UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the period ended June 30, 1998
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ---------------
Commission file number 0-14671
--------------
REPUBLIC SECURITY FINANCIAL CORPORATION
Exact name of registrant as specified in its charter)
FLORIDA 59-2335075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 Congress Avenue, West Palm Beach, FL 33407
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (561)
840-1200 Securities registered pursuant to Section
12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding as of July 31, 1998
- ----- -------------------------------
Common Stock
par value $.01 25,532,325
Outstanding
<PAGE>
[GRAPHIC OMITTED]
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
Page
PART I: FINANCIAL INFORMATION
Item 1:
Condensed Consolidated Statements of Financial Condition
June 30, 1998 and December 31, 1997.........................................1
Condensed Consolidated Statements of Income for the
three months ended June 30, 1998 and 1997...................................2
Condensed Consolidated Statements of Income for the
six months ended June 30, 1998 and 1997.....................................3
Condensed Consolidated Statements of Comprehensive Income for the
six months ended June 30, 1998 and 1997.....................................4
Condensed Consolidated Statements of Shareholders' Equity
for the six months ended June 30, 1998
and the year ended December 31, 1997........................................5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997.....................................6
Notes to Condensed Consolidated Financial Statements........................7
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................10
PART II: OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................13
Signatures......................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1:
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
======================================================================================================================
June 30, December 31,
1998 1997
(amounts in thousands except share and per share data) (unaudited)
- --------------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Assets
Cash and amounts due from depository institutions $28,998 $59,723
Interest-bearing deposits in other financial institutions 95,166 66,886
Federal funds sold 7,665
- --------------------------------------------------------------------------------- ----------------- -----------------
Total cash and cash equivalents 124,164 134,274
Investments available-for-sale 135,894 116,762
Investments held to maturity (market value of $7,802 and $10,305 at
June 30, 1998 and December, 31, 1997, respectively) 7,778 10,277
Loans - net 664,044 617,392
Loans held for sale (Market value of $19,326 and $13,828 at June 30, 1998
and December 31, 1997, respectively) 19,294 13,565
Property and equipment - net 25,549 21,625
Other real estate owned - net 3,431 2,519
Goodwill - net 6,830 7,110
Loan servicing rights - net 1,586 1,519
Accrued interest receivable 5,078 4,782
Other assets 26,116 19,455
- --------------------------------------------------------------------------------- ----------------- -----------------
Total $1,019,764 $949,280
================================================================================= ================= =================
Liabilities and Shareholders' Equity
Deposits $779,678 $742,263
Federal Home Loan Bank advances 115,000 85,000
Securities sold under agreements to repurchase 9,382 14,443
Advances from borrowers for taxes and insurance 5,718 1,835
Bank drafts payable 7,571 5,769
Other liabilities 12,241 13,814
- --------------------------------------------------------------------------------- ----------------- -----------------
Total liabilities 929,590 863,124
- --------------------------------------------------------------------------------- ----------------- -----------------
Commitments and Contingencies
Preferred stock $10.00 stated value; 10,000,000 shares authorized:
Series "C" - 948,996 shares issued and outstanding at December 31, 1997 9,490
Common stock $.01 par value; 100,000,000 shares authorized; 24,286,639 and
22,685,403 shares issued and outstanding at June 30, 1998 and December 31, 1997, 243 227
respectively
Additional paid-in capital 63,642 53,781
Retained earnings 25,951 22,090
Unrealized gain on investments available-for-sale, net of taxes 338 568
- --------------------------------------------------------------------------------- ----------------- -----------------
Total shareholders' equity 90,174 86,156
- --------------------------------------------------------------------------------- ----------------- -----------------
Total $1,019,764 $949,280
================================================================================= ================= =================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
======================================================================================================================
Three months ended June 30,
(unaudited)
(amounts in thousands except per share data) 1998 1997
- -------------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $15,548 $13,364
Interest and dividends on investments 2,311 2,867
- -------------------------------------------------------------------------------- ------------------ -----------------
17,859 16,231
- -------------------------------------------------------------------------------- ------------------ -----------------
Interest Expense:
Interest on deposits 5,868 5,492
Interest on borrowings 1,202 657
- -------------------------------------------------------------------------------- ------------------ -----------------
7,070 6,149
