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 quarterly period ended SEPTEMBER 30, 1999
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.)
450 SOUTH AUSTRALIAN AVENUE, WEST PALM BEACH, FL 33401
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
Registrant's telephone number, including area code (561) 650-2500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 NOVEMBER 5, 1999
- ----- ----------------------------------
Common Stock 50,748,419
par value $.01 per share
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
for Forward-Looking Information...............................................................................1
PART I: FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS:
Condensed Consolidated Statements of Financial Condition
September 30, 1999 and December 31, 1998.........................................................2
Condensed Consolidated Statements of Income for the
three months ended September 30, 1999 and 1998...................................................3
Condensed Consolidated Statements of Income for the
nine months ended September 30, 1999 and 1998....................................................4
Condensed Consolidated Statements of Comprehensive Income for the
three and nine months ended September 30, 1999 and 1998..........................................5
Condensed Consolidated Statements of Shareholders' Equity
for the nine months ended September 30, 1999 and the year ended December 31, 1998................6
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998....................................................7
Notes to Condensed Consolidated Financial Statements.............................................8
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................11
Item 3: Quantitative and Qualitative Disclosures about Market Risk......................................16
PART II: OTHER INFORMATION
Item 1: Legal Proceedings...............................................................................18
Item 2: Changes in Securities and Use of Proceeds.......................................................18
Item 3: Defaults Upon Senior Securities.................................................................18
Item 4: Submission of Matters to a Vote of Security Holders.............................................18
Item 5: Other Information...............................................................................18
Item 6: Exhibits and Reports on Form 8-K................................................................18
Signatures......................................................................................19
</TABLE>
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
FOR FORWARD-LOOKING INFORMATION
Information in this report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
are subject to risks and uncertainties that could cause the Company's actual
results to differ materially from those projected in forward-looking statements.
The use of forward-looking statements can be identified by statements that
express or involve discussions as to expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always, through the
use of words or phrases such as "will likely result," "are expected to," "will
continue," "is anticipated," "estimated," "projection," or "outlook"), are not
historical facts and may be forward-looking. Such statements involve estimates,
assumptions, and uncertainties which include, but are not limited to, overall
business conditions, particularly in the business markets in which Republic
Security Financial Corporation, its wholly-owned subsidiary, Republic Security
Bank and, for the period beginning July 30, 1999, the Bank's wholly-owned
subsidiary, RS Maritime Corporation d/b/a First New England Financial, operate;
general economic conditions, changes in interest rates, deposit flows, loan
demand, real estate values, and competition; changes in accounting principles,
policies, or guidelines; changes in legislation or regulation; and other
economic, competitive, governmental, regulatory, and technological factors that
affect the Company's operations, pricing, products, and services. Other factors,
such as the general state of the economy, could also cause actual results to
vary materially from the future results covered in such forward-looking
statements. Accordingly, any such statements are qualified in their entirety by
reference to, and are accompanied by, the above mentioned important factors that
could cause the Company's actual results to differ materially from those
contained in the forward- looking statements of the Company made by or on behalf
of the Company.
All such factors are difficult to predict, contain uncertainties
which may materially affect actual results and are beyond the control of the
Company.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) 1999 1998
----------- -----------
<S> <C> <C>
ASSETS (unaudited)
Cash and amounts due from depository institutions $ 37,694 $ 46,575
Interest-bearing deposits in other financial institutions 159,069 114,471
Federal funds sold 4,929 1,120
----------- -----------
Cash and cash equivalents 201,692 162,166
Investments available-for-sale 652,182 722,913
Investments held to maturity (Market value of $143,262 and $6,422 at
September 30, 1999 and December 31, 1998, respectively) 149,133 6,363
Loans receivable - net 1,791,040 1,959,300
Loans held for sale (Market value of $73,073 and $16,272 at September 30, 1999
and December 31, 1998, respectively) 73,000 16,000
Property and equipment - net 64,797 51,008
Other real estate owned - net 3,435 2,463
Federal Home Loan Bank Stock 29,453 23,754
Goodwill - net 18,057 11,961
Accrued interest receivable 16,034 15,378
Other assets 53,312 36,426
----------- -----------
TOTAL $ 3,052,135 $ 3,007,732
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 2,131,110 $ 2,304,855
Federal Home Loan Bank advances and other borrowings 515,618 410,368
Securities sold under agreements to repurchase 108,165 9,144
Senior debentures, net of unamortized issuance costs 23,070 27,518
Advances from borrowers for taxes and insurance 27,094 7,677
Bank drafts payable 10,470 27,706
Other liabilities 23,692 22,062
----------- -----------
Total liabilities 2,839,219 2,809,330
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value; 500,000,000 shares authorized; 50,662,193 and
47,370,265 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 507 474
Additional paid-in capital 133,069 120,800
Retained earnings 90,685 75,423
Accumulated other comprehensive (loss) income, net of taxes (11,345) 1,705
----------- -----------
Total shareholders' equity 212,916 198,402
