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 MARCH 31, 2000
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) 655-8511
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 MAY 4, 2000
- ----- -----------------------------
Common Stock 48,718,804
Par value $.01 per share
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REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
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PAGE
<S> <C> <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
as of March 31, 2000, unaudited and December 31, 1999............................................2
Condensed Consolidated Statements of Income, unaudited for the
three months ended March 31, 2000 and 1999.......................................................3
Condensed Consolidated Statements of Comprehensive Income, unaudited for the
three months ended March 31, 2000 and 1999.......................................................4
Condensed Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 2000, unaudited and the year ended December 31, 1999................5
Condensed Consolidated Statements of Cash Flows, unaudited for the
three months ended March 31, 2000 and 1999.......................................................6
Notes to Condensed Consolidated Financial Statements.............................................7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................10
Item 3: Quantitative and Qualitative Disclosures about Market Risk......................................13
PART II: OTHER INFORMATION
Item 1: Legal Proceedings...............................................................................15
Item 2: Changes in Securities and Use of Proceeds.......................................................15
Item 3: Defaults Upon Senior Securities.................................................................15
Item 4: Submission of Matters to a Vote of Security Holders.............................................15
Item 5: Other Information...............................................................................15
Item 6: Exhibits and Reports on Form 8-K................................................................15
Signatures......................................................................................16
</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 the Company,
the Bank and the Bank's wholly-owned subsidiary, FNEF, 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.
The following important factors could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements of the Company. All forward-looking statements speak only as of the
date on which such statements are made, and the Company does not undertake any
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time and it is not possible for management to predict all of such factors, nor
can it assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. The most
significant factors that could cause the assumptions underlying the
forward-looking statements and the actual results of the Company to differ
materially from those expressed in or implied by those forward-looking
statements include, but are not limited to the following:
/bullet/ adverse general economic conditions and/or adverse economic
conditions in the counties our banking centers are located;
/bullet/ intense competition for depositors and borrowers from
financial institutions with much greater resources than the
Bank;
/bullet/ fiscal and monetary policies of the U.S. government;
/bullet/ changes in interest rates and
/bullet/ adverse changes in laws and regulations.
These and other risks and uncertainties affecting the Company, all
of which are difficult to predict and many of which are beyond the control of
the Company, are discussed in greater detail in this report and in other filings
by the Company with the Securities and Exchange Commission. Accordingly, all
forward-looking 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.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
============================================================================================================
MARCH 31, DECEMBER 31,
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (unaudited)
Cash and amounts due from depository institutions $ 42,857 $ 73,054
Interest-bearing deposits in other financial institutions 74,763 41,201
Federal funds sold 3,595
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 117,620 117,850
Investments available-for-sale 795,174 792,125
Investments held to maturity (Market value of $137,305 and $139,383 at
March 31, 2000 and December 31, 1999, respectively) 145,383 147,275
Loans receivable - net 1,890,119 1,822,433
Loans held for sale (Market value of $52,500 and $62,000 at March 31, 2000
and December 31, 1999, respectively) 52,500 62,000
Property and equipment - net 64,225 65,349
Other real estate owned - net 1,416 2,004
Federal Home Loan Bank Stock 29,214 34,821
Goodwill - net 17,367 17,715
Bank owned life insurance 53,702 58,039
Deferred taxes - net 19,006 16,564
Accrued interest receivable 17,173 16,986
Other assets 38,560 39,051
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,241,459 $ 3,192,212
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 2,036,514 $ 2,064,936
Federal Home Loan Bank advances and other borrowings 487,082 618,996
Securities sold under agreements to repurchase 449,920 248,521
Senior debentures, net of unamortized issuance costs 20,396 20,531
Advances from borrowers for taxes and insurance 9,463 5,908
Bank drafts payable 16,337 11,208
Other liabilities 26,049 21,450