- -------------------------------------------------------------------------------- ------------------ -----------------
Net interest income 10,789 10,082
Provision for loan losses 150 806
- -------------------------------------------------------------------------------- ------------------ -----------------
Net interest income after provision for loan losses 10,639 9,276
Non-interest Income:
Service charge on deposit accounts 1,652 1,541
Gain on sale of loans 402 126
Gain (loss) on sale of investments 213 (31)
Other income 872 842
- -------------------------------------------------------------------------------- ------------------ -----------------
3,139 2,478
Operating Expenses:
Employee compensation and benefits 4,187 4,618
Occupancy and equipment 1,830 1,755
Professional fees 223 562
Advertising and promotions 279 196
Communications 322 298
Data processing 408 249
Insurance 134 160
Other 1,153 1,445
Merger expenses 50 3,979
- -------------------------------------------------------------------------------- ------------------ -----------------
8,586 13,262
Income (loss) before income taxes 5,192 (1,508)
Provision (benefit) for income taxes 1,921 (818)
- -------------------------------------------------------------------------------- ------------------ -----------------
Net income (loss) $3,271 ($690)
================================================================================ ================== =================
PER SHARE DATA:
Basic earnings (loss) per common share $0.14 ($0.04)
Diluted earnings (loss) per common share $0.13 ($0.04)
Dividends per common share $0.05 $0.05
Average common shares and common stock equivalents outstanding 25,422 22,849
================================================================================ ================== =================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
======================================================================================================================
Six months ended June 30,
(unaudited)
(amounts in thousands except per share data) 1998 1997
- -------------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $30,313 $26,164
Interest and dividends on investments 4,600 5,742
- -------------------------------------------------------------------------------- ------------------ -----------------
34,913 31,906
- -------------------------------------------------------------------------------- ------------------ -----------------
Interest Expense:
Interest on deposits 11,554 10,854
Interest on pborrowings 2,100 1,153
- -------------------------------------------------------------------------------- ------------------ -----------------
13,654 12,007
- -------------------------------------------------------------------------------- ------------------ -----------------
Net interest income 21,259 19,899
Provision for loan losses 180 837
- -------------------------------------------------------------------------------- ------------------ -----------------
Net interest income after provision for loan losses 21,079 19,062
Non-interest Income:
Service charge on deposit accounts 3,289 3,091
Gain on sale of loans 647 197
Gain on sale of investments 381 136
Other income 1,597 1,522
- -------------------------------------------------------------------------------- ------------------ -----------------
5,914 4,946
Operating Expenses:
Employee compensation and benefits 8,370 8,622
Occupancy and equipment 3,514 3,346
Professional fees 454 930
Advertising and promotions 409 360
Communications 618 585
Data processing 817 499
Insurance 266 281
Other 2,211 2,715
Merger expenses 153 3,979
- -------------------------------------------------------------------------------- ------------------ -----------------
16,812 21,317
Income before income taxes 10,181 2,691
Provision for income taxes 3,766 297
- -------------------------------------------------------------------------------- ------------------ -----------------
Net income $6,415 $2,394
================================================================================ ================== =================
PER SHARE DATA:
Basic earnings per common share $0.27 $0.09
Diluted earnings per common share $0.26 $0.09
Dividends per common share $0.10 $0.09
Average common shares and common stock equivalents outstanding 25,141 22,435
================================================================================ ================== =================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
======================================================================================================================
Three Months Ended June 30,
(unaudited)
(amounts in thousands) 1998 1997
- -------------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Net income $3,271 ($690)
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments available-for-sale arising during the period,
net of tax of ($100) and $358, respectively (270) 633
Reclassification adjustment for amounts realized on sale of investments
included in net income
- -------------------------------------------------------------------------------- ------------------ -----------------
Comprehensive income $3,001 ($57)
================================================================================ ================== =================
<CAPTION>
Six Months Ended June 30,
(unaudited)
(amounts in thousands) 1998 1997
- -------------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Net income $6,415 $2,394
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments available-for-sale arising during the period, (230) (7)
net of tax of ($85) and ($1), respectively
Reclassification adjustment for amounts realized on sale of investments
included in net income, net of taxes of ($79) and $3, respectively (134) 28
- -------------------------------------------------------------------------------- ------------------ -----------------
