------------------------------------------------
TOTAL $365,381 $359,306
====================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
====================================================================================================================
THREE MONTHS ENDED MARCH 31,
1997 1996
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $5,566 $5,585
Interest and dividends on investments 946 628
- --------------------------------------------------------------------------------------------------------------------
6,512 6,213
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 2,540 2,614
Interest on borrowings 390 65
- --------------------------------------------------------------------------------------------------------------------
2,930 2,679
- --------------------------------------------------------------------------------------------------------------------
Net interest income 3,582 3,534
Provision for loan losses 25 25
- --------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,557 3,509
- --------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain on sale of loans 46 37
Gain on sale of investments available-for-sale 148
Mortgage trading income 38
Other income 811 869
- --------------------------------------------------------------------------------------------------------------------
1,043 906
- --------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 1,493 1,613
Occupancy and equipment 649 570
Professional fees 160 148
Advertising and promotions 60 81
Communications 119 128
Data processing 182 143
Insurance 13 82
Goodwill amortization 142 54
Other 408 454
- --------------------------------------------------------------------------------------------------------------------
TOTAL 3,226 3,273
- --------------------------------------------------------------------------------------------------------------------
Income before taxes 1,374 1,142
Provision for income taxes 508 473
- --------------------------------------------------------------------------------------------------------------------
Net income $866 $669
====================================================================================================================
Income applicable to common stock $685 $417
====================================================================================================================
PER SHARE DATA:
Primary earnings per common share $.09 $.06
Fully diluted earnings per common share $.09 $.06
Dividends per common share $0.03 $.025
Average common shares and common stock equivalents outstanding 8,034 7,008
====================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
=====================================================================================================================
UNREALIZED
GAIN
(LOSS) ON
ADDITIONAL INVESTMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER PREFERRED COMMON PAID-IN RETAINED AVAILABLE-FOR-SALE,
SHARE DATA) STOCK STOCK CAPITAL EARNINGS NET OF TAXES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $14,365 $66 $26,035 $3,368
Exercise of warrants - 268,126 shares 3 1,039
Conversion of preferred stock series
"A" into common stock - 982,995 shares (3,980) 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)
Cash dividends - common stock (847)
Cash dividends - preferred stock series "A"
and "C" (886)
Net income 2,400
Change in net unrealized gain/loss on
investments available-for-sale, net of taxes $8
- ---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 10,350 79 31,101 4,035 8
Cash dividends - common stock (235)
Cash dividends - preferred stock series "C" (181)
Net income 866
Change in net unrealized gain/loss on
investments available-for-sale, net of taxes (412)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 $10,350 $79 $31,101 $4,485 $(404)
=====================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Note: Information for the three months ended March 31, 1997 is unaudited.
F-6
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
===================================================================================================================
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
(AMOUNTS IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $866 $669
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 25 25
Depreciation 200 159
Amortization of goodwill 141 54
Gain on sale of investments available-for-sale (148)
Gain on sale of loans -trading, loans and servicing (84) (37)
Loan costs deferred (100) (43)
Loans originated for sale (4,222) (3,622)
Sale of loans and loan participation certificates 9,856 3,659
Other - net 845 907
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,379 1,771
- --------------------------------------------------------------------------------------------------------------------
Investing Activities:
Cash and cash equivalents acquired in merger-net 15,235
Proceeds from sale of investments available-for-sale 10,856
Purchases of investments available-for-sale (9,733)
Maturities and calls of investments held to maturity 500 5,492
Purchases of investments held to maturity (1,494) (500)
Loans purchased for investment (16,155)
Loans originated for investment (19,404) (5,834)
Principal collected on loans 10,227 7,617
Other - net 519 145
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (24,684) 22,155
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts,
Money Market accounts and savings accounts (1,434) (4,234)
Net decrease in certificates of deposit (8,957) (10,987)
Increase (decrease) in FHLB advances 15,000 (25,000)
Other - net (556) 153
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,053 (40,068)
- --------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (13,252) (16,142)
Cash and cash equivalents at beginning of period 39,304 54,373
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $26,052 $38,231
====================================================================================================================
</TABLE>
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods. The Company paid $2,500 and $130,000
in income taxes during the three months ended March 31, 1997 and 1996,
respectively. The Company paid $3,518,000 and $2,864,000 interest on deposits
and other borrowings during the three months ended March 31, 1997 and 1996,
respectively. The Company had $27,000 and $128,000 of transfers from loans to
OREO during the three months ended March 31, 1997 and 1996, respectively. Assets
of $62 million were acquired and $62 million liabilities assumed related to the
merger of Banyan Bank during the three months ended March 31, 1996.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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) considered necessary to present fairly the
consolidated financial position of Republic Security Financial
Corporation and its subsidiary as of March 31, 1997 and December 31,
1996, and the results of operations for the three months ended March
31, 1997 and March 31, 1996, and changes in cash flows for the three
months then ended.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation 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 months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in
Republic Security Financial Corporation's annual report on Form 10-K
for the year ended December 31, 1996.
The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
2. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
At March 31, 1997, the Bank had $4,017,000 in non-performing
assets (loans 90 days or more past due, other real estate owned and
repossessed assets). The provision for loan losses was $25,000 for the
three months ended March 31, 1997 and 1996.
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.
3. POTENTIAL MERGERs
On January 7 1997, the Bank entered into a definitive
agreement whereby Family Bank, a Florida state chartered, commercial
bank, will merge with Republic Security Bank. The definitive agreement
provides for a fixed exchange ratio whereby shareholders of Family Bank
will receive 13 shares of Republic Security Financial Corporation
common stock for each share of Family Bank common stock. The Company
will issue approximately 8.3 million shares of Republic Security
Financial Corporation common stock for all outstanding common shares of
Family Bank stock in a tax free exchange. Management anticipates the
transaction to be accounted for as a pooling-of-interests. Family Bank
is headquartered in Hallandale, Florida with seven branch locations in
Broward County and has total assets, loans and deposits of
approximately $248 million, $159 million and $216 million,
respectively, at December 31, 1996. At March 31, 1997, the Bank had
$105,000 of capitalized charges associated with the Merger which will
be expensed in the period in which the transaction is consummated.
On May 2, 1997, a Florida depository institution (the
"Institution") entered into a Standstill Agreement (the "Agreement")
with Republic Security Financial Corporation whereas the Institution
and the Company are interested in discussions and possible negotiations
regarding an acquisition of the Institution. The Agreement is in effect
for thirty days and allows for the Company to perform due diligence
procedures and the Institution agrees not to solicit discussions
concerning any acquisition of its assets with another party.
The Institution is a financial services company located in
Florida with two branch locations. At December 31, 1996, the
Institution had total assets of $143 million, total loans of $118
million, total deposits of $126 million and total equity of $8 million.
F-8
<PAGE>
The transaction is subject to satisfactory due diligence and
negations as well as regulatory approvals and approval by the
Institution's shareholders. The consideration paid will be a mixture of
cash and RSFC's common stock, which is subject to shareholder
preference and negotiation. If the transaction is consummated,
management anticipates the transaction to be accounted for under the
purchase method of accounting for business combinations.
4. COMMITMENTS AND CONTINGENCIES
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require the payment of a fee. The
total commitment amounts do not necessarily represent future cash
requirements as some commitments expire without being drawn upon. The
Bank evaluates each customer's credit worthiness on a case by case
basis. The amount of collateral obtained, if deemed necessary by the
Bank, upon extension of credit is based on management's credit
evaluation of the counter party.
At March 31, 1997, the Bank had adjustable rate commitments to
extend credit of approximately $27,000,000 excluding the undisbursed
portion of loans-in-process. These commitments are primarily for
commercial lines of credit secured by commercial real estate or other
business assets and for one-to-four family residential properties .
In addition to the above commitments and contingencies, there
are various matters of litigation pending against the Company that
management has reviewed with legal counsel. At March 31, 1997, $344,000
related to pending litigation was accrued and included in other
liabilities. In the opinion of management of the Company, amounts
accrued for awards of 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.
5. 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.
RECENT ACCOUNTING PRONOUNCEMENT: 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 1997 will have a significant
impact on the Company's reported EPS.
F-9
<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
January 23, 1997
F-10
<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 $ 4,874 $ 3,211
Interest-bearing deposits in other financial institutions 34,430 51,162
Investments available-for-sale 32,917
Investments held to maturity (Market value of $6,830 and $10,779 at
December, 31, 1996 and 1995, respectively) 6,782 10,622
Loans receivable - net 243,222 216,756
Loans held for sale (Market value of $7,850) 7,773
Property and equipment - net 9,000 7,192
Other real estate owned 1,248 1,340
Goodwill - net 7,675 2,994
Loan servicing rights, net 2,032 2,546
Accrued interest receivable 1,976 1,796
Other assets 7,377 6,042
- --------------------------------------------------------------------------------------------------------------------
TOTAL $359,306 $303,661
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $272,587 $223,535
Federal Home Loan Bank advances 30,000 25,000
Securities sold under agreements to repurchase 2,076 2,350
Advances from borrowers for taxes and insurance 1,613 2,105
Bank drafts payable 3,778 3,155
Other liabilities 3,679 3,682
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 313,733 259,827
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Preferred stock $10.00 stated value; 10,000,000 shares authorized:
SERIES "A" - 401,500 shares issued and outstanding at December 31, 1995 4,015
SERIES "C" - 1,035,000 shares issued and outstanding at December 31, 1996 and
1995, respectively 10,350 10,350
Common stock $.01 par value; 20,000,000 shares authorized; 7,854,982 and
6,587,653 shares issued and outstanding at
December 31, 1996 and 1995, respectively 79 66
Additional paid-in capital 31,101 26,035
Retained earnings 4,035 3,368
Unrealized gain on investments available for sale, net of taxes 8
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 45,573 43,834
- --------------------------------------------------------------------------------------------------------------------
TOTAL $359,306 $303,661
====================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-11
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
===================================================================================================================
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1996 1995 1994 1995
- -------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $22,623 $15,201 $10,522 $15,480
Interest and dividends on investments 2,173 1,081 656 1,034
- -------------------------------------------------------------------------------------------------------------------
24,796 16,282 11,178 16,514
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 10,366 6,946 4,099 6,244
Interest on borrowings 247 829 810 1,153
- -------------------------------------------------------------------------------------------------------------------
10,613 7,775 4,909 7,397
- -------------------------------------------------------------------------------------------------------------------
Net interest income 14,183 8,507 6,269 9,117
Provision for loan losses 155 100 175 200
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 14,028 8,407 6,094 8,917
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 1,820 1,113 524 809
Gain on sale of loans and servicing 1,053 625 749 847
Mortgage trading income 290 283 329
Gain on sale of investments available-for-sale 191
Loss on sale of investments - trading (200) (200)
Other income 1,620 1,153 700 988
- -------------------------------------------------------------------------------------------------------------------
4,684 3,181 2,056 2,773
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 6,067 3,699 3,262 4,595
Occupancy and equipment 2,478 1,498 936 1,488
Professional fees 706 599 437 652
Advertising and promotion 341 176 178 233
Communications 459 302 244 352
Data processing 707 339 209 307
Insurance 1,649 473 420 570
Other real estate owned - net 188 106 70 70
Goodwill amortization 471 165 18 73
Other 1,535 1,085 982 1,520
- -------------------------------------------------------------------------------------------------------------------
14,601 8,442 6,756 9,860
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,111 3,146 1,394 1,830
Income taxes 1,711 1,169 505 663
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $2,400 $1,977 $889 $1,167
- ----------------------------------------------------------- ------------ ------------- -------------- -------------
Income applicable to common stock $1,514 $1,648 $663 $865
- -------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Primary earnings per common share $.20 $.32 $.18 $.23
Fully diluted earnings per common share $.20 $.25 $.18 $.23
Dividends $.115 $.07 $.04 $.07
- -------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES AND COMMON STOCK EQUIVALENTS
OUTSTANDING:
Primary 7,474 5,175 4,474 4,474
Fully diluted 7,474 7,797 4,474 4,474
===================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-12
<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> <C>
BALANCE, MARCH 31, 1994 $4,025 $36 $14,213 $1,374
Issuance of common stock
for fixed asset purchase - 7,701 shares 27
Stock grants - 9,196 shares 38
Exercise of stock options - 4,337 shares 10
Exercise of equity contracts - 13,786 shares 1 39
401(k) plan - 7,744 shares 35
Cash dividends - common stock (217)
Cash dividends - preferred stock (302)
Net income 1,167
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 4,025 37 14,362 2,022
Exercise of equity contracts - 634,476 shares 6 1,745
Exercise of warrants - 211,300 shares 2 818
Exercise of stock options - 2,668 shares 7
Issuance of stock grants - 12,000 shares 52
Conversion of preferred stock into common stock
- 2,469 shares (10) 10
401(k) plan - 1,997 shares 8
Issuance of series "C" preferred stock -
1,035,000 shares 10,350 (850)
Issuance of common stock - 2,070,000 shares 21 9,883
Cash dividends - common stock (302)
Cash dividends - preferred stock series
"A" and "C" (329)
Net income for nine months ended
December 31, 1995 1,977
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 14,365 66 26,035 3,368
Exercise of warrants - 268,126 shares 3 1,039
Conversion of preferred stock series "A"
into common stock - 982,995 shares (3,980) 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 12
Cash redemption of preferred stock series "A" (35)
Cash dividends - common stock (847)
Cash dividends - preferred stock series
"A" and "C" (886)
Net income 2,400
Change in appreciation on investments available
for sale,
net of taxes $8
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $10,350 $79 $31,101 $4,035 $8
======================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
===================================================================================================================
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(AMOUNTS IN THOUSANDS) 1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $2,400 $1,977 $1,167
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES, NET OF EFFECTS OF
ACQUISITIONS:
Provision for loan losses 155 100 200
Depreciation and amortization 1,766 956 1,037
Deferred income taxes 153 182 139
Amortization of deferred loan fees and costs (182) (337) (215)
Gain on sale of loans -trading, loans and servicing (1,053) (757) (1,176)
Loan costs deferred (241) (161) (471)
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 (1,627) (1,389) 2,339
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 26,075 11,911 29,025
- -------------------------------------------------------------------------------------------------------------------
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 (42,839)
Proceeds from sale of investments available- for- sale 9,866
Maturities and calls of investments held to maturity 10,025 5,600 1,350
Purchases of investments held to maturity (5,996) (1,951)
Loans purchased for investment (2,014) (1,861) (1,053)
Loans originated for investment (78,499) (42,516) (67,990)
Principal collected on loans 57,003 56,317 35,034
Purchase of property and equipment (2,333) (1,652) (2,295)
Purchase of loan servicing rights (2,322)
Other - net 1,751 331 1,408
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (37,801) 31,185 (34,049)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW accounts,
Money Market accounts and savings accounts 10,838 (1,665) (1,414)
Proceeds from sales of certificates of deposit 30,049 30,054 56,414
Payment for maturing certificates of deposits (48,274) (64,220) (40,185)
Proceeds from common and preferred stock offering - net of
stock issuance costs 19,404
Increase (decrease) in FHLB advances 5,000 10,000 (5,000)
Cash dividends (1,733) (631) (519)
Other - net 777 434 475
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (3,343) (6,624) 9,771
- -------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (15,069) 36,472 4,747
Cash and cash equivalents at beginning of period 54,373 17,901 13,154
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $39,304 $54,373 $17,901
===================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company 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 ten full-service branches, nine of which are located in
Palm Beach County and one in Dade County, Florida. The Bank's main
business activities are attracting deposits, originating loans, making
investments and servicing loans for the Bank and for others.
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 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. The unaudited consolidated statement of income for the nine month
period ended December 31, 1994 is included for comparative purposes
only.
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 $1,610,000 during the year ended December 31,
1996, $970,000 during the nine months ended December 31, 1995, and
$512,000 during the year ended March 31, 1995. The Company paid
interest on deposits and other borrowings of $10,760,000 for the year
ended December 31, 1996, $7,787,000 for the nine months ended December
31, 1995 and $6,634,000 for the year ended March 31, 1995.
Approximately $976,000, $770,000 and $1,367,000 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-15
<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.
SECURITIES
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-16
<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 $91,000 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-17
<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
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.
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.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGERS AND BRANCH ACQUISITION
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
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:
---------------------------------------------------------------
(IN THOUSANDS)
---------------------------------------------------------------
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
===============================================================
Pro forma financial information for Republic Security Financial
Corporation, 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 $19,399 $19,689
================================================================================
Net interest income after provision
for loan losses $10,068 $10,765
================================================================================
Income before taxes $4,130 $2,512
================================================================================
Net income $2,395 $1,507
================================================================================
Net income per common share $0.23 $0.11
================================================================================
</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
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The following summarizes the fair value of the Governors' assets
acquired and liabilities assumed:
-------------------------------------------------------------------
(IN THOUSANDS)
-------------------------------------------------------------------
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
===================================================================
Pro forma financial information for RSFC, as if the merger had
taken place as of April 1, 1994, for income and per share data is as
follows:
=============================================================================
YEAR ENDED MARCH 31,
(IN THOUSANDS EXCEPT PER SHARE DATA) 1995
- -----------------------------------------------------------------------------
Total interest income $19,702
=============================================================================
Net interest income after provision for loan losses $10,625
=============================================================================
Income before taxes and cumulative effect of
accounting change $2,357
=============================================================================
Net income $1,507
=============================================================================
Net income per common share $.30
=============================================================================
F-20
<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:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
======================================================================================================================
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED MARKET YIELD
COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mortgage backed securities $32,903 $74 $60 $32,917 7.5%
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
======================================================================================================================
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE YIELD
- ---------------------------- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government securities $6,707 $53 $5 $6,755 6.6%
Foreign Government securities 75 75 7.5
- ---------------------------- -----------------------------------------------------------------------------------------
TOTAL $6,782 $53 $5 $6,830 6.6%
======================================================================================================================
</TABLE>
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 WEIGHTED
(IN THOUSANDS) COST VALUE AVERAGE YIELD
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due in 1 year or less $2,002 $1,997 5.3%
Due after 1 through 5 years 4,730 4,783 7.2
Due after 5 years through 10 years 50 50 7.5
- ----------------------------------------------------------------------------------------------------------------------------
$6,782 $6,830 6.6%
============================================================================================================================
</TABLE>
The anticipated maturities for mortgage-backed securities are not
readily determinable since they may be prepaid without penalty.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of held to maturity securities at
December 31, 1995 and March 31, 1995:
<TABLE>
<CAPTION>
======================================================================================================================
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE YIELD
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government securities $10,547 $164 $7 $10,704 7.15%
Foreign Government securities 75 75 7.50
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $10,622 $164 $7 $10,779 7.16%
======================================================================================================================
MARCH 31, 1995:
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government securities $13,528 $78 $13,606 7.20%
Foreign Government securities 75 75 7.50
Other debt securities 500 $2 498 5.70
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $14,103 $78 $2 $14,179 7.15%
======================================================================================================================
</TABLE>
No securities were classified as available-for-sale at December
31, 1995.
At December 31, 1996 and 1995 securities with a book value of
$32,884,000 and $6,752,000, 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.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LOANS RECEIVABLE - NET
Loans receivable - net is summarized as follows:
==============================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------
Residential mortgage $102,266 $116,328
Commercial mortgage 58,842 25,884
Real estate construction 29,793 36,863
Installment loans to individuals 43,760 37,984
Commercial and financial 23,845 14,868
- ------------------------------------------------------------------------------
TOTAL LOANS 258,506 231,927
- ------------------------------------------------------------------------------
Deferred loan fees (98) (636)
Undisbursed portion of loans-in-process (12,913) (12,104)
Allowance for loan losses (2,273) (2,431)
- ------------------------------------------------------------------------------
LOANS RECEIVABLE - NET $243,222 $216,756
==============================================================================
5. NON-PERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 1996, 1995 and March 31, 1995, the Bank had
$3,129,000, $2,422,000, and $2,427,000, respectively, in non-performing
loans. Interest income not recognized on non-performing loans was
$104,000 during the year ended December 31, 1996, $148,000 during the
nine months ended December 31, 1995 and $35,000 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 $878,000, $101,000, and $792,000, respectively. The related
allowance for credit losses for such loans is $132,000, $15,000, and
$120,000 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 $842,000. The average recorded
investment in impaired loans for the nine months ended December 31,
1995 and year ended March 31, 1995 is $881,000 and $880,000,
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 $37,500, $21,600, and $54,000, 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-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
An analysis of changes in the allowance for loan losses is
summarized as follows:
===============================================================================
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------
Beginning balance $2,431 $2,507
Reserves acquired in connection
with merger 374
Provision for losses 155 100
Recoveries 167 632
Charge-offs (854) (808)
- -------------------------------------------------------------------------------
ENDING BALANCE $2,273 $2,431
===============================================================================
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 $1,800,000 for the year ended December
31, 1996.
7. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
=============================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------
Land and buildings $6,580 $5,879
Furniture and equipment 3,557 2,061
Leasehold improvements 836 544
- -----------------------------------------------------------------------------
TOTAL 10,973 8,484
Less accumulated depreciation and
amortization 1,973 1,292
- -----------------------------------------------------------------------------
PROPERTY AND EQUIPMENT-NET $9,000 $7,192
=============================================================================
Rent expense for the year ended December 31, 1996 was $818,000.
Rent expense for the nine months ended December 31, 1995 and the year
ended March 31, 1995 was $477,000 and $419,000, respectively.
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-24
<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:
- --------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------
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
==========================================================================
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-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DEPOSITS
The weighted-average nominal rate payable on all deposits was 4.0%
at December 31, 1996 and 1995. The nominal rates at which the Bank
incurred interest on deposits and related balances of such deposits are
as follows:
===============================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------
Non-interest bearing accounts $ 30,341 $ 23,867
NOW accounts (1.50%) 35,372 28,202
Saving accounts (2.55%) 19,137 19,699
Money market deposits account (2.88%) 39,902 14,536
CERTIFICATE ACCOUNTS:
Up to 4.0% 3,006 3,490
4.01% to 4.5% 10,395 2,530
4.51% to 5.0% 27,276 31,280
5.01% to 5.5% 44,869 32,491
5.51% to 6.0% 46,429 23,397
6.01% to 6.5% 8,718 27,453
Over 6.51% 7,142 16,590
- -------------------------------------------------------------------------------
Total certificates 147,835 137,231
- -------------------------------------------------------------------------------
TOTAL $272,587 $223,535
===============================================================================
The Bank incurred interest on deposits as follows:
===============================================================================
YEAR ENDED, NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(IN THOUSANDS) 1996 1995 1995
- -------------------------------------------------------------------------------
Savings accounts $ 522 $ 405 $ 607
NOW accounts 507 454 419
Money market deposit accounts 1,128 312 437
Certificate accounts 8,209 5,775 4,781
- -------------------------------------------------------------------------------
TOTAL $10,366 $6,946 $6,244
===============================================================================
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amounts and maturities of certificate accounts at December 31,
1996 are as follows:
- -------------------------------------------------------------------------------
(in thousands):
- -------------------------------------------------------------------------------
Within 12 months $118,916
12 to 24 months 17,199
24 to 36 months 3,884
36 to 48 months 6,691
Over 48 months 1,145
- -------------------------------------------------------------------------------
Total $147,835
===============================================================================
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):
===============================================================================
Within 3 months $ 9,656
3 to 6 months 4,105
6 to 12 months 7,693
Over 12 months 3,746
- -------------------------------------------------------------------------------
Total $25,200
===============================================================================
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.
Outstanding advances from the Federal Home Loan Bank consisted of the
following:
===============================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995 INTEREST RATE
- -------------------------------------------------------------------------------
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
===============================================================================
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
On March 29, 1995, the Company's outstanding redeemable
subordinated debentures and cancelable mandatory stock purchase
contracts were called for redemption. Upon surrender of the Debentures,
and at the option of the Bondholder, the Bondholder received a number
of shares of the Company's Common Stock equal to the principal amount
of the Debenture divided by the adjusted per share price of $2.90 or
cash equal to 104% of the principal amount of the Debenture. As a
result of the 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 $3,422,000, accrued interest of $85,000, and a market value of
$3,532,000 at December 31, 1996. The aggregate carrying value of
securities pledged at December 31, 1995 was $4,024,000, accrued
interest of $15,000 with a market value of $4,103,000. All agreements
mature daily and have a weighted interest rate of 4.87% 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
$1,911,000 during the year ended December 31, 1996 and $2,385,000
during the nine months ended December 31, 1995. The maximum amount
outstanding at any month-end during the year ended December 31, 1996
was $2,352,000 and the maximum outstanding at any month-end during the
nine months ended December 31, 1995 was $2,651,000.