- ------------------------------------------------------------------------------------------------------------
Total liabilities 3,045,761 2,991,550
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value; 500,000,000 shares authorized; 50,748,419 issued
shares; outstanding 48,758,419 and 49,696,419 (net of
treasury stock) at March 31, 2000 and December 31, 1999, respectively 508 508
Treasury stock (1,990,000 and 1,052,000 shares repurchased at March 31, 2000
and December 31, 1999, respectively) (20) (11)
Additional paid-in capital 117,682 124,931
Retained earnings 99,680 94,934
Accumulated other comprehensive loss, net of taxes (22,152) (19,700)
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 195,698 200,662
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,241,459 $ 3,192,212
============================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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<CAPTION>
=========================================================================================================
THREE MONTHS ENDED
MARCH 31,
------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 2000 1999
- ---------------------------------------------------------------------------------------------------------
INTEREST INCOME: (unaudited) (unaudited)
<S> <C> <C>
Interest and fees on loans $38,198 $39,891
Interest and dividends on investments 16,943 12,398
- ---------------------------------------------------------------------------------------------------------
55,141 52,289
- ---------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 18,680 22,587
Interest on borrowings 12,969 5,758
- ---------------------------------------------------------------------------------------------------------
31,649 28,345
- ---------------------------------------------------------------------------------------------------------
Net interest income 23,492 23,944
Provision for loan losses 1,000 500
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 22,492 23,444
- ---------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 3,224 3,117
Net gain on sales of loans 508 952
Net gain on sales of investments available-for-sale 321 96
Net gain on real estate transactions 1,912
Other income 3,129 1,809
- ---------------------------------------------------------------------------------------------------------
9,094 5,974
- ---------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Employee compensation and benefits 9,111 9,010
Occupancy and equipment 4,591 4,422
Professional fees 364 416
Advertising and promotion 240 298
Communications 912 715
Insurance 403 462
Data processing 1,331 548
Other 3,155 2,431
Merger expenses 2,381
- ---------------------------------------------------------------------------------------------------------
20,107 20,683
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 11,479 8,735
Income tax expense 3,784 3,183
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 7,695 $ 5,552
=========================================================================================================
INCOME APPLICABLE TO COMMON STOCK $ 7,695 $ 5,552
=========================================================================================================
PER SHARE DATA:
Basic earnings $ 0.16 $ 0.11
Diluted earnings $ 0.16 $ 0.11
Dividends $ 0.06 $ 0.06
- ---------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES AND COMMON STOCK EQUIVALENTS OUTSTANDING:
Basic 48,840 50,500
Diluted 49,279 51,236
=========================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
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THREE MONTHS ENDED
MARCH 31,
---------------------------
(AMOUNTS IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Net income $ 7,695 $ 5,552
Other comprehensive income, net of tax:
Unrealized loss on investments available-for-sale arising during the period,
net of taxes of ($1,440) and ($1,907) in 2000 and 1999, respectively (2,231) (2,801)
Reclassification adjustment for amounts realized on sale of investments
included in net income, net of taxes of ($130) and ($36) in 2000 and 1999,
respectively (221) (60)
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 5,243 $ 2,691
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
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ACCUMULATED
ADDITIONAL COMPREHENSIVE
COMMON PAID-IN RETAINED INCOME (LOSS)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) STOCK CAPITAL EARNINGS NET OF TAXES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 $ 497 $ 128,044 $ 77,732 $ 1,705
- ---------------------------------------------------------------------------------------------------
Exercise of stock options - 1,071,290 shares 11 5,613
Purchase of treasury stock - 1,052,000 shares (11) (8,726)
Cash dividends (11,978)
Cash dividends paid by pooled company (289)
Net income 29,469
Changes in accumulated other comprehensive
income (loss), net of taxes (21,405)
- ---------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 497 124,931 94,934 (19,700)
===================================================================================================
Purchase of treasury stock - 938,000 shares (9) (7,249)
Cash dividends (2,949)
Net income 7,695
Changes in accumulated other comprehensive
income (loss), net of taxes (2,452)
- ---------------------------------------------------------------------------------------------------
BALANCE MARCH 31, 2000 (UNAUDITED) $ 488 $ 117,682 $ 99,680 $ (22,152)
===================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
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THREE MONTHS ENDED
MARCH 31,
-------------------------