Comprehensive income $6,051 $2,415
================================================================================ ================== =================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
==========================================================================================================================
Unrealized
Gain
(Loss) On
Investments
Additional Investments
Preferred Common Paid-in Retained Available-for-Sale,
(amounts in thousands except share data) Stock Stock Capital Earnings net of taxes
- ------------------------------------------ ------------- ------------ ------------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $10,350 $216 $50,864 $25,927 ($54)
Exercise of options - 847,189 shares 9 2,032
Issuance of stock grants - 3,000 shares 27
Conversion of preferred stock series "C"
into common stock - 133,306 shares (860) 2 858
Cash dividends - common stock (2,175)
Cash dividends paid by pooled companies - (2,760)
common stock
Cash dividends - preferred stock series " C" (708)
Net income 1,806
Change in unrealized gain (loss) on investments
available-for-sale, net of taxes 622
- ------------------------------------------ ------------- ------------ ------------- -------------- ---------------------
Balance, December 31, 1997 9,490 227 53,781 22,090 568
Exercise of options - 133,415 shares 1 392
401(k) plan - 4,474 shares 43
Conversion of preferred stock series "C"
into common stock - 1,463,347 shares (9,440) 15 9,426
Cash redemption of preferred stock series "C" (50)
Cash dividends - common stock (2,352)
Cash dividends - preferred stock series "C" (202)
Net income 6,415
Change in unrealized gain (loss) on investments
available-for-sale, net of taxes (230)
- ------------------------------------------ ------------- ------------ ------------- -------------- ---------------------
Balance, June 30, 1998 (unaudited) $ - $243 $63,642 $25,951 $338
- ------------------------------------------ ------------- ------------ ------------- -------------- ---------------------
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
===================================================================================================================
Six Months Ended June 30,
(unaudited)
(amounts in thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $6,415 $2,394
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 180 837
Depreciation and amortization 1,683 1,212
Gain on sale of investments available-for-sale (381) (136)
Gain on sale of loans (647) (183)
Loans originated for sale (15,148) (7,808)
Sale of loans and loan participation certificates 27,941 22,583
Other - net 80 367
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,123 19,266
- -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchases of investments available-for-sale (95,556) (23,964)
Proceeds from sales and maturities of investments available-for-sale 65,787 27,037
Maturities and calls of investments held to maturity 2,564 3,492
Purchases of investments held to maturity (8,944)
Loans purchased for investment (56,350)
Net increase in loans (10,339) (38,616)
Other - net 3,474 (3,255)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (90,420) (42,450)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in demand deposits, NOW accounts,
Money Market accounts and savings accounts 11,123 (3,801)
Net increase in certificates of deposits 26,292 5,771
Increase in FHLB advances 30,000 11,000
Other - net (7,228) (6,776)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 60,187 6,194
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (10,110) (16,990)
Cash and cash equivalents at beginning of period 134,274 100,399
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $124,164 $83,409
- -------------------------------------------------------------------------------------------------------------------
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 $2,304 and $1,863
in income tax payments during the six months ended June 30, 1998 and June 30,
1997, respectiviely. The Company paid $14,058 and $12,075 in interest on
deposits and other borrowings during the six months ended June 30, 1998 and
1997, respectively. The Company had $2,109 and $895 of transfers from loans to
OREO during the six months ended June 30, 1998 and 1997, respectively.
- -------------------------------------------------------------------------------------------------------------------
<FN>
See notes to condensed consolidated financial statements
</FN>
</TABLE>
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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 June 30, 1998 and
December 31, 1997, and the results of operations for the three and six
months ended June 30, 1998 and June 30, 1997, and the comprehensive
results of operations for the six months ended June 30, 1998 and June
30, 1997, and changes in cash flows for the six months then ended.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of 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 six months ended June
30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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, 1997.
The balance sheet at December 31, 1997 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. Mergers
On July 2, 1998, RSFC acquired Unifirst FSB ("Unifirst"), a
federally chartered savings bank headquartered in Hollywood, Florida.
Unifirst was merged into Republic on July 2, 1998. Unifirst had two
branch locations in Broward county. RSFC issued 1.2 million shares of
its common stock in exchange for all the outstanding common stock of
Unifirst. The business combination was accounted for as a
pooling-of-interests and resulted in RSFC acquiring assets of $141.9
million, liabilities of $132.7 million and equity of $9.2 million.
