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 June 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
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 August 6 , 1999
- ----- ---------------------------------
Common Stock 50,585,417
par value $.01 per share
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
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
June 30, 1999 and December 31, 1998..............................................................2
Condensed Consolidated Statements of Income for the
three months ended June 30, 1999 and 1998........................................................3
Condensed Consolidated Statements of Income for the
six months ended June 30, 1999 and 1998..........................................................4
Condensed Consolidated Statements of Comprehensive Income for the
three and six months ended June 30, 1999 and 1998................................................5
Condensed Consolidated Statements of Shareholders' Equity
for the six months ended June 30, 1999 and the year ended December 31, 1998......................6
Condensed Consolidated Statements of Cash Flows for the
six months ended June 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:
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
======================================================================================================================
June 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 $65,930 $46,575
Interest-bearing deposits in other financial institutions 146,474 114,471
Federal funds sold 7,802 1,120
- ---------------------------------------------------------------------------------- ----------------- -----------------
Cash and cash equivalents 220,206 162,166
Investments available-for-sale 685,849 722,913
Investments held to maturity (Market value of $146,848 and $6,422 at
June 30, 1999 and December 31, 1998, respectively) 151,816 6,363
Loans receivable - net 1,755,894 1,959,300
Loans held for sale (Market value of $102,840 and $16,272 at June 30, 1999
and December 31, 1998, respectively) 101,520 16,000
Property and equipment - net 63,310 51,008
Other real estate owned - net 3,669 2,463
Federal Home Loan Bank Stock 29,814 23,754
Goodwill - net 11,617 11,961
Accrued interest receivable 16,402 15,378
Other assets 43,527 36,426
- ---------------------------------------------------------------------------------- ----------------- -----------------
Total $3,083,624 $3,007,732
================================================================================== ================= =================
Liabilities and Shareholders' Equity
Liabilities:
Deposits $2,213,790 $2,304,855
Federal Home Loan Bank advances and other borrowings 456,630 410,368
Securities sold under agreements to repurchase 112,193 9,144
Senior debentures, net of unamortized issuance costs 25,594 27,518
Advances from borrowers for taxes and insurance 22,695 7,677
Bank drafts payable 19,426 27,706
Other liabilities 23,829 22,062
- ---------------------------------------------------------------------------------- ----------------- -----------------
Total liabilities 2,874,157 2,809,330
- ---------------------------------------------------------------------------------- ----------------- -----------------
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value; 500,000,000 shares authorized; 50,568,990 and
47,370,265 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively 506 474
Additional paid-in capital 132,718 120,800
Retained earnings 85,687 75,423
Accumulated other comprehensive (loss) income, net of taxes (9,444) 1,705
- ---------------------------------------------------------------------------------- ----------------- -----------------
Total shareholders' equity 209,467 198,402
- ---------------------------------------------------------------------------------- ----------------- -----------------
Total $3,083,624 $3,007,732
================================================================================== ================= =================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
================================================================================================ ====================
Three Months Ended
June 30,
(amounts in thousands except per share data) 1999 1998
(restated)
- ------------------------------------------------------------------------- --------------------- --------------------
<S> <C> <C>
Interest Income: (unaudited) (unaudited)
Interest and fees on loans $39,622 $38,114
Interest and dividends on investments 13,171 13,005
- ------------------------------------------------------------------------- --------------------- --------------------
52,793 51,119
- ------------------------------------------------------------------------- --------------------- --------------------
Interest Expense:
Interest on deposits 20,726 23,152
Interest on borrowings 6,641 6,298
- ------------------------------------------------------------------------- --------------------- --------------------
27,367 29,450
- ------------------------------------------------------------------------- --------------------- --------------------
Net interest income 25,426 21,669
Provision for loan losses 300 380
- ------------------------------------------------------------------------- --------------------- --------------------
Net interest income after provision for loan losses 25,126 21,289
- ------------------------------------------------------------------------- --------------------- --------------------
Non-interest Income:
Service charges on deposit accounts 2,848 2,568
Net gain on sales of loans 1,363 470
Net gain on sales of investments available-for-sale 81 1,454