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 $5,320,000 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 $1,610,000, and $530,000 in dividends to the Company
during the year ended December 31, 1996 and nine months ended December
31, 1995, respectively.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The balance, activity, exercise price, and expiration dates of the
Company's options, 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
OPTIONS WARRANTS CONTRACTS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE MARCH 31, 1994 19,390 97,024 80,707 1,334 42,000 165,216 511,153 674,754
Issued 6,000
Expired (3,622)
Exercised (1,000) (2,003) (1,334) (13,786)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE MARCH 31, 1995 6,000 14,768 97,024 78,704 0 42,000 165,216 511,153 660,968
Issued
Exercised (2,668) (211,300) (634,476)
Canceled (26,492)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 6,000 14,768 97,024 76,036 0 42,000 165,216 299,853 0
Expired (31,727)
Exercised (4,622) (268,126)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 6,000 10,146 97,024 76,036 0 42,000 165,216 0 0
============================================================================================================================
Exercise Price $5.00 $2.50 $2.48 $2.62 $2.08 $3.33 $5.00 $3.90 $2.90
Expiration Date 12/31/97 * 9/25/01 2/24/98 2/24/98 6/1/03 11/1/00 1/22/96 5/1/96
- ----------------------------------------------------------------------------------------------------------------------------
* 4,622 OPTIONS EXPIRE ANNUALLY
============================================================================================================================
</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.
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 options are exercisable at
various dates in accordance with an employment contract.
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 5% and 10% stock dividends on January 21, 1994,
and April 1, 1993, respectively. All references in the consolidated
financial statements and notes to amounts per common share and to
number of common shares have been restated to give retroactive effect
for these stock dividends.
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:
=======================================================
DATE SARS BASE PRICE
-------------------------------------------------------
January 1, 1997 220,000 $5.75
January 1, 1998 620,000 $8.00
=======================================================
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 capital $30,154 14.5% $18,440 8.0% $23,050 10.0%
Tier 1 risk based capital $27,881 13.4% $9,220 4.0% $13,830 6.0%
Leverage capital $27,881 8.9% $12,565 4.0% $15,765 5.0%
AS OF DECEMBER 31, 1995:
Total risk based capital $25,216 13.4% $15,020 8.0% $18,775 10.0%
Tier 1 risk based capital $22,854 12.1% $7,510 4.0% $11,266 6.0%
Leverage capital $22,854 8.4% $10,770 4.0% $13,465 5.0%
================================================================================================================
</TABLE>
The following table shows the capital amounts and ratios of the
Company:
===============================================================================
ACTUAL
(DOLLARS IN THOUSANDS) AMOUNT RATIO
- -------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996:
Total risk based capital $38,955 16.9%
Tier 1 risk based capital $36,685 15.9%
Leverage capital $36,685 11.7%
AS OF DECEMBER 31, 1995:
Total risk based capital $43,280 23.0%
Tier 1 risk based capital $36,310 19.3%
Leverage capital $36,310 13.5%
===============================================================================
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.
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1996, the Bank had adjustable rate commitments to
extend credit of $22,800,000, excluding the undisbursed portion of
loans-in-process. These commitments are primarily for one-to-four
family residential properties and commercial lines of credit secured by
commercial real estate or other business assets.
The Company and its subsidiaries have entered into noncancellable
operating leases with future minimum lease payments of the following:
- -----------------------------------------------------------------
(IN THOUSANDS)
- -----------------------------------------------------------------
1997 $ 839
1998 605
1999 333
2000 159
2001 133
Thereafter 352
- -----------------------------------------------------------------
$2,421
=================================================================
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 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.
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
$131,000, $70,000, and $95,000, 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. At December 31, 1996,
$387,000 related to pending litigation was accrued and included in
other liabilities. In the opinion of management of the Company, amounts
accrued for awards of 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.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
An analysis of the activity of the aggregate loans to officers and
directors is as follows:
- ------------------------------------------------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------------
BALANCE MARCH 31, 1994 $761
Additions 327
Principal reductions (95)
- ------------------------------------------------------------------------------
BALANCE MARCH 31, 1995 993
Additions 296
Principal reductions (392)
- ------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 897
Additions 470
Principal reductions (503)
- ------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 $864
==============================================================================
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.
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.
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
=============================================================================
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Net operating loss $878 $993
Loan loss provision 467 272
Deferred compensation 165 128
Depreciation 71 100
Accrued expenses 9
Investment basis 33
OREO expenses 90 149
- -----------------------------------------------------------------------------
1,671 1,684
Valuation allowance (699) (1,136)
- -----------------------------------------------------------------------------
Deferred tax assets, net of allowance 972 548
- -----------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Excess servicing rights 107 197
Deferred loan fees 182 129
Other 9 15
- -----------------------------------------------------------------------------
Total 298 341
- -----------------------------------------------------------------------------
Net deferred tax asset $674 $207
=============================================================================
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:
===============================================================================
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
(IN THOUSANDS) 1996 1995 1995
- -------------------------------------------------------------------------------
CURRENT:
Federal $1,383 $828 $480
State 175 159 44
- -------------------------------------------------------------------------------
1,558 987 524
- -------------------------------------------------------------------------------
DEFERRED (BENEFIT):
Federal 131 171 119
State 22 11 20
- -------------------------------------------------------------------------------
153 182 139
===============================================================================
$1,711 $1,169 $663
===============================================================================
F-34
<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 $1,398 $1,070 $623
DIFFERENCES RESULTING FROM:
State income taxes, net of
federal tax benefit 112 103 42
Amortization of goodwill 160 56 10
Other, net 41 (60) (12)
- --------------------------------------------------------------------------------------------
Income taxes $1,711 $1,169 $663
============================================================================================
</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-35
<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 $36,747 $25,713
Cash and cash equivalents 9,068 18,505
Other assets 81 45
- -------------------------------------------------------------------------------------------------------------------
TOTAL $45,896 $44,263
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses $323 $429
SHAREHOLDERS' EQUITY:
Preferred stock 10,350 14,365
Common stock 79 66
Additional paid-in-capital 31,101 26,035
Retained earnings 4,043 3,368
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 45,573 43,834
- -------------------------------------------------------------------------------------------------------------------
TOTAL $45,896 $44,263
===================================================================================================================
</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 undistributed
earnings of subsidiaries and income tax benefit 277 92 (12)
Income tax expense (benefit) 101 33 (5)
- --------------------------------------------------------------------------------------------------------
Income (loss) before undistributed earnings of
subsidiaries 176 59 (7)
Equity in undistributed earnings of subsidiaries 2,224 1,918 1,174
- --------------------------------------------------------------------------------------------------------
NET INCOME $2,400 $1,977 $1,167
========================================================================================================
</TABLE>
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
=======================================================================================================================
STATEMENTS OF CASH FLOWS YEAR ENDED NINE MONTHS ENDED YEAR ENDED
(IN THOUSANDS) DECEMBER 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $2,400 $1,977 $1,167
Adjustments to reconcile net income to net
cash provided by operating activities:
Dividends received from Bank 1,610 530 535
Other (2,328) (1,446) (1,430)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,682 1,061 272
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additional investment in subsidiary (10,418) (3,000) (1,500)
Purchase of Governors Bank subsidiary (5,154)
Other, net (148)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,418) (3,000) (6,802)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Sale of common and preferred
stock, net of stock issuances costs 19,404
Cash dividends (1,733) (631) (519)
Other, net 1,032 653 113
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (701) 19,426 (406)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (9,437) 17,487 (6,936)
Cash and cash equivalents at beginning of year 18,505 1,018 7,954
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $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 Bank.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments:
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH AND INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS: The
carrying amounts reported in the balance sheet for these assets
approximate their fair values.
INVESTMENTS 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 Bank'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 and securities sold
under agreement to repurchase are estimated using discounted cash flow
analysis, based on the Bank'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-38
<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 interest-bearing deposits $39,304 $39,304 $54,373 $54,373
Investments available-for-sale 32,917 32,917
Investments held for maturity 6,782 6,830 10,622 10,779
Loans receivable - net 243,222 243,733 216,756 219,823
Loans held for sale 7,773 7,850
FINANCIAL LIABILITIES:
Deposits $272,587 $273,417 $223,535 $224,215
FHLB advances 30,000 30,000 25,000 25,000
Securities sold under agreements
to repurchase 2,076 2,076 2,350 2,350
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-39
<PAGE>
- -------------------------------------------------------------------------------
(IN THOUSANDS) BANKING MORTGAGE BANKING CONSOLIDATED
- -------------------------------------------------------------------------------
Net interest income after
provision for loan losses $7,394 $1,297 $8,691
Non-interest income 1,211 1,211
Mortgage banking income 1,788 1,788
Depreciation 280 179 459
Non-interest expense 5,365 4,036 9,401
- -------------------------------------------------------------------------------
Income (loss) before taxes $2,960 $(1,130) $1,830
===============================================================================
20. SUBSEQUENT EVENT
On January 7 1997, the Bank entered into a definitive agreement
whereby Family Bank, a Florida state chartered, commercial bank, will
merge with Republic Security Bank, subject to shareholder and
regulatory approval as well as other conditions. The definitive
agreement provides for a fixed exchange ratio whereby shareholders of
Family Bank will receive 13 shares of Republic Security Financial
Corporation common stock for each share of Family Bank stock. The
Company will issue approximately 8.3 million shares of Republic
Security Financial Corporation common stock for all outstanding shares
of Family Bank stock in a tax free exchange, accounted for as a
pooling-of-interests. Family Bank is headquartered in Hallandale,
Florida with six branch locations in Broward County and has total
assets, loans and deposits of approximately $248 million, $159 million
and $216 million, respectively, at December 31, 1996.
F-40
<PAGE>
FAMILY BANK
FINANCIAL STATEMENTS
F-41
<PAGE>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
============================================================================
MARCH 31, DECEMBER 31,
1997 1996
(AMOUNTS IN THOUSANDS) (UNAUDITED)
- ----------------------------------------------------------------------------
ASSETS
Cash and due from banks $13,491 $12,768
Federal funds sold 11,200 13,025
- ----------------------------------------------------------------------------
Cash and cash equivalents 24,691 25,793
Investments available - for - sale 12,140 16,753
Investments held to maturity (Market value of
$40,782 and $39,173 at March 31, 1997
and December 31, 1996, respectively) 41,051 39,036
Loans, net 165,428 157,352
Premises and equipment, net 5,206 5,289
Other real estate owned 860 251
Accrued interest receivable and other assets 3,545 3,379
- ----------------------------------------------------------------------------
$252,921 $247,853
- ----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $218,754 $216,469
Securities sold under agreements to repurchase 7,877 6,557
Notes payable 380 380
Accrued interest payable and other liabilities 4,080 3,856
- ----------------------------------------------------------------------------
Total liabilities 231,091 227,262
- ----------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $5 par value; 1,200,000 shares
authorized; 591,669 and 590,514 shares
issued and outstanding at March 31, 1997 and
December 31, 1996, respectively 2,958 2,952
Additional paid - in capital 3,398 3,373
Retained earnings 15,552 14,271
Unrealized loss on investments
available-for-sale, net of taxes (78) (5)
- ----------------------------------------------------------------------------
Total shareholders' equity 21,830 20,591
- ----------------------------------------------------------------------------
$252,921 $247,853
============================================================================
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
F-42
<PAGE>
CONDENSED STATEMENTS OF INCOME
==============================================================================
THREE MONTHS ENDED
MARCH 31,
1997 1996
(AMOUNTS IN THOUSANDS) (UNAUDITED)
- ------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $3,775 $3,428
Interest on federal funds sold 102 153
Interest and dividends on investments 766 581
- ------------------------------------------------------------------------------
4,643 4,162
- ------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 1,531 1,293
Interest on borrowings 69 48
- ------------------------------------------------------------------------------
1,600 1,341
- ------------------------------------------------------------------------------
Net interest income 3,043 2,821
Provision for loan losses 0 50
- ------------------------------------------------------------------------------
Net interest income after provision
for loan losses 3,043 2,771
- ------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 488 423
Net gain on sale of investment securities 15 1
Other income 63 116
- ------------------------------------------------------------------------------
566 540
- ------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and employee benefits 1,010 971
Occupancy expenses 290 288
Professional fees 54 100
Advertising and promotion 76 65
Other real estate 23 23
Communications 60 59
Data processing 9 6
Insurance 48 38
Other 151 279
- ------------------------------------------------------------------------------
1,721 1,829
- ------------------------------------------------------------------------------
Income before income taxes 1,888 1,482
Provision for income taxes 607 450
- ------------------------------------------------------------------------------
Net income $1,281 $1,032
==============================================================================
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
F-43
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
===================================================================================================================
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) UNREALIZED
GAIN (LOSS)
ON INVESTMENTS
ADDITIONAL AVAILABLE
COMMON COMMON PAID-IN RETAINED FOR-SALE,
SHARES STOCK CAPITAL EARNINGS NET OF TAXES TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 581,990 $2,910 $3,188 $11,894 $150 $18,142
- -------------------------------------------------------------------------------------------------------------------
Issuance of common stock 8,524 42 185 227
Net income 4,440 4,440
Cash dividends (2,063) (2,063)
Net change in unrealized (155) (155)
gain (loss) on investments
available-for-sale
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 590,514 2,952 3,373 14,271 (5) 20,591
- -------------------------------------------------------------------------------------------------------------------
Issuance of common stock 1,155 6 25 31
Net income 1,281 1,281
Net change in unrealized
gain (loss) on investments (73) (73)
available-for-sale
- -------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 591,669 $2,958 $3,398 $15,552 $(78) $21,830
===================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
Note: Information for the three months ended March 31, 1997 is unaudited.
F-44
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
========================================================================================================
THREE MONTHS ENDED MARCH 31,
1997 1996
(AMOUNTS IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,281 $1,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred loan fees and costs (41) (32)
Provision for loan losses 50
Depreciation 96 99
Other, net 120 299
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,456 1,448
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investments available-for-sale (75) (1,511)
Proceeds from maturities and sales of investments available-for-sale 4,577 1,332
Purchases of investments held to maturity (4,119) (7,873)
Proceeds from maturities and calls of investments held to maturity 2,078 2,652
Net (increase) decrease in loans (8,785) 2,101
Purchases of premises and equipment (13) (31)
Proceeds from sales of other real estate owned 143 89
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,194) (3,241)
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand deposits, money market accounts and savings 1,593 12,042
Net increase (decrease) in time deposits 692 (693)
Issuance of common stock 31 31
Increase (decrease) in securities sold under agreements to repurchase 1,320 (266)
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,636 11,114
- --------------------------------------------------------------------------------------------------------
(Decrease) Increase in cash and cash equivalents (1,102) 9,321
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,793 15,274
========================================================================================================
Cash and cash equivalents at end of period $24,691 $24,595
========================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest $1,600 $1,387
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans 750 0
Net change in unrealized loss on securities available-for-sale (73) (101)
========================================================================================================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
F-45
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited 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 Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, the financial statements contain all
adjustments (consisting of normal recurring accruals) considered
necessary to present fairly the financial position of Family Bank ("the
Bank") as of March 31, 1997 and December 31, 1996, and the results of
operations and cash flows for the three months ended March 31, 1997 and
March 31, 1996. Operating results for the three months ended March 31,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997.
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. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
At March 31, 1997, the Bank had $1,718,000 in non-performing
assets (loans 90 days or more past due, other real estate owned and
repossessed assets). The provision for loan losses was $0 and $50,000
for the three months ended March 31, 1997 and 1996, respectively.
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 Bank's past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's
ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant factors.
This evaluation is inherently subjective as it requires material
estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to
significant change.
3. POTENTIAL MERGER
On January 7, 1997, the Bank entered into a definitive agreement
whereby the Bank will merge with Republic Security Bank, a Florida
state chartered commercial bank, subject to shareholder and regulatory
approval as well as other conditions. The definitive agreement provides
for a fixed exchange ratio whereby shareholders of the Bank will
receive 13 shares of Republic Security Financial Corporation common
stock for each share of Family Bank common stock. Republic will issue
approximately 8.3 million shares of Republic Security Financial
Corporation common stock for all outstanding shares of Family Bank
common stock in a tax free exchange, that management anticipates will
be accounted for as a pooling-of-interests. At March 31, 1997, the Bank
had $156,000 in capitalized charges associated with the Merger which
will be expensed in the period in which the transaction is
consummated. Republic is headquartered in West Palm Beach, Florida with
ten branch locations and has total assets, loans and deposits of
approximately $359 million, $243 million and $314 million,
respectively, at December 31, 1996.
4. 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
F-46
<PAGE>
termination clauses and may require the payment of a fee. The total
commitment amounts do not necessarily represent future cash
requirements as some commitments expire without being drawn upon. The
Bank evaluates each customer's credit worthiness on a case by case
basis. The amount of collateral obtained, if deemed necessary by the
Bank, upon extension of credit is based on management's credit
evaluation of the counter party.
At March 31, 1997, the Bank had adjustable rate commitments to
extend credit of approximately $12,000,000 excluding the undisbursed
portion of loans-in-process. These commitments are primarily for
commercial lines of credit secured by commercial real estate or other
business assets and for one-to-four family residential properties .
In addition to the above commitments and contingencies, there are
various matters of litigation pending against the Bank that management
has reviewed with legal counsel. Management believes that the aggregate
liability or loss, if any, resulting from such litigation will not be
material to the Bank's financial position or results of operations.
F-47
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Family Bank
We have audited the accompanying statements of financial condition of
Family Bank as of December 31, 1996 and 1995, and the related statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Family Bank at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
March 28, 1997
F-48
<PAGE>
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
========================================================================================================
DECEMBER 31,
(AMOUNTS IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $12,768 $ 9,224
Federal funds sold 13,025 6,050
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents 25,793 15,274
Investments available - for - sale 16,753 12,550
Investments held to maturity (Market value of $39,173 and
$25,287 at December 31, 1996 and 1995, respectively.) 39,036 24,978
Loans, net 157,352 144,047
Premises and equipment, net 5,289 5,541
Other real estate owned 251 396
Accrued interest receivable and other assets 3,379 2,715
- --------------------------------------------------------------------------------------------------------
Total $247,853 $205,501
========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------
LIABILITIES:
Deposits $216,469 $178,913
Securities sold under agreements to repurchase 6,557 4,930
Notes payable 380 380
Accrued interest payable and other liabilities 3,856 3,136
- --------------------------------------------------------------------------------------------------------
Total liabilities 227,262 187,359
- --------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $5 par value; 1,200,000 shares authorized;
590,514 and 581,990 shares issued and outstanding at
December 31, 1996 and 1995, respectively 2,952 2,910
Additional paid - in capital 3,373 3,188
Retained earnings 14,271 11,894
Unrealized (loss) gain on investments available-for-sale, (5) 150
net of taxes
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 20,591 18,142
========================================================================================================
$247,853 $205,501
========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-49
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
========================================================================================================
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $14,170 $13,038 $10,173
Interest on federal funds sold 589 409 221
Interest and dividends on investments 2,676 2,100 1,547
- ---------------------------------------------------------------------------------------------------------
17,435 15,547 11,941
- ---------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 5,619 4,904 3,096
Interest on borrowings 197 144 103
- ---------------------------------------------------------------------------------------------------------
5,816 5,048 3,199
- ---------------------------------------------------------------------------------------------------------
Net interest income 11,619 10,499 8,742
Provision for loan losses 200 95 (37)
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision for 11,419 10,404 8,779
loan losses
- ---------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 1,894 1,641 1,417
Net loss on sale of investment securities (12) (17) (6)
Other income 373 272 200
- ---------------------------------------------------------------------------------------------------------
Total 2,255 1,896 1,611
=========================================================================================================
OPERATING EXPENSES
Salaries and employee benefits 4,094 3,877 3,261
Occupancy expenses 1,255 1,155 823
Professional fees 257 223 179
Advertising and promotion 262 269 239
Other real estate 80 83 49
Communications 219 213 136
Data processing 24 26 313
Insurance 106 107 430
Other 774 806 625
- ---------------------------------------------------------------------------------------------------------
Total 7,071 6,759 6,055
=========================================================================================================
Income before income taxes 6,603 5,541 4,335
Provision for income taxes 2,163 1,888 1,384
=========================================================================================================
Net income $4,440 $3,653 $2,951
=========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-50
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
===================================================================================================================
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) UNREALIZED
(LOSS) GAIN
ON INVESTMENTS
ADDITIONAL AVAILABLE
COMMON COMMON PAID-IN RETAINED FOR-SALE,
SHARES STOCK CAPITAL EARNINGS NET OF TAXES TOTAL
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 529,173 $2,646 $2,171 $ 8,559 $ -- $13,376
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income 2,951 2,951
Stock dividends 52,817 264 1,017 (1,281) --
Cash dividends (533) (533)
Net unrealized loss on
investments available-for-sale (137) (137)
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 581,990 2,910 3,188 9,696 (137) 15,657
- -------------------------------------------------------------------------------------------------------------------
Net income 3,653 3,653
Cash dividends (1,455) (1,455)
Net unrealized gain on
investments available for-sale 287 287
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 581,990 2,910 3,188 11,894 150 18,142
- -------------------------------------------------------------------------------------------------------------------
Issuance of common stock 8,524 42 185 227
Net income 4,440 4,440
Cash dividends (2,063) (2,063)
Net unrealized loss on
investments available-for-sale (155) (155)
===================================================================================================================
BALANCE, DECEMBER 31, 1996 590,514 $2,952 $3,373 $14,271 $ (5) $20,591
===================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-51
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
=================================================================================================================================
YEARS ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $4,440 $3,653 $2,951
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred loan fees and costs (147) (101) (105)
Provision for loan losses 200 95 (37)
Deferred income taxes (64) (35) 125
Depreciation 379 329 230
Other, net 176 (270) (895)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,984 3,671 2,269
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of investments available-for- sale (18,135) (3,589) (7,772)
Proceeds from investments available-for- sale 13,747 1,696 1,664
Purchase of investments held to maturity (21,252) (11,814) (3,202)
Proceeds from maturities and calls of investments held to maturity 7,077 4,211 8,242
Net increase in loans (13,778) (10,363) (14,355)
Purchases of premises and equipment (141) (672) (2,804)
Proceeds from sales of other real estate owned 648 524 221
Other, net 22 66 (33)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (31,812) (19,941) (18,039)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand deposits, money market
accounts and savings deposits 26,617 11,744 12,036
Net increase in time deposits 10,939 8,022 1,319
Cash dividends (2,063) (1,455) (533)
Issuance of common stock 227
Increase in securities sold under agreements to repurchase 1,627 2,017 634
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 37,347 20,328 13,456
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 10,519 4,058 (2,314)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,274 11,216 13,530
=================================================================================================================================
Cash and cash equivalents at end of year $25,793 $15,274 $11,216
=================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $5,841 $4,965 $3,103
Cash payments for income taxes 2,124 1,543 1,483
Stock dividends 1,281
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Other real estate acquired in settlement of loans 420 665 314
Net change in unrealized gain (loss) on securities
available-for-sale (Note 3) (155) 287 (137)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-52
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Family Bank (the "Bank") is a state chartered commercial bank engaged
in the general commercial banking business and provides a range of commercial
banking services primarily in Broward County, Florida. The Bank is a member of
the Federal Reserve Bank. Its deposits are insured by the FDIC up to applicable
limits. The Bank has seven full-service branches located throughout Broward
County, Florida. The Bank's main business activity consists of attracting
deposits, originating loans, and making investments.
In preparing the 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 FOLLOWING IS A SUMMARY OF THE SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and cash
equivalents includes cash on hand, amounts due from banks and federal funds
sold. Cash flows from loans and deposits are reported net.
The Bank maintains amounts due from banks which, at times, may exceed federally
insured limits. The Bank has not experienced any losses in such accounts and has
a practice of maintaining such balances with high credit quality institutions.
INVESTMENTS: The Bank accounts for debt and equity securities in accordance with
FASB Statement No. 115. This statement requires that management determine the
appropriate classification of securities at the date of adoption and thereafter
as each individual security is acquired. In addition, the appropriateness of
such classification is reassessed at each balance sheet date. The
classifications and related accounting policies under FASB Statement No. 115 are
as follows:
INVESTMENTS HELD TO MATURITY: Securities classified as held to maturity
are those debt securities the Bank has both the intent and ability to
hold to maturity regardless of changes in market conditions, liquidity
needs or changes in general economic conditions. These securities are
carried at cost, adjusted for amortization of premium and accretion of
discount, computed by the interest method over their contractual lives.
INVESTMENTS AVAILABLE-FOR-SALE: Securities classified as
available-for-sale are those debt securities that the Bank intends to
hold for an indefinite period of time but not necessarily to maturity.
Any decision to sell a security classified as available-for-sale would
be based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Bank's assets and
liabilities, liquidity needs, regulatory capital considerations, and
other similar factors. Securities available-for-sale are carried at
fair value. Unrealized gains or losses, net of the related deferred tax
effect, are reported as increases or decreases in shareholders' equity.
Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
LOANS AND ALLOWANCES FOR LOAN LOSSES: Loans are stated at the amount of unpaid
principal, reduced by deferred loan origination fees and costs, and an allowance
for loan losses.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that collectibility of the principal is unlikely.
F-53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The allowance is an amount that management believes will be adequate to absorb
estimated losses on existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loan loss experience. This
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions.
Interest on loans is recognized over the terms of the loans and is calculated
using the simple-interest method on principal amounts outstanding. Accrual of
interest is generally stopped when a loan is greater than ninety days past due.
Interest on these loans is recognized only when actually paid by the borrower if
collection of the principal is likely to occur. Accrual of interest is generally
resumed when the customer is current on all principal and interest payments and
has been paying on a timely basis for a period of time.
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.