----------- -----------
TOTAL $ 3,052,135 $ 3,007,732
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
------- -------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (RESTATED)
INTEREST INCOME: (unaudited) (unaudited)
<S> <C> <C>
Interest and fees on loans $38,167 $37,638
Interest and dividends on investments 13,704 13,108
------- -------
51,871 50,746
------- -------
INTEREST EXPENSE:
Interest on deposits 19,560 23,905
Interest on borrowings 7,852 6,076
------- -------
27,412 29,981
------- -------
Net interest income 24,459 20,765
Provision for loan losses 300 1,448
------- -------
Net interest income after provision for loan losses 24,159 19,317
------- -------
NON-INTEREST INCOME:
Service charges on deposit accounts 3,293 2,775
Net gain on sales of loans 2,046 310
Net gain on sales of investments available-for-sale 789
Other income 2,131 1,656
------- -------
8,259 4,741
------- -------
OPERATING EXPENSES:
Employee compensation and benefits 9,548 10,592
Occupancy and equipment 4,912 4,005
Professional fees 325 624
Advertising and promotion 397 435
Communications 558 661
Insurance 418 499
Other 3,738 2,681
Merger expenses 2,098
------- -------
19,896 21,595
------- -------
Income before income taxes 12,522 2,463
Income tax expense 4,487 1,213
------- -------
NET INCOME $ 8,035 $ 1,250
======= =======
INCOME APPLICABLE TO COMMON STOCK $ 8,035 $ 1,250
======= =======
PER SHARE DATA:
Basic earnings $ 0.16 $ 0.03
Diluted earnings $ 0.16 $ 0.03
Dividends $ 0.06 $ 0.06
------- -------
WEIGHTED AVERAGE COMMON SHARES AND COMMON STOCK EQUIVALENTS OUTSTANDING:
Basic 50,632 46,811
Diluted 51,201 47,775
======= =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 1998
-------- --------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (RESTATED)
INTEREST INCOME: (unaudited) (unaudited)
<S> <C> <C>
Interest and fees on loans $117,680 $116,003
Interest and dividends on investments 39,273 38,475
-------- --------
156,953 154,478
-------- --------
INTEREST EXPENSE:
Interest on deposits 62,873 69,624
Interest on borrowings 20,251 19,809
-------- --------
83,124 89,433
-------- --------
Net interest income 73,829 65,045
Provision for loan losses 1,100 4,741
-------- --------
Net interest income after provision for loan losses 72,729 60,304
-------- --------
NON-INTEREST INCOME:
Service charges on deposit accounts 9,258 7,372
Net gain on sales of loans 4,361 3,416
Net gain on sales of investments available-for-sale 966 1,813
Other income 6,772 5,423
-------- --------
21,357 18,024
-------- --------
OPERATING EXPENSES:
Employee compensation and benefits 27,513 30,561
Occupancy and equipment 14,198 11,354
Professional fees 1,244 1,918
Advertising and promotion 1,053 1,763
Communications 1,834 1,982
Insurance 1,338 1,528
Other 10,059 8,360
Merger expenses 2,381 2,251
-------- --------
59,620 59,717
-------- --------
Income before income taxes 34,466 18,611
Income tax expense 12,425 7,331
-------- --------
NET INCOME $ 22,041 $ 11,280
======== ========
INCOME APPLICABLE TO COMMON STOCK $ 22,041 $ 11,078
======== ========
PER SHARE DATA:
Basic earnings $ 0.44 $ 0.24
Diluted earnings $ 0.43 $ 0.24
Dividends $ 0.18 $ 0.16
-------- --------
WEIGHTED AVERAGE COMMON SHARES AND COMMON STOCK EQUIVALENTS OUTSTANDING:
Basic 50,564 45,933
Diluted 51,191 47,067
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
-------- --------
(AMOUNTS IN THOUSANDS) (RESTATED)
(unaudited) (unaudited)
<S> <C> <C>
Net income $ 8,035 $ 1,250
Other comprehensive income, net of tax:
Unrealized (loss) gain on investments available-for-sale arising during the period,
net of taxes of ($1,116) and $3,593 in 1999 and 1998, respectively (1,404) 5,529
Reclassification adjustment for amounts realized on sale of investments included
in net income, net of taxes of ($292) in 1999 (497)
-------- --------
Comprehensive income $ 6,134 $ 6,779
-------- --------
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
-------- --------
(AMOUNTS IN THOUSANDS) (RESTATED)
(unaudited) (unaudited)
Net income
Other comprehensive income, net of tax: $ 22,041 $ 11,280
Unrealized (loss) gain on investments available-for-sale arising during the period,
net of taxes of ($7,664) and $4,707 in 1999 and 1998, respectively (12,441) 8,341
Reclassification adjustment for amounts realized on sale of investments included in net income, net
of taxes of ($357) and ($714) in 1999 and 1998, respectively (609) (1,099)
-------- --------
Comprehensive income $ 8,991 $ 18,522
-------- --------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
===================================================================================================================================
COMMON ACCUMULATED
ADDITIONAL STOCK COMPREHENSIVE
PREFERRED COMMON PAID-IN RETAINED PURCHASED (LOSS) INCOME,
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) STOCK STOCK CAPITAL EARNINGS ESOP NET OF TAXES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 $10,286 $449 $103,655 $94,244 ($955) ($467)
- -----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants
- 952,061 shares 9 4,170
Purchase of common stock
by 401(k) plan - 4,474 shares 43
Conversion of preferred stock series "C"
into common stock - 1,463,347 shares (9,440) 15 9,425
Cash redemption of preferred stock series "C" (50)
Conversion of pooled company preferred stock
into common stock - 111,660 shares (796) 1 795
Cash dividends - common stock (6,795)
Cash dividends paid by pooled company
- common stock (2,669)
Cash dividends - preferred stock series "C"
($27 paid by pooled company) (229)
Amortization of deferred compensation
- ESOP & RRP 2,712 955
Net loss (11,659)
Net income of pooled company for three months
ended December 31, 1997 2,531
Changes in accumulated other comprehensive (loss)
income, net of taxes 2,172
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 474 120,800 75,423 1,705
===================================================================================================================================
Acquisition of pooled company 23 7,089 2,465
Exercise of stock options and warrants
- 985,064 shares 10 5,180
Cash dividends - common stock (8,955)
Cash dividends paid by pooled company
- common stock (289)
Net income 22,041
Changes in accumulated other comprehensive (loss)
income, net of taxes (13,050)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 1999 (UNAUDITED) $507 $133,069 $90,685 ($11,345)
===================================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------
1999 1998
--------- ---------
(AMOUNTS IN THOUSANDS) (RESTATED)
OPERATING ACTIVITIES: (unaudited) (unaudited)
<S> <C> <C>
Net income $ 22,041 $ 11,280