(AMOUNTS IN THOUSANDS) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES: (unaudited) (unaudited)
<S> <C> <C>
Net income $ 7,695 $ 5,552
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,000 500
Depreciation and amortization 2,388 2,014
Amortization of deferred loan fees and costs 129 229
Net gain on sales of loans (508) (952)
Proceeds from loan sales, net 9,031 33,415
Net gain on sales of investments available-for-sale (321) (96)
Other - net 10,231 (4,193)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,645 36,469
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of investments available-for-sale (36,532) (71,787)
Proceeds from sales of investments available- for- sale 16,739 37,430
Principal payments on securities 15,999 40,551
Loans purchased for investment (51,889) (14,831)
Net (increase) decrease in loans (16,844) 48,978
Net sales (purchases) of property and equipment 98 (5,334)
Other - net 11,698 1,338
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (60,731) 36,345
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts, Money Market accounts and savings accounts 28,571 265,648
Net decrease in time deposits (56,993) (287,128)
Purchase of treasury stock, at cost (7,258)
Decrease in FHLB advances (131,914) (6,099)
Purchase of senior debentures (2,027)
Net increase (decrease) in securities sold under agreements to repurchase 201,399 (430)
Cash dividends (2,949) (3,176)
Other - net 4,768
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 30,856 (28,444)
- -----------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (230) 44,370
Cash and cash equivalents at beginning of period 117,850 181,141
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 117,620 $ 225,511
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 1,000 $ 165
Cash paid for interest on deposits and other borrowings $ 31,067 $ 27,598
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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"), as well as the Bank's wholly owned
subsidiaries, RS Maritime Corporation d/b/a First New England Financial
("FNEF") and RSAM Holdings, Inc. (collectively, the "Company"). All
significant intercompany balances and transactions have been eliminated
in consolidation. 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 March 31, 2000 and December 31,
1999, and the results of its operations and comprehensive income for
the three months ended March 31, 2000 and 1999 and its cash flows for
the three months then ended.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. Operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. 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, 1999.
The statement of financial condition at December 31, 1999 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.
2. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
At March 31, 2000, the Bank had $14.8 million in
non-performing assets (loans 90 days or more past due, other real
estate owned and repossessed assets) compared to $18.4 million at
December 31, 1999. The provision for loan losses was $1.0 million and
$0.5 million for the three months ended March 31, 2000 and 1999,
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 $22.3 million at
March 31, 2000 and December 31, 1999.
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.
7
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
An analysis of changes in the allowance for loan losses is
summarized as follows:
<TABLE>
<CAPTION>
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THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS) 2000
- --------------------------------------------------------------------------------
<S> <C>
Beginning balance $ 22,301
Reserves acquired in connection with purchase of loans 618
Provision for losses 1,000
Recoveries 402
Charge-offs (2,068)
- --------------------------------------------------------------------------------
Ending balance $ 22,253
- --------------------------------------------------------------------------------
</TABLE>
3. 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 March 31, 2000, the Bank had adjustable rate commitments to
extend credit of approximately $266.0 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.
8
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
=========================================================================================
THREE MONTHS ENDED
MARCH 31,
------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 2000 1999
- -----------------------------------------------------------------------------------------
Numerator:
<S> <C> <C>
Net income - numerator for basic and diluted earnings per share $ 7,695 $ 5,552
=========================================================================================
Denominator:
Denominator for basic earnings per share - weighted average shares 48,840 50,500
Effect of dilutive securities - employee stock options 439 736
- -----------------------------------------------------------------------------------------
Denominator for diluted earnings per share 49,279 51,236
=========================================================================================
Basic earnings per share $ 0.16 $ 0.11
Diluted earnings per share $ 0.16 $ 0.11
=========================================================================================
</TABLE>
At March 31, 2000, 2,386,125 stock options at a weighted
average exercise price of $8.93 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
months ended March 31, 2000. The effect of these shares is antidilutive
to diluted earnings per share for the three months ended March 31,
2000.
