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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-14671
REPUBLIC SECURITY FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-2335075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 SOUTH AUSTRALIAN AVENUE (561) 655-8511
WEST PALM BEACH, FL 33401 (Registrant's telephone number,
(Address of principal executive offices) (Zip Code) including area code)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 16, 2000 was approximately $287,719,069. The number
of shares outstanding of the Registrant's $.01 par value Common Stock as of
March 16, 2000 was 48,758,419.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain information required by Part III is incorporated by reference to
portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders.
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<PAGE>
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1 -- BUSINESS
General .............................................................. 1
Lending Activities ................................................... 1
Servicing of Mortgage Loans .......................................... 6
Non-Performing Assets and Allowance for Loan Losses .................. 6
Investment Activities ................................................ 8
Deposits ............................................................. 9
Borrowings ........................................................... 9
Market Area and Competition .......................................... 10
Subsidiary Activities ................................................ 11
Employees ............................................................ 11
REGULATION AND SUPERVISION ............................................ 12
ITEM 2 -- PROPERTIES .................................................. 24
ITEM 3 -- LEGAL PROCEEDINGS ........................................... 30
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......... 30
PART II
ITEM 5 -- MARKET FOR REPUBLIC SECURITY FINANCIAL CORPORATION'S
COMMON STOCK AND RELATED SHAREHOLDER MATTERS ................ 31
ITEM 6 -- SELECTED FINANCIAL DATA ..................................... 32
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ......................... 35
Corporate Overview ................................................... 35
Results of Operations ................................................ 38
Net Interest Income .................................................. 39
Interest Income ...................................................... 40
Interest Expense ..................................................... 40
Provision for Loan Losses and Allowance for Loan Losses .............. 43
Non-Interest Income .................................................. 45
Operating Expenses ................................................... 46
Income Taxes ......................................................... 47
Liquidity ............................................................ 47
Capital Compliance ................................................... 48
Impact of Inflation .................................................. 49
Financial Condition .................................................. 49
Impact of Year 2000 .................................................. 49
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .......................................... 51
i
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PAGE
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ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............. 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies ................... 59
2. Mergers and Branch Acquisitions .............................. 63
3. Investments .................................................. 68
4. Loans Receivable--Net ........................................ 70
5. Non-Performing Loans and Allowance for Loan Losses ........... 70
6. Property and Equipment ....................................... 71
7. Deposits ..................................................... 72
8. Securities Sold Under Agreements to Repurchase ............... 73
9. FHLB Advances and Other Borrowings ........................... 73
10. Senior Debentures ............................................ 74
11. Shareholders' Equity ......................................... 75
12. Stock Option, Other Incentive Plans, Pension and
Other Postretirement Benefit Plans ........................... 76
13. Capital Compliance ........................................... 80
14. Commitments and Contingencies ................................ 80
15. Related Party Transactions ................................... 81
16. Income Taxes ................................................. 82
17. Earnings per Share ........................................... 84
18. Parent Company Financial Information ......................... 85
19. Fair Values of Financial Instruments ......................... 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................ 90
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE .................. 93
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS ....................... 93
ITEM 11 -- EXECUTIVE COMPENSATION ................................. 93
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ........................................... 93
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......... 93
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K .................................. 94
SIGNATURES ........................................................ 97
ii
<PAGE>
PART 1
ITEM 1. BUSINESS
GENERAL
Republic Security Financial Corporation (the "Company") was incorporated
in Florida in 1983 as a commercial bank holding company. The Company's
principal business is the operation of a commercial bank business through its
wholly-owned subsidiary, Republic Security Bank (the "Bank"), a state chartered
commercial bank. The Bank commenced operations on November 19, 1984, and is a
member of the Federal Home Loan Bank ("FHLB") System. Its deposits are insured
by the Federal Deposit Insurance Corporation (the "FDIC") up to applicable
limits. In November 1995, the Company and the Bank received all necessary
federal and state regulatory approvals and converted from a thrift charter to a
commercial bank holding company and a State of Florida chartered commercial
bank.