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,100 4,741
Depreciation and amortization 6,439 4,616
Amortization of deferred loan fees and costs 440 1,483
Net gain on sales of loans (4,361) (3,416)
Loans originated for sale (83,115) (21,078)
Purchase of loans for sale (11,445) (13,552)
Sale of loans and loan participation certificates 244,530 208,447
Purchase of trading securities (31,601)
Sales of trading securities 36,211
Net gain on sales of investments available-for-sale (966) (1,813)
Other - net (218) 5,635
--------- ---------
Net cash provided by operating activities 174,445 200,953
--------- ---------
INVESTING ACTIVITIES:
Cash and cash equivalents acquired from pooled company 18,975
Cash and cash equivalents acquired in branch purchase 24,694
Cash paid for net assets of marine loan operation (6,814)
Purchase of investments available-for-sale (234,584) (496,503)
Purchase of investments held to maturity (147,999)
Proceeds from sales of investments available- for- sale 189,538 234,832
Maturities and calls of investments held to maturity 4,550 18,235
Principal payments on securities 105,308 86,325
Loans purchased for investment (167,478) (75,563)
Net decrease (increase) in loans 164,925 (93,793)
Purchases of property and equipment (16,277) (9,090)
Other - net (494) 3,473
--------- ---------
Net cash used in investing activities (65,656) (332,084)
--------- ---------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts,
Money Market accounts and savings accounts (22,312) 86,155
Net (decrease) increase in time deposits (242,556) 4,428
Increase (decrease) in FHLB advances 105,250 (96,493)
Repurchase of senior debentures (4,612)
Net increase (decrease) in securities sold under agreements to repurchase 99,021 (21,401)
Cash dividends - common and preferred (9,244) (5,868)
Other - net 5,190 15,176
--------- ---------
Net cash used in financing activities (69,263) (18,003)
--------- ---------
Increase (decrease) in cash and cash equivalents 39,526 (149,134)
Adjustments to reconcile for different year ends of pooled companies:
Net income for three months ended December 31, 1997 2,531
Cash dividends paid by pooled companies (912)
Other cash flows - net 30,022
Cash and cash equivalents at beginning of period 162,166 243,934
--------- ---------
Cash and cash equivalents at end of period $ 201,692 $ 126,441
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 9,675 $ 5,492
Cash paid for interest on deposits and other borrowings $ 82,329 $ 94,418
========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements include the accounts of Republic Security
Financial Corporation ("Republic") and its wholly-owned subsidiary,
Republic Security Bank (the "Bank"), (collectively, the "Company").
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 financial
position of the Company as of September 30, 1999 and December 31,
1998, and the results of its operations and comprehensive income
for the three and nine months ended September 30, 1999 and 1998 and
its cash flows for the nine months then ended.
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10
of 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 and nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
The statement of financial condition at December 31, 1998
has been derived from the audited financial statements at that date
but does not include all of the information required by generally
accepted accounting principles for complete financial statements.
In addition to the accounts and results of operations of
the Company, the condensed consolidated financial statements also
include the accounts and results of operations of Northside Bank of
Tampa ("Northside") since January 1, 1999. The merger between the
Company and Northside, which was accounted for as a pooling of
interests, did not meet the conditions of a significant subsidiary
as set forth in Article 11 of Regulation S-X; therefore, prior
periods have not been restated to include the accounts and results
of operations of Northside. The condensed consolidated financial
statements also include the accounts and results of operations of
First New England Financial ("FNEF"), since the Bank acquired the
net assets of this loan production operation on July 30, 1999.
2. ACQUISITIONS
On February 26, 1999, Republic acquired all of the
outstanding shares of Northside in exchange for 2,467,956 shares of
Republic's common stock. Northside shareholders received 3.64
shares of Republic's common stock for each share of Northside
commons stock. The transaction was accounted for as a pooling of
interest and resulted in Republic acquiring assets of approximately
$74.6 million, including total loans of $39.6 million, total
deposits of $63.6 million and equity of $9.9 million.
On June 11, 1999, the Bank acquired nine bank branches
operating in Kash N' Karry supermarkets from First National Bank of
Central Florida ("FNBCF") for approximately $1.0 million, which was
paid in cash. In connection with the acquisition, the Bank assumed
approximately $27.6 million in deposits.
On July 30, 1999, the Bank acquired the assets of FNEF, a
marine loan production operation, from Deere Credit, Inc. for
approximately $6.8 million. Under the terms of the transaction, the
Bank acquired the brand name First New England Financial and the
1-800-BOAT-LOAN phone number, as well as proprietary loan
processing software and professional staff in three regional
offices located in Ft. Lauderdale, Florida; Shelton, Connecticut
and Newport, California. In addition, FNEF has four satellite
offices located in Alameda, California; Manasquan, New Jersey;
Annapolis, Maryland and Portsmouth, Rhode Island. The Company
operates FNEF as a wholly-owned subsidiary of the Bank.
8
<PAGE>
3. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
At September 30, 1999, the Bank had $17.3 million in
non-performing assets (loans 90 days or more past due, other real
estate owned and repossessed assets) compared to $16.6 million at
December 31, 1998. The provision for loan losses was $0.3 million
and $1.4 million for the three months ended September 30, 1999 and
1998, respectively.
Although management 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 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 $24.2
million at September 30, 1999 compared to $26.0 at December 31,
1998.
The allowance for loan losses is maintained at a level
believed adequate by management to absorb estimated probable loan
losses inherent in the loan portfolio. 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 an extension of
credit is based on management's credit evaluation of the counter
party.