Other income 2,832 1,556
- ------------------------------------------------------------------------- --------------------- --------------------
7,124 6,048
- ------------------------------------------------------------------------- --------------------- --------------------
Operating Expenses:
Employee compensation and benefits 8,955 10,159
Occupancy and equipment 4,864 3,813
Professional fees 503 786
Advertising and promotion 358 850
Communications 561 710
Insurance 458 511
Other 3,342 2,969
Merger expenses 50
- ------------------------------------------------------------------------- --------------------- --------------------
19,041 19,848
- ------------------------------------------------------------------------- --------------------- --------------------
Income before income taxes 13,209 7,489
Income tax expense 4,755 2,835
- ------------------------------------------------------------------------- --------------------- --------------------
Net income $8,454 $4,654
========================================================================= ===================== ====================
Income applicable to common stock $8,454 $4,604
========================================================================= ===================== ====================
Per share data:
Basic earnings $0.17 $0.10
Diluted earnings $0.17 $0.10
Dividends $0.06 $0.05
- ------------------------------------------------------------------------- --------------------- --------------------
Weighted average common shares and common stock equivalents outstanding:
Basic 50,569 45,011
Diluted 51,174 47,719
========================================================================= ===================== ====================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
================================================================================================ ====================
Six Months Ended
June 30,
(amounts in thousands except per share data) 1999 1998
(restated)
- ------------------------------------------------------------------------- --------------------- --------------------
<S> <C> <C>
Interest Income: (unaudited) (unaudited)
Interest and fees on loans $79,513 $78,365
Interest and dividends on investments 25,569 25,367
- ------------------------------------------------------------------------- --------------------- --------------------
105,082 103,732
- ------------------------------------------------------------------------- --------------------- --------------------
Interest Expense:
Interest on deposits 43,313 45,719
Interest on borrowings 12,399 13,733
- ------------------------------------------------------------------------- --------------------- --------------------
55,712 59,452
- ------------------------------------------------------------------------- --------------------- --------------------
Net interest income 49,370 44,280
Provision for loan losses 800 3,293
- ------------------------------------------------------------------------- --------------------- --------------------
Net interest income after provision for loan losses 48,570 40,987
- ------------------------------------------------------------------------- --------------------- --------------------
Non-interest Income:
Service charges on deposit accounts 5,965 5,114
Net gain on sales of loans 2,315 3,106
Net gain on sales of investments available-for-sale 177 1,813
Other income 4,641 3,250
- ------------------------------------------------------------------------- --------------------- --------------------
13,098 13,283
- ------------------------------------------------------------------------- --------------------- --------------------
Operating Expenses:
Employee compensation and benefits 17,965 19,969
Occupancy and equipment 9,286 7,349
Professional fees 919 1,294
Advertising and promotion 656 1,328
Communications 1,276 1,321
Insurance 920 1,029
Other 6,321 5,679
Merger expenses 2,381 153
- ------------------------------------------------------------------------- --------------------- --------------------
39,724 38,122
- ------------------------------------------------------------------------- --------------------- --------------------
Income before income taxes 21,944 16,148
Income tax expense 7,938 6,118
- ------------------------------------------------------------------------- --------------------- --------------------
Net income $14,006 $10,030
========================================================================= ===================== ====================
Income applicable to common stock $14,006 $9,828
========================================================================= ===================== ====================
Per share data:
Basic earnings $0.28 $0.22
Diluted earnings $0.27 $0.21
Dividends $0.12 $0.10
- ------------------------------------------------------------------------- --------------------- --------------------
Weighted average common shares and common stock equivalents outstanding:
Basic 50,530 44,637
Diluted 51,177 46,854
========================================================================= ===================== ====================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
====================================================================================================================
Three Months Ended
June 30,
(amounts in thousands) 1999 1998
(restated)
- ----------------------------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
(unaudited) (unaudited)
Net income $8,454 $4,654
Other comprehensive income, net of tax:
Unrealized (loss) gain on investments available-for-sale
arising during the period,
net of taxes of ($4,868) and $1,042 in 1999 and 1998, respectively (8,237) 2,619