During the fourth quarter of fiscal 1999, the Company's Board
of Directors authorized a common stock repurchase program of up to 2.0
million shares or approximately 4% of the Company's shares outstanding
at the time. On March 22, 2000, the Company's Board of Directors
approved a second common stock repurchase program of up to an
additional 2.0 million shares or approximately 4% of the Company's
outstanding shares. The second 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. During the fourth quarter of 1999 and through March 31,
2000, the Company repurchased an aggregate of 2.0 million of its shares
under this program.
5. SUBSEQUENT EVENTS
On April 6, 2000, Republic executed a definitive agreement to
acquire National Horizon, Inc. ("NHI"), a marine finance lender. The
Company plans to merge NHI into FNEF. The transaction closed on April
28, 2000.
On April 26, 2000, the Bank executed a definitive agreement to
acquire the assets of Spectrum Financial Corporation, a specialized
financial services company engaged in providing receivable-based
commercial financing and related fee-based credit, collections and
management information services. The transaction is expected to close
in early May, following the receipt of applicable consents.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
RESULTS OF OPERATIONS
The Company's net income for the three months ended March 31,2000
was $7.7 million or $0.16 basic and diluted earnings per common share, compared
to $5.6 million or $0.11 basic and diluted earnings per common share for the
three months ended March 31, 1999. Excluding certain merger related expenses,
net income for the three months ended March 31, 1999 was $7.9 million or $0.16
per share. Net interest income decreased $452,000 for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999 due to a
decrease in net interest margin. Non-interest income increased $3.1 million or
52.2%, while operating expenses (excluding merger expenses) increased $1.8
million or 9.9% for the three months ended March 31, 2000 compared to the three
months ended March 31, 1999.
NET INTEREST INCOME
The $452,000 decrease in net interest income for the three months
ended March 31, 2000 is due to an increase of $3.3 million in interest expense
offset by an increase of $2.9 million in interest income. Approximately $1.6
million of the increase in interest income is attributable to an increase of
$83.5 million in interest-earning assets and approximately $1.3 million of the
increase is due to an 18 basis points increase in yield on interest earning
assets. The average outstanding balance for investments increased $185.8 million
during the three months ended March 31, 2000 compared to the three months ended
March 31, 1999, which was offset in part by a $102.3 million reduction in the
average outstanding balance for loans.
The $3.3 million increase in interest expense for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999 is
comprised of approximately $2.0 million attributable to an increase of $173.6
million in interest-bearing liabilities and approximately $1.3 million due to a
20 basis points increase in the cost of interest-bearing liabilities. The
increase in the cost of interest-bearing liabilities is due to increases in
market interest rates. Net interest margin decreased 16 basis points to 3.26%
for the three months ended March 31, 2000 compared to 3.42% for the three months
ended March 31, 1999, while net interest spread remained flat for the respective
periods. Net interest margin decreased primarily due to the purchase of
approximately $50.0 million of non-interest bearing assets with related income
that is recorded as fee income. Management expects further margin compression
throughout the year 2000 due to the increases in interest rates by the Federal
Reserve made in the first quarter of 2000 and expected future Federal Reserve
interest rate hikes throughout the remainder of the year. However, management
remains focused on strategies to increase fee income as well as growth
opportunities to maintain or increase overall income.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $0.5 million for the three
months ended March 31, 2000 compared to the three months ended March 31, 1999.
The increase in the provision was based on management's assessment of the
characteristics of the Bank's loan portfolio, as well as developments with
respect to the rising interest rate environment and other economic
considerations.