Effective January 1, 1995, the Bank 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 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 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.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally by the
straight-line method over the estimated useful lives of the assets.
OTHER REAL ESTATE OWNED: Real estate properties acquired through, or in lieu of,
loan foreclosure are to be sold and are initially recorded at fair value at the
date of foreclosure establishing a new cost basis. After foreclosure, valuations
are periodically performed by management and the real estate is carried at the
lower of the carrying amount or fair value less cost to sell. Revenue and
expenses from operations and changes in valuation allowance are included in
other real estate expense.
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 Bank accounts for stock option grants to employees
in accordance with APB Opinion No. 25 "Accounting for Stock Issued to
Employees", and accordingly recognizes no compensation expense for the stock
option grants.
F-54
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. RESTRICTIONS ON CASH AND CASH EQUIVALENTS
The Bank is required to maintain reserve balances, in cash or on
deposit with the Federal Reserve Bank, based upon a percentage of deposits. The
total required reserve balances as of December 31, 1996 and 1995 were
approximately $2,313,000 and $1,460,000 respectively.
NOTE 3. INVESTMENTS
The carrying amount of investments and their approximate fair values at
December 31 are as follows:
AVAILABLE-FOR-SALE:
===============================================================================
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
U.S. government and agency
securities $11,179 $104 $58 $11,225
Corporate and other debt
securities 2,500 2,500
Foreign government securities 150 150
Mortgage-backed securities 2,932 7 61 2,878
- -------------------------------------------------------------------------------
TOTAL $16,761 $111 $119 $16,753
- -------------------------------------------------------------------------------
DECEMBER 31, 1995
- -------------------------------------------------------------------------------
U.S. government and agency
securities $10,279 $251 $36 $10,494
Foreign government securities 75 75
Mortgage-backed securities 1,969 18 6 1,981
- -------------------------------------------------------------------------------
TOTAL $12,323 $269 $42 $12,550
- -------------------------------------------------------------------------------
DECEMBER 31, 1994
- -------------------------------------------------------------------------------
U.S. government and agency
securities $9,109 $10 $152 $8,967
Mortgage-backed securities 1,298 64 1,234
- -------------------------------------------------------------------------------
TOTAL $10,407 $10 $216 $10,201
===============================================================================
F-55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
HELD TO MATURITY:
===================================================================================================================
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and agency securities $18,194 $ 95 $ 66 $18,223
Foreign government securities 425 425
State and municipal securities 16,818 112 32 16,898
Mortgage-backed securities 3,599 59 31 3,627
- -------------------------------------------------------------------------------------------------------------------
TOTAL $39,036 $266 $129 $39,173
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities $7,530 $184 $ 4 $ 7,710
Foreign government securities 425 425
State and municipal securities 12,267 82 26 12,323
Mortgage-backed securities 4,756 83 10 4,829
- -------------------------------------------------------------------------------------------------------------------
TOTAL $24,978 $349 $40 $25,287
- -------------------------------------------------------------------------------------------------------------------
December 31, 1994
- -------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities $2,530 $ - $ 96 $ 2,434
Foreign government securities 425 425
State and municipal securities 10,747 54 264 10,537
Mortgage-backed securities 3,734 15 165 3,584
- -------------------------------------------------------------------------------------------------------------------
TOTAL $17,436 $69 $525 $16,980
===================================================================================================================
</TABLE>
F-56
<PAGE>
NOTES TO 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>
====================================================================================================================
AVAILABLE-FOR-SALE: HELD TO MATURITY:
(IN THOUSANDS) AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in 1 year or less $8,045 $8,032 $5,624 $5,638
Due after 1 through 5 years 5,634 5,693 22,648 22,690
Due after 5 through 10 years 75 75 7,066 7,115
Due after 10 years 75 75 99 103
- --------------------------------------------------------------------------------------------------------------------
13,829 13,875 35,437 35,546
Mortgage-backed securities 2,932 2,878 3,599 3,627
- --------------------------------------------------------------------------------------------------------------------
Total $16,761 $16,753 $39,036 $39,173
====================================================================================================================
</TABLE>
Gross realized losses of $12,000, $17,000, and $6,000 were realized on sales of
securities available-for-sale during the years ending December 31, 1996, 1995
and 1994, respectively. At December 31, 1996 and 1995, securities with a book
value of $16,853,000 and $15,027,000, respectively, were pledged to
collateralize repurchase agreements, public deposits and other items.
NOTE 4. LOANS
The components of loans (in thousands) were as follows:
==============================================================================
December 31, 1996 1995
- ------------------------------------------------------------------------------
Residential real estate $48,645 $48,671
Commercial real estate 79,832 64,764
Commercial 14,050 16,048
Construction and land development 3,992 3,477
Consumer 14,566 13,300
- ------------------------------------------------------------------------------
161,085 146,260
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Allowance for loan losses (1,603) (1,314)
Loans in process (1,549) (316)
Discounts, premiums and deferred loan fees (581) (583)
- ------------------------------------------------------------------------------
Loans, net $157,352 $144,047
==============================================================================
F-57
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
An analysis of the change in the allowance for loan losses (in thousands) is as
follows:
- ------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------
Balance, at January 1 $1,314 $1,360 $1,295
Provision for loan losses 200 95 (37)
Loans charged-off (41) (184) (75)
Recoveries 130 43 177
- ------------------------------------------------------------------------------
Balance, at December 31 $1,603 $1,314 $1,360
==============================================================================
Non-accrual loans totaled $1,344,000, $1,248,000, and $480,000 at
December 31, 1996, 1995, and 1994, respectively. If income on these loans had
been accrued, interest income would have increased by approximately $69,000,
$73,000, and $39,000 during 1996, 1995, and 1994, respectively. Interest
actually received on these loans and recognized as income during the years ended
December 31, 1996, 1995, and 1994 was not significant to the results of
operations.
Recorded investments in impaired loans were $1,691,000 and $1,573,000
with related allowance for loan losses of $43,000 and $70,000 at December 31,
1996 and 1995, respectively. The average recorded investment in impaired loans
during 1996, 1995 and 1994 was $1,658,000, $1,595,000 and $788,000,
respectively. Interest income on impaired loans of approximately $100,000,
$84,000 and $46,000 was recognized in 1996, 1995, and 1994, respectively.
NOTE 5. PREMISES AND EQUIPMENT
Components of premises and equipment (in thousands) were as follows:
=============================================================================
DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------
Land $1,908 $1,908
Buildings 2,084 2,084
Leasehold improvements 867 867
Furniture and equipment 2,375 2,249
- -----------------------------------------------------------------------------
7,234 7,108
Less accumulated depreciation (1,945) (1,567)
- -----------------------------------------------------------------------------
Premises and equipment, net $5,289 $5,541
=============================================================================
F-58
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. DEPOSITS
Components of deposits (in thousands) were as follows:
=============================================================================
DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------
Demand deposits, non interest bearing $55,584 $46,652
NOW and money market accounts 52,847 52,011
Savings deposit 39,675 22,826
Time certificates less than $100,000 38,144 36,322
Time certificates, $100,000 or more 30,219 21,102
- -----------------------------------------------------------------------------
Total deposits $216,469 $178,913
=============================================================================
At December 31, 1996, the scheduled maturities of time certificates were as
follows:
======================================================================
(IN THOUSANDS)
- ----------------------------------------------------------------------
1997 $64,297
1998 3,665
1999 281
2000 100
2001 and thereafter 20
- ----------------------------------------------------------------------
TOTAL $68,363
======================================================================
The amounts and scheduled maturities of certificate accounts in the amount of
$100,000 or more at December 31, 1996 were as follows:
===========================================================================
(IN THOUSANDS)
- ---------------------------------------------------------------------------
Within 3 months $21,447
3 to 6 months 3,830
6 to 12 months 3,886
Over 12 months 1,056
===========================================================================
Total $30,219
===========================================================================
F-59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES
The provision for income taxes charged to operations (in thousands) consisted of
the following:
===========================================================================
Years ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------
Current:
Federal $1,873 $1,611 $1,096
State 370 237 163
- ---------------------------------------------------------------------------
Total 2,243 1,848 1,259
- ---------------------------------------------------------------------------
Deferred:
Federal (68) 34 107
State (12) 6 18
- ---------------------------------------------------------------------------
Total (80) 40 125
===========================================================================
TOTAL $2,163 $1,888 $1,384
===========================================================================
Deferred tax assets and liabilities (in thousands) included in other assets at
December 31, 1996 and 1995 consisted of the following:
============================================================================
DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $127 $127
Deferred loan fees 133 105
Other 22 57
- ----------------------------------------------------------------------------
Total deferred tax assets 282 289
- ----------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation 177 156
- ----------------------------------------------------------------------------
Net deferred tax assets $105 $133
- ----------------------------------------------------------------------------
============================================================================
F-60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income as follows:
=============================================================================
YEARS ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Income taxes at federal rate $2,231 $1,884 $1,474
Differences:
State income taxes, net of
federal tax benefit 248 160 121
Tax exempt investment income (253) (153) (234)
Other (63) (3) 23
- -----------------------------------------------------------------------------
Total (82) 4 (90)
=============================================================================
Total expenses $2,163 $1,888 $1,384
=============================================================================
NOTE 8. COMMITMENTS, CONTINGENCIES AND CREDIT RISK
FINANCIAL INSTRUMENTS WITH OFF-BALANCE RISK: The Bank is party to financial
instruments with off-balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit risk in excess of the amounts
recognized on the balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other
parties to the financial instruments for commitments to extend credit and
standby letters of credit represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
commitments were as follows:
===========================================================================
(IN THOUSANDS) DECEMBER 31, 1996
===========================================================================
Commitments to extend credit $24,223
Standby letters of credit 5,221
===========================================================================
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's creditworthiness on
a case-by-case basis. If deemed necessary upon extension of credit, the amount
of collateral obtained is based on management's credit evaluation of the party
Collateral held varies, but may include accounts receivable, inventory, property
and equipment, and income producing commercial properties.
STANDBY LETTERS OF CREDIT: Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Collateral held varies as specified above and is required in instances which the
Bank deems necessary. The average amount of these commitments that are
collateralized is approximately 58 percent.
F-61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
EMPLOYEE STOCK OWNERSHIP PLAN: Effective January 1, 1994, the Bank established
an Employee Stock Ownership Plan containing Section 401(k) (the "Plan") covering
substantially all employees. Employees may contribute up to the maximum allowed
by law. The Bank will match from 60% to 100% up to a maximum of 6% contributed
by the employee. The Plan also provides for discretionary contributions by the
Bank as determined by the Board of Directors. The employees are immediately
vested at 25% of the employer contribution. The remaining 75% is vested after
three years of credit services at the rate of 20% per year. During 1996, 1995
and 1994, respectively, the Bank contributed approximately $97,000, $86,000 and
$79,000 to the Plan.
LEASE COMMITMENTS: 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 1996, 1995, and 1994, the Bank paid the related parties
approximately $165,000, $153,000, 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.
The following is a schedule of future minimum lease payments under these leases
as of December 31, 1996.
=====================================================================
(IN THOUSANDS)
- ---------------------------------------------------------------------
1997 $ 212
1998 212
1999 212
2000 186
2001 177
Thereafter $1,879
- ---------------------------------------------------------------------
Total $2,878
=====================================================================
Total rent expense under these leases for the years ended December 31, 1996,
1995, and 1994 was approximately $232,000, $215,000, and $211,000, respectively.
FINANCIAL INSTRUMENTS WITH CONCENTRATION ON CREDIT RISK:
CONCENTRATION BY GEOGRAPHIC LOCATION: The Bank makes commercial, real
estate and consumer loans to customers primarily in Broward County,
Florida. Although the Bank has a diversified portfolio, a substantial
portion of its customers' abilities to honor their contracts is
dependent upon the local economy.
CONCENTRATION BY INDUSTRY: Included in the Bank's loan portfolio are
concentrations of loans related to real estate, primarily loans for
real estate developments, and commercial building operations.
CONTINGENCIES: In addition to the above commitments and contingencies, there are
various matters of litigation pending against the Bank that management has
reviewed with legal counsel. Management believes that the aggregate liability or
loss, if any, resulting from such litigation will not be material to the
financial statements.
F-62
<PAGE>
NOTE 9. LOANS WITH RELATED PARTIES
Officers and directors, including their families and companies of which they are
principal owners, are considered to be related parties. These related parties
were loan customers of, and had other transactions with the Bank in the ordinary
course of business. In management's opinion, these loans and other transactions
are on the same terms as those for comparable loans and transactions with non
related parties.
At December 31, 1996 and 1995, the approximate balances of loans to related
parties were as follows:
==============================================================================
DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------
Balance, beginning $1,612 $1,590
New loans 13 190
Repayments (293) (168)
==============================================================================
BALANCE, ENDING $1,332 $1,612
==============================================================================
NOTE 10. SHAREHOLDERS' EQUITY
REGULATORY MATTERS: 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 judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require 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 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 conditions or
events since that notification that management believes have changed the Bank's
category.
F-63
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table shows the actual capital amounts and ratios of the
Bank and minimum capital amounts and ratios for capital adequacy and well
capitalized.
<TABLE>
<CAPTION>
====================================================================================================================
ACTUAL MINIMUM FOR CAPITAL ADEQUACY MINIMUM FOR 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 capital $22,575 12.2% $14,811 8.0% $18,513 10.0%
Tier 1 based capital 20,591 11.1% 7,405 4.0% 11,108 6.0%
Leverage capital 20,591 9.2% 8,924 4.0% 11,155 5.0%
- -------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------
Total risk based capital $19,686 12.7% $12,371 8.0% $15,464 10.0%
Tier 1 based capital 17,992 11.6% 6,185 4.0% 9,278 6.0%
Leverage capital 17,992 9.2% 7,787 4.0% 9,734 5.0%
====================================================================================================================
</TABLE>
DIVIDEND RESTRICTIONS: Banking regulations restrict the amount of dividends that
may be paid by the Bank without prior approval of Bank supervisory authorities.
At December 31, 1996, approximately $5.7 million of retained earnings were
available for dividend distribution without prior regulatory approval. The Bank
paid $2 million, $1.5 million and $1.8 million in a combination of stock and
cash dividends to its shareholders during the years ended December 31, 1996,
1995 and 1994, respectively.
STOCK OPTIONS: During the three years ended December 31, 1996, options were
issued to Directors and Officers of the Bank under the Bank's Incentive Stock
Option and Non-Statutory Stock Option Plan (the Plan). The options may be
exercised within one year from the date of grant. The maximum terms of options
granted are ten years.
F-64
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A Summary of the Bank's stock option activity and related information for the
three years ended December 31, 1996 is as follows:
=============================================================================
OPTIONS AVERAGE EXERCISE PRICE
- -----------------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1993 4,400 $21.38
- -----------------------------------------------------------------------------
Granted 95,029 26.67
Exercised 0 0
Forfeited 0 0
Expired 0 0
- -----------------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1994 99,429 26.43
- -----------------------------------------------------------------------------
Granted 0 0
Exercised 0 0
Forfeited 0 0
Expired 0 0
- -----------------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1995 99,429 26.43
- -----------------------------------------------------------------------------
Granted 7,370 32.00
Exercised (8,524) 26.66
Forfeited (760) 27.02
Expired 0 0
=============================================================================
OPTIONS OUTSTANDING DECEMBER 31, 1996 97,515 26.83
=============================================================================
The exercise price of options granted during the three years ended
December 31, 1996 was equal to the market price of the underlying stock on the
grant date.
For options outstanding at December 31, 1996, 90,145 options are
exercisable at that date with exercise prices between $14.87 and $32.00 per
share and their weighted average remaining contractual life is approximately 7.5
years.
In October, 1995, the Financial Accounting Standard Board (FASB) issued
FASB Statement No. 123, "Accounting for Stock Based Compensation" (FASB123). The
effect of applying the FAS123 fair value method to the Bank's stock options
issued after December 15, 1994 results in net income that is not materially
different from the amount reported.
F-65
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. BORROWINGS
Notes payable consisted of $380,000 in 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.
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 $9,012,000, accrued interest of $114,000, and a
market value of $9,536,000 at December 31, 1996. The aggregate carrying value of
securities pledged at December 31, 1995 was $7,534,000 accrued interest of
$84,000 with a market value of $7,694,000. All agreements mature daily and have
a weighted interest rate of 4.10% 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 $3,976,000 and $2,594,000 during the years
ended December 31, 1996 and 1995, respectively. The maximum amount outstanding
at any month-end during the years ended December 31, 1996 and 1995 was
$6,557,000 and $4,930,000, respectively.
The Bank has $6,500,000 available in unsecured lines of credit through
two financial institutions. At December 31, 1996 and 1995, no funds were drawn
on these lines.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheets 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
assumption 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 Bank.
The following methods and assumptions were used by the Bank 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: 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 commercial real estate and commercial
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. Fair values for loans are estimated using cash flow analysis or
underlying collateral values, where applicable.
F-66
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Bank's lending commitments
are based on estimated market prices of comparable instruments taking into
account the remaining terms of the agreements and the counter parties' credit
standing.
DEPOSIT LIABILITIES: The fair value disclosed for demand deposits (e.g.,
interest and non-interest checking, statement savings, and certain types of
money market accounts) are, by definition, equal to the amount payable on demand
at the reporting date (that is, their carrying amounts). The carrying amounts
for variable rate, fixed-term money-market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values 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.
NOTES PAYABLE: The fair values of securities sold under agreement to repurchase
and notes payable are estimated using discounted cash flow analysis, based on
the Bank's current incremental borrowing rates for similar types of borrowing
arrangements.
The estimated fair values of the Bank'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 $25,793 $25,793 $15,274 $15,274
Investments 55,789 55,926 37,528 37,837
Loans receivable - net 157,352 157,490 144,047 144,177
FINANCIAL LIABILITIES:
Deposits $216,469 $218,789 $178,913 $179,029
Securities sold under agreements
to repurchase 6,557 6,557 4,930 4,930
Notes payable 380 420 380 421
===================================================================================================================
</TABLE>
NOTE 13. SUBSEQUENT EVENT
On January 7, 1997, the Bank entered into a definitive agreement
whereby the Bank will merge with Republic Security Bank, a Florida state
chartered commercial bank, subject to shareholder and regulatory approval as
well as other conditions. The definitive agreement provides for a fixed exchange
ratio whereby shareholders of the Bank will receive 13 shares of Republic
Security Financial Corporation common stock for each share of Family Bank stock.
Republic will issue approximately 8.3 million shares of Republic Security
Financial Corporation common stock for all outstanding shares of Family Bank
stock in a tax free exchange, accounted for as a pooling-of-interests. Republic
is headquartered in West Palm Beach, Florida with ten branch locations and has
total assets, loans and deposits of approximately $359 million, $243 million and
$314 million, respectively, at December 31, 1996.
F-67
<PAGE>
----------
ANNEXES
TO
JOINT PROXY STATEMENT/PROSPECTUS
----------
<PAGE>
===============================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
REPUBLIC SECURITY FINANCIAL CORPORATION,
REPUBLIC SECURITY BANK
AND
FAMILY BANK
JANUARY 7, 1997
================================================================================
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TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE MERGER
1.1 Plan of Merger and Merger Agreement ........................... 1
1.2 Conversion of Shares .......................................... 2
1.3 Family Options ................................................ 2
1.4 The Closing ................................................... 2
1.5 Stock Certificates ............................................ 3
1.6 Shares of Dissenting Holders .................................. 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FAMILY
2.1 Corporate Organization ......................................... 4
2.2 Capitalization; Stock Ownership ................................ 4
2.3 Investments; No Subsidiary ..................................... 4
2.4 Authorization and Enforceability; No Violation ................. 4
2.5 Financial Statements ........................................... 5
2.6 Loan Portfolio ................................................. 6
2.7 Deposits ....................................................... 6
2.8 No Undisclosed Liabilities, Etc ................................ 7
2.9 Absence of Certain Changes ..................................... 7
2.10 Real Properties ................................................ 8
2.11 Taxes and Fees ................................................. 9
2.12 Contracts ...................................................... 10
2.13 Litigation ..................................................... 10
2.14 Compliance with Laws and Regulations ........................... 11
2.15 Employment Benefit Plans and Arrangements; Labor Matters ....... 11
2.16 Accounting Practices ........................................... 12
2.17 Minute Books ................................................... 12
2.18 Insurance ...................................................... 13
2.19 Agreements with Regulators ..................................... 13
2.20 Environmental .................................................. 13
2.21 Community Reinvestment Act ..................................... 13
2.22 Transactions with Insiders ..................................... 13
2.23 Fidelity Bond .................................................. 13
2.24 Proxy Statement ................................................ 13
2.25 Brokers ........................................................ 14
2.26 No Untrue Statements ........................................... 14
2.27 Absence of Regulatory Communications ........................... 14
2.28 Opinion of Financial Advisor ................................... 14
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RSFC AND REPUBLIC
3.1 Corporate Organization ......................................... 14
3.2 Authorization and Enforceability; No Violation ................. 15
3.3 Capitalization; Stock Ownership ................................ 15
3.4 Corporate Organization ......................................... 15
3.5 Authorization and Enforceability; No Violation ................. 16
3.6 SEC Filings .................................................... 16
3.7 Registration Statement ......................................... 17
3.8 Financial Statements ........................................... 17
3.9 Loan Portfolio ................................................. 17
3.10 Deposits ....................................................... 18
3.11 No Undisclosed Liabilities, Etc ................................ 18
3.12 Absence of Certain Changes ..................................... 18
3.13 Real Properties ................................................ 20
3.14 Taxes and Fees ................................................. 20
3.15 Contracts ...................................................... 21
3.16 Litigation ..................................................... 22
3.17 Compliance with Laws and Regulations ........................... 22
3.18 Employment Benefit Plans and Arrangements; Labor Matters ....... 23
3.19 Accounting Practices ........................................... 24
3.20 Minute Books ................................................... 24
3.21 Insurance ...................................................... 24
3.22 Agreements with Regulators ..................................... 24
3.23 Environmental .................................................. 24
3.24 Community Reinvestment Act ..................................... 25
3.25 Transactions with Insiders ..................................... 25
3.26 Fidelity Bond .................................................. 25
3.27 Brokers ........................................................ 25
3.28 No Untrue Statements ........................................... 25
3.30 Future Plans ................................................... 26
3.31 Opinion of Financial Advisor ................................... 26
ARTICLE IV
COVENANTS OF FAMILY
4.1 Access, Information and Documents .......................... 26
4.2 No Other Transactions ...................................... 26
4.3 Conduct of Business Prior to the Effective Time ............ 27
4.4 Negative Covenants ......................................... 27
4.5 Current Information ........................................ 29
4.6 Pursuit of Approvals ....................................... 29
4.7 Meeting of Family's Shareholders; Proxy Statement .......... 29
4.8 Future Financial Statements ................................ 29
4.9 Observer at Meetings ....................................... 29
4.10 Pooling .................................................... 30
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<PAGE>
ARTICLE V
COVENANTS OF RSFC AND REPUBLIC
5.1 Access, Information and Documents .............................. 30
5.2 No Other Transactions .......................................... 31
5.3 Conduct of Business Prior to the Effective Time ................ 31
5.4 Pursuit of Approvals ........................................... 31
5.5 Registration Statement; Meeting of RSFC's Shareholders ......... 31
5.6 Boards of Directors Election ................................... 32
5.7 Pooling ........................................................ 32
5.8 Family Employees ............................................... 32
5.9 Indemnification ................................................ 32
5.10 Future Financial Information ................................... 34
5.11 Observer at Meetings ........................................... 34
5.12 Dividend Policy ................................................ 35
ARTICLE VI
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF RSFC, REPUBLIC AND FAMILY
6.1 Government Approvals .......................................... 35
6.2 Shareholder Approval .......................................... 35
6.3 No Litigation ................................................. 35
ARTICLE VII
CONDITION PRECEDENT TO THE OBLIGATIONS OF FAMILY
7.1 Representations, Warranties and Covenants ..................... 36
7.2 Material Change ............................................... 36
7.3 Financial Conditions .......................................... 36
7.4 Officers' Certificates ........................................ 36
7.5 Consents ...................................................... 36
7.6 Tax Opinion ................................................... 37
7.7 Fairness Opinion .............................................. 37
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF RSFC AND REPUBLIC
8.1 Representations, Warranties and Covenants ..................... 37
8.2 Material Change ............................................... 37
8.3 Financial Conditions .......................................... 37
8.4 Demands for Appraisal ......................................... 38
8.5 Accountants' Comfort Letter ................................... 38
8.6 Officers' Certificates ........................................ 38
8.7 Consents ...................................................... 38
8.8 Employment Agreements ......................................... 38
8.9 Tax Opinion ................................................... 38
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8.10 Family Affiliate Letters ....................................... 38
8.11 Fairness Opinion ............................................... 38
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination by Mutual Consent .................................. 39
9.2 Termination by Family .......................................... 39
9.3 Termination by RSFC ............................................ 39
9.4 Effect of Termination .......................................... 39
9.5 Alternate Transaction .......................................... 40
9.6 Extension or Waiver ............................................ 40
ARTICLE X
MISCELLANEOUS
10.1 Certain Terms .................................................. 40
10.2 Expenses ....................................................... 41
10.3 Legal Fees ..................................................... 41
10.4 Survival ....................................................... 41
10.5 Entire Agreement; Amendment; Waiver ............................ 41
10.6 Notices ........................................................ 42
10.7 Rights Under this Agreement; Nonassignability .................. 43
10.8 Form of This Agreement ......................................... 43
10.9 Governing Law .................................................. 43
10.10 Public Announcements ........................................... 43
10.11 Counterparts ................................................... 43
Schedules (intentionally omitted)
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of January 7, 1997, by and among REPUBLIC SECURITY FINANCIAL
CORPORATION, a Florida corporation ("RSFC"), REPUBLIC SECURITY BANK, a Florida
state bank ("Republic"), and FAMILY BANK, a Florida state bank ("Family").