Reclassification adjustment for amounts realized on sale of investments
included in net income, net
of taxes of ($30) and ($550) in 1999 and 1998, respectively (51) (904)
- ----------------------------------------------------------------------------------- --------------- ----------------
Comprehensive income $166 $6,369
====================================================================================================================
Six Months Ended
June 30,
1999 1998
(restated)
- ----------------------------------------------------------------------------------- --------------- ----------------
(unaudited) (unaudited)
Net income $14,006 $10,030
Other comprehensive income, net of tax:
Unrealized (loss) gain on investments available-for-sale
arising during the period, net of taxes of
($6,548) and $637 in 1999 and 1998, respectively (11,037) 2,176
Reclassification adjustment for amounts realized on
sale of investments included in net income, net
of taxes of ($65) and ($685) in 1999 and 1998, respectively (112) (1,128)
- ----------------------------------------------------------------------------------- --------------- ----------------
Comprehensive income $2,857 $11,078
====================================================================================================================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
====================================================================================================================================
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 - 891,861 shares 9 4,829
Cash dividends - common stock (5,918)
Cash dividends paid by pooled company
- common stock (289)
Net income 14,006
Changes in accumulated other comprehensive (loss)
income, net of taxes (11,149)
- ----------------------------------------------- ------------ ------------ ------------- ------------- ---------- --------------
Balance June 30, 1999 (unaudited) $506 $132,718 $85,687 ($9,444)
=============================================== ============ ============ ============= ============= ========== ==============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
===================================================================================================================
Six Months Ended June 30,
(Unaudited) (restated)
(amounts in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $14,006 $10,030
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 800 3,293
Depreciation and amortization 4,437 3,107
Amortization of deferred loan fees and costs 183 1,378
Gain on sales of loans (2,315) (3,106)
Loans originated for sale (53,603) (15,148)
Purchase of loans for sale (7,986)
Sale of loans and loan participation certificates 180,993 188,829
Purchase of trading securities (31,601)
Sales of trading securities 36,211
Net gain on sale of investments available-for-sale (177) (1,813)
Other - net 12,986 4,355
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 149,324 195,535
- -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Cash and cash equivalents acquired from pooled company 18,975
Cash and cash equivalents acquired in branch purchase 24,694
Purchase of investments available-for-sale (103,700) (358,067)
Purchase of investments held to maturity (147,999)
Proceeds from sales of investments available- for- sale 56,533 224,004
Maturities and calls of investments held to maturity 2,050 2,564
Principal payments on securities 75,546 41,583
Loans purchased for investment (58,920) (67,918)
Net decrease (increase) in loans 92,070 (67,756)
Purchases of property and equipment (13,171) (1,625)
Proceeds from the sales of repossessed automobiles 1,102 1,594
Other - net (2,191) 9,989
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (55,011) (215,632)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net (decrease) increase in demand deposits, NOW accounts, Money Market accounts
and savings accounts (19,198) 59,583
Net (decrease) increase in time deposits (162,990) 19,113
Increase (decrease) in FHLB advances 46,262 (81,278)
Repurchase of senior debentures (2,027)
Net increase (decrease) in securities sold under agreements to repurchase 103,049 (20,247)
Cash dividends - common and preferred (6,207) (4,338)
Other - net 4,838 10,155
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (36,273) (17,012)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 58,040 (37,109)
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 year 162,166 243,934
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $220,206 $238,466
- -------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $6,465 $4,605
Cash paid for interest on deposits and other borrowings $54,328 $57,281
Supplemental Schedule of Non-Cash Investing Activities:
Repossessed automobiles acquired in settlement of loans $2,344 $3,425
Real estate acquired in settlement of loans $3,684 $4,017
===================================================================================================================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
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" or
"Republic"). 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, 1999 and December 31,
1998, and the results of operations and comprehensive income for
the three and six months ended June 30, 1999 and 1998 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 three and six months ended June 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
Republic Security Financial Corporation'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.
The condensed consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, and
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.