NON-INTEREST INCOME
Non-interest income increased $3.1 million for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999. The
increase is due to a $1.3 million increase in other income, attributable
primarily to $0.7 million earned on the Bank's life insurance investment
program, along with gains of $1.9 million on real estate transactions and, also
contributing to the increase in non-interest income, were increases in service
charges on deposit accounts of $107,000 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.
10
<PAGE>
OPERATING EXPENSES
Excluding the effects of $2.4 million in merger related expenses
incurred during the three months ended March 31, 1999, total operating expenses
increased $1.8 million for the three months ended March 31, 2000 compared to the
three months ended March 31, 1999. The increase in operating expenses is
primarily due to increases in data processing and other expenses, which
increased $783,000 and $724,000, respectively. Data processing expenses
increased as a result of adding the operations of acquired businesses to the
Bank's outside data processor. Other operating expenses increased primarily due
to the Bank's overall growth and franchise expansion, including $137,000 in
increased amortization expense associated with the acquisition of nine bank
branches and the FNEF marine loan operation. The expansion of the Bank's
operations also included adding new Trust services offices and new business
banking locations. As a result of such expansion, courier expenses increased
$123,000 and other operating expenses increased $218,000 during the three months
ended March 31, 2000 compared to the three months ended March 31, 1999. Employee
compensation and benefits increased $101,000 due to additions to staff and
additions to the Company's senior management team, offset in part by a reduction
in the outstanding accrual relating to Stock Appreciation Rights. Costs
associated with occupancy and equipment and communication expenses also
experienced increases directly as a result of the expansion in the Company's
operations of $169,000 and $197,000, respectively. Certain operating expenses
decreased during the three months ended March 31, 2000 compared to the three
months ended March 31, 1999. Professional fees, advertising and promotion, and
insurance expenses decreased by $52,000, $58,000 and $59,000, respectively.
Insurance expense decreased primarily due to decreases in FDIC premiums that are
directly tied to deposit balances. The Company incurred $2.4 million in merger
expenses during the three months ended March 31, 1999 in connection with the
acquisition of Northside.
PROVISION FOR INCOME TAXES
Income tax expense increased $601,000 for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999 due to an
increase in income before income taxes of $2.7 million, offset by a reduction in
the effective tax rate from 36% to 33%. The decrease in the effective tax rate
is due primarily to certain tax planning strategies that have been implemented
by the Bank. During the latter part of 1999, the Bank established a subsidiary
to hold certain interests in a real estate investment trust ("REIT"). The REIT
was established to hold certain loan portfolios transferred from the Bank,
currently comprised primarily of commercial loans secured by real estate.
Interest earnings of the REIT are not subject to certain state income taxes.
LOAN PORTFOLIO
The following table sets forth the composition of the Bank's loan
portfolio by type (excluding loans held for sale) at the periods indicated:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
------------------------------------------------------------
(amounts in thousands) Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------
TYPE OF LOAN:
<S> <C> <C> <C> <C>
Commercial real estate $ 425,109 22% $ 400,168 22%
Residential property 841,511 44 856,443 46
Construction 83,752 4 73,264 4
Consumer 282,588 15 250,088 14
Yacht 166,448 9 138,928 7
Commercial business 109,267 6 122,695 7
- ----------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,908,675 100% 1,841,586 100%
- ----------------------------------------------------------------------------------------------------------
Less:
Discounts, premiums and deferred loan fees (3,697) (3,148)
Allowance for loan losses 22,253 22,301
- ----------------------------------------------------------------------------------------------------------
TOTAL $ 1,890,119 $ 1,822,433
- ----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
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 financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to judgments by the regulators about components,
risk weighting, 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 March 31, 2000:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Total risk based capital $223,901 11.65%
Tier 1 risk based capital $201,269 10.47%
Leverage capital $201,269 6.92%
- --------------------------------------------------------------------------------------------------
</TABLE>
The most recent notification from the Federal Reserve Bank
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. At March 31, 2000, the Bank exceeded each of the
regulatory capital requirements and was considered a "well capitalized"
institution for regulatory purposes.