RECITALS
WHEREAS, each of the parties desires to provide for the acquisition of
Family by RSFC and RSFC's wholly owned subsidiary, Republic, by means of the
merger of Family into Republic, for the consideration and upon the terms and
conditions set forth herein; and
WHEREAS, the Boards of Directors of Family and Republic believe that
the acquisition of Family by Republic (the "Merger"), upon the terms and
conditions set forth herein, is in the best interest of their respective
shareholders and such Boards of Directors have unanimously approved the Merger;
and
WHEREAS, for Federal income tax purposes, it is intended that the
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 Merger be accounted for as a "pooling of
interests";
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are conclusively
acknowledged, the parties do represent, warrant, covenant and agree as follows:
ARTICLE I
THE MERGER
1.1 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 Family 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 (hereinafter defined), Republic and Family 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. As soon as
practicable after the Closing, the Plan of Merger and certified resolutions
shall be delivered to the Department. On the date requested by Republic (the
"Effective Time"), as soon as
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<PAGE>
practicable after such delivery to the Department of Banking, Family shall be
merged with and into Republic, which shall be the resulting bank in the Merger.
1.2 CONVERSION OF SHARES . At the Effective Time, each issued and
outstanding share of the common stock of Family, par value $5.00 per share
("Family Common Stock"), shall, by virtue of the Merger and without any action
by the holder thereof, be converted into 13 (thirteen) shares of the common
stock of RSFC, par value $.01 per share ("RSFC Common Stock") (the "Conversion
Rate"). At the Effective Time, each issued and outstanding share of the common
stock of Republic, par value $5.00 per share, shall remain issued and
outstanding and unaffected by the 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 number
of shares of RSFC Common Stock into which Family Common Stock shall be
converted.
1.3 FAMILY OPTIONS . At the Effective Time, each outstanding option to
purchase shares of Family Common Stock listed on Schedule 2.2 hereof ("Family
Stock Options") shall be assumed by RSFC. Each Family Stock Option shall be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such Family Stock Option, the same number of shares of
RSFC Common Stock as the holder of such Family Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time, at a price per share equal to
(y) the aggregate exercise price for the shares of Family Common Stock otherwise
purchasable pursuant to such Family Stock Option divided by (z) 13. RSFC agrees
to duly register (by means of Form S-3 or S-8) the shares of RSFC Common Stock
issuable upon exercise of such options under the Securities Act of 1933 (the "33
Act") with respect to such shares as soon as practicable after the Effective
Time and thereafter maintain the registration effective until all Family Stock
Options have been executed or expired. Any Family Stock Option which would
terminate as a result of the termination of employment of the holder thereof
shall continue in effect through the later of (i) 90 days after the date of such
termination of employment or (ii) the one-year anniversary of the Effective Time
(but in no event later than the expiration date of the option). RSFC hereby
recognizes as duly issued and validly existing each of the Family Stock Options.
Notwithstanding Section 10.7 hereof, the holders of Family Stock Options shall
be individually entitled to enforce this Section 1.3 against RSFC.
1.4 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 Family shareholders meeting referred to in
Section 4.7 hereof, (ii) the RSFC shareholders meeting referred to in Section
5.5 hereof, (iii) the date of the letter of preliminary approval of the
Department approving the Merger or (iv) such later date on which all conditions
precedent
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<PAGE>
to such Closing contained in Articles VI, VII and VIII 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 September 30, 1997. The term "Closing
Date" shall mean the date on which the Closing takes place.
1.5 STOCK CERTIFICATES . At the Effective Time, the stock transfer
books of Family shall be closed and there shall be no further registration of
transfers of Family Common Stock thereafter. At and after the Effective Time,
holders of certificates representing shares of Family Common Stock immediately
prior to the Effective Time shall cease to have any rights with respect to
Family Common Stock. The sole right of holders of Family Common Stock shall be
to receive the RSFC Common Stock to which they are entitled by virtue of the
Merger. Immediately after the Effective Time, RSFC agrees to provide Letters of
Transmittal and instructions regarding the tender of Family stock certificates
for exchange for RSFC stock certificates to each former Family shareholder at
the shareholder's address of record on the books of Family. 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 Family 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.
1.6 SHARES OF DISSENTING HOLDERS . Notwithstanding anything to the
contrary contained in this Agreement, any holder of Family Common Stock with
respect to which dissenters' rights are granted by reason of the merger under
Section 658.44, Florida Statutes, and who does not vote in favor of the Merger
and who otherwise complies with Section 658.44 ("Family 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 Merger under Section 658.44. Such holder shall be
entitled to receive only the payment provided for by Section 658.44. If any such
holder so fails to perfect, effectively withdraws or loses his dissenters'
rights, his Family 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 pursuant to Section 1.2 hereof.
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<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FAMILY
Family hereby represents and warrants to Republic and RSFC as follows:
2.1 CORPORATE ORGANIZATION . Family is a Florida state bank, duly
organized and validly existing under the laws of the State of Florida and in
good standing with the State of Florida and the Federal Deposit Insurance
Corporation (the "FDIC"). Family 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. Family's deposit
accounts are duly insured by the FDIC to the maximum extent permitted under
applicable law. Family has delivered to RSFC complete and correct copies of
Family's Articles of Incorporation and Bylaws, as amended to date, which are in
full force and effect on the date hereof. Family is qualified or licensed to do
business and is in good standing in each jurisdiction in which it operates.
2.2 CAPITALIZATION; STOCK OWNERSHIP . As of the date hereof, the
authorized capital stock of Family consists of 1,200,000 shares of common stock,
par value $5.00 per share, of which 590,514 shares are issued and outstanding
(none of which are held by Family as treasury stock). All of the issued and
outstanding shares of Family Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable, and none of them were issued in
violation of any preemptive or other right. Except as described on Schedule 2.2,
Family 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 Family or any other security exercisable or convertible
into any capital stock of Family, or any stock appreciation rights.
2.3 INVESTMENTS; NO SUBSIDIARY . Family 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.
2.4 AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION . The Family Board
of Directors has duly authorized the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by a unanimous
vote. Subject to approval of the Merger by shareholders of Family owning not
less than a majority of the outstanding shares of Family Common Stock, this
Agreement is a legal, valid and binding obligation of Family enforceable against
Family 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 Merger will not,
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<PAGE>
(a) violate or conflict with the Articles of Incorporation or Bylaws of Family,
(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
Family is a party or by which it is bound or to which any of its property or
asset is subject, (c) result in any breach or violation of, or default under, or
any event which with due notice or lapse of time or both would constitute a
default under, result in the termination of, or accelerate the performance
required by, or require Family 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 Family or any of the properties or assets of Family, (d)
cause any acceleration of maturity of any note, instrument or other obligation
to which Family 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 Family.
2.5 FINANCIAL STATEMENTS . Family has delivered to RSFC copies of its
statements of financial condition as of December 31, 1993, 1994 and 1995, and
statements of operations for each of the years then ended, together with
supporting schedules and notes thereto (the "Unaudited Annual Statements"), and
its statements of financial condition as of September 30, 1996 and statements of
operations for the nine-month period then ended (such statements as of and for
the period ended September 30, 1996 are hereinafter referred to as the "Interim
Statements"). Family agrees to engage Ernst & Young LLP, certified public
accountants, to audit such financial statements as of, and for the years ending,
December 31, 1994, 1995 and 1996, and to cause Ernst & Young LLP to certify such
audited statements on or before March 31, 1997. In the event that such audited
statements indicate Net Tangible Equity for Family as of December 31, 1996 to be
less than $19,500,000 or the opinion of Ernst & Young, LLP with respect to such
financial statements shall be qualified, the parties agree to negotiate an
appropriate adjustment to the Conversion Rate; provided, that, if the parties
cannot agree as to the amount of such an adjustment within 30 days of the
delivery to RSFC of such audited financial statements, RSFC may terminate this
Agreement; however, if RSFC shall elect not to so terminate this Agreement, the
Conversion Rate shall remain at thirteen shares of RSFC Common Stock for each
share of Family Common Stock. All of the aforementioned financial statements
(and the Future Financial Statements, to be delivered to RSFC in accordance with
Section 4.8 hereof) present (or will present) the financial position and results
of operations of Family 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 that the Unaudited Annual
Statements were not prepared in accordance with GAAP to the extent set forth in
the notes to such statements.
2.6 LOAN PORTFOLIO . With respect to each loan owned by Family in whole
or in part (each, a "Loan"), except as described on Schedule 2.6 hereto:
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<PAGE>
(a) the note and the 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 Family nor 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) Family is the sole holder of legal and beneficial title to each
Loan (or Family'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 except as otherwise disclosed by documents in
the applicable Loan file;
(e) there is no pending or threatened condemnation proceeding or
similar proceeding affecting the property which serves as security for a
Loan;
(f) 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
the interest in such Loan of Family 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.
2.7 DEPOSITS . None of the deposits of Family is a "brokered" deposit
or subject to any encumbrance, legal restraint or other legal process.
2.8 NO UNDISCLOSED LIABILITIES, ETC . Since September 30, 1996, Family
has not incurred or become aware of any liability or obligation (absolute,
accrued, contingent or otherwise) of any nature which should properly have been
reflected or reserved for in the Interim Statements.
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<PAGE>
2.9 ABSENCE OF CERTAIN CHANGES . Since September 30, 1996 (except for
the transactions contemplated by this Agreement) through the date of this
Agreement, Family has not:
(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 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) 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 2.9(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 September
30, 1996, except for such increases in the ordinary course of business not
to exceed 6% of the aggregate payroll as of September 30, 1996, 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
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<PAGE>
(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.
2.10 REAL PROPERTIES . Schedule 2.10 hereto describes all real estate
owned or leased by Family, exclusive of "other real estate owned" acquired by
Family as a result of foreclosure or "deed in lieu" settlements and held by
Family for resale. All such real property, if owned by Family, 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. Family is the lessee of
all leasehold estates described in Schedule 2.10 and is in possession of the
properties purported to be leased thereunder and each such lease is valid,
without default thereunder by the lessee or, to Family's knowledge, the lessor.
True and complete copies of all leases listed in Schedule 2.10 have been
delivered by Family to RSFC.
2.11 TAXES AND FEES . All tax, fee and information returns or forms
(each a "return") required to have been filed prior to the date of this
Agreement by Family with respect to the business, operations, properties, assets
or liabilities of Family, including,
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<PAGE>
without limitation, information and other returns for customers and depositors,
with any governmental agency, board, bureau, body, department, authority or
municipality of the United States, any state thereof, or any other jurisdiction
have been duly and timely filed, and each such return in all material respects
correctly reflects, as applicable, the income, sales, excise, capital, place of
business, franchise, fuel, custom or other tax or fee liability and all other
information required to be reported thereon, and all such taxes or fees shown as
due on such returns have been paid or accrued other than taxes or fees described
on Schedule 2.11 hereto which are being contested and which have not been
finally determined. Except as set forth on Schedule 2.11 hereto, there is no
issue relating to any such return that, if determined adversely to Family, would
result in the assertion of any material deficiency for any tax or fee or
interest or penalties in connection therewith, and no facts or circumstances
exist as of the date hereof which could give rise to any such issue. The
provisions for taxes due by Family in the Interim Statements are sufficient for
all unpaid taxes, whether or not disputed, for the period then ended and all
prior periods for which tax returns are not yet required to be filed. Except as
set forth on Schedule 2.11 hereto, Family has not (a) entered into any
agreement, waiver or other arrangement with respect to any extension of time for
the filing of any tax return, the payment of any tax, the period during which
any tax authorities may assess or reassess any amounts or the running of any
statute of limitations, or with respect to any tax issues relating to or which
may materially affect its financial condition, properties, business or
operations or (b) since September 30, 1996, incurred any tax liability as a
result of any transaction relating to its financial condition, properties,
business or operations that was not fully reflected or reserved against in the
Interim Statements other than tax accruals in the ordinary course of business.
The federal income tax returns of Family have never been audited. Except as set
forth on Schedule 2.11 hereto, there are no actions, suits, proceedings,
investigations or claims now pending or threatened against Family in respect of
any material taxes, assessments, fees or any matters under discussion with any
governmental authority relating to any material taxes, assessments, or fees,
relating to its business, operations, properties, assets or liabilities. Family
has collected or withheld from each payment made to any of its current or former
customers, depositors, shareholders, officers, creditors, employees and other
persons the amount of all material taxes, including but not limited to income
taxes and "backup" withholding, required to be collected or withheld therefrom,
and, to the extent required, have paid the same to the proper tax or other
receiving authority within the time required under any applicable requirements.
2.12 CONTRACTS . Except as set forth on Schedule 2.12 hereto, Family is
not a party to any written or oral:
(a) contract or agreement, other than contracts or agreements made in
the ordinary course of business, involving more than $100,000;
(b) contract or agreement with any governmental authority, other than
contracts or agreements made in the ordinary course of business;
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(c) contract or agreement providing for the settlement of any material
action, suit, proceeding or investigation involving Family, except in the
ordinary course of business;
(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
Family 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 2.12 hereto, each contract or other agreement to
which Family is a party is in full force and effect and is valid and enforceable
by Family 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 Family nor any other
party is in default in any material respect in the observance or the performance
of any term or obligation to be performed by it under any such contract or other
agreement. Family has delivered or made available to RSFC true and complete
copies of all contracts and agreements referred to in clauses (a) through (f)
above.
2.13 LITIGATION . Except as set forth in Schedule 2.13 hereto and
except for actions in which Family 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 Family, threatened or any facts or
circumstances known to Family which could give rise to, any such action, suit,
proceeding or investigation, involving Family or any of its businesses,
operations, properties, assets or liabilities. There is no arbitration
proceeding involving Family which is pending or threatened under any collective
bargaining agreement or otherwise. Except as set forth in Schedule 2.13 hereto,
neither Family nor any of its properties, assets or liabilities, is subject to
any judicial or administrative judgment, order, decree or restraint which
adversely affects its business, operations or financial condition.
2.14 COMPLIANCE WITH LAWS AND REGULATIONS . The business and operations
of Family 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 Family is not subject to or being threatened with, any
material fine, penalty, liability or legal disability to its business as the
result of its failure to comply with any requirement of any
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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.
Family has 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 FDIC and the State of Florida. Each such
filing contains the information required to be stated therein and such
information was true and correct in all material respects as of the time such
report was filed.
2.15 EMPLOYMENT BENEFIT PLANS AND ARRANGEMENTS; LABOR MATTERS .
(a) Schedule 2.15 hereto lists all employee benefits plans, contracts,
programs or arrangements, including but not limited to pension,
profit-sharing, stock option, stock bonus, deferred compensation,
supplemental retirement, severance, health care, hospitalization, medical,
dental, disability, life insurance and salary continuation, which are
currently maintained, contributed to or required to be contributed to by
Family or which otherwise cover or provide benefits to any employee or
former employee of Family or any beneficiary thereof (collectively, the
"Plans"). Family has delivered to RSFC true and complete copies of all of
the Plans and all documents relating thereto, including, but not limited
to, summary plan descriptions, annual reports (IRS Form 5500 Series),
actuarial reports, and accountant or trustee reports, if any, and such
reports are accurate in all material respects and there has been no
material change in the financial or funding status of any such Plan since
the dates of the most recent of such reports. Each Plan has been maintained
and administered in all material respects in accordance with its terms and
with all applicable laws, including the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Code and the regulations
promulgated thereunder, and in a manner which will not result in any
material charge or assessment against or liability of Family. Except as set
forth on Schedule 2.15 hereto, any Plan that is intended to qualify under
Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified, and nothing has occurred since the date of such
determination that could adversely affect such qualification. The fair
market value of the assets of each Plan that is subject to Title IV equals
or exceeds the present value of all benefit liabilities (as defined in
Title IV of ERISA) under the Plan, with such present value being determined
by application of the actuarial methods and assumptions applied by the
Plan's enrolled actuary at the most recent annual valuation of the Plan.
Family has not engaged in any transaction which may result in imposition on
it of any material excise tax under Sections 4971 through 4980, inclusive,
of the Code, or otherwise incurred a liability for any excise tax, other
than excise taxes which have heretofore been paid or have been accrued,
and, in either 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 Family 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
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listed on Schedule 2.15. Except as set forth in Schedule 2.15 hereto, no
Plan provides hospital, medical or health care benefits (other than those
mandated by the Consolidated Omnibus Budget Reconciliation Act of 1986) or
any life insurance or death benefit protection (other than under a Plan
that qualifies under Section 401(a) of the Code) to any retired employees.
(b) As of the date hereof, no association of employees has petitioned
or applied for labor union certification with respect to all or any part of
the business or operations of Family 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 Family involving its business or operations and
Family has not made or received any offers or proposals with respect
thereto.
2.16 ACCOUNTING PRACTICES . The books, records and accounts maintained
by Family accurately and fairly reflect in reasonable detail its businesses,
operations, properties, assets and liabilities, and Family maintains internal
accounting controls that provide reasonable assurances that transactions are
executed only with management's authorization and transactions are recorded as
necessary to permit preparation of accurate financial statements and to maintain
accountability for its properties and assets.
2.17 MINUTE BOOKS . The minute books of Family are in all material
respects complete and accurate records of all meetings and other corporate
actions of its shareholders and Board of Directors and Family has made available
to RSFC for inspection the originals thereof or delivered true copies thereof.
2.18 INSURANCE . All of the insurance policies in force on the date
hereof insuring Family, and its assets, business, employees, officers and
directors, are described in Schedule 2.18 hereto. Family has delivered or made
available to RSFC true and complete copies of all such policies.
2.19 AGREEMENTS WITH REGULATORS . Family is not a party to any written
agreement or memorandum of understanding with, nor a party to any commitment
letter or similar undertaking to, nor subject to any order or directive by, nor
a recipient of any extraordinary supervisory letter from, the FDIC or the State
of Florida which restricts the conduct of its business, or in any manner relates
to its capital adequacy, its credit policies or its management. Family has not
been advised by the FDIC or the State of Florida that it is contemplating
issuing or requesting any such agreement, memorandum, commitment, understanding,
order or supervisory letter.
2.20 ENVIRONMENTAL . Family is not (i) in violation of
any law, regulation, order, permit, license or decree regulating emissions into
the environment and the proper disposal of wastes, petroleum products or other
materials; or (ii) liable or responsible for any cleanup, fines, liability or
expense arising under any environmental law, regulation or order as a result of
the disposal of wastes, petroleum products or other materials in or on
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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 Family, and such property has never been used for the
handling, treatment, storage or disposal of any petroleum products or any
hazardous or toxic substances as defined under any applicable state or federal
law.
2.21 COMMUNITY REINVESTMENT ACT . Except as set forth on Schedule 2.21,
Family has complied in all material respects with its obligations under the
Community Reinvestment Act.
2.22 TRANSACTIONS WITH INSIDERS . Except as set forth on Schedule 2.22,
all of the loans, transactions, agreements and dealings between Family and any
"Insider", as defined in Regulation O, comply in all respects with the
provisions of Regulation O.
2.23 FIDELITY BOND . Family has obtained all fidelity bonds that are
required by law or regulation or that are reasonably necessary for the
protection of Family. All such fidelity bonds are currently in force and Family
has no reason to anticipate that the issuers thereof will fail to renew them or
plan to revoke and/or cancel them.
2.24 PROXY STATEMENT . The proxy statement referred to in Section 4.7
hereof will not, with respect to Family, contain any untrue statements of
material fact or omitted 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.
2.25 BROKERS . Except as described in Schedule 2.25, neither Family nor
any director, officer, employer, agent or other representative of Family, 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.
2.26 NO UNTRUE STATEMENTS . No statement by Family contained in this
Agreement or any of the Schedules hereto or documents referred to herein
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
2.27 ABSENCE OF REGULATORY COMMUNICATIONS . Family is not 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.
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2.28 OPINION OF FINANCIAL ADVISOR . Family has been advised by Ryan,
Beck & Co. that the consideration to be received in the Merger by the holders of
Family Common Stock is fair to such holders from a financial point of view.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RSFC AND REPUBLIC
RSFC and Republic hereby represent and warrant to Family as follows
(references to RSFC in this Article III shall be deemed to include Governors
Bank Corporation, RSFC's wholly-owned subsidiary, in addition to RSFC):
3.1 CORPORATE ORGANIZATION . RSFC is a Florida corporation, duly
organized, validly existing and in good standing under the laws of the State of
Florida. RSFC has the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate its properties and
assets as now owned and being operated by it. RSFC is qualified or licensed to
do business and is in good standing in each jurisdiction in which it operates.
Schedule 3.1 hereto lists all of the direct and indirect subsidiaries of RSFC.
All such subsidiaries are Florida corporations, duly organized, validly existing
and in good standing under the laws of the State of Florida. RSFC is a bank
holding company, duly registered as such and in good standing as such under the
Bank Holding Company Act of 1956, as amended.
3.2 AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION . RSFC's Board of
Directors has duly authorized the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. Subject to approval of
the 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 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, or (c) result in any breach or violation of, or default under,
or any event which with due notice or lapse of time or both would constitute a
default under, result in the termination of, or accelerate the performance
required by, or require RSFC to obtain or make any consent, authorization,
approval, registration or filing (other than as described in this Agreement),
under any statute, law, bylaw, ordinance, regulation, rule, judgment, decree,
order, license, waiver, variance or other requirement of any court or agency,
board, bureau, body or department of the United States or any state thereof
which is applicable to Republic or any of the properties or assets of RSFC.
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3.3 CAPITALIZATION; STOCK OWNERSHIP . As of the date hereof, the
authorized capital stock of RSFC consists of 20,000,000 shares of common stock,
par value $.01 per share, of which 7,852,040 shares are issued and outstanding,
and 10,000,000 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 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, 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.
3.4 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 is qualified or licensed
to do business and is in good standing in each jurisdiction in which it
operates.
3.5 AUTHORIZATION AND ENFORCEABILITY; NO VIOLATION . Republic's Board
of Directors and shareholder have duly authorized the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby, and
this Agreement is a legal, valid and binding obligation of Republic, enforceable
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and except that the availability of
equitable remedies is within the discretion of the appropriate court. The
execution, delivery and performance of this Agreement do not, and the
consummation of the 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 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
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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.
3.6 SEC FILINGS . RSFC has heretofore or will deliver to Family, copies
of RSFC's: (i) Annual Report on Form 10-K for the fiscal year ended December 31,
1995; (ii) 1995 Annual Report to Shareholders; (iii) Quarterly Report on Form
10-Q for the fiscal quarters ended March 31, June 30, and September 30, 1996;
and (iv) any reports on Form 8-K filed by RSFC with the SEC since December 31,
1995 and will continue until the Closing to furnish Family with copies of said
reports. Since December 31, 1993, RSFC has timely filed all reports and
documents required to be filed by RSFC with the SEC under the rules and
regulations for the SEC and all such reports and documents have complied in all
material respects, as of their respective filing dates and effective dates, as
the case may be, with all the applicable requirements of the 1933 Act and the
1934 Act. As of the respective filing and effective dates, none of such reports
or registration statements or other documents 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.
3.7 REGISTRATION STATEMENT . At the time the Registration Statement
referred to in Section 5.5 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 1933 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 3.7
shall not apply to statements included in the proxy statement made in reliance
upon and in conformity with information furnished to RSFC in writing by Family
or any of its representatives, including financial information and statements.
3.8 FINANCIAL STATEMENTS . RSFC has delivered to Family copies of its
statements of financial condition as of March 31, 1993, 1994 and 1995, and
December 31, 1995, 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, and its unaudited statements of financial condition as of September 30,
1996 and statements of operations for the nine-month period then ended (such
statements as of and for the period ended September 30, 1996 are hereinafter
referred to as the "RSFC Interim Statements"). All of the aforementioned
financial statements are true, correct and complete in all material respects and
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. The opinions of Ernst & Young LLP with respect to the audited
financial statements are unqualified.
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3.9 LOAN PORTFOLIO . With respect to each loan owned by Republic in
whole or in part (each, a "Loan"), except as described on Schedule 3.9 hereto:
(a) the note and the 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 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 except as otherwise disclosed by documents in
the applicable Loan file;
(e) there is no pending or threatened condemnation proceeding or
similar proceeding affecting the property which serves as security for a
Loan;
(f) 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
the interest in such Loan of Republic 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 described on Schedule 3.10 hereto, none of
the deposits of Republic is a "brokered" deposit or subject to any encumbrance,
legal restraint or other legal process.