At September 30, 1999, the Bank had adjustable rate
commitments to extend credit of approximately $290.2 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, there are certain
contingencies involving various matters of litigation pending
against the Company that management has reviewed with legal
counsel. In the opinion of management, amounts accrued for awards
or assessments in connection with these matters are adequate and
the ultimate resolution of these matters is not expected to have a
material effect on the Company's consolidated financial position,
results of operations or cash flows.
9
<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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (RESTATED) (RESTATED)
NUMERATOR: (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $ 8,035 $ 1,250 $ 22,041 $ 11,280
Preferred stock dividends (202)
-------- -------- -------- --------
Numerator for basic earnings per share 8,035 1,250 22,041 11,078
Effect of dilutive securities:
Preferred stock dividends 202
-------- -------- -------- --------
Numerator for diluted earnings per share $ 8,035 $ 1,250 $ 22,041 $ 11,280
======== ======== ======== ========
DENOMINATOR:
Denominator for basic earnings per share
- - weighted average shares 50,632 46,811 50,564 45,933
Effect of dilutive securities:
Employee stock options 569 964 627 644
Convertible preferred stock 490
-------- -------- -------- --------
Dilutive potential common shares 569 964 627 1,134
-------- -------- -------- --------
Denominator for diluted earnings per share 51,201 47,775 51,191 47,067
======== ======== ======== ========
Basic earnings per share $ 0.16 $ 0.03 $ 0.44 $ 0.24
Diluted earnings per share $ 0.16 $ 0.03 $ 0.43 $ 0.24
======== ======== ======== ========
</TABLE>
At September 30, 1999, 1,607,458 stock options at a
weighted average exercise price of $9.30 were outstanding that
could potentially dilute earnings per share in future periods, but
which were not included in the computation of diluted earnings per
share for the three and nine months ended September 30, 1999. The
effect of these shares is antidilutive to diluted earnings per
share for the three and nine months ended September 30, 1999.
6. SUBSEQUENT EVENT
On November 3, 1999, the Company's Board of Directors
approved a common stock repurchase program of up to 2.0 million
shares or approximately 4% of the Company's outstanding shares. The
buyback program became effective when approved by the Board and the
Company plans to repurchase the shares in its discretion in the
open market and/or through privately negotiated transactions.
10
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
RESULTS OF OPERATIONS
The Company had net income of $8.0 million or $0.16 diluted
earnings per common share for the three months ended September 30, 1999,
compared to $1.3 million or $0.03 diluted earnings per common share for the
three months ended September 30, 1998. Net income increased $6.7 million for the
three months ended September 30, 1999 compared to the three months ended
September 30, 1998. Net interest income increased $3.7 million for the three
months ended September 30, 1999 compared to the three months ended September 30,
1998. Non-interest income increased $3.5 million while operating expenses
(excluding merger expenses) increased $399,000 or 2.0% for the three months
ended September 30, 1999 compared to the three months ended September 30, 1998.
The Company had net income of $22.0 million or $0.43 diluted earnings per common
share for the nine months ended September 30, 1999 compared to $11.3 million or
$0.24 diluted earnings per common share for the nine months ended September 30,
1998. Net interest income increased $8.8 million or 13.5% for the nine months
ended September 30, 1999, compared to the nine months ended September 30, 1998.
Non-interest income increased $3.3 million or 18.5% while operating expenses
(excluding merger expenses) decreased $227,000 for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998. The
results of operations for the three and nine months ended September 30, 1999
include the operations of FNEF for two months which consist of $370,000 in
revenues and $430,000 in operating expenses. These results are not indicative of
management's future expectations as during this transition period, FNEF is
required to share fees with Deere Credit, Inc. pursuant to terms of the purchase
agreement and loan originations are significantly less in August and September
than other months due to seasonality of the marine loan business. While
originations are expected to significantly increase during the fourth quarter
1999, the business will be considered in transition until December 1999.
NET INTEREST INCOME
Net interest income for the three months ended September 30, 1999
increased $3.7 million compared to the three months ended September 30, 1998 due
to an increase of $1.1 million in interest income and a decrease of $2.6 million
in interest expense. Interest income increased primarily due to an increase of
approximately $94.5 million in interest earning assets offset by a 9 basis
points decrease in yield on interest earning assets for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998. The
prime interest rate was 8.50% for the three and nine months ended September 30,
1998, compared to an average rate of 8.13% for the quarter ended September 30,
1999. The decrease in market interest rates resulted in an increase in
residential loan refinancings and, to a lesser extent, refinancings of
commercial loans (business and real estate), as well as repricing of adjustable
rate assets. Interest expense decreased due to the declining rate environment,
the Bank's strategy to reduce overall rates paid on certificates of deposit and
an increase in the balances of non interest-bearing and low interest-bearing
deposits. Since the acquisition of First Palm Beach Bancorp ("FPBB"), the Bank
has lowered interest rates offered in the former First Bank of Florida ("First
Bank") branch offices on new and renewed certificate of deposit accounts to
become more aligned with rates offered by commercial banks. During the three
months ended September 30, 1999 certificate of deposit balances, primarily from
the former First Bank deposit base, decreased approximately $79.6 million. In
addition, during the quarter ended December 31, 1998 and throughout 1999 the
Company purchased an aggregate of $9.1 million of its 10.35% Senior Debentures
due June 2002 in an effort to further reduce the cost of interest-bearing
liabilities. The cost of interest-bearing liabilities decreased approximately 54
basis points for the three months ended September 30, 1999, compared to the
three months ended September 30, 1998. Net interest margin increased 43 basis
points for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998.