To the extent that the demand for loan funds exceeds cash available
from deposits, the Bank may borrow funds from the Federal Home Loan Bank of
Atlanta, draw on lines of credit with commercial banks and/or enter into
repurchase agreements on eligible investments. Cash and cash equivalents
decreased by approximately $230,000 during the three months ended March 31,
2000. (See "Financial Condition").
FINANCIAL CONDITION
Total assets increased approximately $49.2 million during the three
months ended March 31, 2000 due primarily to an increase of $58.2 million in
total net loans, offset by decreases in Federal Home Loan Bank ("FHLB") stock
and bank owned life insurance of $5.6 million and $4.3 million, respectively.
The increase in loans is primarily due to the purchase of $52.0 million in
commercial real estate loans, $20.7 million in loan production and the purchase
of approximately $33.4 million in yacht loans originated by FNEF, offset by loan
sales and loan paydowns. The decrease in FHLB stock is attributable to a
reduction in the outstanding balance of the Bank's advances from the FHLB. The
FHLB requires member banks to invest in its stock based on the levels of
outstanding borrowings on the part of such banks.
Total liabilities increased approximately $54.2 million due
primarily to an increase of $201.4 million in borrowings associated with
securities sold under agreements to repurchase ("repurchase agreements"), offset
by decreases in total deposits and FHLB advances and other borrowings of $28.4
million and $131.9 million, respectively. The Company increased its borrowings
under repurchase agreements to fund the reduction in outstanding advances from
the FHLB and the anticipated run-off of certain certificates of deposit, which
totaled $57.0 million during the three months ended March 31, 2000. While
certificates of deposits decreased, other lower yielding and non-interest
bearing deposits increased approximately $29.0 million since December 31, 1999.
The majority of the certificate of deposit run-off is primarily higher priced
certificates of deposit acquired in the acquisition of FPBB in October 1998 that
continue to run-off under the Bank's pricing. In response to recent interest
rate increases by the Federal Reserve, the Bank has increased its pricing.
However, management expects certificates of deposit run-off to continue,
although the rate of such run-off is expected to decline from the levels
experienced during recent periods. The increase in repurchase agreements was
also used to fund loan purchases and loan production.
12
<PAGE>
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. 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 loan
portfolio, concentrated primarily within Palm Beach, Martin, Broward, Dade, Lee
and Hillsborough counties in 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 its portfolio, increasing or decreasing the
relative amounts of long-term and short-term borrowings and deposits and/or
purchasing commitments to sell loans.
The following table presents the Bank's exposure to interest rate
risk at March 31, 2000:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
MARCH 31, 2000
---------------------------------------------------------------------
ONE YEAR OR 1 TO 3 3 TO 5 OVER 5
LESS YEARS YEARS YEARS TOTAL
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest-earning assets $ 1,061,383 $ 732,702 $ 511,516 $ 649,154 $ 2,954,755
Total interest-bearing liabilities 1,890,944 337,817 41,343 369,170 2,639,274
----------- ----------- ----------- ----------- -----------
Interest rate sensitivity gap ($ 829,561) $ 394,885 $ 470,173 $ 279,984 $ 315,481
=========== =========== =========== =========== ===========
Cumulative interest rate sensitivity gap ($ 829,561) ($ 434,676) $ 35,497 $ 315,481
=========== =========== =========== ===========
Cumulative interest rate sensitivity gap as a percent
of total assets (25.68)% (13.5)% 1.10% 9.77%
=========== =========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 and savings account
balances are assumed to reprice with a lag between three and twelve
months to any change in market rates, and are included in one year or
less. NOW account deposits are assumed to be non-interest sensitive and
are included in one year or less. All other assets and liabilities have
been repriced based on the earlier of repricing or contractual
maturity. The above assumptions are annual percentages based on the
latest available assumptions and on remaining balances and should not
be regarded as indicative of the actual prepayments and withdrawals
that may be experienced by 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 was committed to fund $266.0 million
in new loans and $53.1 million in construction loans-in-process at March 31,
2000. 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 reduce the effects that interest rate
fluctuations have on income.