In the three months ended September 30, 1998 non-recurring
costs of approximately $1.4 million, net of taxes, will be recorded in
connection with the merger of Unifirst. These costs consist primarily
of electronic data processing and personnel costs to combine the
operations, employee severance payments, employment contract buyouts
and professional fees. In addition, upon consummation of the Unifirst
merger, management expects to record an adjustment of approximately
$1.2 million to the allowance for loan losses to conform Unifirst's
accounting and credit policies regarding loan valuations to those of
Republic, all merger related costs will be charged to income in the
quarter ended September 30, 1998 (the period in which the merger is
consummated).
On May 27, 1998, RSFC entered into a definitive agreement
whereby First Palm Beach Bancorp, Inc. ("FPBB"), parent company of
First Bank of Florida ("First Bank"), headquartered in West Palm Beach,
Florida, would merge into RSFC and First Bank will merge into the Bank,
in a stock-for-stock transaction accounted for as a
pooling-of-interests. First Bank has assets of $1.8 billion, loans of
$1.0 billion and deposits of $1.3 billion.
Under the terms of the agreement, shareholders of First Bank
will receive 4.194 shares of RSFC's common stock for each share of FPBB
common stock. RSFC will issue approximately 21.3 million shares of its
common stock for all of the outstanding shares of FPBB. RSFC currently
has 25.5 million shares of common stock outstanding. The transaction is
subject to shareholder approvals of RSFC and FPBB, receipt of state and
federal regulatory approvals and other customary closing conditions.
The merger is expected to close in the fourth quarter of 1998.
7
<PAGE>
3. Non-Performing Assets and Allowance for Loan Losses
At June 30, 1998, the Bank had $8.4 million in non-performing
assets (loans 90 days or more past due, other real estate owned and
repossessed assets). The provision for loan losses was $180,000 and
$837,000 for the six months ended June 30, 1998 and 1997, respectively.
Although management uses its best judgement in underwriting
each loan, industry experience indicates that a portion of the Bank's
loans will become delinquent. Regardless of the underwriting criteria
utilized by financial institutions, losses may be experienced as a
result of many factors beyond their control including, among other
things, changes in market conditions affecting the value of security
and unrelated problems affecting the credit of the borrower. Due to the
concentration of loans in South Florida, adverse economic conditions in
this area could result in a decrease in the value of a significant
portion of the Bank's collateral.
In the normal course of business, the Bank has recognized and
will continue to recognize losses resulting from the inability of
certain borrowers to repay loans and the insufficient realizable value
of collateral securing such loans. Accordingly, management has
established an allowance for loan losses, which totaled $6.3 million at
June 30, 1998.
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.
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 June 30, 1998, the Bank had adjustable rate commitments to
extend credit of approximately $129.9 million, excluding the
undisbursed portion of loans-in-process. These commitments are
primarily for commercial lines of credit secured by commercial real
estate or other business assets and for one-to-four family residential
properties.
In addition to the above commitments and contingencies, there
are various matters of litigation pending against the Company that
management has reviewed with legal counsel. In the opinion of
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 flows.
8
<PAGE>
5. Earnings per Common Share
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
=================================================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
- ----------------------------------------------------------- ------------ ----------- ------------ ------------
<C> <C> <C> <C> <C>
( in thousands except per share data) 1998 1997 1998 1997
- ----------------------------------------------------------- ------------ ----------- ------------ ------------
Numerator:
Net income (loss) $3,271 ($690) $6,415 $2,394
Preferred stock dividends (50) (181) (202) (362)
- ----------------------------------------------------------- ------------ ----------- ------------ ------------
Numerator for basic earnings per share -
income available to common stockholders 3,221 (871) 6,213 2,032
Effect of dilutive securities:
Preferred stock dividends 50 202
- ----------------------------------------------------------- ------------ ----------- ------------ ------------
Numerator for diluted earnings per share - income available to
common stockholders after assumed conversions $3,271 ($871) $6,415 $2,032
=========================================================== ============ =========== ============ ============
Denominator:
Denominator for basic earnings per share
- weighted-average shares 23,827 22,849 23,367 21,715
Effective of dilutive securities:
Employee stock options 699 654 720
Convertible preferred stock 896 1,120
- ----------------------------------------------------------- ------------ ----------- ------------ ------------
Dilutive potential common shares 1,595 1,774 720
- ----------------------------------------------------------- ------------ ----------- ------------ ------------
Denominator for diluted earnings per share
- adjusted weighted-average shares and assumed conversions 25,422 22,849 25,141 22,435
=========================================================== ============ =========== ============ ============
Basic earnings (loss) per share $0.14 ($0.04) $0.27 $0.09
Diluted earnings (loss) per share $0.13 ($0.04) $0.26 $0.09
==================================================================================================================
</TABLE>
At June 30, 1998, 133,000 stock options at an exercise price of
$10.38 were outstanding that could potentially dilute basic earnings per
share in the future but were not included in the computation of diluted
earnings per share for the three and six months ended June 30, 1998. The
effect of these shares is antidilutive to diluted earnings per share for
the three and six months ended June 30, 1998.