2. Branch Purchase
On June 11, 1999, Republic consummated the acquisition of
nine branches operating in Kash N' Karry supermarkets from First
National Bank of Central Florida ("FNBCF"). In connection with this
acquisition, the Bank assumed approximately $27.6 million in
deposits. The purchase price was approximately $1.0 million, paid
in cash.
3. Non-Performing Assets and Allowance for Loan Losses
At June 30, 1999, the Bank had $15.4 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 $300,000 and
$380,000 for the three months ended June 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 $25.6
million at June 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
8
<PAGE>
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 June 30, 1999, the Bank had adjustable rate commitments
to extend credit of approximately $282.2 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 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
will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
5. Earnings per Common Share
The following table sets forth the computation of basic
and diluted earnings per share:
<TABLE>
<CAPTION>
=========================================================================================== ===========================
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands except per share data) 1999 1998 1999 1998
(restated) (restated)
- ------------------------------------------------------------- ---------------- ------------ ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator:
Net income $8,454 $4,654 $14,006 $10,030
Preferred stock dividends (50) (202)
- ------------------------------------------------------------- ---------------- ------------ ------------ -------------
Numerator for basic earnings per share 8,454 4,604 14,006 9,828
Effect of dilutive securities:
Preferred stock dividends 50 202
- ------------------------------------------------------------- ---------------- ------------ ------------ -------------
Numerator for diluted earnings per share $8,454 $4,654 $14,006 $10,030
============================================================= ================ ============ ============ =============
Denominator:
Denominator for basic earnings per share - weighted average shares 50,569 45,011 50,530 44,637
Effective of dilutive securities:
Employee stock options 605 1,812 647 1,727
Convertible preferred stock 896 490
- ------------------------------------------------------------- ---------------- ------------ ------------ -------------
Dilutive potential common shares 605 2,708 647 2,217
- ------------------------------------------------------------- ---------------- ------------ ------------ -------------
Denominator for diluted earnings per share 51,174 47,719 51,177 46,854
============================================================= ================ ============ ============ =============
Basic earnings per share $0.17 $0.10 $0.28 $0.22
Diluted earnings per share $0.17 $0.10 $0.27 $0.21
============================================================= ================ ============ ============ =============
</TABLE>
At June 30, 1999, 1,746,123 stock options at a weighted average
exercise price of $9.28 were outstanding that could potentially dilute earnings
per share in the future periods but were not included in the computation of
diluted earnings per share for the three and six months ended June 30, 1999. The
effect of these shares is antidilutive to diluted earnings per share for the
three and six months ended June 30, 1999.
9
<PAGE>
6. Subsequent Event
On July 30, 1999, Republic acquired the assets of First New England
Financial ("FNEF"), a marine loan production operation, from Deere Credit, Inc.
for approximately $6.7 million. Under the terms of the transaction, Republic
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. FNEF will operate as a wholly-owned
subsidiary of Republic.
10
<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, 1999 and 1998
Results of Operations
The Company had net income of $8.5 million or $0.17 diluted
earnings per common share for the three months ended June 30, 1999, compared to
$4.7 million or $0.10 diluted earnings per common share for the three months
ended June 30, 1998. Net income increased $3.8 million or 81% for the three
months ended June 30, 1999 compared to the three months ended June 30, 1998.
Non-interest income increased $1.1 million while operating expenses (excluding
merger expenses) decreased $757,000 or 3.8% for the three months ended June 30,
1999 compared to the three months ended June 30, 1998. The Company had net
income of $14.0 million or $0.27 diluted earnings per common share for the six
months ended June 30, 1999 compared to $10.0 million or $0.21 diluted earnings
per common share for the six months ended June 30, 1998. Net interest income
increased $5.1 million or 11.5% for the six months ended June 30, 1999, compared
to the six months ended June 30, 1998. Non interest income decreased $185,000 or
1.4% while operating expenses (excluding merger expenses) decreased $626,000 for
the six months ended June 30, 1999, compared to the six months ended June 30,
1998.