Net interest income increased $8.8 million for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 1998
due to an increase of $2.5 million in interest income and a decrease of $6.3
million in interest expense. The increase in interest income for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 1998 is
due to an increase of approximately $105.5 million in interest-earning assets
offset by a 17 basis point decline in asset yield. Net interest spread increased
31 basis points to 2.91% for the nine months ended September 30, 1999 compared
to the nine months ended September 30, 1998 due to consistent decreases in the
cost of interest-bearing liabilities throughout 1999, partially offset by
decreases in the yield on interest-earning assets. Although the cost of interest
bearing liabilities has decreased consistently throughout 1999, the rate of
decrease significantly declined in the third quarter ended September 30, 1999
compared to decreases in the first and second quarters of 1999. While the Bank
expects to continue to execute its strategy to change deposit mix, due to the
recent increases in market interest rates, management does not expect
significant further declines in the cost of interest-bearing liabilities
throughout 2000.
11
<PAGE>
Even though the cost of interest-bearing liabilities decreased 6
basis points for the three months ended September 30, 1999 compared to the three
months ended June 30, 1999, net interest margin decreased 13 basis points
primarily due to a decrease in non-interest bearing deposits and a $20 million
asset shift from the residential loan portfolio to the investment portfolio.
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased $1.1 million and $3.6
million, respectively, for the three and nine months ended September 30, 1999
compared to the three and nine months ended September 30, 1998. The decrease in
the provision for loan losses for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998 is due primarily to a $2.2
million additional provision made in the quarter ended March 31, 1998 relating
to First Bank's indirect automobile loan portfolio and $1.2 million in merger
related provision adjustments to conform Unifirst Federal Savings Bank's
("Unifirst") credit policies to those of the Bank recorded at closing, July 2,
1998. First Bank began originating indirect automobile loans in large volumes in
August 1995 and continued through September 1996, at which time First Bank
ceased its originations of indirect automobile loans. The additional provision
was based on an evaluation of the portfolio's remaining term to maturity,
historical loss experience, related delinquency rates and the value of the
underlying collateral. The provision for loan losses for the nine months ended
September 30, 1999 reflects $300,000 in merger related provision adjustments to
conform Northside's credit policies to those of the Bank, which was recorded at
closing, February 26, 1999.
NON-INTEREST INCOME
Non-interest income increased $3.5 million for the three months
ended September 30, 1999 compared to the three months ended September 30, 1998.
The increase is attributable to increases of $2.5 million in gain on sales of
loans and investments, $518,000 in service charges on deposit accounts and
$475,000 in other income. The increase in service charges on deposit accounts is
primarily due to an increased volume in transaction accounts and an increase in
the usage of products subject to service charges. Further, in 1999, the Bank
established a formal cash management department to enhance and sell cash
management services to business customers. Gain on sale of loans includes
approximately $300,000 related to the operation of FNEF for the two months ended
September 30, 1999. Non-interest income increased $3.3 million for the nine
months ended September 30, 1999 compared to the nine months ended September 30,
1998 due to an increase of $1.9 million in service charges on deposit accounts,
together with a $1.3 million increase in other income and a $945,000 increase in
net gain on sale of loans, offset by a decrease in net gain on sales of
investments of $847,000. As noted above, the increase in service charges on
deposit accounts is primarily due to an increased volume in transaction accounts
and an increase in the usage of products subject to service charges. In
addition, certain deposit fees were increased in March of 1998, contributing
slightly to the increase in service charges on deposits. The increase in other
income is due primarily to a $1.1 million gain realized on the sale of real
estate associated with one of the Bank's branch offices. The Bank will continue
to operate a branch office at this location. The decrease in gain on sales of
investments is due to $189.5 million of investments sold during the nine months
ended September 30, 1999 compared to $234.8 million sold during the nine months
ended September 30, 1998. The level of investment sales by the former First Bank
was significantly higher than under the Bank's current strategy.
OPERATING EXPENSES
Operating expenses increased $399,000 for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998,
excluding $2.1 million in merger expenses. The increase in operating expenses is
primarily due to decreases of $1.0 million in employee compensation and
benefits, $299,000 in professional fees, $103,000 in communications expense and
$119,000 in insurance and advertising expenses, offset by increases of $907,000
in occupancy expenses and $1.1 million in other expenses. Operating expenses for
the three months ended September 30, 1999 include $430,000 related to the
operation of FNEF. The Company incurred $2.1 million in merger expenses during
the three months ended September 30, 1998 in connection with the acquisition of
Unifirst. The decrease in employee compensation and benefits is primarily due to
cost savings realized as a result of the First Bank merger in October 1998,
offset by increased compensation expense associated with 25 new branch locations
and additions to the Company's senior management team, as well as $200,000
related to FNEF. Professional fees decreased for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998
primarily due to decreases in legal expenses relating to general corporate
operations and problem loans. Occupancy expense increased for the three months
ended September 30, 1999 compared to the three months ended September 30, 1998
primarily due to the opening of ten new branches located in Palm Beach, Broward,
Dade, Martin and Alachua counties during 1998, an additional fifteen new
branches in 1999, as well as an increase in Trust service offices and business
banking locations. Included in the branches added during 1999, are nine bank
branches operating in Kash N, Karry supermarkets that the Bank acquired on June
11, 1999. Other operating expenses increased for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998
primarily due to an increase of approximately $335,000 in data processing
expenses
12
<PAGE>
resulting from the conversion of First Bank's in house data processing system to
the Bank's outside data service bureau, $112,000 in increased amortization
expense associated with the acquisition of nine bank branches and the FNEF
marine loan operation and $75,000 in one-time asset write-offs related to a
branch relocation.
Operating expenses decreased $97,000 for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998. The
decrease in operating expenses is primarily due to decreases of $3.0 million in
employee compensation and benefits, $674,000 in professional fees and $710,000
in advertising and promotions, offset by increases of $2.8 million in occupancy
and equipment and $1.7 million in other operating expenses. The decrease in
employee compensation and benefits is primarily due to cost savings realized as
a result of the First Bank merger in October 1998 and a decrease of $625,000
related to the expense for Stock Appreciation Rights (SARs) accrual for the nine
months ended September 30, 1999 compared to the nine months ended September 30,
1998. Professional fees decreased for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998 primarily due to decreases
in legal expenses relating to general corporate operations and problem loans.