The Bank provides a variety of banking and financial services including
trust and investment services to businesses and retail customers primarily in
the South Florida markets. In addition, through its RS Maritime Corporation
d/b/a First New England Financial ("FNEF") subsidiary, the Bank provides yacht
loan financing in various strategic markets located in several states.
The Bank is currently the largest independent commercial bank
headquartered in Florida. The Bank has 98 banking facilities, of which 58 are
traditional branches and 40 are in-store supermarket branches. The Bank has 38
branches located in Palm Beach County, 23 in Broward County, 12 in Dade County,
10 in Hillsborough County, 5 in Lee County, 4 in Martin and Marion counties, 3
in Alachua County and one each in Orange, Pasco, and St. Lucie counties. Palm
Beach County is the third largest banking market in Florida and has the third
largest population base; Broward County is the State's second largest banking
market and has the second largest population base and Dade County is the
largest banking market in Florida with the State's largest population base.
On February 26, 1999, the Company acquired Northside Bank of Tampa
("Northside"), a Florida state commercial bank headquartered in Tampa, Florida
with one additional branch located in Tampa. The acquisition was accounted for
as a pooling of interests and resulted in the Bank acquiring assets of $74.6
million, including total loans of $39.6 million, total deposits of $63.6
million and equity of $9.9 million. All information contained herein has been
retroactively restated to include the accounts and results of operations of
Northside.
On June 11, 1999, the Bank acquired nine bank branches operating in Kash
N' Karry supermarkets from First National Bank of Central Florida for
approximately $1.0 million, which was paid in cash. The Bank assumed $27.6
million in deposits in connection with the acquisition.
On July 30, 1999, the Bank acquired the assets of FNEF, a marine loan
production operation, from John Deere Credit, Inc. for approximately $6.8
million. FNEF was founded in 1976 and is one of the premier names in the yacht
lending market place. The Bank acquired the brand name "First New England
Financial" and the 1-800-BOAT-LOAN phone number, as well as proprietary loan
processing software and professional staff in three regional offices located in
Ft. Lauderdale, Florida; Shelton, Connecticut and Newport, California. In
addition, FNEF has four satellite offices located in Alameda, California;
Manasquan, New Jersey; Annapolis, Maryland and Portsmouth, Rhode Island. The
Company operates FNEF as a wholly-owned subsidiary of the Bank.
LENDING ACTIVITIES
GENERAL. Under applicable regulations, the Bank originates, purchases and
sells loans or participating interests in loans. See "Regulatory
Matters--Federal Regulation" for a description of applicable regulations which
limit lending in relation to assets or net worth. The Bank originates,
1
<PAGE>
purchases and participates in loans for its own portfolio and for sale in the
secondary market. Lending activities include the origination and purchase of
commercial and residential mortgage loans, construction loans, commercial
business loans and consumer loans. Over 95% of the Bank's mortgage loans are
secured by property located in Florida.
The following tables set forth the composition of the Bank's loan
portfolio by type of loan (excluding loans held for sale) at the periods
indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1999 1998
----------------------- -----------------------
TYPE OF LOAN AMOUNT PERCENT AMOUNT PERCENT
- ----------------------------------- ------------- --------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
* Commercial real estate .......... $ 400,168 22% $ 408,185 20%
* Residential property ............ 856,443 46 1,150,250 57
* Construction loans .............. 73,264 4 69,889 4
---------- -- ---------- --
Total real estate loans ........... 1,329,875 72 1,628,324 81
---------- -- ---------- --
Consumer loans:
* Personal and other .............. 103,638 6 101,780 5
* Automobile ...................... 146,450 8 159,423 8
* Yacht ........................... 138,928 7
---------- --
Total consumer loans .............. 389,016 21 261,203 13
---------- -- ---------- --
Commercial business loans ......... 122,695 7 131,185 6
---------- -- ---------- --
TOTAL LOANS ....................... 1,841,586 100% 2,020,712 100%
---------- === ---------- ===
Less:
Discounts, premiums and
deferred loan fees ............... (3,148) (3,627)
Allowance for loan losses ......... 22,301 26,665
---------- ----------
TOTAL ............................. $1,822,433 $1,997,674
========== ==========
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
TYPE OF LOAN AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ----------------------------------- ------------- --------- ------------- --------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
* Commercial real estate .......... $ 356,635 18% $ 318,818 19% $ 240,980 16%
* Residential property ............ 1,102,464 58 916,630 54 864,287 59
* Construction loans .............. 113,475 6 126,147 7 115,226 8
---------- -- ---------- -- ---------- --
Total real estate loans ........... 1,572,574 82 1,361,595 80 1,220,493 83
---------- -- ---------- -- ---------- --
Consumer loans:
* Personal and other .............. 76,902 4 68,302 4 52,390 3
* Automobile ...................... 175,937 9 201,999 12 131,841 9
* Yacht ...........................