6. Comprehensive Income
On January 1, 1998, the Company adopted Financial Accounting
Standards No. 130 ("FAS 130"), Reporting Comprehensive Income. FAS 130
establishes standards for reporting and displaying comprehensive income
and its components. The adoption of FAS 130 did not have a material
impact on the Company. All of the Company's other comprehensive income
relates to net unrealized gains (losses) on available-for-sale
investments.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of the Three and Six Months Ended June 30, 1998 and 1997
Results of Operations
The Company had net income of $3.3 million or $.13 diluted earnings per
common share for the three months ended June 30, 1998, compared to a net loss of
$690,000 or ($.04) diluted earnings per common share for the three months ended
June 30, 1997. Net interest income increased $707,000 or 7.0% for the three
months ended June 30, 1998 compared to the three months ended June 30, 1997.
Non-interest income increased $661,000 or 26.7% while operating expenses
(excluding merger expenses) decreased $747,000 or 8.0% for the three months
ended June 30, 1998 compared to the three months ended June 30, 1997.
The Company had net income of $6.4 million or $.26 diluted earnings per
common share for the six months ended June 30, 1998, compared to net income of
$2.4 million or $.09 diluted earnings per common share for the six months ended
June 30, 1997. Net interest income increased $1.4 million or 6.8% for the six
months ended June 30, 1998 compared to the six months ended June 30, 1997.
Non-interest income increased $968,000 or 19.6% while operating expenses
(excluding merger expenses) decreased $679,000 or 3.9% for the six months ended
June 30, 1998 compared to the six months ended June 30, 1997.
Net Interest Income
Net interest income for the three months ended June 30, 1998 increased
$707,000 compared to the three months ended June 30, 1997 due to an increase of
$1.6 million in interest income offset by an increase of $921,000 in interest
expense. Interest income increased primarily due to an increase of $42.5 million
in interest-earning assets due to an increase in loans as a result of loan
originations and approximately $29.1 million in average loan outstandings as a
result of loan purchases net of loan sales. Interest expense increased primarily
due to an increase in interest-bearing liabilities. The net interest margin and
net interest spread of 5.11% and 4.22%, respectively, for the three months ended
June 30, 1998 decreased slightly compared to the quarter ended June 30, 1997.
The decrease in interest margin and interest spread is due to a $25.0 million
additional leverage transaction. The Bank purchased approximately $25.0 million
in residential loans which was funded with FHLB advances.
Net interest income increased $1.4 million for the six months ended
June 30, 1998 compared to the six months ended June 30, 1997 due to an 9.0%
increase in interest-earning assets offset by a 12.2% increase in
interest-bearing liabilities resulting in a decrease in net interest margin of
10 basis points for the six months ended June 30, 1998 compared to the six
months ended June 30, 1997.
Provision for Loan Losses
The provision for loan losses decreased $656,000 and $657,000
respectively, for the three and six months ended June 30, 1998 compared to the
three and six months ended June 30, 1997, due primarily to an adjustment to the
allowance for loan losses to conform Family's loan loss reserves to be
consistent with the Bank's policies and an increase in non-performing loans at
June 30, 1997.