Net Interest Income
Net interest income for the three months ended June 30, 1999 increased $3.8
million compared to the three months ended June 30, 1998 due to an increase of
$1.7 million in interest income and a decrease of $2.1 million in interest
expense. Interest income increased primarily due to an increase of approximately
$119.2 million in interest earning assets offset by a decrease in yield on
interest earning assets for the three months ended June 30, 1999 compared to the
three months ended June 30, 1998. The prime interest rate decreased from 8.50%
at the beginning of 1998 to 7.75% at November 1998, which 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 a decrease in the balance of certificates of deposit outstanding
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 June 30, 1999 certificate of deposit balances, primarily from the
former First Bank deposit base, decreased approximately $100 million. In
addition, during the quarters ended December 31, 1998 and March 31, 1999 the
Company purchased an aggregate of $6.5 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
50 basis points for the three months ended June 30, 1999, compared to the three
months ended June 30, 1998. Net interest income increased $5.1 million for the
six months ended June 30, 1999 compared to the six months ended June 30, 1998
due to an increase of $1.4 million in interest income and a decrease of $3.7
million in interest expense. The increase in interest income for the six months
ended June 30, 1999 compared to the six months ended June 30, 1998 is due to an
increase of approximately $111.0 million in interest earning assets offset by a
20 basis point decline in the yield.
Provision for Loan Losses
The provision for loan losses decreased $80,000 and $2.5 million,
respectively, for the three and six months ended June 30, 1999 compared to the
three and six months ended June 30, 1998. The decrease in the provision for loan
losses for the six months ended June 30, 1999 compared to the six months ended
June 30, 1998 is due to a $2.2 million additional provision made in the quarter
ended March 31, 1998 relating to First Bank's indirect automobile loan
portfolio. 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 six months
ended June 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 $1.1 million for the three months
ended June 30, 1999 compared to the three months ended June 30, 1998 due to an
increase of $280,000 in service charges on deposit accounts and an increase of
$1.3 million in other income offset by a decrease of $480,000 in gain on sales
of investments and loans. 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
11
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
charges. The increase in other income is due 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. Non interest
income decreased $185,000 for the six months ended June 30, 1999 compared to the
six months ended June 30, 1998 due to an increase of $851,000 in service charges
on deposit accounts and a $1.4 million increase in other income offset by a
decrease in net gain on sale of loans of $791,000 and a decrease in net gain on
sales of investments of $1.6 million. 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 decrease in gain on sales of
loans is due to a decrease in the sales price received on loans sold as well as
the decrease in the outstanding principal balance of loans sold to $181.0
million during the six months ended June 30, 1999 compared to $188.8 million for
the six months ended June 30, 1998. The decrease in gain on sales of investments
is due to $43.4 million of investments sold during the six months ended June 30,
1999 compared to $258.2 million sold during the six months ended June 30, 1998.
The level of investment sales by the former First Bank was significantly higher
than under the Bank's current strategy. The increase in other income is due
primarily to a $1.1 million gain realized on the sale of one of the Bank's
branch offices.
Operating Expenses
Operating expenses decreased $807,000 for the three months ended
June 30, 1999 compared to the three months ended June 30, 1998. The decrease in
operating expenses is primarily due to decreases of $1.2 million in employee
compensation and benefits, $283,000 in professional fees, $492,000 in
advertising and promotions and $149,000 in communications expense, offset by an
increase of $1.1 million in occupancy expenses and an increase of $373,000 in
other 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 to a decrease of $285,000 related to the expense for Stock Appreciation
Rights (SARs) accrual for the three months ended June 30, 1999 compared to the
three months ended June 30, 1998 offset by increased compensation expense
associated with 15 new branch locations and additions to the Company's senior
management. SARs expense was lower for the three months ended June 30, 1999
compared to the three months ended June 30, 1998 as no additional accrual was
necessary because the market price of RSFC's common stock has declined since
December 31, 1998. Professional fees decreased for the three months ended June
30, 1999 compared to the three months ended June 30, 1998 primarily due to
decreases in legal expenses relating to general corporate operations and problem
loans. The decrease in advertising expense is due to cost savings realized as a
result of the First Bank merger. The Bank's advertising and promotion strategy
emphasizes direct calling to a greater extent than the previous strategy used by
First Bank. Occupancy expense increased for the three months ended June 30, 1999
compared to the three months ended June 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 five new branches in 1999. Other
operating expenses increased for the three months ended June 30, 1999 compared
to the three months ended June 30, 1998 primarily due to an increase of
approximately $421,000 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.