3.11 NO UNDISCLOSED LIABILITIES, ETC . Since September 30, 1996, RSFC
has not incurred or become aware of any liability or obligation (absolute,
accrued, contingent
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or otherwise) of any nature which should properly have been reflected or
reserved for in the RSFC Interim Statements.
3.12 ABSENCE OF CERTAIN CHANGES . Since September 30, 1996 (except for
the transactions contemplated by this Agreement) through the date of this
Agreement, RSFC has not:
(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 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) 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 September 30, 1996, except for such increases in
the ordinary course of business not to exceed 6% of the aggregate payroll
as of September 30, 1996, or adopted or increased any benefits under any
insurance, pension or other
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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.
3.13 REAL PROPERTIES . Schedule 3.13 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
3.13 and is in possession of the properties purported to be leased thereunder
and each such lease is valid, without default thereunder by the lessee or, to
lessee's knowledge, the lessor. True and complete copies of all leases listed in
Schedule 3.13 have been delivered by RSFC to Family.
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3.14 TAXES AND FEES . All tax, fee and information returns or forms
(each a "return") required to have been filed prior to the date of this
Agreement by RSFC with respect to the business, operations, properties, assets
or liabilities of RSFC, including, without limitation, information and other
returns for customers and depositors, with any governmental agency, board,
bureau, body, department, authority or municipality of the United States, any
state thereof, or any other jurisdiction have been duly and timely filed, and
each such return in all material respects correctly reflects, as applicable, the
income, sales, excise, capital, place of business, franchise, fuel, custom or
other tax or fee liability and all other information required to be reported
thereon, and all such taxes or fees shown as due on such returns have been paid
or accrued other than taxes or fees described on Schedule 3.14 hereto which are
being contested and which have not been finally determined. Except as set forth
on Schedule 3.14 hereto, there is no issue relating to any such return that, if
determined adversely to RSFC, would result in the assertion of any material
deficiency for any tax or fee or interest or penalties in connection therewith,
and no facts or circumstances exist as of the date hereof which could give rise
to any such issue. The provisions for taxes due by RSFC in the RSFC Interim
Statements are sufficient for all unpaid taxes, whether or not disputed, for the
period then ended and all prior periods for which tax returns are not yet
required to be filed. Except as set forth on Schedule 3.14 hereto, RSFC has not
(a) entered into any agreement, waiver or other arrangement with respect to any
extension of time for the filing of any tax return, the payment of any tax, the
period during which any tax authorities may assess or reassess any amounts or
the running of any statute of limitations, or with respect to any tax issues
relating to or which may materially affect its financial condition, properties,
business or operations or (b) since September 30, 1996, incurred any tax
liability as a result of any transaction relating to its financial condition,
properties, business or operations that was not fully reflected or reserved
against in the RSFC Interim Statements other than tax accruals in the ordinary
course of business. The federal income tax returns of RSFC have never been
audited. Except as set forth on Schedule 3.14 hereto, there are no actions,
suits, proceedings, investigations or claims now pending or threatened against
RSFC in respect of any material taxes, assessments, fees or any matters under
discussion with any governmental authority relating to any material taxes,
assessments, or fees, relating to its business, operations, properties, assets
or liabilities. RSFC has collected or withheld from each payment made to any of
its current or former customers, depositors, shareholders, officers, creditors,
employees and other persons the amount of all material taxes, including but not
limited to income taxes and "backup" withholding, required to be collected or
withheld therefrom, and, to the extent required, have paid the same to the
proper tax or other receiving authority within the time required under any
applicable requirements.
3.15 CONTRACTS . Except as set forth on Schedule 3.15 hereto, neither
RSFC nor Republic 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;
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(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, except in the
ordinary course of business;
(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 3.15 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 Family true
and complete copies of all contracts and agreements referred to in clauses (a)
through (f) above.
3.16 LITIGATION . Except as set forth in Schedule 3.16 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 or any facts or
circumstances known to RSFC which could give rise to, any such action, suit,
proceeding or investigation, 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 threatened
under any collective bargaining agreement or otherwise. Except as set forth in
Schedule 3.16 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.
3.17 COMPLIANCE WITH LAWS AND REGULATIONS . The business and operations
of Republic have been and are in all material respects conducted in accordance
with all applicable laws, rules and regulations (including, without limitation,
the Equal Credit
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Opportunity Act, the Consumer Credit Protection Act, the Truth in Lending Act,
the Community Reinvestment Act and the Real Estate Settlement Procedures Act),
and Republic is not subject to or being threatened with, any material fine,
penalty, liability or legal disability to its business as the result of its
failure to comply with any requirement of any governmental body or agency having
jurisdiction over it, the conduct of its business, the use of its assets and
properties, or any premises occupied by it. Republic has 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 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.
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 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 Family 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 3.18 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 RSFC Interim Statements. There does not exist any accumulated
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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 3.18.
Except as set forth in Schedule 3.18 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.
3.19 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.
3.20 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 its shareholders and Board of Directors and RSFC has made
available to Family 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 RSFC or Republic, and their assets, business, employees,
officers and directors, are described in Schedule 3.21 hereto. RSFC has
delivered or made available to Family true and complete copies of all such
policies.
3.22 AGREEMENTS WITH REGULATORS . Republic is not a party to any
written agreement or memorandum of understanding with, nor a party to any
commitment letter or similar undertaking to, nor subject to any order or
directive by, nor a recipient of any extraordinary supervisory letter from, the
FDIC or the State of Florida which restricts the conduct of its business, or in
any manner relates to its capital adequacy, its credit policies or its
management. Republic has not been advised by the FDIC or the State of Florida
that it is contemplating issuing or requesting any such agreement, memorandum,
commitment, understanding, order or supervisory letter.
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3.23 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.
3.24 COMMUNITY REINVESTMENT ACT . Except as set forth on Schedule 3.24
Republic 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 Republic and any
"Insider", as defined in Regulation O, comply in all respects with the
provisions of Regulation O.
3.26 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.
3.27 BROKERS . Except as described in Schedule 3.27, 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.
3.28 NO UNTRUE STATEMENTS . No statement by RSFC or Republic contained
in this Agreement or any of the Schedules hereto contains or will contain any
untrue statement of a material fact, 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.
3.29 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
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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.
3.30 FUTURE PLANS . Republic has no present plans to sell or close any
branch of Family and agrees not to do so for one year after the Closing Date,
absent extraordinary circumstances.
3.31 OPINION OF FINANCIAL ADVISOR . RSFC has been advised by Raymond
James & Associates, Inc. that the Merger is fair to the RSFC shareholders from a
financial point of view.
ARTICLE IV
COVENANTS OF FAMILY
4.1 ACCESS, INFORMATION AND DOCUMENTS . From the date hereof until the
Effective Time, Family 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 Family 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 Family as RSFC shall determine, and Family 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 RSFC in connection therewith. No investigation by RSFC
shall affect the representations and warranties made by Family 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
Family in connection with the foregoing examination of Family.
4.2 NO OTHER TRANSACTIONS . Except and only to the extent required by
fiduciary obligations, neither Family nor any of its directors, executive
officers, representatives, agents or other persons controlled by Family shall,
and Family shall not 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
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(other than RSFC) concerning any merger, sale of substantially all of the
assets, sale of shares of capital stock or similar transactions involving
Family, other than as required by a court or regulatory agency with jurisdiction
over Family.
4.3 CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME . During the period
from the date of this Agreement to the Effective Time, Family 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, Family 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. Family 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.
4.4 NEGATIVE COVENANTS . From the date hereof to the Effective Time,
except as permitted or required by this Agreement, Family will not, 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 cash dividends consistent with, and in accordance with, past
practices;
(c) hire any officer, except in the ordinary course of business;
(d) grant any severance or termination pay 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;
(f) make any capital expenditure in excess of $100,000 in the
aggregate;
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(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 $250,000;
(i) engage in any business transactions with its directors or officers
other than services provided to Family by directors and officers consistent
with past practices;
(j) take any action, except as may be required by law, regulation or
judicial or regulatory order, which could prevent the Merger;
(k) enter into or renew any written employment or consulting agreement
or amend or otherwise modify any existing written 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 September 30, 1996;
(m) enter into, amend or renew any real estate lease except in the
ordinary course of business;
(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;
(o) waive any material right other than in the ordinary course of
business;
(p) incur any material indebtedness for money owed, other than in the
ordinary course of business;
(q) mortgage, pledge or subject to any charge, lien, claim or
encumbrance any of its assets other than in the ordinary course of
business;
(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.
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4.5 CURRENT INFORMATION . During the period from the date of this
Agreement to the Effective Time, Family 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.
4.6 PURSUIT OF APPROVALS . Family will use its best efforts to obtain
all necessary government approvals and any other regulatory approvals which may
be required of Family and to take all other reasonable steps which are or may be
necessary to consummate the 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.
4.7 MEETING OF FAMILY'S SHAREHOLDERS; PROXY STATEMENT . Family 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 Merger and the transactions contemplated
hereby. Family will recommend to its shareholders the approval of this
Agreement, the Merger and the transactions contemplated hereby and use its best
efforts to obtain such approvals. The text of the Family 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
Family.
4.8 FUTURE FINANCIAL STATEMENTS . Family shall deliver to RSFC, within
20 days after the end of each calendar month from the month of October 1996
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, 1996 through the month then ended. All of the financial statements
hereinabove referred to in this Section 4.8 are hereinafter referred to as the
"Future Financial Statements". The Future Financial Statements shall be prepared
in accordance with GAAP on a basis consistent with the Interim Statements. The
Future Financial Statements so delivered after the date hereof shall be
accompanied by a certificate of a duly authorized officer certifying that, to
the best of his knowledge, such statements are complete, true and accurate and
that they have been prepared in accordance with GAAP, and on a basis consistent
with the Interim Statements.
4.9 OBSERVER AT MEETINGS . Unless prohibited by law, Family agrees to
permit the Chairman of the Board and the Executive Vice President of RSFC or
their designees to attend, as an observer, all meetings of its shareholders,
Board of Directors and committees of the Board of Directors, including loan
committees, which may be held
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from the date hereof through the Effective Time. Family shall provide RSFC 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, Family may, in its
discretion, exclude RSFC from portions of meetings during which this Agreement
or its interpretation, breach, performance and/or enforcement are reviewed. 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.
4.10 POOLING . Family agrees that it will not knowingly take any action
which would have the effect of jeopardizing the treatment of the Merger as a
"pooling of interests."
ARTICLE V
COVENANTS OF RSFC AND REPUBLIC
5.1 ACCESS, INFORMATION AND DOCUMENTS . From the date hereof until the
Effective Time, RSFC will give, and will cause its directors, officers,
employees, agents and other representatives to give, to Family 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 Family to make such audit, examination and
investigation of the business, operations, properties, assets, liabilities,
books, records and other documents of RSFC as Family may determine, and will
furnish, and will cause its directors, officers, employees, agents and other
representatives to furnish, to Family such information and copies of such
documents and records as Family 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, Family
may make such reasonable inquiries of such persons having business or
professional relationships with RSFC as Family shall determine, 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 Family in connection therewith. No investigation by Family
shall affect the representations and warranties made by RSFC herein or result in
any waiver or limitation thereof.
Family 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
RSFC in connection with the foregoing examination of RSFC.
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5.2 NO OTHER TRANSACTIONS . Except and only to the extent required by
fiduciary obligations, neither RSFC nor any of its directors, executive
officers, representatives, agents or other persons controlled by RSFC shall, and
RSFC shall not 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 Family)
concerning any merger or acquisition involving RSFC or Republic, other than
mergers or acquisitions in which RSFC, Republic or a subsidiary of either is the
surviving corporation (an "Additional Acquisition"), or other than as required
by a court or regulatory agency with jurisdiction over RSFC or Republic. Neither
RSFC nor Republic shall enter into a definitive agreement to effect an
Additional Acquisition without the prior consent of the Board of Directors of
Family.
5.3 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 Family upon the request of Family and will advise Family 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
Family any and all material changes in, or events which materially affect, its
financial condition, properties, business or operations.
5.4 PURSUIT OF APPROVALS . RSFC and Republic will each use its best
efforts to obtain all necessary State of Florida and Federal Reserve Board
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 Merger and will
cooperate with Family 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.
Family 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.
5.5 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 Family shareholders meetings referred to herein and the RSFC Common
Stock to be issued upon effectiveness of the Merger. 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
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Statement, for the purpose of securing the required approval of its shareholders
of this Agreement, the Merger and the transactions contemplated hereby. RSFC
will recommend to its shareholders the approval of this Agreement, the Merger
and the transactions contemplated hereby and use its best efforts to obtain such
approvals. The text of the Registration Statement shall be subject to prior
reasonable approval of Family. Preparation and filing of the Registration
Statement shall be at RSFC's expense, except that Family shall be responsible
for the expense of its counsel and accountants. Family shall not be responsible
for any other fees or expenses in connection with the Registration Statement,
including filing fees. Family shall be responsible for the expense of printing
and mailing the proxy statement (contained in the Registration Statement) to
Family's shareholders.
5.6 BOARDS OF DIRECTORS ELECTION . Promptly after the Closing, RSFC and
Republic agree to cause the persons listed on Schedule 5.6 hereof to be elected
to the Boards of Directors of RSFC and Republic.
5.7 POOLING . RSFC agrees that it will not knowingly take any action
which would have the effect of jeopardizing the treatment of the Merger as a
"pooling of interests."
5.8 FAMILY EMPLOYEES . All employees of Family shall, at Republic's
option, become employees of Republic; and the following employees, if they do
not become employees of Republic, shall be entitled to receive from Republic the
severance benefits described on Schedule 5.8: Donald Price, Cathy Cordova, Diane
Morgan, Dorothy Ellison, Theresa Sanchez, Dapathana Dell, Pat Barnett and
Belinda McNab. All employees of Family 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
employees, except as stated otherwise in this section. Employees of Family on
the Effective Date shall be allowed to participate as of the Effective Date in
the medical and dental benefit plans of Republic as new employees of Republic,
and the time of employment of such employees who are employed at least 30 hours
per week with Family, as of the Effective Date, shall be counted as employment
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 Family of all employees to become
employees of Republic on the Effective Date shall be recognized only for vesting
and eligibility purposes under Republic's benefit plans. RSFC's and Republic's
current benefit plans are set forth on Section 3.18 hereof.
5.9 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 Family (each, an "Indemnified Party")
against all liabilities arising out of actions or omissions arising out
their employment by Family and occurring at or
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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 violations of law or
fraud, are intentionally taken or omitted in bad faith, or constitute a
knowing breach of this Agreement. The provisions of this Section 5.9 shall
continue in full force and effect for such six-year period with respect to
each such Indemnified Party notwithstanding the Merger or any termination
of employment by Family or Republic of any such Party.
(b) RSFC shall use its reasonable efforts to maintain Family's existing
director's and officers' liability insurance policy (or a policy, including
RSFC's existing policy, providing comparable coverage) covering persons who
are currently covered by such insurance for a period of three years after
the Effective Date on terms no less favorable than those in effect on the
date hereof, provided that RSFC shall not be obligated to make annual
premium payments in respect of such policy (or coverage replacing such
policy) which exceed, for the portion related to Family's directors and
officers, 150% of the annual premium payments on Family's current policy in
effect as of the date of this Agreement.
(c) Any Indemnified Party wishing to claim indemnification under this
Section 5.9, upon learning of any such liability or litigation, shall
promptly notify RSFC thereof. 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 5.9(c) to pay for such
additional counsel for Indemnified Parties 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.
(d) 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
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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 5.9.
(e) In consideration of the indemnification obligations provided by
RSFC in this Section 5.9 and as a condition precedent thereto, each
director, former director and officer of Family shall have delivered to
RSFC on or prior to the date of this Agreement, a letter (in form
reasonably satisfactory to RSFC) describing all claims such directors and
officers may have against Family. In the letter, the director, former
director or officer shall: (a) acknowledge the assumption by RSFC of all
liability (to the extent Family would be so liable) for claims for
indemnification arising under Section 5.9(a) hereof; (b) affirm that he or
she does not have, nor is he or she aware of any other claims he or she
might have, against Family; (c) identify any other claims or any facts or
circumstances of which he or she is aware that could give rise to a claim
for indemnification under Section 5.9(a) hereof; and (d) release as of the
Effective Date any and all claims that he or she may have against any
Family known to him or her which he or she did not so disclose to RSFC.
(f) Family 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 could give rise to any obligation by RSFC to provide the
indemnification required by this Section 5.9.
5.10 FUTURE FINANCIAL INFORMATION . RSFC will furnish to Family:
(a) as soon as practicable in any event within 45 days after the end of
each quarterly period in each fiscal year consolidated statements of
operation of RSFC for such period, and a consolidated statement of
financial condition of RSFC as of the end of such quarterly period, setting
forth in each case in comparative form figures for the corresponding
periods, ending in the preceding fiscal year, subject to changes resulting
from year-end adjustments;
(b) promptly upon receipt thereof, copies of all audit reports
submitted to RSFC by independent auditors in connection with each annual,
interim or special audit of the books of RSFC made by such accountants; and
(c) as soon as practicable, all of such financial statements and
reports as it shall send to its shareholders and of such regular and
periodic reports as RSFC may file with the SEC.
5.11 OBSERVER AT MEETINGS . Unless prohibited by law, RSFC and Republic
agree to permit the Chairman of the Board and the President of Family or their
designees to attend, as an observer, all meetings of its shareholders, Board of
Directors and committees of the Board of Directors, including loan committees,
which may be held from
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the date hereof through the Effective Time. RSFC and Republic shall provide
Family 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 Family from portions of meetings during which
this Agreement or its interpretation, breach, performance and/or enforcement are
reviewed. Family shall maintain the strict confidentiality of all matters
observed at such meetings; provided, however, Family may discuss such matters
with officers, directors, legal counsel and advisors of Family and may disclose
such matters publicly if obligated to do so by law.
5.12 DIVIDEND POLICY . The Board of Directors of RSFC shall review the
dividend policy of RSFC at least annually.
ARTICLE VI
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF RSFC, REPUBLIC AND FAMILY
The obligations of RSFC, Republic and Family to effect the Merger are
subject to the fulfillment of each of the following conditions prior to or at
the Effective Time, or waiver thereof by all three parties:
6.1 GOVERNMENT APPROVALS . (a) The receipt of all government approvals
required to be received to consummate the 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,
(i) have a material adverse effect on the financial condition, properties,
business or operations of RSFC or Republic upon completion of the Merger, or
(ii) otherwise impair the value of Family to RSFC; (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.
6.2 SHAREHOLDER APPROVAL . At the respective shareholders meetings, the
Merger shall have received the approval of holders of a majority of the
outstanding shares of each of RSFC Common Stock and of Family Common Stock.
6.3 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 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 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 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, Republic or
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Family determines in good faith, based upon the advice of their respective
counsel, makes it inadvisable to proceed with the Merger because any such suit,
action or proceeding has a significant potential to be resolved in such a way as
to deprive the party electing not to proceed of any of the material benefits to
it of the Merger or to have a material adverse effect on the business or
financial condition of such party.
ARTICLE VII
CONDITION PRECEDENT TO
THE OBLIGATIONS OF FAMILY
The obligation of Family to effect the Merger is subject to the
fulfillment of the following condition prior to or at the Effective Time, or
waiver thereof by Family:
7.1 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; provided that "material" for
purposes of this Section 7.1 and Section 9.2 hereof shall mean an adverse change
or impact on RSFC and Republic, their business, financial condition or
prospects, taken as a whole.
7.2 MATERIAL CHANGE . There shall not have occurred a material adverse
change in RSFC, its business, financial condition or prospects, taken as a
whole, since September 30, 1996.
7.3 FINANCIAL CONDITIONS . The interim consolidated balance sheet of
RSFC for the calendar month end immediately prior to the Closing Date, and as of
the Closing Date, shall reflect total assets of not less than $320,000,000,
total deposits of not less than $260,000,000, total loans of not less than
$230,000,000, Tangible Equity of not less than $36,000,000, non-performing
assets of not more than $6,500,000 and allowance for loan losses of not less
than $1,200,000.
7.4 OFFICERS' CERTIFICATES . RSFC and Republic shall have furnished
Family with such certificates of its officers or others and such other documents
to evidence the fulfillment of the conditions set forth in this Article VII as
Family may reasonably request.
7.5 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.
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7.6 TAX OPINION . RSFC 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 and Family will each be a party to such
reorganization within the meaning of Section 368(a) of the Code.
7.7 FAIRNESS OPINION . Prior to the date on which the Registration
Statement is filed by RSFC with the SEC, Family shall have received in writing
the opinion referred to in Section 2.28 hereof and, if sought by Family, an
endorsement or confirmation of such opinion by a firm of investment bankers,
consultants or accountants (selected by Family) other than Ryan, Beck & Co.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF RSFC AND REPUBLIC
The obligation of RSFC and Republic to effect the 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:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS . The obligations of
Family 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 Family 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; provided that "material" for purposes of this
Section 8.1 and Section 9.3 shall mean an adverse change or impact on Family,
its business, financial condition or prospects, taken as a whole.
8.2 MATERIAL CHANGE. There shall not have occurred a material adverse
change in Family, its business, financial condition or prospects, taken as a
whole, since September 30, 1996.
8.3 FINANCIAL CONDITIONS . The interim consolidated balance sheet of
Family for the calendar month end immediately prior to the Closing Date, and as
of the Closing Date, shall reflect total assets of not less than $225,000,000,
total deposits of not less than $200,000,000, total loans of not less than
$145,000,000, Tangible Equity of not less than $20,000,000, non-performing
assets of not more than $2,000,000 and an allowance for loan losses of not less
than $1,300,000.
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8.4 DEMANDS FOR APPRAISAL . The holders of not more than 10% of the
outstanding shares of Family Common Stock shall have duly delivered proper
demands stating an intention to demand appraisal of and payment for their shares
in accordance with Section 658.44, Florida Statutes.
8.5 ACCOUNTANTS' COMFORT LETTER . RSFC and Republic shall have received
the letter of Ernst & Young 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 Family as of the
calendar month ended prior to the Closing Date are not as reported by Family.
8.6 OFFICERS' CERTIFICATES . Family 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 VIII as RSFC and Republic may reasonably request, including
certification of the names, addresses and numbers of shares of Family Common
Stock held by Family shareholders of record as of the Closing.
8.7 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 Family.
8.8 EMPLOYMENT AGREEMENTS . The Employment Agreements between Republic
and each of Carol R. Owen and Bruce Keir, entered into on the date hereof and
effective at the Effective Time, shall remain in full force and effect.
8.9 TAX OPINION . RSFC 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 and Family will each be a party to such
reorganization within the meaning of Section 368(a) of the Code.
8.10 FAMILY AFFILIATE LETTERS . RSFC shall have received from each
director of Family and any other person which would be an "affiliate" of Family
for purposes of Rule 145 under the 33 Act a duly executed letter agreement, in
form and substance acceptable to Family and RSFC, with regard to their Rule 145
and "pooling" obligations..
8.11 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 3.31 hereof.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION BY MUTUAL CONSENT . This Agreement may be terminated at
any time prior to the Effective Time (whether before or after approval of the
Merger by RSFC's or Family's shareholders) by mutual written consent of RSFC and
Family.
9.2 TERMINATION BY FAMILY . Family 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 Family, if (a) any event occurs such
that a material condition set forth in Articles VI or VII hereof which must be
fulfilled before Family is obligated to consummate the Merger cannot be
fulfilled (other than by reason of Family's failure to comply with its
obligations hereunder) and nonfulfillment is not waived, expressly or by
implication, by Family; (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 Merger from being treated as
a "pooling of interests"; or (e) the shareholders of either Family or RSFC shall
fail to approve the Merger at their respective shareholders meetings held to
consider the Merger. Family may also terminate this Agreement at any time after
September 30, 1997, if all the conditions precedent to its obligations to effect
the Merger shall not have been fulfilled by reason other than Family's failure
to comply with its obligations hereunder and the Merger shall not have become
effective on or prior to such date.
9.3 TERMINATION BY RSFC . RSFC may terminate this Agreement by written
notice to Family at any time prior to the Effective Time, whether before or
after approval by the shareholders of Family, if (a) any event occurs such that
a condition set forth in Articles VI or VIII hereof which must be fulfilled
before RSFC is obligated to consummate the 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 Family's covenants hereunder; (c)
there shall have been a material default under or material breach of Family's
representations and warranties hereunder; (d) any event occurs which, in the
opinion or Ernst & Young LLP, would disqualify the Merger from being treated as
a "pooling of interests"; or (e) the shareholders of either Family or RSFC shall
fail to approve the Merger at their respective shareholders meetings held to
consider the Merger. RSFC may also terminate this Agreement at any time after
September 30, 1997, if all the conditions precedent to their obligations to
effect the Merger shall not have been fulfilled by reason other than RSFC's or
Republic's failure to comply with its obligations hereunder and the Merger shall
not have become effective on or prior to such date.
9.4 EFFECT OF TERMINATION . If this Agreement is terminated, this
Agreement, excep0 for this Section 9.4 and Section 9.5, which shall remain in
full force and effect, shall
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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 knowing or intentional
breaches by Family of any representation, warranty or covenant hereunder, or if
RSFC terminates this Agreement pursuant to Section 2.5 hereof, then Family shall
pay all of the reasonable fees and expenses incurred by RSFC and Republic in
connection with this Agreement, the Merger and the transactions contemplated
hereby and (ii) if such termination results from knowing or intentional 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
Family in connection with this Agreement, the Merger and the transactions
contemplated hereby.