Total consumer loans .............. 252,839 13 270,301 16 184,231 12
---------- -- ---------- -- ---------- --
Commercial business loans ......... 89,689 5 78,706 4 73,901 5
---------- -- ---------- -- ---------- --
TOTAL LOANS ....................... 1,915,102 100% 1,710,602 100% 1,478,625 100%
---------- === ---------- === ---------- ===
Less:
Discounts, premiums and
deferred loan fees ............... (6,674) (8,493) (2,388)
Allowance for loan losses ......... 13,677 20,007 10,622
---------- ---------- ----------
TOTAL ............................. $1,908,099 $1,699,088 $1,470,391
========== ========== ==========
</TABLE>
The following table sets forth at December 31, 1999, the principal amounts
of the Bank's loans with contractual maturities during the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------------
MATURING
---------------------------------------------------------------------
AFTER 1 YEAR
WITHIN 1 YEAR THROUGH 5 YEARS AFTER 5 YEARS TOTAL
--------------- ----------------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate:
Residential(1) ................. $134,993 $101,553 $ 743,615 $ 980,161
Construction and lot ........... 57,338 10,571 2,074 69,983
Commercial ..................... 103,587 86,882 137,754 328,223
Commercial business ............. 65,238 73,911 28,797 167,946
Consumer ........................ 97,917 149,441 113,063 360,421
-------- -------- ---------- ----------
Total ........................... $459,073 $422,358 $1,025,303 $1,906,734
======== ======== ========== ==========
Maturing after one year with:
Variable interest rates ......... $ 355,583
Fixed interest rates ............ 1,092,078
----------
Total ........................... $1,447,661
==========
<FN>
- ----------------
(1) Includes loans held for sale.
</FN>
</TABLE>
The Bank provides commercial and residential real estate loans,
construction loans, commercial business loans and consumer loans. Loans secured
by real estate generally include commercial and residential real estate loans
to refinance or purchase existing properties, commercial and residential
construction loans, land acquisition and development loans and home equity
loans.
2
<PAGE>
REAL ESTATE MORTGAGE LOANS. The Bank's real estate mortgage loans, which
totaled $1.3 billion or 72% of the Bank's total loan portfolio as of December
31, 1999, consist of commercial and residential mortgage loans, which are
secured by existing properties and commercial and residential construction
loans. Loans secured by commercial properties generally have terms ranging from
fifteen to twenty years and interest rate adjustment periods ranging from
monthly to five years. Amortization periods for commercial mortgage loans
generally do not exceed 25 years. Commercial real estate loans originated by
the Bank are primarily secured by income-producing properties such as office
buildings, warehouse buildings, retail space and multi-family properties.
Generally, in underwriting commercial real estate loans, the Bank requires the
personal guaranty of borrowers, a maximum loan to value ratio of 80%, and a
minimum cash flow to debt service ratio of 1.25 to 1.
The Bank's residential mortgage loans have terms which do not exceed 30
years and are secured by one-to-four family residences. Loans made from 80% to
95% of the appraised value of the financed residences are primarily originated
with private mortgage insurance, which essentially insures that portion of the
loan which is in excess of 80% of the appraised value of the financed
residences. As of December 31, 1999, the loan portfolio includes an immaterial
amount of residential loans which have loan to value ratios of greater than
80%, when originated, and have no private mortgage insurance. The Bank believes
that these loans, which are made in the normal course of business from time to
time, have not resulted in a significantly greater loss experience than the
aggregate residential mortgage portfolio and these loans generally have higher
yields. As of December 31, 1999, the Bank's residential loan portfolio
consisted of 31% of ARMs and 69% of fixed rate loans.