The decrease in advertising and promotion expense is due to cost savings
realized as a result of the First Bank merger. Occupancy expense increased for
the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998 primarily due to the opening of ten new branches located in
Palm Beach, Broward, Dade, Martin and Alachua counties during 1998, and an
additional fifteen new branches in 1999. Other operating expenses increased for
the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998 primarily due to increases of approximately $756,000 in data
processing expenses resulting from the conversion of First Bank's in house data
processing system to the Bank's outside data service bureau, $437,000 in costs
associated with outside services, $180,000 in amortization expense attributable
to acquisitions and $152,000 in state assessments due to an increase in total
assets after the acquisition of FPBB..
PROVISION FOR INCOME TAXES
The provision for income taxes increased $3.3 million for the three
months ended September 30, 1999 compared to the three months ended September 30,
1998 due to an increase in income before income taxes of $10.1 million offset by
a reduction in the effective tax rate from 49% to 36%. The effective tax rate
decreased primarily due to a decrease in non-deductible merger expenses. The
provision for income taxes increased $5.1 million for the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998 due to
an increase in income before income taxes of $15.9 million offset by a decrease
in the effective tax rate.
LOAN PORTFOLIO
The following table represents the composition of the Bank's loan
portfolio by type (excluding loans held for sale) at the periods indicated:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------------- ---------------------------
(amounts in thousands) Amount Percent Amount Percent
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
TYPE OF LOAN
Commercial real estate $ 407,479 22% $ 398,933 20%
Residential property 864,267 48 1,143,803 56
Construction/lot 72,938 4 68,103 6
Consumer 345,709 19 256,707 12
Commercial business 121,952 7 114,170 6
----------- ----------- ----------- -----------
TOTAL LOANS $ 1,812,345 100% $ 1,981,716 100%
----------- ----------- ----------- -----------
Less:
Discounts, premiums and deferred loan fees (2,855) (3,627)
Allowance for loan losses 24,160 26,043
----------- -----------
TOTAL $ 1,791,040 $ 1,959,300
=========== ===========
</TABLE>
LIQUIDITY, SOURCES OF CAPITAL AND CAPITAL REQUIREMENTS
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,
13
<PAGE>
if undertaken, could have a direct material effect on the Bank's 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 judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Republic 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).
The following table shows the capital amounts and ratios of the
Bank at September 30, 1999:
(DOLLARS IN THOUSANDS) AMOUNT RATIO
- ------------------------------------------------------------
Total risk based capital $222,290 12.75%
Tier 1 risk based capital $200,112 11.48%
Leverage capital $200,112 6.70%
- ------------------------------------------------------------
The most recent notification from the Federal Reserve Bank
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. At September 30, 1999, the Bank exceeded each of the
regulatory capital requirements and was considered a "well capitalized"
institution for regulatory purposes.
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 increased by approximately $39.5 million
during the nine months ended September 30, 1999, due primarily to net cash
provided by operating activities. (See "Financial Condition").
FINANCIAL CONDITION
As of September 30, 1999, total assets increased approximately
$44.4 million from December 31, 1998. The acquisition of Northside on February
26, 1999 contributed $74.6 million in total assets, $39.6 million in net loans,
$9.8 million in investments, $18.9 million in cash and $6.4 million in property
and equipment and other assets. The branches acquired from FNBCF on June 11,
1999 added $25.1 million in cash and $2.5 million in property and equipment and
other assets. Loans-net and loans held for sale decreased approximately $111.3
million, investments increased approximately $72.0 million and cash and cash
equivalents increased $39.5 million from December 31, 1998 compared to September
30, 1999. The decrease in loans is primarily due to $242.5 million in
residential loan sales during the nine months ended September 30, 1999, offset
by loan production and the purchase of $108.0 million in yacht loans from Deere
Credit, Inc., on July 30, 1999. The increase in investments is primarily due to
$190.0 million in net purchases (net of sales) offset by $105.3 million in
paydowns and $23.5 million increase in net unrealized loss on investments
available for sale. FHLB advances increased $75.0 million to fund investment in
mortgage-back securities purchased and the remaining increase is used to fund
certificate of deposit runoff. Excluding the effects of the Northside
acquisition and FNBCF branch purchase, total assets decreased $57.8 million,
primarily due to $242.6 million in certificate of deposit runoff, which is
consistent with management's plan to reduce the outstanding balance of
certificates of deposit and increase transaction accounts. Certificate of
deposit runoff has been funded by increases in transaction account balances,
proceeds from residential loan sales and borrowed money from FHLB and securities
sold under agreement to repurchase. Advances from borrowers for taxes and
insurance increased $19.4 million from December 31, 1998 compared to September
30, 1999 due to the accumulation of escrow payments related primarily to
residential loans. Bank drafts payable decreased $17.2 million related to an
increased amount of loan funding checks issued at the end of December 1998.
YEAR 2000 MATTERS
The Bank relies heavily on information technology ("IT") systems
which are primarily provided by third party vendors and other systems and
facilities such as telecommunications, utilities, electronic clearinghouses and
building access control systems to conduct its business. The Bank also has
business relationships with other financial institutions, regulators and
customers who are also reliant on IT and embedded systems to conduct their
businesses. The Bank utilizes and is dependent upon a third-party vendor for its
primary data processing functions and other purchased software packages which
operate on in-house computer
14
<PAGE>
networks. The Bank faces the risk that one or more of its critical service
providers will not be able to provide services to the Bank due to the third
party's inability to resolve its own Year 2000 issues, including those
associated with its own external relationships.