9.5 ALTERNATE TRANSACTION . Nothing contained in this Agreement shall
be deemed to prohibit any director or officer of Family from fulfilling his or
her fiduciary duties to Family shareholders or from taking any action required
by law. However, in addition to any payment required by Section 9.4 hereof, in
the event that this Agreement is terminated as a result of Family or the holders
of at least a majority of the shares of Family Common Stock entering into an
agreement with respect to the merger of Family with a party other than Republic
or the acquisition of a majority of the outstanding shares of Family Common
Stock by any party other than RSFC, or is terminated in anticipation of any such
agreement or acquisition, then, in either event, Family shall immediately pay
RSFC, by wire transfer, $500,000 in full satisfaction of RSFC's losses and
damages resulting from such termination. Family agrees that $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 $500,000.
9.6 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 X
MISCELLANEOUS
10.1 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 regulations and
practice.
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(b) "Tangible Equity" shall have the meaning set forth in 12 C.F.R. ss.
325.2(s), provided that, in determination of Tangible Equity and the
financial conditions set forth in Sections 2.5 and 8.3 hereof. Any amounts
expensed for counsel, accountants, financial advisors relating to the
transactions contemplated by this Agreement and printing expenses relating
to the Registration Statement and proxy statements shall be added back to
Tangible Equity for purposes of this Agreement.
(c) "Agency" shall mean each of the United States Department of
Justice, the Board of the Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Office of Thrift Supervision,
all state regulatory agencies having jurisdiction over the parties, HUD,
the VA, the FHA, the GNMA, the FNMA, the FHLMC, and the SEC.
(d) "Non-performing assets" shall mean loans in default at least 90
days, Other Real Estate Owned, any other repossessed assets and any other
loans off accrual for any reason.
(e) "Knowing" shall mean known to any director or executive officer of
the company.
10.2 EXPENSES If the Merger is not consummated, each of the parties
will pay all of its own legal, accounting and other expenses incurred in the
preparation of this Agreement and the performance of the terms and provisions of
this Agreement. If the Merger is consummated, RSFC and Republic shall be
responsible for any such expenses of Family remaining unpaid.
10.3 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.
10.4 SURVIVAL . All representations and warranties contained in this
Agreement or in any certificate delivered at Closing shall be extinguished at
and shall not survive the Effective Time, except for knowing or intentional
breaches of representations and warranties. All covenants, agreements and
undertakings required by this Agreement to be performed after the Effective Time
shall survive the Effective Time and remain binding obligations.
10.5 ENTIRE AGREEMENT; AMENDMENT; WAIVER . This Agreement supersedes
all previous arrangements or understandings, whether written or oral, and
contains the entire agreement of the parties, with respect to the subject matter
hereof. 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
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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.
10.6 NOTICES . Any notice, request, election, or other communication
required or permitted to be given by any party under any provision of this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered in person, by overnight courier or by facsimile transmission, to the
following address, or to such other address as any party shall designate upon
written notice to the other party pursuant to this Section 10.6:
If to 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 Family:
Family Bank
1000 East Hallandale Beach Boulevard
Hallandale, Florida 33009
Facsimile No.: 954-458-2338
Attn: Carol R. Owen,
President
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With copies to:
Lynn W. Fromberg, Esq.
Fromberg, Fromberg, Lewis & Brecker, P.A.
Suite 505
20801 Biscayne Boulevard
Aventura, Florida 33180
Facsimile No.: 305-936-0101
and
Carlos E. Loumiet, Esq.
Greenberg Traurig
1221 Brickell Avenue
Miami, Florida 33131
Facsimile No.: 305-579-0717
10.7 RIGHTS UNDER THIS AGREEMENT; NONASSIGNABILITY . This Agreement
shall bind and inure to the benefit of the parties hereto and their respective
successors, but shall not be assignable by any party. Nothing contained in this
Agreement is intended to confer upon any person, other than the parties to this
Agreement, Indemnified Parties and their respective heirs, estates and
successors, any rights, remedies, obligations, or liabilities under or by reason
of this Agreement.
10.8 FORM OF THIS AGREEMENT . Captions to the various provisions in
this Agreement are for the convenience of the reader only and shall not be
construed as affecting the meaning or interpretation of any provision of this
Agreement. Terms used in the singular shall be read in the plural, and vice
versa, and terms used in the masculine gender shall be read in the feminine or
neuter gender, when the context so requires. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but together
shall constitute one and the same instrument.
10.9 GOVERNING LAW . This Agreement has been entered into under, and
shall be construed and enforced in accordance with, the laws of the State of
Florida.
10.10 PUBLIC ANNOUNCEMENTS . RSFC and Family shall each approve in
advance the substance of and cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to this Agreement or any of the transactions contemplated hereby, except
as may be otherwise required by law or regulation.
10.11 COUNTERPARTS . This Agreement may be executed in any number of
counterparts and by the several parties hereto on separate counterparts, each of
which when so executed shall be an original, but all such separate counterparts
shall together constitute but one and the same instrument.
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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
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
FAMILY BANK
By /s/ CAROL R. OWEN
------------------------
Carol R. Owen,
President
[SEAL]
ATTEST:
/s/ LYNN FROMBERG
- -----------------------
Lynn Fromberg,
Secretary
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PLAN OF MERGER
AND
MERGER AGREEMENT
Pursuant to the provisions of Section 658.42 of the Florida Statutes, the
undersigned banks do hereby adopt and enter into this Plan of Merger and Merger
Agreement for the purpose of merging (the "Merger") Family Bank, a Florida state
bank, into Republic Security Bank, a Florida state bank:
(a) The name of each constituent bank and the specific location of its main
office are as follows:
1. Republic Security Bank
4400 Congress Avenue
West Palm Beach, Florida 33407
The specific location of each of its branch offices is set forth on
Schedule 1.1 attached hereto.
2. Family Bank
1000 East Hallandale Beach Boulevard
Hallandale, Florida 33009
The specific location of each of its branch offices is set forth on
Schedule 1.2 attached hereto.
(b) With respect to the resulting state bank:
1. The name and the specific location of the proposed main office
are:
Republic Security Bank
4400 Congress Avenue
West Palm Beach, Florida 33407
The name of each of its branch offices will be
Republic Security Bank. The specific location of each
of its branch offices is set forth on Schedules 1.1
and 1.2 attached hereto.
2. The name and address of each director who is to serve until the next
meeting of the shareholders at which directors are elected are set
forth on Schedule 2.1 attached hereto.
3. The name and address of each executive officer are set forth on
Schedule 2.2 attached hereto.
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4. The resulting bank will have a single class of common stock, par
value $5.00 per share ("Republic Common Stock"), consisting of
5,000,000 authorized shares, of which 1,280,490 are outstanding. The
amount of the surplus fund will be $25,956,000 and the amount of
retained earnings will be $18,854,000.
5. The resulting bank is not to have trust powers.
6. The complete articles of incorporation under which the resulting
bank will operate are attached hereto as Schedule 2.3.
(c) The terms for the exchange of shares of Family Bank for shares of
Republic Security Financial Corporation, the holding company of Republic
Security Bank ("RSFC"), are as follows:
1. At the Effective Time (as defined below), each issued and
outstanding share of the common stock of Family Bank, par value
$5.00 per share ("Family Common Stock"), shall, by virtue of the
Merger and without any action by the holder thereof, be converted
into 13 shares of the common stock of RSFC, par value $.01 per share
("RSFC Common Stock"). At the Effective Time, each issued and
outstanding share of Republic Common Stock shall remain issued and
outstanding and unaffected by the Merger. In the event that prior to
the Effective Time, RSFC 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 number of shares of
RSFC Common Stock into which Family Common Stock shall be converted.
2. At the Effective Time, each outstanding option to purchase shares of
Family Common Stock listed on Schedule 3.1 hereof ("Family Stock
Options") shall be assumed by RSFC. Each Family Stock Option shall
be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Family Stock Option, the
same number of shares of RSFC Common Stock as the holder of such
Family Stock Option would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately
prior to the Effective Time, at a price per share equal to (y) the
aggregate exercise price for the shares of Family Common Stock
otherwise purchasable pursuant to such Family Stock Option divided
by (z) 13. Any Family Stock Option which would terminate as a result
of the termination of employment of the holder thereof shall
continue in effect through the later of (i) 90 days after the date
of such termination of employment or (ii) the one-year anniversary
of the Effective Time (but in no event later than the expiration
date of the option).
3. The "Effective Time" shall mean the date requested by Republic
Security Bank, as soon as practicable after the delivery of this
Plan of Merger and Merger
B-2
<PAGE>
Agreement and certified resolutions to the Florida Department of
Banking and Finance (the "Department").
(d) This Plan of Merger and Merger Agreement is subject to approval by
the Department and by the shareholders of Family Bank and of Republic
Security Bank.
(e) Any holder of Family Common Stock with respect to which dissenters'
rights are granted by reason of the merger under Section 658.44,
Florida Statutes, and who does not vote in favor of the Merger and who
otherwise complies with Section 658.44 ("Family Dissenting Shares")
shall not be entitled to receive shares of RSFC Common Stock pursuant
to Paragraph (c)(1) hereof, unless such holder fails to perfect,
effectively withdraws or loses his right to dissent from the Merger
under Section 658.44. Such holder shall be entitled to receive only the
payment provided for by Section 658.44. If any such holder so fails to
perfect, effectively withdraws or loses his dissenters' rights, his
Family 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 pursuant to Paragraph (c)(1) hereof.
IN WITNESS WHEREOF, the parties have duly executed this Plan of Merger and
Merger Agreement as of January 7, 1997.
REPUBLIC SECURITY BANK
By: /s/ RUDY E. SCHUPP
--------------------
Rudy E. Schupp,
President
FAMILY BANK
By: /s/ CAROL R. OWEN
--------------------
Carol R. Owen,
President
B-3
<PAGE>
SCHEDULE 1.1
851 W. Indiantown Road
Jupiter, Florida 33458
5061 W. Atlantic Avenue
Delray Beach, Florida 33484
9860 Alt. A1A
Palm Beach Gardens, Florida 33410
603 Village Blvd.
West Palm Beach, Florida 33407
4871 Okeechobee Blvd.
West Palm Beach, Florida 33417
1301 N. Congress Avenue
Boynton Beach, Florida 33426
7601 N. Federal Highway
Boca Raton, Florida 33487
600 N. Homestead Blvd.
Homestead, Florida 33030
777 South Flagler Drive
West Palm Beach, Florida 33401
B-4
<PAGE>
SCHEDULE 1.2
5991 Ravenswood Road
Fort Lauderdale, Florida
4991 South State Road #7
Davie, Florida
1220 South State Road #7
Hollywood, Florida
2630 Weston Road
Fort Lauderdale, Florida
12396 West Sunrise Boulevard
Plantation, Florida
18395 Pines Boulevard
Pembroke Pines, Florida
B-5
<PAGE>
SCHEDULE 2.1
Paula Berliner
1630 Diplomat Parkway
Hollywood, Florida 33019
Joseph D. Cesarotti, Sr.
7210 Gleneagle Drive
Miami Lakes, Florida 33014
H. Gearl Gore
610 Xanadu Place
Jupiter, Florida 33477
Mary Anna Fowler
1845 Royal Palm Way
Boca Raton, Florida 33432
Richard J. Haskins
117 Sea Steppes Court
Jupiter, Florida 33477
Eugene W. Hughes, Jr.
11930 N.W. 21st Street
Pembroke Pines, Florida 33036
Lennart E. Lindahl, Jr.
944 Marlin Circle
Jupiter, Florida 33458
Carol R. Owen
519 Palm Drive
Hallandale, Florida 33009
Richard C. Rathke
364 Golfview Road, #201
North Palm Beach, Florida 33048
Rudy E. Schupp
706 Xanadu Place
Jupiter, Florida 33477
Victor H. Siegel, M.D.
317 Ridge Road
Jupiter, Florida 33477
B-6
<PAGE>
William F. Spitznagel
19500 Loxahatchee River
Jupiter, Florida 33458
Bruce E. Wiita, M.D.
848 Lakeside Drive
North Palm Beach, Florida 33408
William Wolfson
11848 Fountainside Circle
Boynton Beach, Florida 33437
B-7
<PAGE>
SCHEDULE 2.2
NAME OFFICE
Rudy E. Schupp Chairman of the Board and Chief Executive Officer:
Carol R. Owen Chairman of the Board, Broward County
Richard J. Haskins Executive Vice President
Bruce Keir Executive Vice President, Broward County
Roger Savage Senior Vice President, Business Banking
Jon Williams Divisional Vice President, Loan Administration
Andrew Kirkman Vice President, Personal Banking
Joan Schimelman Vice President, Human Resources and Marketing/Advertising
Carla Pollard Vice President, Controller
Nancy Nadeau Vice President, Operations Administration
Daniel Benson Vice President, Business Banking
Terry G. Dahms Vice President, Mortgage Trading
David Shaffer Unit Vice President, Consumer Lending
Dotty Perkins Unit Vice President, Operations
Thomas Good Unit Vice President, Mortgage Banking
Brendan Boyle Unit Vice President, Credit Administration
Melissa Chaple Unit Vice President, Commercial Lending
James Shofner Unit Vice President, Commercial Lending
The address for each executive officer is:
c/o Republic Security Bank
4400 Congress Avenue
West Palm Beach, Florida 33407
B-8
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 3.1
FAMILY STOCK OPTIONS
NUMBER
DATE OF EXERCISE PERIOD OF EXTENDED
OPTIONEE GRANT BEGINNING ENDING SHARES PRICE AMOUNT
-------- --------- ---------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS (NON-QUALIFIED)
Carol R. Owen 14-Sep-93 14-Mar-94 14-Mar-2003 550 21.38182 11,760.00
Eugene W. Hughes 14-Sep-93 14-Mar-94 14-Mar-2003 550 21.38182 11,760.00
Louis R. Bianculli 14-Sep-93 14-Mar-94 14-Mar-2003 550 21.38182 11,760.00
Joseph D. Cesarotti 14-Sep-93 14-Mar-94 14-Mar-2003 550 21.38182 11,760.00
Mary Anna Fowler 14-Sep-93 14-Mar-94 14-Mar-2003 550 21.38182 11,760.00
Lynn W. Fromberg 14-Sep-93 14-Mar-94 14-Mar-2003 550 21.38182 11,760.00
Paula Berliner 14-Sep-93 14-Mar-94 14-Mar-2003 550 21.38182 11,760.00
----- ---------
3,850 82,320.00
===== =========
OFFICER (NON-QUALIFIED)
Bruce M. Keir 25-Feb-94 24-Oct-2001 2,750 14.87273 40,900.00
----- ---------
2,750 40,900.00
----- ---------
DIRECTORS (NON-QUALIFIED)
Carol R. Owen 13-Apr-94 13-Apr-94 14-Apr-2004 5,819 27.02 157,229.38
Eugene W. Hughes 13-Apr-94 13-Apr-94 14-Apr-2004 5,819 27.02 157,229.38
Louis R. Bianculli 13-Apr-94 13-Apr-94 14-Apr-2004 5,819 27.02 157,229.38
Joseph D. Cesarotti 13-Apr-94 13-Apr-94 14-Apr-2004 5,819 27.02 157,229.38
Mary Anna Fowler 13-Apr-94 13-Apr-94 14-Apr-2004 5,819 27.02 157,229.38
Lynn W. Fromberg 13-Apr-94 13-Apr-94 14-Apr-2004 5,819 27.02 157,229.38
Paula Berliner 13-Apr-94 13-Apr-94 14-Apr-2004 5,819 27.02 157,229.38
----- ----------
40,733 1,100,605.66
------ ------------
OFFICERS (QUALIFIED)
Carol R. Owen 13-Apr-94 13-Apr-95 13-Apr-2004 5,819 27.02 157,229.38
Bruce M. Keir 13-Apr-94 13-Apr-95 13-Apr-2004 5,819 27.02 157,229.38
Fred Hertzer 13-Apr-94 13-Apr-95 13-Apr-2004 5,819 27.02 157,229.38
Joseph C. Dorsey 13-Apr-94 13-Apr-95 13-Apr-2004 3,300 27.02 89,166.00
D. Phillip Stephens 13-Apr-94 13-Apr-95 13-Apr-2004 3,300 27.02 89,166.00
Sandra McNally 13-Apr-94 13-Apr-95 13-Apr-2004 3,300 27.02 89,166.00
Margaret Denke 13-Apr-94 13-Apr-95 13-Apr-2004 3,300 27.02 89,166.00
Jonathan Levine 26-Sep-96 26-Sep-97 26-Sep-2006 3,300 32.00 105,600.00
Donald Price 13-Apr-94 13-Apr-95 13-Apr-2004 1,760 27.02 47,556.20
Matt Korshoff 26-Sep-96 26-Sep-97 26-Sep-2006 1,760 32.00 58,320.00
Charles Muffler 26-Sep-96 26-Sep-97 26-Sep-2006 1,155 32.00 36,960.00
B-9
<PAGE>
Myrtle Corbin 26-Sep-96 26-Sep-97 26-Sep-2006 1,155 32.00 39,960.00
Paulette Bruno 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
Judith Persan 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
Linda Bohnert 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
Grace Nasto 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
Edward Fox, II 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
Depathana Dell 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
Diane Morgan 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
Thresa Sanchez 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
Patricia Pattia 13-Apr-94 13-Apr-95 13-Apr-2004 1,155 27.02 31,208.00
50,182 1,392,620.24
------ ------------
97,515 2,616,445.90
====== ============
</TABLE>
B-10
<PAGE>
ANNEX C
[LETTERHEAD OF RAYMOND JAMES & ASSOCIATES, INC.]
May ___, 1997
Board of Directors
Republic Security Financial Corporation
4400 Congress Avenue
West Palm Beach, Florida 33407-3288
Members of the Board:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of Republic Security Financial Corporation ("Republic")
of the exchange ratio in the proposed merger (the "Merger") of Family Bank
("Family") with and into Republic pursuant to the Agreement and Plan of Merger
(the "Agreement") dated as of January 7, 1997. Under the terms of the Agreement,
each outstanding share of Family Common Stock will be converted into the right
to receive thirteen (13) shares of Republic Common Stock and will be canceled
and retired and will cease to exist, all as described in the Agreement.
Raymond James and Associates, Inc. as part of its investment banking
business engages in the valuation of securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for corporations for
other purposes. In the ordinary course of our business as a broker/dealer we may
from time to time purchase securities from and sell securities to Republic
and/or Family and as a market maker in securities we may from time to time have
a long or short position in and buy or sell equity securities of Republic for
our own account and for the accounts of our customers. To the extent we have any
such positions as of the date of this letter, it has been disclosed to Republic.
We have acted exclusively for Republic in rendering this fairness opinion, and
for our services, including the rendering of this opinion, Republic will pay us
fees upon the issuance of this fairness opinion, the issuance of the fairness
opinion at the time the Republic Proxy Statement relating to the Merger is first
mailed to the stockholders of Republic, and the closing of the Merger. In
addition, Republic has agreed to indemnify us against certain liabilities
arising out of our engagement.
In arriving at our opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of Family and
Republic ,including, among other things, the following: (i) the Agreement dated
January 7, 1997; (ii) Annual Reports to Shareholders for fiscal years 1994 and
1995, respectively of Family and Republic; (iii) certain interim reports to
shareholders of Family and Republic; (iv) other financial information concerning
the businesses and operations of Family and Republic furnished to us by Family
and Republic for purposes of our analysis, including certain financial analyses
for Family and Republic prepared by the senior management of Family and
Republic, respectively; (v) certain internal financial analyses and forecasts of
Republic prepared by the senior management of Republic; (vi) estimates of cost
savings to be achieved after the Merger furnished to us by Republic for purposes
of our analysis; (vii) plans for the combined company and the strategic
objectives of the Merger furnished to us by the senior
C-1
<PAGE>
Board of Directors
Republic Security Financial Corporation
May___, 1997
Page 2
executives of Republic and Family; (viii) certain publicly available information
concerning trading of, and the trading market for, the Republic Common Stock;
and (ix) certain publicly available information with respect to banking
companies and the nature and terms of certain other transactions that we
consider relevant to our inquiry.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to us or publicly available, and we have not attempted
independently to verify such information. We have relied upon the management of
Family and Republic as to the reasonableness and achieveability of the financial
and operating forecasts and projections (and the assumptions and bases therefor)
provided or discussed with us, and we have assumed with your permission that
such forecasts and projections reflect the best currently available estimates
and judgments of such managements and that such forecasts and projections will
be realized in the amounts and in the time periods currently estimated by such
managements. We have also relied upon each party to advise us promptly if any
information previously provided became inaccurate or was required to be updated
during the period of our review. We have also assumed, with your permission and
without independent verification, that the aggregate allowances for loan losses
for Family and Republic are adequate to cover losses in their respective loan
portfolios. We have not made or obtained any evaluations or appraisals of the
property of Family or Republic, nor have we examined any individual loan credit
files. You have informed us and we have assumed that the Merger will be recorded
as a pooling of interest under generally accepted accounting principles.
Finally, we express no opinion as to the underlying business decision of
Republic to effect the Merger, the availability or advisability of any
alternatives to the Merger or the price at which Republic Common Stock will
trade subsequent to the effective time of the Merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical, current and projected financial position and results of
operations of Family and Republic, (ii) the assets and liabilities of Family and
Republic, (iii) the historical market prices and trading activity of the
Republic Common Stock, and (iv) the nature and terms of certain other merger
transactions involving banks and bank holding companies. We have also taken into
account our assessment of general economic, market and financial conditions and
our experience in other transactions, as well as our experience in securities
valuation and our knowledge of the banking industry generally. We have also
assumed with your permission that Republic, its subsidiaries and affiliates, are
not party to any pending material transactions including, but not limited to,
any external financings, recapitalizations, acquisitions or merger discussions,
other than the Agreement. Our opinion is necessarily based upon conditions as
they exist and can be evaluated on the date hereof and the information made
available to us through the date hereof and any change in such circumstances
would require a re-evaluation of this opinion.
It is understood that this letter is for the information of the Board of
Directors of Republic in evaluating the proposed Merger, does not constitute a
recommendation to any stockholder of Republic as to how such stockholder should
vote on the proposed Merger, and is not intended to confer rights or remedies
upon Family or the stockholders of Family or the Company. This opinion is not to
be quoted or referred to, in whole or in part in any registration statement,
prospectus or proxy statement, or any other document used in connection with the
offering or sale of securities, nor shall this letter be used for any other
purpose, without our prior written consent; provided, however, that it is
understood that the Company will request our
C-2
<PAGE>
Board of Directors
Republic Security Financial Corporation
May___, 1997
Page 3
consent to include this opinion in the Republic Securities and Exchange
Commission Registration Statement on form S-4 and the Republic and Family joint
proxy statement, in each case relating to the Merger, and that we will not
unreasonably withhold our consent to such inclusion.
Based upon and subject to the foregoing, and as of the date of this letter,
we are of the opinion that the exchange ratio in the proposed Merger is fair,
from a financial point of view, to the holders of Republic Common Stock.
Sincerely,
John Forney
Vice President
C-3
<PAGE>
ANNEX D
May ___, 1997
The Board of Directors
Family Bank
1000 East Hallandale Beach Blvd.
Hallandale, FL 33009
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Family Bank, ("Family") and its shareholders of the proposed merger
(the "Merger") between Family and Republic Security Financial Corp. ("RSFC").
Pursuant to the Agreement and Plan of Merger (the "Agreement") dated January 7,
1997, Family shall merge with and into RSFC, and each share of Family's issued
and outstanding common stock will be converted into and become the right to
receive 13 shares, subject to certain adjustments as set forth in the Agreement
(the "Exchange Ratio"), of common stock of RSFC. We have assumed that the Merger
will qualify as a tax free transaction for the stockholders of Family.
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 RSFC and Family 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 Joint Proxy Statement / Prospectus
prepared in connection with the merger; (iii) RSFC's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the fiscal years ended December
31, 1996, 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 September 30, 1996, June 30, 1996 and March 31, 1996; (iv)
Family's unaudited financial statements for the years ended December 31, 1994
and 1995 and Family's audited financial statements for the year ended December
31, 1996; (v) the historical stock prices and trading volume of RSFC's Common
Stock; (vi) the publicly available financial data of commercial banking
organizations which we deemed generally comparable to RSFC; (vii) the publicly
available financial data of commercial banking organizations which we deemed
generally comparable to Family; and (viii) the terms of recent acquisitions of
commercial banking organizations which we deemed generally comparable to Family.
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 RSFC's ability to consummate the Merger and considered the
future prospects of Family in the event it remained independent.
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
D-1
<PAGE>
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 Family and RSFC 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 Family and
RSFC at December 31, 1996, 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 Family and RSFC. We have not made or obtained any
independent evaluations or appraisals of the assets and liabilities of either
Family or RSFC or the respective subsidiaries, nor have we reviewed any
individual loan files of Family or RSFC.