Residential mortgage loans generally are underwritten by the Bank in
accordance with guidelines of the Federal Home Loan Mortgage Corporation
("FHLMC") and the Federal National Mortgage Association ("FNMA"). The Bank is
an approved seller/servicer for FNMA and FHLMC.
Included in real estate loans are construction loans which comprised
approximately 4% of the Bank's total loan portfolio as of December 31, 1999.
The construction loan portfolio of approximately $73.3 million as of December
31, 1999 is net of $41.0 million of loans in process and is primarily comprised
of one-to-four family residential properties, multi-family properties and
commercial real estate properties.
The Bank originates one-to-four family residential loans to individuals
with approved permanent loan financing and through developers on a pre-sold and
speculative basis. The Bank's underwriting guidelines regarding residential
construction loans require an analysis of the financial condition of the
developer or the borrower, the appraised value of the property, and the
marketability of the proposed residence, including location, and overall
portfolio concentrations. Limitations are imposed by the Bank on the aggregate
outstanding principal balance of loans for the purpose of construction of
residences that have not been pre-sold.
Construction loans generally provide for terms of between 6 and 18 months
with interest only payments. Loan proceeds are advanced as construction
progresses and inspections warrant. Construction loans are structured either to
be converted to permanent loans at the end of the construction phase, or to be
paid off upon receipt of financing from another lender. Generally, the Bank's
construction loans provide for variable rate interest, although fixed rate
loans are issued in some cases. Fixed rate construction loans outstanding at
December 31, 1999 were $12.9 million.
The Bank's construction loans are secured by first mortgages on the
underlying real estate and have loan-to-value ratios which generally do not
exceed 80%. All such loans provide for recourse to the borrower or a related
individual in the event of a default.
Included in the total construction loan portfolio are commercial
construction loans in the amount of $32.8 million as of December 31, 1999. Such
loans have characteristics very similar to those of residential construction
loans, apart from the nature of the collateral which is generally comprised of
properties intended for commercial use or speculative basis. The Bank generally
utilizes the services
3
<PAGE>
of third party engineering firms to verify the percentage completed on such
projects prior to funding advances under commercial construction loans.
Construction loans afford the Bank the opportunity to increase the
interest rate sensitivity of its loan portfolio and to receive yields higher
than those obtainable on adjustable-rate mortgage loans secured by existing
residential properties. These higher yields correspond to the higher credit
risks associated with construction lending. Historically, the Bank has obtained
its construction loans through its retail loan officer and branch network, and
also through the wholesale broker network. These loans are generally made to
the homeowner and may or may not involve an end loan commitment.
In certain circumstances, the Bank offers construction loan commitments to
selected builders. These commitments are for pre-sold, speculative, model and
contract construction loans, the collateral for which is individually analyzed
and approved prior to closing. The commitment is a pre-approval of the builder
on a credit basis only to determine the maximum level of exposure the Bank
wishes to have.
Construction loans involve additional risks attributable to the fact that
loan funds are advanced upon the completion of the construction phases, which
security may be of uncertain value prior to its completion. Because of the
uncertainties inherent in estimating construction costs, as well as the market
value of the completed property (which is often beyond the control of the
borrower), and the effects of governmental regulation on real property, it is
relatively difficult to evaluate accurately the total funds required to
complete the construction phases and the related loan-to-value ratio. As a
result of the foregoing, construction lending often involves the disbursement
of substantial funds with repayment dependent, in part, on the successful
completion of the property rather than on the ability of the borrower or
guarantor to repay principal and interest. If the Bank is forced to foreclose
on a property prior to or at completion due to a default, there can be no
assurance that the Bank will be able to recover all of the unpaid balance of,
and accrued interest on, the loan, as well as the related foreclosure and
holding costs. In addition, the Bank may be required to fund additional amounts
to complete a project and may have to hold the property for an indeterminable
period of time. The Bank has underwriting procedures designed to identify what
it believes to be acceptable levels of risk for residential and commercial
construction lending.