Operating expenses, excluding merger related expenses, decreased
$626,000 for the six months ended June 30, 1999, compared to the six months
ended June 30, 1998. The decrease in operating expenses is primarily due to
decreases of $2.0 million in employee compensation and benefits, $375,000 in
professional fees, $672,000 in advertising and promotions and $109,000 in
insurance expense offset by increases of $1.9 million in occupancy and equipment
and $642,000 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 six months ended June 30,
1999 compared to the six months ended June 30, 1998. Professional fees decreased
for the six months ended June 30, 1999 compared to the six months ended June 30,
1998 primarily due to decreases in legal expenses relating to general corporate
operations and problem loans. The decrease in advertising expense is due to cost
savings realized as a result of the First Bank merger. Occupancy expense
increased for the six months ended June 30, 1999 compared to the six months
ended June 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 five new branches in 1999. Other operating expenses increased for the
six months ended June 30, 1999 compared to the six months ended June 30, 1998
primarily due to an increase of approximately $421,000 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.
Provision for Income Taxes
The provision for income taxes increased $1.9 million for the three
months ended June 30, 1999 compared to the three months ended June 30, 1998 due
to an increase in income before income taxes of $5.7 million offset by a
reduction in the effective
12
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
tax rate from 38% to 36%. The effective tax rate decreased primarily due to a
decrease in non deductible merger expenses. The provision for income taxes
increased $1.8 million for the six months ended June 30, 1999 compared to the
six months ended June 30, 1998 due to an increase in income before income taxes
of $5.8 million offset by a decrease in the effective tax rate.
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, 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 the Company and the Bank to maintain minimum amounts and ratios
of total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital (as defined) to average assets (as
defined).
The following table shows the capital amounts and ratios of the
Bank at June 30, 1999:
================================================================================
(Dollars in thousands) Amount Ratio
- --------------------------------------------- ----------------------------------
Total risk based capital $218,563 13.00%
Tier 1 risk based capital $197,174 11.73%
Leverage capital $197,174 6.62%
- --------------------------------------------- ----------------------------------
The most recent notification from the Federal Reserve Bank
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. At June 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 $58.0 million
during the six months ended June 30, 1999. The increase in cash is due primarily
to decreases in loans from loan sales and pay downs and an increase in
borrowings offset by an increase in investments and a decrease in deposits
(See "Financial Condition").
Financial Condition
As of June 30, 1999, total assets increased approximately $75.9 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 $117.9
million, investments increased approximately $108.4 million and cash and cash
equivalents increased $58.0 million from December 31, 1998 compared to June 30,
1999. The decrease in loans is primarily due to an $85.0 million residential
loan sale in June 1999, the proceeds of which were used to purchase $108.0
million in yacht loans from Deere Credit, Inc., on July 30, 1999. The increase
in investments is primarily due to a $75.0 million leverage transaction where
the Bank invested in mortgage-backed securities funded by FHLB advances in May
1999. Excluding the effects of the Northside and FNBCF branch acquisitions,
total assets decreased $25.7 million, primarily due to certificate of deposit
runoff, which is consistent with management's plan to reduce the outstanding
balance of certificates of deposit and increase transaction accounts. Advances
from borrowers for taxes and insurance increased $15.0 million from December 31,
1998 compared to June 30, 1999 due to the accumulation of escrow payments
related primarily to residential loans. Bank drafts payable decreased $8.3
million related to an increased amount of loan funding checks issued at the end
of December 1998.
13
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
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 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") started work on the Bank's Year 2000 Project. The EDP Committee is
comprised of members from each area 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 June 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. Approximately 65% of the loan customers
contacted have responded and the Bank has not identified any significant issues
with those customers. The Bank continues to monitor the progress of borrowers'
Year 2000 efforts.
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's 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 is attempting to limit the
potential impact of the millennium change through its Year 2000 project, which
includes monitoring its critical vendors and developing and testing contingency
plans. There can be no assurance that the Bank will be 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.