Non-Interest Income
Non-interest income increased $661,000 for the three months ended June
30, 1998 compared to the three months ended June 30, 1997 due to an increase of
$276,000 in gain on sale of loans, an increase of $111,000 in service charges on
deposit accounts and an increase of $244,000 in gain on sale of investments. The
increase in service charges on deposit accounts is primarily due to the increase
in deposit accounts as no significant fee increases have occurred. The increase
in gain on sale of loans is due to an increase in the amount of loans sold in
the three months ended June 30, 1998 compared to June 30, 1997. The increase in
the gain on the sale of investments for the three months ended June 30, 1998 is
due to an increase in the amount of investments sold in the three months ended
June 30, 1998 compared to the three months ended June 30, 1997.
10
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
Non-interest income increased $968,000 for the six months ended June
30, 1998, compared to the six months ended June 30, 1997 due to an increase of
$450,000 in gain on sale of loans, an increase of $198,000 in service charges on
deposit accounts and an increase of $245,000 in gain on sale of investments. The
increase in gain on sale of loans is due to an increase in the amount of loans
sold in the six months ended June 30, 1998 compared to June 30, 1997. The
increase in service charges on deposit accounts is due to an increase in
transaction accounts. The increase in the gain on the sale of investments for
the six months ended June 30, 1998 is due to an increase in the amount of
investments sold in the six months ended June 30, 1998 compared to June 30,
1997.
Operating Expenses
Operating expenses decreased $4.7 million for the three months ended
June 30, 1998 compared to the three months ended June 30, 1997 primarily due to
merger expenses associated with the Family Bank acquisition which closed on June
30, 1997. Operating expenses, excluding the merger expenses, decreased $747,000
or 8% for the three months ended June 30, 1998 compared to the three months
ended June 30, 1997. The decrease in operating expenses is primarily due to
decreases of $431,000 in employee compensation and benefits, $339,000 in
professional fees and a decrease of $292,000 in other expenses offset by an
increase of $159,000 in data processing fees, an increase of $75,000 in
occupancy expense and an increase of $83,000 in advertising and promotion
expense. The decrease in employee compensation and benefits is due to synergies
recognized in relation to the Family Bank and County National Bank acquisitions
and a decrease of $180,000 to the accrual for Stock Appreciation Rights (SARs)
for the three months ended June 30, 1998 compared to the three months ended June
30, 1997. Professional fees decreased for the three months ended June 30, 1998
compared to the three months ended June 30, 1997 primarily due to fees
associated with County National Bank's litigation matter which was settled in
December 1996. Other operating expenses decreased primarily due to non-recurring
expenses of $100,000 associated with the startup of the Trust Services division
and a $150,000 fixed asset write-off associated with the relocation of a
branch. The increase in data processing fees is primarily due to the data
conversion of Family Bank from their in-house EDP system to M & I Data Services
in September 1997.
Operating expenses, excluding merger costs, decreased $679,000 or 4%
for the six months ended June 30, 1998 compared to the six months ended June 30,
1997. The decrease in operating expenses is primarily due to decreases of
$252,000 in employee compensation and benefits $476,000 in professional fees and
a decrease of $504,000 in other expenses offset by an increase of $318,000 in
data processing fees and an increase of $168,000 in occupancy expense. The
decrease in employee compensation and benefits is primarily due to cost savings
realized as a result of the mergers with Family Bank on June 30, 1997 and County
National Bank on December 2, 1997, offset by an increase to the accrual of
$115,000 for Stock Appreciation Rights (SARs) for the six months ended June 30,
1998. The decrease in professional fees is primarily due to fees paid in
relation to County National Bank's litigation matter which was settled in
December 1996 and a decrease in legal fees paid in relation to pre-foreclosure
expenses. Other operating expenses decreased primarily due to non-recurring
expenses of $100,000 associated with the startup of the Trust Services division
and a $150,000 fixed asset write-off associated with the relocation of a branch,
in addition, other real estate owned expenses decreased due to the disposition
of the assets. The increase in data processing fees is primarily due to the data
conversion of Family Bank from an in-house EDP system to M & I Data Services in
September 1997 and the data conversion of County National Bank from FISERV to M
& I Data Services in March 1998. Occupancy expense increased for the six months
ending June 30, 1998 primarily due to the opening of four new branches located
in Palm Beach and Broward counties.
Provision for Income Taxes
The provision for income taxes increased $2.7 million for the three
months ended June 30, 1998 compared to the three months ended June 30, 1997 due
to an increase of $6.7 million in income before taxes and a reduction of the
allowance for deferred tax assets in the three months ended June 30, 1997.