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 Family. Our opinion is necessarily based
on economic, market and other conditions and projections as they exist and can
be evaluated on the date hereof.
We have been retained by the Board of Directors of Family as an independent
contractor to act as financial advisor to Family with respect to the Merger and
will receive a fee for our services. We have, in the past, provided financial
advisory services to RSFC and have received fees for the rendering of such
services. In addition, we may actively trade equity securities of RSFC 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.
Our opinion is directed to the Board of Directors of Family and does not
constitute a recommendation to any shareholder of Family 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 Family common stock from a financial point
of view.
Very truly yours,
RYAN, BECK & CO., INC.
D-2
<PAGE>
ANNEX E
SECTION 685.44(2)-(5) OF THE FLORIDA BANKING CODE:
(2) Written notice of the meeting of, or proposed written consent action by, the
stockholders of each constituent state bank or state trust company shall be
given to each stockholder of record, whether or not entitled to vote, and
whether the meeting is an annual or a special meeting or whether the vote is to
be by written consent pursuant to s. 607.0704, and the notice shall state that
the purpose or one of the purposes of the meeting, or of the proposed action by
the stockholders without a meeting, is to consider the proposed plan of merger
and merger agreement. Except to the extent provided otherwise with respect to
stockholders of a resulting bank or trust company pursuant to subsection (7),
the notice shall also state that dissenting stockholders will be entitled to
payment in cash of the value of only those shares held by the stockholders:
(a) Which at a meeting of the stockholders are voted against the
approval of the plan of merger and merger agreement;
(b) As to which, if the proposed action is to be by written consent of
stockholders pursuant to s. 607.0704, such written consent is not given by the
holder thereof; or
(c) With respect to which the holder thereof has given written notice
to the constituent state bank or trust company, at or prior to the meeting of
the stockholders or on or prior to the date specified for action by the
stockholders without a meeting pursuant to s. 607.0704 in the notice of such
proposed action, that the stockholder dissents from the plan of merger and
merger agreement.
Hereinafter in this section, the term "dissenting shares" means and includes
only those shares, which may be all or less than all the shares of any class
owned by a stockholder, described in paragraphs (a), (b), and (c).
(3) On or promptly after the effective date of the merger, the resulting state
bank or trust company, or a bank holding company which, as set out in the plan
of merger or merger agreement, is offering shares rights, obligations, or other
securities or property in exchange for shares of the constituent banks or trust
companies, may fix an amount which it considers to be not more than fair market
value of the shares of a constituent bank or trust company and which it will pay
to the holder of dissenting shares of that constituent bank or trust company
and, if it fixes such amount, shall offer to pay such amount to the holders of
all dissenting shares of that constituent bank or trust company. The amount
payable pursuant to any such offer which is accepted by the holders of
dissenting shares, and the amount payable to the holders of dissenting shares
pursuant to an appraisal, shall constitute a debt of the resulting state bank or
state trust company.
(4) The owners of dissenting shares who have accepted an offer made pursuant to
subsection (3) shall be entitled to receive the amount so offered for such
shares in cash upon surrendering the stock certificates representing such shares
at any time within 30 days after the effective date of the merger, and the
owners of dissenting shares, the value of which is to be determined by
appraisal, shall be
E-1
<PAGE>
entitled to receive the value of such shares in cash upon
surrender of the stock certificates representing such shares at any time within
30 days after the value of such shares has been determined by appraisal made on
or after the effective date of the merger.
(5) The value of dissenting shares of each constituent state bank or state trust
company, the owners of which have not accepted an offer for such shares made
pursuant to subsection (3), shall be determined as of the effective date of the
merger by three appraisers, one to be selected by the owners of at least
two-thirds of such dissenting shares, one to be selected by the board of
directors of the resulting state bank, and the third to be selected by the two
so chosen. The value agreed upon by any two of the appraisers shall control and
be final and binding on all parties. If, within 90 days from the effective date
of the merger, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such
dissenting shares, the department shall cause an appraisal of such dissenting
shares to be made which will be final and binding on all parties. The expenses
of appraisal shall be paid by the resulting state bank or trust company.
E-2
<PAGE>
ANNEX F
TEXT OF
AMENDMENT TO
ARTICLES OF INCORPORATION
RESOLVED, that the Articles of Incorporation be amended as follows:
1. Article IV thereof is amended in its entirety to read as follows:
The aggregate number of shares the corporation shall have
authority to issue is 120,000,000 shares, consisting of
100,000,000 shares of Common Stock, par value $.01 per share,
and 20,000,000 shares of Preferred Stock, par value $.01 per
share. The Preferred Stock consists of 1,000,000 shares of
Series B Junior Participating Preferred Stock, 1,035,000
shares of 7% Cumulative Convertible Preferred Stock, Series C,
and 17,965,000 shares authorized for designation into series.
2. Article V. Section 6 is deleted in its entirety.
F-1
<PAGE>
ANNEX G
REPUBLIC SECURITY FINANCIAL CORPORATION
1997 PERFORMANCE INCENTIVE PLAN
The purpose of the Republic Security Financial Corporation 1997 Performance
Incentive Plan (the "Plan") is to encourage designated directors, officers and
employees of Republic Security Financial Corporation (the "Company") and its
subsidiaries to contribute materially to the growth of the Company, thereby
benefitting the Company's shareholders, and aligning the economic interests of
the participants with those of the shareholders.
29. ADMINISTRATION
1. COMMITTEE. The Plan shall be administered and interpreted by a committee
(the "Committee") appointed by the Board of Directors of the Company (the
"Board"). The Committee shall consist of three or more persons appointed by the
Board, all of whom shall be "outside directors" as defined under section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"), and related
Treasury regulations, and "non-employee directors" as defined under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
2. COMMITTEE AUTHORITY. The Committee shall have the authority to (i)
recommend the individuals to whom grants shall be made under the Plan, (ii)
recommend the type, size and terms of the grants to be made to each such
individual, (iii) recommend the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, (iv)
recommend amendments to the terms of any previously issued Grant and (v) deal
with any other matters arising under the Plan. All recommendations and decisions
of the Committee shall be subject to final approval by majority vote of the
directors of the Company who are not employees of the Company ("Non-employee
Directors").
3. COMMITTEE DETERMINATIONS. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to recommend amendments to such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable. The Committee's interpretations of the Plan and
all determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all persons having any interest in
the Plan or in any awards granted hereunder. All powers of the Committee shall
be executed in its sole discretion, in the best interest of the Company, not as
a fiduciary, and in keeping with the objectives of the Plan and need not be
uniform as to similarly situated individuals.
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30. GRANTS
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options") (Incentive Stock
Options and Nonqualified Stock Options are collectively referred to as
"Options"), restricted stock as described in Section 6 ("Restricted Stock"),
stock appreciation rights as described in Section 7 ("SARs"), performance units
as described in Section 8 ("Performance Units"), performance shares as described
in Section 8 ("Performance Shares"), phantom stock as described in Section 9
("Phantom Stock"), and dividend equivalents as described in Section 10
("Dividend Equivalents") (hereinafter collectively referred to as "Grants"). All
Grants shall be subject to the terms and conditions set forth herein and to such
other terms and conditions consistent with this Plan as the Committee deems
appropriate and as are specified in writing by the Committee to the individual
in a grant instrument (the "Grant Instrument") or an amendment to the Grant
Instrument. The Committee shall approve the form and provisions of each Grant
Instrument. Grants under a particular Section of the Plan need not be uniform as
among the grantees.
31. SHARES SUBJECT TO THE PLAN
1. SHARES AUTHORIZED. Subject to the adjustment specified in Section 3(c)
below, the aggregate number of shares of common stock of the Company ("Common
Stock") that may be issued or transferred under the Plan is 2,000,000. The
shares may be authorized but unissued shares of Common Stock or reacquired
shares of Common Stock, including shares purchased by the Company on the open
market for purposes of the Plan. If and to the extent Options or SARs granted
under the Plan terminate, expire, or are canceled, forfeited, exchanged or
surrendered without having been exercised or if any shares of Restricted Stock,
Performance Units, Performance Shares or Phantom Stock are forfeited, the shares
(if any) subject to such Grants shall again be available for purposes of the
Plan.
2. INDIVIDUAL LIMIT. During any calendar year, no individual may be granted
Options or other Grants under the Plan that, in the aggregate, may be settled by
delivery of more than 100,000 shares of Common Stock, subject to adjustment as
provided in Section 3(c). In addition, with respect to Grants the value of which
is based on the Fair Market Value of Common Stock and that may be settled in
cash (in whole or in part), no individual may be paid during any calendar year
cash amounts relating to such Grants that exceed the greater of the Fair Market
Value (as defined in Section 5(b)(iii)) of the number of shares of Common Stock
set forth in the preceding sentence either at the date of grant or at the date
of settlement. This provision sets forth two separate limitations, so that
Grants that may be settled solely by delivery of Common Stock will not operate
to reduce the amount or value of cash-only Grants, and vice versa; nevertheless,
Grants that may be settled in Common Stock or cash must not exceed either
limitation.
With respect to Grants, the value of which is not based on the Fair Market
Value of Common Stock, no individual may receive during any calendar year cash
or shares of Common Stock with a Fair Market Value at date of settlement that,
in the aggregate, exceeds $1,000,000.
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3. ADJUSTMENTS. If there is any change in the number or kind of shares of
Common Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Common Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Common Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Common
Stock available for Grants, the maximum number of shares of Common Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants may
be appropriately adjusted by the Committee to reflect any increase or decrease
in the number of, or change in the kind or value of, issued shares of Common
Stock to preclude, to the extent practicable, the enlargement or dilution of
rights and benefits under such Grants; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated. Any adjustments
determined by the Committee shall be final, binding and conclusive. If and to
the extent that any such change in the number or kind of shares of Common Stock
outstanding is effected solely by application of a mathematical formula (E.G., a
2-for-1 stock split), the adjustment described in this Section 3(c) shall be
made and shall occur automatically by application of such formula, without
further action by the Committee.
32. ELIGIBILITY FOR PARTICIPATION
1. ELIGIBLE PERSONS. All directors, officers and employees of the Company
and its subsidiaries ("Participants"), including Non-employee Directors of the
Company, shall be eligible to participate in the Plan.
2. SELECTION OF GRANTEES. The Committee shall select the Participants to
receive Grants and shall determine the number of shares of Common Stock subject
to a particular Grant, and/or shall establish such other terms and conditions
applicable to such Grant, in such manner as the Committee determines.
Participants who receive Grants under this Plan shall hereinafter be referred to
as "Grantees."
33. GRANTING OF OPTIONS
1. NUMBER OF SHARES. The Committee shall determine the number of shares of
Common Stock that will be subject to each Grant of Options.
2. TYPE OF OPTION AND PRICE.
(i) The Committee may grant Incentive Stock Options that are intended
to qualify as "incentive stock options" within the meaning of section 422 of the
Code or Nonqualified Stock Options that are not intended so to qualify or any
combination of Incentive Stock Options and Nonqualified Stock Options, all in
accordance with the terms and conditions set forth herein. Non-employee
Directors shall not be eligible to receive Incentive Stock Options.
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(ii) The purchase price (the "Exercise Price") of Common Stock subject
to an Option shall be determined by the Committee and may be equal to or greater
than the Fair Market Value (as defined below) of a share of Common Stock on the
date the Option is granted; provided, however, that an Incentive Stock Option
may not be granted to a Participant who, at the time of grant, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
unless the Exercise Price per share is not less than 110% of the Fair Market
Value of Common Stock on the date of grant.
(iii) The Fair Market Value per share shall be the closing sale price
of a share of Common Stock on the NASDAQ National Market (or such other exchange
on which the Common Stock may hereafter be listed), or if there is no such sale
on the relevant date, then on the last previous day on which a sale was
reported.
3. OPTION TERM. The Committee shall determine the term of each Option. The
term of any Option shall not exceed ten years from the date of grant. However,
an Incentive Stock Option that is granted to a Participant who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company, or any parent or subsidiary of the
Company, may not have a term that exceeds five years from the date of grant.
4. EXERCISABILITY OF OPTIONS. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.
5. TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH.
1. Except as provided below, an Option may only be exercised while the
Grantee is employed by the Company or a member of the Board of Directors. In the
event that a Grantee ceases to be so employed (or a member of the Board of
Directors) for any reason other than a "disability," death, retirement, or
termination by the Company (or, in the case of a Non-employee Director who is
nominated for reelection, failure to be reelected by the shareholders), any
Option held by the Grantee shall terminate at the close of business on the
Grantee's last day of employment (or service as a director).
2. In the event the Grantee ceases to be employed by the Company because
the Grantee is "disabled," the Grantee dies or retires in accordance with the
Company's retirement policies, any Option that is otherwise exercisable by the
Grantee shall terminate unless exercised within one year after the date on which
the Grantee ceases to be employed by the Company (or within such shorter period
of time as may be specified by the Committee), but in any event no later than
the date of expiration of the Option term. Any of the Grantee's Options which
are not otherwise exercisable as of the date on which the Grantee ceases to be
employed by the Company shall terminate as of such date.
3. In the event the Grantee ceases to be employed by the Company the
Grantee's employment is terminated by the Company, with or without cause (or, in
the case of a Non-employee
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Director, because of the Grantee's failure to be reelected as a director by the
shareholders), any Option that is otherwise exercisable by the Grantee shall
terminate unless exercised within 90 days after the later to occur of the date
on which the Grantee ceases to be employed by the Company or the date on which
the Grantee ceases to be a member of the Board of Directors (or within such
shorter period of time as may be specified by the Committee), but in any event
no later than the date of expiration of the Option term. Any of the Grantee's
Options that are not otherwise exercisable as of the later to occur of the date
on which the Grantee ceases to be employed by the Company or the date on which
the Grantee ceases to be a member of the Board of Directors shall terminate as
of such date.
4. For purposes of this Section 5(e) and Sections 6, 7 and 8:
(A) The term "Company" shall mean the Company and its subsidiary
corporations.
(B) "Disability" or "disabled" shall mean a Grantee's becoming disabled
within the meaning of section 22(e)(3) of the Code.
6. EXERCISE OF OPTIONS. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (x) in cash, (y) with the
approval of the Committee, by delivering shares of Common Stock owned by the
Grantee (including Common Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or (z) by such other method as the Committee may approve, including attestation
(on a form prescribed by the Committee) to ownership of shares of Common Stock
having a Fair Market Value on the date of exercise equal to the Exercise Price,
or payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board. In addition, the Committee may
authorize loans by the Company to Grantees in connection with the exercise of an
Option, upon such terms and conditions that the Committee, in its sole
discretion, deems appropriate. Shares of Common Stock used to exercise an Option
shall have been held by the Grantee for the requisite period of time to avoid
adverse accounting consequences to the Company with respect to the Option. The
Grantee shall pay the Exercise Price and the amount of any withholding tax due
(pursuant to Section 11) at the time of exercise. Shares of Common Stock shall
not be issued upon exercise of an Option until the Exercise Price is fully paid
and any required withholding is made.
7. LIMITS ON INCENTIVE STOCK OPTIONS. Each Incentive Stock Option shall
provide that, if the aggregate Fair Market Value of the stock on the date of
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the Option, as to the excess, shall be treated as a Nonqualified Stock
Option.
8. DIVIDEND EQUIVALENTS. The Committee may grant dividend equivalents in
connection with Options granted under the Plan. Such dividends may be paid
currently or accrued as contingent
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cash obligations and may be payable in cash
or shares of Common Stock, upon such terms as the Committee may establish,
including the achievement of specific performance goals.
34. RESTRICTED STOCK GRANTS
The Committee may issue or transfer shares of Common Stock to a Grantee
under a Grant of Restricted Stock, upon such terms as the Committee deems
appropriate. The following provisions are applicable to Restricted Stock:
1. GENERAL REQUIREMENTS. Shares of Common Stock issued or transferred
pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate including, without limitation,
restrictions based upon the achievement of specific performance goals. The
period of time during which the Restricted Stock will remain subject to
restrictions will be designated in the Grant Instrument as the "Restriction
Period."
2. NUMBER OF SHARES. The Committee shall determine the number of shares of
Common Stock to be issued or transferred pursuant to a Restricted Stock Grant
and the restrictions applicable to such shares.
3. REQUIREMENT OF EMPLOYMENT. If the Grantee ceases to be employed by the
Company during the Restriction Period (or, in the case of a Non-employee
Director, ceases to be a member of the Board of Directors), or if other
specified conditions are not met, the Restricted Stock Grant shall terminate as
to all shares covered by the Grant as to which the restrictions have not lapsed
at the close of business on the Grantee's last day of employment (or, in the
case of a Non-employee Director, the last day on which the Grantee is a director
of the Company), and those shares of Common Stock must be immediately returned
to the Company. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems appropriate.
4. RESTRICTIONS ON TRANSFER AND LEGEND ON STOCK CERTIFICATE. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 12(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
5. RIGHT TO VOTE AND TO RECEIVE DIVIDENDS. Unless the Committee determines
otherwise, during the Restriction Period the Grantee shall not have the right to
vote shares of Restricted Stock. During the Restriction Period the Grantee shall
have the right to receive any dividends or other distributions paid on such
shares, subject to any restrictions deemed appropriate
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by the Committee. Such dividends may be paid currently, accrued as contingent
cash obligations, or converted into additional shares of Restricted Stock, upon
such terms as the Committee may establish, including the achievement of specific
performance goals.
6. LAPSE OF RESTRICTIONS. All restrictions imposed on Restricted Stock
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
35. STOCK APPRECIATION RIGHTS
1. GENERAL REQUIREMENTS. The Committee may grant SARs to a Grantee
separately or in tandem with any Option (for all or a portion of the applicable
Option). Tandem SARs may be granted either at the time the Option is granted or
at any time thereafter while the Option remains outstanding; provided, however,
that, in the case of an Incentive Stock Option, SARs may be granted only at the
time of grant of the Incentive Stock Option. The Committee shall establish the
base amount of the SAR at the time the SAR is granted. Unless the Committee
determines otherwise, the base amount of each SAR shall be equal to the per
share Exercise Price of the related Option or, if there is no related Option,
the Fair Market Value of a share of Common Stock as of the date of grant of the
SAR.
2. TANDEM SARS. In the case of tandem SARs, the number of SARs granted to a
Grantee that shall be exercisable during a specified period shall not exceed the
number of shares of Common Stock that the Grantee may purchase upon the exercise
of the related Option during such period. Upon the exercise of an Option, the
SARs relating to the Common Stock covered by such Option shall terminate. Upon
the exercise of SARs, the related Option shall terminate to the extent of an
equal number of shares of Common Stock.
3. EXERCISABILITY. An SAR shall be exercisable during the period specified
by the Committee in the Grant Instrument and shall be subject to such vesting
and other restrictions as may be specified in the Grant Instrument; provided,
however, that the term of the SAR shall not exceed ten years. The Committee may
accelerate the exercisability of any or all outstanding SARs at any time for any
reason. SARs may only be exercised while the Grantee is employed by the Company
(or, in the case of a Non-employee Director, serves as a member of the Board of
Directors) or during the applicable period after termination of employment (or,
in the case of a Non-employee Director, service as director) as described in
Section 5(e) for Options. For purposes of the preceding sentence, the rules
applicable to a tandem SAR shall be the rules applicable under Section 5(e) to
the Option to which it relates, and the rules applicable to any other SAR shall
be the rules applicable under Section 5(e) and a Nonqualified Stock Option. A
tandem SAR shall be exercisable only during the period when the Option to which
it is related is also exercisable.
4. VALUE OF SARS. When a Grantee exercises SARs, the Grantee
shall receive in settlement of such SARs an amount equal to the value of the
stock appreciation for the number of SARs exercised, payable in cash, Common
Stock or a combination thereof. The stock appreciation
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for an SAR is the amount by which the Fair Market Value of the underlying Common
Stock on the date of exercise of the SAR exceeds the base amount of the SAR as
described in subsection (a).
5. FORM OF PAYMENT. The Committee shall determine whether the appreciation
in an SAR shall be paid in the form of cash, shares of Common Stock, or a
combination of the two, in such proportion as the Committee deems appropriate.
For purposes of calculating the number of shares of Common Stock to be received,
shares of Common Stock shall be valued at their Fair Market Value on the date of
exercise of the SAR. If shares of Common Stock are to be received upon exercise
of an SAR, cash shall be delivered in lieu of any fractional share.
36. PERFORMANCE UNITS AND PERFORMANCE SHARES
1. GENERAL REQUIREMENTS. The Committee may grant Performance Units or
Performance Shares to a Grantee (other than Non-employee Directors). Each
Performance Unit/Share shall represent the right of the Grantee to receive an
amount based on the value of the Performance Unit/Share, if performance goals
established by the Committee are met. A Performance Unit shall have a value
based on such measurements or criteria as the Committee determines. A
Performance Share shall have a value equal to the Fair Market Value of a share
of Common Stock. The Committee shall determine the number of Performance
Units/Shares to be granted and the requirements applicable to such Units/Shares.
2. PERFORMANCE PERIOD AND PERFORMANCE GOALS. When Performance Units/Shares
are granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units/Shares ("Performance Goals") and such other conditions
of the Grant as the Committee deems appropriate.
3. PAYMENT WITH RESPECT TO PERFORMANCE UNITS/SHARES. At the end of each
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units/Shares are met, the value of
the Performance Units (if applicable) and the amount, if any, to be paid with
respect to the number of Performance Units/Shares that have been earned.
Payments with respect to Performance Units/Shares shall be made in cash, in
Common Stock, or in a combination of the two, as determined by the Committee.
4. REQUIREMENT OF EMPLOYMENT. If the Grantee ceases to be employed by the
Company during a Performance Period, or if other conditions established by the
Committee are not met, the Grantee's Performance Units/Shares shall be forfeited
at the close of business on the Grantee's last day of employment. The Committee
may, however, provide for complete or partial exceptions to this requirement as
it deems appropriate. If the Grantee ceases to be employed by the Company after
the expiration of a Performance Period but prior to payment, payment shall be
made to the Grantee or the Successor Grantee, if applicable.
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37. PHANTOM STOCK
1. GENERAL REQUIREMENTS. The Committee may grant Phantom Stock to a Grantee
in such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee.
2. VALUE OF PHANTOM STOCK. The Committee shall establish the initial value
of the Phantom Stock at the time of grant which may be greater than, equal to or
less than the Fair Market Value of a share of Common Stock.
3. DIVIDEND EQUIVALENTS. The Committee may grant dividend equivalents in
connection with Phantom Stock granted under the Plan. Such dividends may be paid
currently or accrued as contingent cash obligations and may be payable in cash
or shares of Common Stock, upon such terms as the Committee may establish,
including the achievement of specific performance goals.
(d) FORM AND TIMING OF PAYMENT. The Committee shall determine whether the
Phantom Stock shall be paid in the form of cash, shares of Common Stock or a
combination of the two, in such proportion as the Committee deems appropriate.
Cash payments shall be in an amount equal to the Fair Market Value on the
payment date of the number of shares of Common Stock equal to the number of
shares of Phantom Stock with respect to which payment is made. The number of
shares of Common Stock distributed in settlement of a Phantom Stock Grant shall
equal the number of shares of Phantom Stock with respect to which settlement is
made. Payment shall be made in accordance with the terms and at such times as
determined by the Committee at the time of grant.
(e) REQUIREMENT OF EMPLOYMENT. If the Grantee ceases to be employed by the
Company (or, in the case of a Non-employee Director, ceases to be a member of
the Board of Directors) prior to becoming vested or otherwise entitled to
payment, the Grantee's Phantom Stock shall be forfeited at the close of business
on the Grantee's last day of employment (or, in the case of a Non-employee
Director, service as a director). The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
38. DIVIDEND EQUIVALENTS.
(a) GENERAL REQUIREMENTS. The Committee may grant Dividend Equivalents to a
Grantee in such number and upon such other terms, including in either case the
achievement of specific performance goals, and at any time and from time to
time, as shall be determined by the Committee. Each Dividend Equivalent shall
represent the right to receive an amount in cash, or shares of Common Stock
having a Fair Market Value, equal to the amount of dividends paid on one share
of Common Stock during such period as may be established by the Committee.
(b) FORM AND TIMING OF PAYMENT. Dividend Equivalents may be paid currently
or accrued as contingent cash obligations, upon such terms as the Committee may
establish. The Committee shall determine whether Dividend Equivalents shall be
paid in the form of cash, shares of Common Stock or a combination of the two, in
such proportion as the Committee deems appropriate. The number of any shares of
Common Stock payable in satisfaction of Dividend
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Equivalents shall be determined by dividing the amount credited to the Grantee
with respect to such Dividend Equivalents by the Fair Market Value on the day
instructions are given to the Company's Chief Executive Officer or transfer
agent to issue or purchase such shares. Cash shall be delivered in lieu of any
fractional shares. Payment shall be made at such times as determined by the
Committee at the time of grant.
(c) REQUIREMENT OF EMPLOYMENT. If the Grantee ceases to be employed by the
Company (or, in the case of a Non-employee Director, ceases to be a member of
the Board of Directors) prior to becoming entitled to payment, the Grantee's
Dividend Equivalents shall be forfeited at the close of business on the
Grantee's last day of employment (or, in the case of a Non-employee Director,
service as a director). The Committee may, however, provide for complete or
partial exceptions to this requirement as it deems appropriate.