CONSUMER LOANS. Consumer loans are extended for a variety of purposes
including the purchase of automobiles, yachts, home improvement, lines of
credit, unsecured personal loans and education. As of December 31, 1999,
consumer loans were approximately $389.0 million, or 21% of total loans. Loans
secured by automobiles and yachts comprise the most significant components of
consumer loans. At December 31, 1999, loans secured by automobiles were $146.5
million, or 8% of total loans. Historically, the Bank has obtained automobile
loans from both its retail branch network and indirectly through referrals from
automobile dealerships. Substantially all of these indirect automobile loans
were obtained from dealerships located within the Bank's market area. During
1999, the Bank discontinued its indirect automobile loan program with the
dealerships that were generating such loans, and is no longer originating
automobile loans from this source.
On July 30, 1999, the Bank purchased $108.0 million in yacht loans from
John Deere Credit, Inc. The outstanding balance of yacht loans was $138.9
million, or 7% of total loans, at December 31, 1999. The Bank's FNEF subsidiary
is engaged in originating yacht loans, a portion of which are retained by the
Bank in its loan portfolio. The Bank's strategy is to retain approximately 50%
of the yacht loans originated by FNEF and to sell the remaining loans to third
party banks and other financial institutions.
Consumer loan underwriting standards include an examination of the
applicant's payment history on other debts and an evaluation of the applicant's
ability to meet existing obligations and payments on the proposed loan.
Although creditworthiness of the applicant is of primary importance, the
underwriting process also includes a comparison of the value of the security,
if any, in relation to the proposed loan amount. While consumer loans,
excluding yacht loans, generally involve a higher
4
<PAGE>
element of credit risk than one-to-four family residential loans, consumer
loans are typically made at higher interest rates and for shorter terms, or at
adjustable rates, and are helpful in maintaining a profitable spread between
the Bank's loan yield and its cost of funds. Lending in this area may involve
special risks, including decreases in the value of collateral and transaction
costs associated with foreclosure and repossession. With respect to consumer
yacht loans, such loans generally involve a lower element of credit risk in
comparison to other consumer or residential loans and contribute to building a
mixed portfolio base while keeping transaction costs associated with
foreclosure and repossession to a minimum. In addition to the underwriting
standards applicable to all consumer loans, yacht loan underwriting procedures
also include an evaluation of the customer's net worth and liquidity, along
with a thorough evaluation of the collateral to ensure that loan amounts are
applicable in relation to the vessel values.
COMMERCIAL BUSINESS LOANS. Total commercial business loans were $122.7
million, or 7% of the Bank's total loan portfolio as of December 31, 1999.
Commercial business loan underwriting practices assess the borrower's
creditworthiness and ability to repay, including an evaluation of the value of
any collateral securing the proposed loan. While commercial business loans
generally are made for shorter terms and at a higher yields than one-to-four
family residential loans, such loans generally involve a higher level of risk
than one-to-four family residential loans.
Included in total commercial business loans are Small Business
Administration ("SBA") loans, which totaled approximately $7.7 million at
December 31, 1999. SBA loans are underwritten in accordance with the guidelines
of the SBA. These loans are made to small businesses and usually require that
significant collateral be assigned to the Bank from the borrower. Typically,
the SBA guarantees 70% to 90% of the loan balance with the remaining portion
unguaranteed. The Bank is permitted to sell the SBA-guaranteed portion of the
loan in secondary markets, with the Bank retaining the portion that is not
guaranteed. SBA loans are similar to commercial business loans in yield and
credit risk.
In February 2000, the Bank established a small business loan division
within its commercial business loan operations. The new division includes
marketing and underwriting personnel dedicated to the small business loan
market, which the Bank characterizes as loans up to an aggregate of $250,000 to
an individual or business entity. The Bank expects to increase its small
business loan originations during 2000. The small business loan division
utilizes a more efficient underwriting criteria based on "credit scoring" that
accommodates the characteristics of this market. The Bank has staffed this unit
with experienced underwriters and commercial lenders resulting in a "high tech,
high touch" lending to small businesses. Such underwriting criteria uses
specialized software to facilitate the credit approval process by quantifying
certain risks with respect to such small business loans.