14
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
The Bank is continuing to develop and test 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 of
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 and the
dates by which the Bank expects to complete certain actions, 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 to develop and implement
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.
15
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a financial institution holding company, the Company'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 June 30, 1999:
<TABLE>
<CAPTION>
======================================================================================================================
June 30, 1999(1)
----------------------------------------------------------------
One Year or
Less 1 to 3 Years3 to 5 Years Over 5 Years Total
-------------- ----------- ------------ ----------- ------------
(Dollars in thousands)
-------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Total interest-earning assets $1,051,284 $663,597 $522,661 $508,042 $2,745,584
Total interest-bearing liabilities 1,695,778 348,653 84,977 243,062 2,372,470
--------- ------- ------ ------- ---------
Interest rate sensitivity gap ($644,494) $314,944 $437,684 $264,980 $373,114
========== ========= ======== ======== ========
Cumulative interest rate sensitivity gap ($644,494) ($329,550) $108,134 $373,114
========== ========== ========== =======
Cumulative interest rate sensitivity
gap as a percent of total asset (21.76)% (11.12)% 3.65% 12.60%
======== ======== ======= =======
===================================================== ============== =========== ============ =========== ==============
<FN>
(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 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.
</FN>
</TABLE>
In addition to the above, the Bank is committed to fund $282.2 million
in new loans and $48.0 million in construction loans-in-process at June 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.
16
<PAGE>
The current potential changes in future earnings relating to financial
assets and liabilities as of June 30, 1999 are as follows:
================================================================================
Potential Change in Future Earnings(2)
Year 1 Year 2
- ------------------------------------------------------ -----------------------
Interest Rate Change in Basis Points:
+ 100 (8.47)% (8.85)%
- - 100 8.49% 8.72%
================================================================================
(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 the Company 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 six months
ended June 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: August 13, 1999 /s/ Richard J. Haskins
---------------- -----------------------------------
Richard J. Haskins
Executive Vice President & CFO
(Principal Financial Officer)
Date: August 13 , 1999 /s/ Carla H. Pollard
---------------- -----------------------------------
Carla H. Pollard
Senior Vice President/Controller
(Duly Authorized Officer)
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 65,930 65,930
<INT-BEARING-DEPOSITS> 146,474 146,474
<FED-FUNDS-SOLD> 7,802 7,802
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 685,849 685,849
<INVESTMENTS-CARRYING> 151,816 151,816
<INVESTMENTS-MARKET> 146,848 146,848
<LOANS> 1,883,039 1,883,039
<ALLOWANCE> 25,625 25,625
<TOTAL-ASSETS> 3,083,624 3,083,624
<DEPOSITS> 2,213,790 2,213,790
<SHORT-TERM> 232,193 232,193
<LIABILITIES-OTHER> 65,950 65,950
<LONG-TERM> 362,224 362,224
0 0
0 0
<COMMON> 133,224 133,224
<OTHER-SE> 76,243 76,243
<TOTAL-LIABILITIES-AND-EQUITY> 3,083,624 3,083,624
<INTEREST-LOAN> 39,622 79,513
<INTEREST-INVEST> 13,171 25,569
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 52,793 105,082
<INTEREST-DEPOSIT> 20,726 43,313
<INTEREST-EXPENSE> 27,367 55,712
<INTEREST-INCOME-NET> 25,426 49,370
<LOAN-LOSSES> 300 800
<SECURITIES-GAINS> 81 177
<EXPENSE-OTHER> 19,041 39,724
<INCOME-PRETAX> 13,209 21,944
<INCOME-PRE-EXTRAORDINARY> 13,209 21,944
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,454 14,006
<EPS-BASIC> .17 .28
<EPS-DILUTED> .17 .27
<YIELD-ACTUAL> 3.64 3.53
<LOANS-NON> 11,746 11,746
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 25,896 26,665
<CHARGE-OFFS> 1,177 2,890
<RECOVERIES> 606 1,049
<ALLOWANCE-CLOSE> 25,625 25,625
<ALLOWANCE-DOMESTIC> 25,625 25,625
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 4,565 4,565
</TABLE>