39. WITHHOLDING OF TAXES
1. REQUIRED WITHHOLDING. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Common Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
2. ELECTION TO WITHHOLD SHARES. If the Committee so permits, a Grantee may
elect to satisfy the Company's income tax withholding obligation with respect to
an Option, SAR, Restricted Stock, Performance Units, Performance Shares, Phantom
Stock or Dividend Equivalents, any of which is paid in Common Stock, by having
shares withheld having a Fair Market Value up to an amount that does not exceed
the Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
40. TRANSFERABILITY OF GRANTS
1. NONTRANSFERABILITY OF GRANTS. Except as provided below, only the Grantee
may exercise rights under a Grant during the Grantee's lifetime. A Grantee may
not transfer those rights except by will or by the laws of descent and
distribution or, with respect to Grants other than Incentive Stock Options, if
permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights which
have not been extinguished by the Grantee's death. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution.
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2. TRANSFER OF NONQUALIFIED STOCK OPTIONS. Notwithstanding the foregoing,
the Committee may provide in a Grant Instrument that a Grantee may transfer
Nonqualified Stock Options to family members or other persons or entities
according to such terms as the Committee may determine; provided that the
Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
41. GRANTS SUBJECT TO CODE SECTION 162(M)
(a) PERFORMANCE BASED GRANTS. Any Grant to a Grantee who is a "covered
employee" within the meaning of Code Section 162(m), the exercisability or
settlement of which is subject to the achievement of performance goals, shall
qualify as "qualified performance-based compensation" within the meaning of Code
Section 162(m) and regulations thereunder. The performance goals for such a
Grant shall consist of one or more of the business criteria set forth in Section
13(b), below, and a targeted level or levels of performance with respect to such
criteria, as specified by the Committee in writing prior to (or within 90 days
after commencement of) the applicable performance period. Performance goals
shall be objective and shall otherwise meet the requirements of Section
162(m)(4)(C) of the Code and regulations thereunder. Performance goals may
differ for such Grants to different Grantees. The Committee shall specify the
weighting to be given to each performance goal for purposes of determining the
final amount payable with respect to any such Grant. The Committee may, in its
discretion, reduce the amount of a payout otherwise to be made in connection
with such a Grant, but may not exercise discretion to increase such amount. All
determinations by the Committee as to the achievement of performance goals shall
be certified in writing prior to payment under the Plan, in the form of minutes
of a meeting of the Committee or otherwise.
(b) BUSINESS CRITERIA. Unless and until the Committee proposes for
shareholder approval and the Company's shareholders approve a change in the
general business criteria set forth in this Section, the attainment of which may
determine the amount and/or vesting with respect to Grants, the business
criteria to be used for purposes of establishing performance goals for such
Grants shall be selected from among the following alternatives, each of which
may be based on absolute standards or peer industry group comparatives and may
be applied at various organizational levels (E.G., corporate, business unit,
branch):
(i) Total shareholder return
(ii) Common Stock price
(iii) Earnings per share
(iv) Dividend payout percentages
(v) Book values
(vi) Return on equity
(vii) Return on capital
(viii) Expense ratios
(ix) Regulatory ratings
(x) Loan production and loan portfolio amounts and mix
(xi) Non-performing assets levels or percentages
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(xii) Efficiency ratios
(xiii) Deposit levels or mix
(xiv) CRA achievements
(xv) Employee performance as measured by "shoppers"
(xvi) Customer satisfaction as measured by surveys
(xvii) Market share
(xviii) Personal performance
(xix) Productivity measures
(xx) Completion of key projects
In the event that Code Section 162(m) or applicable tax and/or securities
laws change to permit Committee discretion to alter the governing performance
measures without disclosing to shareholders and obtaining shareholder approval
of such changes and without thereby exposing the Company to potentially adverse
tax or other legal consequences, the Committee shall have sole discretion to
make such changes without obtaining shareholder approval.
42. DEFERRALS
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of Shares that would otherwise be due to such
Grantee by virtue of the exercise of any Option or SAR, the lapse or waiver of
restrictions applicable to Restricted Stock, the satisfaction of any
requirements or objectives with respect to Performance Units/Shares or the
vesting or satisfaction of any terms applicable to Phantom Stock or Dividend
Equivalents. If any such deferral election is permitted or required, the
Committee shall, in its sole discretion, establish rules and procedures for such
deferrals.
43. REQUIREMENTS FOR ISSUANCE OR TRANSFER OF SHARES
No Common Stock shall be issued or transferred in connection with any Grant
hereunder unless and until all legal requirements applicable to the issuance or
transfer of such Common Stock have been complied with to the satisfaction of the
Committee. The Committee shall have the right to condition any Grant made to any
Grantee hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Common Stock
as the Committee shall deem necessary or advisable as a result of any applicable
law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Common Stock issued or transferred under the
Plan will be subject to such stop-transfer orders and other restrictions as may
be required by applicable laws, regulations and interpretations, including any
requirement that a legend be placed thereon.
44. AMENDMENT AND TERMINATION OF THE PLAN
1. AMENDMENT. The Committee may amend or terminate the Plan at any time;
provided, however, that the Committee shall not amend the Plan without
shareholder approval if such approval
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<PAGE>
is required by Section 162(m) of the Code or the rules of any stock exchange on
which Common Stock is listed. 1. TERMINATION OF PLAN. The Plan shall terminate
on the day immediately preceding the tenth anniversary of its effective date,
unless the Plan is terminated earlier by the Committee or is extended by the
Committee with the approval of the shareholders.
2. TERMINATION AND AMENDMENT OF OUTSTANDING GRANTS. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 22(b). The termination of the Plan shall not impair
the power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated
or amended under Section 22(b) or may be amended by agreement of the Company and
the Grantee consistent with the Plan.
3. GOVERNING DOCUMENT. The Plan shall be the controlling document. No other
statements, representations, explanatory materials or examples, oral or written,
may amend the Plan in any manner. The Plan shall be binding upon and enforceable
against the Company and its successors and assigns.
45. FUNDING OF THE PLAN
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Grants under this Plan. In no event shall interest be
paid or accrued on any Grant, including unpaid installments of Grants.
46. RIGHTS OF PARTICIPANTS
Nothing in this Plan shall entitle any Participant or other person to any
claim or right to be granted a Grant under this Plan, and no Grant shall entitle
any Participant or other person to any future Grant. Neither this Plan nor any
action taken hereunder shall be construed as giving any individual any rights to
be retained by or in the employ of the Company or any other employment rights.
47. NO FRACTIONAL SHARES
No fractional shares of Common Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
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48. HEADINGS
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
49. EFFECTIVE DATE OF THE PLAN.
This Plan shall be effective on the date of its approval by the
shareholders of the Company.
50. MISCELLANEOUS
1. GRANTS IN CONNECTION WITH CORPORATE TRANSACTIONS AND OTHERWISE. Nothing
contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of any bank or corporation,
or assets thereof, including Grants to employees thereof who become
Participants, or for other proper corporate purposes, or (ii) limit the right of
the Company to grant stock options or make other awards outside of this Plan.
Without limiting the foregoing, the Committee may make a Grant to an employee of
another corporation who becomes a Participant by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant made by such corporation. The terms and
conditions of the substitute grants may vary from the terms and conditions
required by the Plan and from those of the substituted stock incentives. The
Committee shall prescribe the provisions of the substitute grants.
2. COMPLIANCE WITH LAW. The Plan, the exercise of Options and SARs and the
obligations of the Company to issue or transfer shares of Common Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. In
particular, and without otherwise limiting the provisions of this Section 21(b),
no Grantee subject to section 16 of the Exchange Act may exercise any Option or
SAR except in accordance with applicable requirements of Rule 16b-3 or its
successors under the Exchange Act. The Committee may revoke any Grant if it is
contrary to law or modify a Grant to bring it into compliance with any valid and
mandatory government regulation. The Committee may also adopt rules regarding
the withholding of taxes on payments to Grantees. The Committee may, in its sole
discretion, agree to limit its authority under this Section.
3. GOVERNING LAW. The validity, construction, interpretation and effect of
the Plan and Grant Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the State of Florida.
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<PAGE>
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 VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION. The Corporation, to the full extent
not expressly prohibited by law, shall indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, ending or completed action, suit or proceedings,
whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer or
employee of the Corporation or of any of its subsidiaries or is
or was serving at the request of the Corporation or any of its
subsidiaries as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
SECTION 2. Without limiting the generality of the foregoing, the
Corporation shall indemnify all such directors, officers or
employees both as to action in their official capacities and as
to action in any other capacity while holding such office
(including matters as to which such person shall have been
alleged or adjudged to be liable for negligence) except that such
indemnification shall not extend to gross negligence or willful
misconduct.
SECTION 3. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability
under the provisions of this Article.
SECTION 4. AMENDMENT. This Article may not be amended or repealed
in a manner which would adversely affect the indemnification
rights of a director or officer or former director or officer
hereunder; provided, the act or omission which is the basis for
the threatened, pending or completed action, suit or proceeding
occurred prior to the adoption of the amendment or repeal.
The Bylaws are not exclusive of any other rights to which any person
seeking indemnification from the registrant may be entitled.
II-1
<PAGE>
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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO.
DESCRIPTION
2(c) Agreement and Plan of Merger, dated as of January 7, 1997, among
Republic Security Financial Corporation, Republic Security Bank
and Family Bank (included as Annex A to the Joint Proxy
Statement/Prospectus) (1)
(d) Plan of Merger and Merger Agreement, dated as of January 7, 1997,
between Republic Security Bank and Family Bank (included as Annex
B to the Joint Proxy Statement/Prospectus)
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 re: legality (9)
8 Opinion of Morgan, Lewis & Bockius LLP re: tax matters
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)
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<PAGE>
EXHIBIT
NO. DESCRIPTION
(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)
(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 (included as Annex F to the Joint Proxy
Statement/Prospectus)
(m) Employment Agreement with Carol Owen (9)
(n) Employment Agreement with Bruce Keir (9)
11 Statement regarding Computation of Per Share Earnings (8)
12 Statement regarding Computation of Ratios (3)
13 Annual report to security holders of Republic Security Financial
Corporation (8)
21 Subsidiaries of Republic Security Financial Corporation (8)
23(a) Consent of Ernst & Young LLP
(b) Consent of Raymond James & Associates, Inc. (9)
(c) Consent of Morgan, Lewis & Bockius LLP (included in its opinions
in Exhibits 5 and 8 hereof)
(d) Consent of Ryan, Beck & Co. (9)
25 Powers of Attorney (included on the signature page of the
Registration Statement)
99(a)Form of Proxy of Republic Security Financial Corporation
99(b)Form of Proxy of Family Bank
All other Exhibits are omitted because they are not applicable.
II-3
<PAGE>
(1) Incorporated by reference to Form 8-K as filed with the Securities and
Exchange Commission on January 13, 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 Form 10-K as filed with the Securities and
Exchange Commission on March 19, 1997.
(9) 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
II-4
<PAGE>
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 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to 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 15th day of May, 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, this Amendment
No. 1 to 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, May 15, 1997
- ----------------------- President, Chief Executive
Rudy E. Schupp Officer and Director
*
- ----------------------- Executive Vice President, May 15, 1997
Richard J. Haskins Principal Financial and
Accounting Officer and
Director
*
- ----------------------- Director May 15, 1997
H. Gearl Gore
* Director May 15, 1997
- -----------------------
Lennart E. Lindahl, Jr.
* Director May 15, 1997
- -----------------------
Richard C. Rathke
* Director May 15, 1997
- -----------------------
Victor H. Siegel
Director May 15, 1997
- -----------------------
William F. Spitznagel
II-6
<PAGE>
* Director May 15, 1997
- ------------------------
Bruce E. Wiita
* Director May 15, 1997
- ------------------------
William Wolfson
- ---------------------
* By: /s/RUDY E. SCHUPP
-----------------------
Attorney-in-Fact
II-7
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
8 Opinion of Morgan, Lewis & Bockius LLP re: tax matters
23(a) Consent of Ernst & Young LLP
99(a) Form of Proxy of Republic Security Financial Corporation
99(b) Form of Proxy of Family Bank
EXHIBIT 8
[LETTERHEAD OF MORGAN, LEWIS & BOCKIUS LLP]
April 4, 1997
Republic Security Financial Corporation
4400 Congress Avenue
West Palm Beach, FL 33407
Re: Certain Federal Income Tax Consequences of the
TRIANGULAR MERGER OF FAMILY BANK WITH REPUBLIC SECURITY FINANCIAL
CORPORATION
Gentlemen/Ladies:
Pursuant to an agreement dated as of January 7, 1997 among Family Bank
("Family"), Republic Security Financial Corporation ("RSFC"), and Republic
Security Bank ("Republic") and certain shareholders of the Company (the "Merger
Agreement"), Family will merge with and into Republic. Capitalized terms not
otherwise defined in this opinion have the meanings ascribed to such terms in
the Merger Agreement or the other documents referred to in the Merger Agreement.
We have acted as legal counsel to RSFC and Republic in connection with the
Merger and you have requested our opinion regarding certain federal income tax
consequences of the Merger. As such, and for the purpose of rendering this
opinion, we have examined and are relying upon (without any independent
investigation or review thereof) the truth and accuracy, at all relevant times,
of the statements, covenants, representations and warranties contained in the
following documents:
1. The Merger Agreement;
2. Such other instruments and documents related to the formation,
organization and operation of and/or to the consummation of the Merger as we
have deemed necessary or appropriate.
In preparing our opinion, as set forth below, we have reviewed such other
documents relating to the Merger and such federal income tax authority as we
deemed relevant under the circumstances. For purposes of this opinion, we have
also assumed, with your permission and without independent investigation that
(i) original documents (including signatures) are authentic, (ii) documents
submitted to us as copies conform to the original documents, (iii) there has
been (or will be by the date of the Merger) due execution and delivery of all
documents where due execution and delivery are prerequisites to the
effectiveness of those documents, and (iv) the Merger will be effective under
the laws of the State of Florida.
Furthermore, as to certain facts (including those facts contained in the "FACTS"
section of this opinion) material to our opinion that we did not independently
establish or verify, we have relied upon the accuracy of statements and
representations of officers of each of Family and RSFC (the "Certifications")
contained in officer's certificates, each bearing today's date, which
certifications are set forth as follows:
1. The "FACTS" section of this opinion is true, correct and complete in all
respects.
2. The fair market value of the RSFC Common Stock and other consideration
received by each stockholder of Family will be approximately equal to the fair
market value of Family Stock surrendered in the exchange.
3. To the best of Family's knowledge, there is no intention by the
stockholders of Family to sell, exchange, or otherwise dispose of a number of
shares of the RSFC Common Stock received in the Merger that would reduce such
stockholders' ownership of RSFC Common Stock to a number of shares having a
value, as of the date of the Merger, of less than 50 percent of the value of all
of the formerly outstanding Family Shares as of the same date.
<PAGE>
Republic Security Financial Corporation
April 4, 1997
Page 2
For purposes of this representation, Family Stock exchanged for cash pursuant to
dissenters' rights under Section 658.44, Florida Statutes will be treated as
outstanding Family Shares on the date of the Merger. Moreover, shares of Family
Stock and shares of RSFC Common Stock held by stockholders of Family and
otherwise sold, redeemed, or disposed of prior to the Merger will be considered
in making this representation.
4. Following the Merger, Republic will hold at least 90 percent of the fair
market value of its net assets and at least 70 percent of the fair market value
of its gross assets and at least 90 percent of the fair market value of Family's
net assets and at least 70 percent of the fair market value of the Family's
gross assets, held immediately prior to the Merger. For purposes of this
representation, amounts paid to dissenting Family Stockholders and amounts used
by Family or Republic to pay reorganization expenses, will be included as assets
of Family or Republic, respectively, immediately prior to the Merger.
5. Prior to the Merger, RSFC will be in control of Republic within the
meaning of Section 368(c)(1) of the Internal Revenue Code of 1986, as amended
(the "Code").
6. Republic has no plan or intention to issue additional Republic Stock
that would result in RSFC losing control of Republic within the meaning of
Section 368(c)(1) of the Code.
7. RSFC has no plan or intention to reacquire any of the RSFC Stock issued
in the Merger.
8. RSFC has no plan or intention to liquidate Republic; to merge Republic
with or into another corporation; to sell or otherwise dispose of Republic
Shares except for transfers of stock to a corporation controlled by RSFC; or to
cause Republic to sell or otherwise dispose any of its assets or any assets
acquired from Family, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code.
9. The liabilities of Family assumed by Republic and the liabilities to
which the transferred assets of Family are subject were incurred by Family in
the ordinary course of its business.
10. Following the Merger, Republic will continue the historic business of
Family or use a significant portion of Family's business assets in a business.
11. RSFC, Republic, Family, and the stockholders of Family will pay their
respective expenses, if any, incurred in connection with the Merger.
12. There is no intercorporate indebtedness existing between RSFC and
Family or between Republic and Family that was issued, acquired, or will be
settled at a discount.
13. Neither of Family, RSFC nor Republic are investment companies as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
14. On the date of the Merger, the fair market value of the assets of
Family transferred to Republic will equal or exceed the sum of the liabilities
assumed by Republic, plus the amount of liabilities, if any, to which the assets
are subject.
15. Family is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
16. No stock of Republic will be issued in the transaction.
<PAGE>
Republic Security Financial Corporation
April 4, 1997
Page 3
17. None of the compensation received by any stockholder-employee of Family
will be separate consideration for, or allocable to any of their Family Stock;
none of the shares of RSFC Common Stock received by any Family
stockholder-employee will be separate consideration for, or allocable to any
employment agreement and any compensation paid to any stockholder-employees will
be for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arms-length for similar services.
FACTS
RSFC is a Florida bank holding company. Family is a bank chartered by the state
of Florida. RSFC believes that Company's assets will complement and expand
RSFC's financial and banking capabilities. Accordingly, the parties have agreed
to consummate the Merger in accordance with the Merger Agreement.
Pursuant to the Merger Agreement among Family, RSFC, and Republic, Family will
merge with and into Republic. The stockholders of Family will receive shares of
RSFC Common Stock (the number of shares to be determined by a formula contained
in the Merger Agreement) in exchange for all of their Family Stock in the
Merger.
OPINIONS
Based upon the foregoing assumptions and Certifications, and on the Code, the
regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect as of today's date, it is our opinion
that for federal income tax purposes the Merger should qualify as a
reorganization within the meaning of Section 368(a) of the Code and accordingly:
1. Family, RSFC and Republic will each be a party to the reorganization
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Family as a result of the Merger.
3. No gain or loss will be recognized by stockholders of Family whose
Family Stock is exchanged solely for RSFC Common Stock pursuant to the Merger
except with respect to cash received by such stockholders pursuant to their
dissenters' rights under Section 658.44, Florida Statutes.
4. Family Stockholders who receive cash pursuant to their dissenters'
rights under Section 658.44, Florida Statutes will be treated as if such cash
had been received in redemption of their Family Stock. The receipt of such cash
generally should result in gain or loss in an amount equal to the difference
between the amount of the cash received and the portion of the tax basis in
Family Stock that is allocable to such fractional share. Such gain or loss
generally will be treated as capital gain or loss, provided that such Stock is
held by such stockholder as a capital asset at the Effective Time.
5. The aggregate tax basis of the RSFC Common Stock received by
stockholders of Family who exchange their Family Shares for RSFC Common Stock in
the Merger will be the same as the tax basis of Family Shares surrendered in the
exchange.
6. The holding period for the shares of RSFC Common Stock received or
deemed received in the Merger will include the period during which Family Stock
surrendered in exchange therefor were held, provided that such Family Stock was
held as capital assets at the Effective Time.
7. The statements of law and conclusions of law included in the
Registration Statement under the heading "Certain Federal Income Tax
Consequences" are, in all material respects, true, correct and complete.
<PAGE>
Republic Security Financial Corporation
April 4, 1997
Page 4
Our opinions set forth herein are based upon existing law, regulations,
administrative pronouncements and judicial decisions, all as in effect as of
today's date. All such authorities are subject to change, either prospectively
or retroactively. No assurance can be provided as to the effect of any such
change on our opinions. If any of the facts, assumptions or Certifications on
which our opinions are based is incorrect, please advise us so that we may
consider the effect, if any, on our opinions.
We understand that this opinion is to be used in connection with the
registration of RSFC's Common Stock to be issued to the holders of Family Stock
in the proposed Merger pursuant to the Securities Act of 1933 (the "Act"), as
amended. We consent to the filing of this opinion in connection with and as a
part of the Registration Statement on Form S-4 and amendments thereto. We also
hereby consent to the reference to our firm under the caption "Legal Matters" in
the Registration Statement. In giving such consents, however, we do not thereby
admit that we are acting with the category of persons whose consent is required
under Section 7 of the Act and the rules and regulations of the Securities and
Exchange Commission thereunder.
The opinions set forth herein have no binding effect on the United States
Internal Revenue Service or the courts. No assurance can be given that, if the
matter were contested, a court would agree with the opinions set forth above.
Very truly yours,
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts," "Selected
Consolidated Financial Data--Republic Security Financial Corporation" and
"Selected Financial Data--Family Bank" and to the use of our reports dated
January 23, 1997 and March 28, 1997, included in the Joint Proxy
Statement/Prospectus of Republic Security Financial Corporation and Family Bank
which is made a part of the Amendment No. 1 to the Registration Statement (Form
S-4) for the registration of 7,691,697 shares of Republic Security Financial
Corporation common stock.
/s/ ERNST & YOUNG LLP
- ----------------------
West Palm Beach, Florida
May 13, 1997
EXHIBIT 99(a)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
REPUBLIC SECURITY FINANCIAL CORPORATION
4400 CONGRESS AVENUE
WEST PALM BEACH, FLORIDA 33407
The undersigned hereby appoints Rudy E. Schupp and Richard J. Haskins, and each
of them acting alone, with the power to appoint his substitute, proxy to
represent the undersigned and vote as designated below all of the shares of
common stock of Republic Security Financial Corporation (the "Company") held of
record by the undersigned on May 15, 1997, at the Annual Meeting of Shareholders
to be held on June 27, 1997 and at any adjournment or postponement thereof.
1. Election of three directors; each to serve until the 2000 Annual Meeting and
until his successor is duly elected and qualified.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Richard J. Haskins [ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY TO VOTE
Lennart E. Lindahl, Jr. [ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY TO VOTE
Bruce E. Wiita [ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY TO VOTE
</TABLE>
2. Approval of the amendment to the Company's Articles of Incorporation
increasing the authorized shares of its common stock from 20,000,000 to
100,000,000.
[ ] FOR [ ] AGAINST
[ ] ABSTAIN
3. Approval of the Republic Security Financial Corporation 1997 Performance
Incentive Plan.
[ ] FOR [ ] AGAINST
[ ] ABSTAIN
4. Approval of the Agreement and Plan of Merger, dated as of January 7, 1997, by
and among the Company, Republic Security Bank and Family Bank, providing for
the merger of Family Bank with and into Republic Security Bank, a wholly
owned subsidiary of the Company. Approval of the Merger Agreement is
conditioned upon approval of the Amendment to the Articles.
[ ] FOR [ ] AGAINST
[ ] ABSTAIN
5. In his discretion, the proxy is authorized to vote upon such other matters as
may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" PROPOSAL 1, "FOR" PROPOSAL 2, "FOR" PROPOSAL 3 and "FOR" PROPOSAL 4.
Dated: _________________
---------------------
Signature
-------------------------
Signature if held jointly
Please sign exactly as name appears to the left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
EXHIBIT 99(b)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FAMILY BANK
1000 EAST HALLANDALE BEACH BOULEVARD
HALLANDALE, FLORIDA 33009
The undersigned hereby appoints Carol R. Owen and Lynn W. Fromberg, and each of
them acting alone, with the power to appoint his substitute, proxy to represent
the undersigned and vote as designated below all of the shares of common stock
of Family Bank ("Family") held of record by the undersigned on May 15, 1997, at
the Special Meeting of Shareholders to be held on June 27, 1997 and at any
adjournment or postponement thereof.
1. Approval of the Agreement and Plan of Merger, dated as of January 7, 1997
(the "Merger Agreement"), by and among the Republic Security Financial
Corporation ("RSFC"), Republic Security Bank (the "Bank") and Family,
providing for the merger of Family with and into the Bank, a wholly owned
subsidiary of RSFC.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
2. Approval of the Plan of Merger and Merger Agreement, dated as of January 7,
1997 (the "Plan of Merger") by and between Family and the Bank, which is
the instrument to be filed with the Florida Department of Banking and
Finance to effect the Merger.
[ ] FOR
[ ] AGAINST the Plan of Merger, not exercising dissenters' rights.
[ ] AGAINST the Plan of Merger, exercising dissenters' rights.
[ ] ABSTAIN
3. In his discretion, the proxy is authorized to vote upon such other matters
as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" PROPOSAL 1 and "FOR" PROPOSAL 2.
Dated: _________________
Signature ------------------------
------------------------
Signature if held jointly
Please sign exactly as name appears to the left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