OTHER LENDING ACTIVITIES. The Bank may also extend loans for other
purposes from time to time, including land acquisition and development and
residential lot loans.
LENDING PROCEDURES. Loan applications may be approved by the Board of
Directors, the Board Loan Committee, the Management Loan Committee or the Loan
Officer and Credit Officer if the loan is within delegated authority limits.
The analysis of each loan application includes the applicant's and guarantor's
or co-borrower's, if applicable, credit history, debt service ability,
financial conditions, collateral and management team (if business loan).
The Management Loan Committee is currently comprised of the Senior
Executive Vice President-Chief Banking Officer, Senior Executive Vice
President-Chief Credit Officer, Senior Vice President-Senior Commercial Credit
Officer, Senior Vice President-Business Banking Officer and two alternates, the
President/Chief Executive Officer and the Senior Executive Vice President-Chief
Financial Officer. The Board of Directors or the Board Loan Committee approves
all loans in excess of Management Loan Committee's established limits.
5
<PAGE>
SERVICING OF MORTGAGE LOANS
The Bank services virtually all of its loan portfolio, as well as loan
participations sold to others. The Bank has historically serviced loans
pursuant to the purchase of servicing rights; however during 1999, the Bank
sold substantially all of its loan servicing rights with respect to loans
serviced for others, and is no longer actively engaged in such operations. As
of December 31, 1999, the Bank was servicing approximately $1.2 million in
mortgage loans and mortgage loan participations for other lenders.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The Bank's non-performing assets consist of other real estate owned (real
estate acquired through foreclosures), non accruing loans and loans which are
90 days or more past due and still accruing. Generally, accrued interest on
loans which are more than 90 days past due is excluded from income and any
previously accrued and unpaid interest is reversed through interest income.
Non-performing assets as of December 31, 1999 were approximately $18.3 million,
representing .58% of the Company's total assets.
The following table sets forth the Bank's non-performing assets at the
periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans:
Consumer ................................ $ 2,114 $ 1,416 $ 1,621 $ 1,735 $ 356
Commercial business ..................... 0 1,797 1,539 754 1,050
Residential mortgage .................... 6,138 6,955 11,490 15,986 5,741
Residential construction ................ 0 598 0 572 107
Commercial mortgage ..................... 8,117 3,395 698 3,562 4,201
Repossessed automobiles ................. 0 800 672 1,798 566
------- ------- ------- ------- -------
Total non-performing loans ............ 16,369 14,961 16,020 24,407 12,021
------- ------- ------- ------- -------
Other real estate owned:
Residential construction ................ 0 0 3,504 4,700 4,096
Residential mortgage .................... 1,327 1,768 4,328 2,897 2,194
Land for residential use ................ 0 145 0 1,329 1,051
Land for commercial use ................. 0 733 188 243 857
Commercial real estate .................. 677 0 0 1,349 1,386
------- ------- ------- ------- -------
Total other real estate owned ......... 2,004 2,646 8,020 10,518 9,584
------- ------- ------- ------- -------
Total non-performing assets ............ $18,373 $17,607 $24,040 $34,925 $21,605
======= ======= ======= ======= =======
</TABLE>
The slight increase in non-performing assets as of December 31, 1999
compared to December 31, 1998 is primarily attributable to an increase in
non-performing commercial mortgage loans, offset by decreases in non-performing
commercial business, residential loans and repossessed automobiles. The
increase in non-performing commercial mortgage loans as of December 31, 1999 is
due primarily to two loans with outstanding balances of approximately $2.9
million and $1.3 million, respectively. Management does not expect to incur
significant losses in the disposal of these properties. The reduction of
non-performing assets as of December 31, 1998, as compared to December 31,
1997, is primarily due to the sale of other real estate owned during 1998.