The provision for income taxes increased $3.7 million for the six
months ended June 30, 1998 compared to the six months ended June 30, 1997 due to
an increase in income before income taxes of $7.5 million and a $1.1 million
reduction in the allowance for deferred tax assets in the six months ended June
30, 1997.
11
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
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 six months ended June 30, 1998.
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 $10.1 million
during the six months ended June 30, 1998. The decrease in cash is due primarily
to an increase in FHLB advances of $30.0 million, $37.4 million increase in
deposits and $20.1 million in cash provided by operating activities offset by
$79.3 million of loan purchases and originations and an increase of $19.1
million in net investments available-for-sale.
The following table shows the capital amounts and ratios of the Bank at
June 30, 1998
================================ ==================== ========================
(Dollars in thousands) Amount Ratio
- -------------------------------- -------------------- ------------------------
Total risk based capital $79,895 11.65%
Tier 1 risk based capital $73,240 10.68%
Leverage capital $73,240 7.81%
================================ ==================== ========================
The Bank was in compliance with its' capital requirements at June 30,
1998.
Financial Condition
As of June 30, 1998, total assets increased approximately $70.5 million
or 7% from December 31, 1997. Loans-net and loans held for sale increased
approximately $52.4 million, investments increased approximately $16.6 million,
cash and cash equivalents decreased $10.1 million, and other assets increased
$6.6 million. The increase in assets was funded primarily by an increase of
$30.0 million in FHLB advances and an increase in deposits of approximately
$37.4 million.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) No exhibits required.
(b) During the quarter ended June 30, 1998, the Company filed two Form
8-Ks:
(i) The Form 8-K filing, which was dated May 28, 1998,
reported the entering into of a definitive agreement
whereby First Palm Beach Bancorp, Inc., parent
company of First Bank of Florda would merge into the
Company's wholly owned subsidiary Republic Security
Bank.
(ii) The Form 8-K filing, which was dated July 2, 1998,
reported the acquisition of Unifirst Federal Savings
Bank in a stock-for-stock transaction. Unifirst
merged into the Company's wholly owned subsidiary
Republic Security Bank.
13
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Republic Security Financial Corporation
(Registrant)
Date:
------------------ --------------------------------------
Carla H. Pollard
Vice President/Controller
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-Mos 6-Mos
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 28,998 28,998
<INT-BEARING-DEPOSITS> 95,166 95,166
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 135,894 135,894
<INVESTMENTS-CARRYING> 7,778 7,778
<INVESTMENTS-MARKET> 7,802 7,802
<LOANS> 689,604 689,604
<ALLOWANCE> 6,266 6,266
<TOTAL-ASSETS> 1,019,764 1,019,764
<DEPOSITS> 779,678 779,678
<SHORT-TERM> 74,382 74,382
<LIABILITIES-OTHER> 25,530 25,530
<LONG-TERM> 50,000 50,000
0 0
0 0
<COMMON> 63,885 63,885
<OTHER-SE> 26,289 26,289
<TOTAL-LIABILITIES-AND-EQUITY> 1,019,764 1,019,764
<INTEREST-LOAN> 15,548 30,313
<INTEREST-INVEST> 2,311 4,600
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 17,859 34,913
<INTEREST-DEPOSIT> 5,868 11,554
<INTEREST-EXPENSE> 1,202 2,100
<INTEREST-INCOME-NET> 10,789 21,259
<LOAN-LOSSES> 150 180
<SECURITIES-GAINS> 213 381
<EXPENSE-OTHER> 8,586 16,812
<INCOME-PRETAX> 5,192 10,181
<INCOME-PRE-EXTRAORDINARY> 5,192 10,181
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,271 6,415
<EPS-PRIMARY> $.14 $.27
<EPS-DILUTED> $.13 $.26
<YIELD-ACTUAL> 5.11 5.17
<LOANS-NON> 4,799 4,799
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 6,619 6,158
<CHARGE-OFFS> 597 786
<RECOVERIES> 94 210
<ALLOWANCE-CLOSE> 6,266 6,266
<ALLOWANCE-DOMESTIC> 6,266 6,266
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,005 1,005
</TABLE>