STATE OF READINESS
In 1997, the Bank's Electronic Data Processing Committee (the "EDP
Committee") began work on the Bank's Year 2000 Project. The EDP Committee is
comprised of members from each business unit of the Bank. The EDP Committee
developed and executed a comprehensive plan designed to ensure the Bank's
mission critical IT systems and mission critical service providers are Year 2000
compliant. The Bank's plan consists of five phases: (1) awareness phase, to
define the Year 2000 issue and obtain senior management and Board of Directors
support, (2) inventory phase, to identify all IT systems and service providers
and assign risk ratings in accordance with its potential business impact,
available alternatives and cost of substitution, (3) assessment phase, to
evaluate the identified mission critical systems, including those systems
provided by third-party vendors, for Year 2000 functionality and readiness, (4)
remediation phase, to replace or upgrade inventoried items to ensure Year 2000
compliance and (5) testing and certification phase, to test all remediated
systems including testing with vendors, to ensure successful operation in the
post-1999 environment. In addition, the Bank's Year 2000 plan includes assessing
the impact of the Year 2000 issue on borrowers' ability to repay loans.
As of September 30, 1999, the Bank had completed all five phases of
the plan for its mission critical systems. The Bank utilized both internal and
external resources to upgrade, replace and test hardware, software and third
party vendor programs. Through formal communication, the Bank's primary data
processing vendor and other critical vendors have indicated their IT systems are
Year 2000 compliant and tested. The Bank has also contacted all of its
significant commercial loan customers to determine the borrower's ability and
readiness to become Year 2000 compliant. The majority of the loan customers
contacted have responded and the Bank has not identified any significant issues
with respect to such customers. The Bank will continue to monitor the progress
of borrowers' Year 2000 readiness.
YEAR 2000 COSTS
Year 2000 expenses primarily include costs associated with internal
and external personnel, upgrade packages and disposal of non-compliant hardware
and software. To date, the Bank has not incurred any significant expenses and
does not expect to incur any significant expenses other than internal personnel
resources associated with the Year 2000 project. Costs to purchase new compliant
hardware and software was approximately $2.0 million, which was capitalized. The
cost of the Year 2000 project has been funded through operating cash flows and
has not had a material impact on the Company's financial condition, operations
or cash flows.
RISKS AND CONTINGENCIES
If the Bank or other third party vendors fail to resolve Year 2000
issues by December 31, 1999, potential consequences would include, among other
possibilities, the inability to accurately and timely process withdrawals,
deposits and payments, update customers' accounts, process financial
information, bill customers, accommodate customer's financial needs, determine
or meet liquidity requirements or report accurate data to management, customers,
shareholders, regulators and others as well as business interruptions or branch
closings, financial losses, reputational harm, increased scrutiny by regulators
and litigation related to Year 2000 issues. The Bank has attempted to limit the
potential impact of the millennium change through its Year 2000 project, which
included monitoring its critical vendors and developing and testing contingency
plans. There can be no assurance that the Bank has been completely successful in
its efforts to resolve Year 2000 issues. Any critical unresolved Year 2000
issues at the Bank or its critical vendors could have a material adverse effect
on the Company's results of operations, financial condition or liquidity.
The Bank has developed and tested comprehensive contingency plans
designed to ensure the continuity of critical business processes before and
after December 31, 1999. The contingency plans include reasonably likely Year
2000 failure scenarios for its critical business processes, procedures designed
to reduce the impact on the Bank and methods for returning to normal operations.
The foregoing Year 2000 discussion contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements, including without limitation anticipated costs, are
based on management's best current estimates, which were derived utilizing
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third parties and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the ability to identify and remediate all relevant systems, results
of Year 2000 parties who are service providers, suppliers or customers of the
Company, unanticipated system costs, the adequacy of and ability
15
<PAGE>
to execute contingency plans and similar uncertainties. The "forward-looking
statements" made in the foregoing Year 2000 discussion speak only as of the date
on which such statements are made, and the Company undertakes no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a financial institution holding company, Republic's primary
component of market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact both the level of income and expense recorded on a
large portion of the Bank's assets and liabilities and the market value of all
interest-earning assets, other than those with short term maturities.
Substantially all of the Company's interest rate risk exposure lies at the Bank
level. Accordingly, interest rate risk management procedures are performed at
the Bank level. Based on the nature of the Bank's operations, the Bank is not
subject to foreign currency exchange or commodity price risk. The Bank's real
estate portfolio, concentrated primarily within Palm Beach, Martin, Broward,
Dade, Lee and Hillsborough counties of Florida, is subject to risks associated
with the local economy.
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 loans for portfolio, commitments to sell loans, and
increasing or decreasing the relative amounts of long-term and short-term
borrowings and deposits. The following table presents the Bank's exposure to
interest rate risk at September 30, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999(1)
----------------------------------------------------------------------------------
ONE YEAR OR OVER 5
LESS 1 TO 3 YEARS 3 TO 5 YEARS YEARS TOTAL
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total interest-earning assets $ 1,068,388 $ 616,586 $ 418,649 $ 620,157 $ 2,723,780
Total interest-bearing liabilities 1,670,104 396,107 81,111 108,895 2,256,217
----------- ----------- ----------- ----------- -----------
Interest rate sensitivity gap ($ 601,716) $ 220,479 $ 337,538 $ 511,262 $ 467,563
=========== =========== =========== =========== ===========
Cumulative interest rate sensitivity gap ($ 601,716) ($ 381,237) ($ 43,699) $ 467,563
=========== =========== =========== ===========
Cumulative interest rate sensitivity gap
as a percent of total assets (19.78)% (12.53)% (1.44)% 15.37%
=========== =========== =========== ===========
</TABLE>
(1) In preparing the table above, certain assumptions have been made
with regard to loan prepayments and withdrawals of transaction
account deposits. Loan prepayment rates are based upon market
consensus estimates for similar securities. Money Market account
balances are included in one year or less. Fifty percent of NOW
and regular savings account deposits are included in one year or
less, and the remaining fifty percent are included in the greater
than five year category. All other assets and liabilities have
been repriced based on the earlier of repricing or contractual
maturity. The above assumptions are 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 the Bank. 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 in 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.