Total non-performing assets decreased $10.9 million as of December 31, 1997, as
compared to December 31, 1996 due to the reduction in non-performing
residential mortgage loans and non-performing commercial mortgage loans. The
reduction in non-performing loans can be attributed to the resolution of the
$6.2 million residential development loans and $2.2 million in commercial
mortgage loans of a pooled company. Total non-performing assets increased $13.3
million as of December 31, 1996, as compared to
6
<PAGE>
December 31, 1995, due primarily to the significant increase in non-performing
residential mortgage loans and repossessed automobiles. The increase of $10.2
million in non-performing residential mortgage loans is due to the addition of
$6.2 million residential development loans to a single borrower of a pooled
company as of December 31, 1996. Repossessed automobiles increased $1.2 million
due to significant problems in First Palm Beach Bancorp ("FPBB")'s indirect
lending portfolio (see discussion at "Management's Discussion and
Analysis--Provision for Loan Losses and Allowance for Loan Losses"). The
remaining increase in non-performing assets is due to increases in the overall
loan portfolio.
The Bank's non-residential loans are periodically reviewed by the Bank's
management for the purpose of determining a loan's classification as special
mention, substandard, doubtful, or loss, as appropriate. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or the collateral pledged. "Substandard" assets
include those characterized by the distinct possibility that the Bank will
sustain some loss if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified as
substandard, with the added characteristic that the weaknesses present make
collection or liquidation in full on the basis of currently existing facts,
conditions, and values, highly questionable and improbable.
General allowances represent loss allowances which have been established
to recognize the inherent risk associated with lending activities. Unlike
specific allowances, general allowances have not been allocated to a particular
problem asset. Assets classified as loss are those considered uncollectible and
of such little value that continuance as assets is not warranted. The Bank will
charge off 100% of the assets classified as loss. The Bank's determination as
to the classification of its assets and the amount of its valuation allowances
is subject to review by the Federal Reserve Board ("FRB") and the Florida
Banking Department, which can order the establishment of additional general or
specific loss allowances.
Although the Bank uses its best judgment in underwriting each loan,
industry experience indicates that a portion of the Bank's loans will become
delinquent. Regardless of the underwriting criteria utilized by banks, losses
may be experienced as a result of many factors beyond their control including,
among other things, changes in market conditions affecting the value of
security and unrelated problems affecting the credit of the borrower. Due to
the concentration of loans in South Florida, adverse economic conditions in
this area could result in a decrease in the value of a significant portion of
the Bank's collateral.
In the normal course of business, the Bank has recognized and will
continue to recognize losses resulting from the inability of certain borrowers
to repay loans and the insufficient realizable value of collateral securing
such loans. Accordingly, management has established an allowance for loan
losses, which totaled approximately $22.3 million at December 31, 1999, which
is allocated according to the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1999 1998
---------------------- ----------------------
% OF % OF
ALLOWANCE LOANS TO ALLOWANCE LOANS TO
FOR LOAN TOTAL FOR LOAN TOTAL
LOSS LOANS LOSS LOANS
----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate construction
and lot loans ............... $ 429 4% $ 568 4%
Residential mortgage ......... 2,787 46 4,025 57
Commercial mortgage .......... 7,875 22 6,868 20
Commercial business .......... 1,143 7 977 6
Consumer ..................... 6,486 21 8,582 13
Unallocated .................. 3,581 5,645
------- --- ------- ---
TOTAL ........................ $22,301 100% $26,665 100%
======= === ======= ===
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ---------------------
% OF % OF % OF
ALLOWANCE LOANS TO ALLOWANCE LOANS TO ALLOWANCE LOANS TO
FOR LOAN TOTAL FOR LOAN TOTAL FOR LOAN TOTAL
LOSS LOANS LOSS LOANS LOSS LOANS
----------- ---------- ----------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate construction
and lot loans ............... $ 1,234 6% $ 1,044 7% $ 751 8%
Residential mortgage ......... 1,844 58 2,158 54 1,887 59
Commercial mortgage .......... 2,548 18 2,665 19 2,578 16
Commercial business .......... 1,408 5 594 4 965 5
Consumer ..................... 4,773 13 10,053 16 1,212 12
Unallocated .................. 1,870 3,493 3,229
------- --- ------- --- ------- ---
TOTAL ........................ $13,677 100% $20,007 100% $10,622 100%
======= === ======= === ======= ===
</TABLE>
7
<PAGE>
In evaluating the adequacy of the allowance for loan losses, management
has taken into consideration concentrations within the loan portfolio, past
loan loss experience, changes in the portfolio, current economic conditions,
workout arrangements, pending sales, the financial strength of the borrowers,
and the appraised value of the collateral at the time reserves were
established. Although management believes the allowance for loan losses is
adequate, their evaluation is dependent upon future events. Management's
evaluation of losses is a continuing process which may necessitate adjustments
to the allowance in future periods.