13
<PAGE>
At March 31, 2000, the Bank's one-year, cumulative interest rate
sensitivity gap as a percentage of total assets was (25.68)%, which reflects a
slight increase from (22.2)% at December 31, 1999. Management expects to reduce
the interest rate exposure of the Bank as it continues to effect changes in the
asset and liability mix during the remainder of fiscal 2000.
The current potential changes in future earnings relating to financial
assets and liabilities as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
POTENTIAL CHANGE IN FUTURE EARNINGS
YEAR 1
- ---------------------------------------------------------------------------------------
INTEREST RATE CHANGE IN BASIS POINTS:
<S> <C>
+ 100 (12.90)%
- 100 7.90%
- ---------------------------------------------------------------------------------------
</TABLE>
The most significant assumptions used in this simulation relate
primarily to the repricing rates of demand and other non-maturity
deposits and loan 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 rate 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 in nine months following a
1% decrease in the market rate. Loan 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 that 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.
14
<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
The annual meeting of shareholders of Republic Security
Financial Corporation was held on April 26, 2000. The following matter
was voted upon; election of five directors, each for a term of three
years.
The results of the votes are as follows:
<TABLE>
<CAPTION>
VOTES CAST:
----------- BROKER
FOR AGAINST WITHHELD ABSTAIN NON-VOTE
--- ------- -------- ------- --------
3 YEAR TERM
- -----------
<S> <C> <C> <C>
R. Randy Guemple 38,344,907 2,385,207 N/A
Richard J. Haskins 38,038,069 2,692,045 N/A
Eugene W. Hughes 38,311,074 2,419,040 N/A
Lennart E. Lindahl, Jr. 38,312,436 2,417,678 N/A
Bruce E. Wiita, M.D. 38,312,118 2,417,996 N/A
</TABLE>
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) During the three months ended March 31, 2000, the
Company filed a Current Report on Form 8-K dated January
24, 2000, reporting its earnings for the quarter and
fiscal year ended December 31, 1999.
15
<PAGE>
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: MAY 11, 2000 /S/ RICHARD J. HASKINS
----------------------------------------
Richard J. Haskins
Senior Executive Vice President & CFO
(Principal Financial Officer)
Date: MAY 11, 2000 /S/ CARLA H. POLLARD
----------------------------------------
Carla H. Pollard
Senior Vice President/Controller
(Duly Authorized Officer)
16
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 42,857
<INT-BEARING-DEPOSITS> 74,763
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 795,174
<INVESTMENTS-CARRYING> 145,383
<INVESTMENTS-MARKET> 137,305
<LOANS> 1,964,872
<ALLOWANCE> 22,253
<TOTAL-ASSETS> 3,241,459
<DEPOSITS> 2,036,514
<SHORT-TERM> 469,134
<LIABILITIES-OTHER> 51,849
<LONG-TERM> 488,264
0
0
<COMMON> 118,170
<OTHER-SE> 77,528
<TOTAL-LIABILITIES-AND-EQUITY> 3,241,459
<INTEREST-LOAN> 38,198
<INTEREST-INVEST> 16,943
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 55,141
<INTEREST-DEPOSIT> 18,680
<INTEREST-EXPENSE> 12,969
<INTEREST-INCOME-NET> 31,649
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 321
<EXPENSE-OTHER> 20,107
<INCOME-PRETAX> 11,479
<INCOME-PRE-EXTRAORDINARY> 11,479
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,695
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
<YIELD-ACTUAL> 3.26
<LOANS-NON> 13,377
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 22,301
<CHARGE-OFFS> 2,068
<RECOVERIES> 402
<ALLOWANCE-CLOSE> 22,253
<ALLOWANCE-DOMESTIC> 22,253
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,740
</TABLE>