In addition to the above, the Bank is committed to fund $290.2 million
in new loans and $42.7 million in construction loans-in-process at September 30,
1999. 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 sensitive
assets and liabilities on the Company's balance sheet and management uses
computer modeling in its efforts to manage the effects that interest rate
fluctuations have on income.
In connection with the acquisition of FPBB in October 1998, the assets
acquired consisted primarily of long-term, fixed rate residential loans and the
liabilities assumed consisted primarily of short-term certificates of deposit,
which significantly increased the Bank's exposure to interest rate risk.
Management's strategy to reduce interest rate risk in this regard has been
targeted towards replacing certain fixed rate residential loans with
shorter-term repricing assets, and replacing certain outstanding amounts of such
certificates of deposit with transaction account balances. This strategy has
contributed to the reduction in the Bank's interest rate sensitivity gap as a
percentage of total assets from (39.8)% at December 31, 1998 to (19.8)% at
September 30, 1999. Management expects to further reduce interest rate exposure
of the Bank as it continues to effect changes in the asset and liability mix in
accordance with this strategy.
16
<PAGE>
The current potential changes in future earnings relating to financial
assets and liabilities as of September 30, 1999 are as follows:
POTENTIAL CHANGE IN FUTURE EARNINGS(2)
YEAR 1 YEAR 2
Interest Rate Change in Basis Points: ------- --------
+ 100 (6.23)% (10.15)%
- - 100 4.42% 9.86%
(2) The most significant assumptions used in this simulation relate
primarily to the repricing rates of demand and other non-maturity
deposits and loan and investment prepayment rates. Money market
and savings deposit accounts are assumed to have the following lag
characteristics in an increasing rate environment: the Bank will
recognize a 25 basis point increase at nine months and an
additional 25 basis point increase at twelve months following a 1%
increase in the market rate. NOW accounts are considered to be
non-interest sensitive in an increasing rate environment. Money
market and savings deposit accounts are assumed to have the
following characteristics in a decreasing rate environment: the
Bank will recognize a 50 basis point decrease at three months and
an additional 50 basis point decrease at nine months following a
1% decrease in the market rate. Certificates of deposits will
recognize a 50 basis point increase upon repricing and a 65 basis
point decrease upon repricing following a 1% increase or decrease
in the market rate. These lag assumptions are based on a three
year analysis of changes to the Bank's rates compared to changes
in the market rates. Loan and investment prepayment rates are
based upon market consensus estimates for similar securities.
Certain shortcomings are inherent in the simulation presented by
the above table. For example, certain financial assets and
liabilities may have similar maturities or periods for repricing,
but may react in different degrees to changes in market interest
rates.
The potential changes in future earnings shown above are within the
Bank's interest rate risk policy limits.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Neither Republic nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the
ordinary course of business which in the aggregate involve amounts
which in management's opinion are not material to the consolidated
financial condition or results of operations of the Company.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this report:
27 Financial Data Schedule (for SEC use only).
(b) No Reports on Form 8-K were filed during the three months
ended September 30, 1999.
18
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC SECURITY FINANCIAL CORPORATION
(Registrant)
Date: NOVEMBER 12, 1999 /S/ RICHARD J. HASKINS
----------------- ----------------------
Richard J. Haskins
Senior Executive Vice President & CFO
(Principal Financial Officer)
Date: NOVEMBER 12, 1999 /S/ CARLA H. POLLARD
----------------- ----------------------
Carla H. Pollard
Senior Vice President/Controller
(Duly Authorized Officer)
19
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- ------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 37,694 37,694
<INT-BEARING-DEPOSITS> 159,069 159,069
<FED-FUNDS-SOLD> 4,929 4,929
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 652,182 652,182
<INVESTMENTS-CARRYING> 149,133 149,133
<INVESTMENTS-MARKET> 143,262 143,262
<LOANS> 1,888,200 1,888,200
<ALLOWANCE> 24,160 24,160
<TOTAL-ASSETS> 3,052,135 3,052,135
<DEPOSITS> 2,131,110 2,131,110
<SHORT-TERM> 135,195 135,195
<LIABILITIES-OTHER> 61,258 61,258
<LONG-TERM> 511,658 511,658
0 0
0 0
<COMMON> 133,576 133,576
<OTHER-SE> 79,340 79,340
<TOTAL-LIABILITIES-AND-EQUITY> 3,052,135 3,052,135
<INTEREST-LOAN> 38,167 117,680
<INTEREST-INVEST> 13,704 39,273
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 51,871 156,953
<INTEREST-DEPOSIT> 19,560 62,873
<INTEREST-EXPENSE> 27,412 83,124
<INTEREST-INCOME-NET> 24,459 73,829
<LOAN-LOSSES> 300 1,100
<SECURITIES-GAINS> 789 966
<EXPENSE-OTHER> 19,896 59,620
<INCOME-PRETAX> 12,522 34,466
<INCOME-PRE-EXTRAORDINARY> 12,522 34,466
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,035 22,041
<EPS-BASIC> 0.16 0.44
<EPS-DILUTED> 0.16 0.43
<YIELD-ACTUAL> 3.51 3.52
<LOANS-NON> 13,871 13,871
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 25,625 26,665
<CHARGE-OFFS> 2,283 5,172
<RECOVERIES> 918 1,567
<ALLOWANCE-CLOSE> 24,160 24,160
<ALLOWANCE-DOMESTIC> 24,160 24,160
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 4,772 4,772
</TABLE>