Management's evaluation of the allowance for loan losses includes applying
relevant risk factors to the entire loan portfolio, including non-performing
loans. Risk factors applied to the performing loan portfolio are based on the
Bank's past three year loss history considering the current portfolio's
characteristics, current economic conditions and other relevant factors.
Non-performing loans are carried at fair value based on the most recent
information available.
The following table details the charge-offs, recoveries, net charge-offs
and ending balance of the allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
AT OR FOR THE YEARS ENDED DECEMBER 31, ENDED
-------------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995
------------ ----------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning Balance .................................. $ 26,665 $13,677 $ 20,007 $ 10,622 $ 10,507
Reserves acquired in connection with purchase
business combinations ............................ 1,211 2,627
Net change in allowance for the three months
ended December 31, 1997, for pooled
company .......................................... (885)
Charge-offs:
*Real estate mortgage .............................. 1,214 2,308 1,923 1,621 442
*Real estate construction .......................... 344 19 2 411
*Consumer .......................................... 5,818 8,294 11,542 8,579 578
*Commercial business ............................... 1,111 163 952 818 217
-------- ------- -------- -------- --------
SUBTOTAL--Charge-offs .............................. 8,143 11,109 14,436 11,020 1,648
-------- ------- -------- -------- --------
Recoveries:
*Real estate mortgage .............................. 92 86 27 113 39
*Consumer .......................................... 1,613 515 2,272 479 141
*Commercial ........................................ 524 261 664 322 675
-------- ------- -------- -------- --------
SUBTOTAL--Recoveries ............................... 2,229 862 2,963 914 855
-------- ------- -------- -------- --------
Net charge-offs .................................... 5,914 10,247 11,473 10,106 793
Provision for loan losses .......................... 1,550 22,909 5,143 16,864 908
-------- ------- -------- -------- --------
Ending Balance ..................................... $ 22,301 $26,665 $ 13,677 $ 20,007 $ 10,622
======== ======= ======== ======== ========
Ratio of net charge-offs during the period to
average loans outstanding during that period ..... 0.30% 0.53% 0.64% 0.59% 0.06%
======== ======= ======== ======== ========
</TABLE>
INVESTMENT ACTIVITIES
The Bank is required by federal regulations to maintain minimum levels of
liquid assets. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity." The Bank considers such factors as
liquidity, yields, interest rate exposure and general economic conditions in
determining the composition of its investment portfolio. As of December 31,
1999, the Company had cash and cash equivalents of $117.9 million and
investments (including Federal Home Loan Bank Stock) of $974.2 million
representing, in the aggregate, 34% of its total assets. See Note 3 of Notes to
Consolidated Financial Statements.
8
<PAGE>
DEPOSITS
The Bank offers a variety of deposit programs, including non-interest
bearing accounts, NOW accounts, money market deposit accounts, statement
savings accounts, and variable- or fixed-rate certificates of deposit with
maturities ranging from 30 days to five years. The principal differences among
certificate accounts relate to minimum balance, term, interest rate, and method
of compounding. As of December 31, 1999, certificate accounts in the amount of
$100,000 or more amounted to approximately $218.3 million, representing 11% of
total deposits.
The following tables set forth the amounts and the weighted-average
interest rate on each category of the Bank's deposit accounts as of the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------------- --------------------------------------
WEIGHTED PERCENT WEIGHTED PERCENT
AVERAGE OF TOTAL AVERAGE OF TOTAL
AMOUNT STATED RATE DEPOSITS AMOUNT STATED RATE DEPOSITS
------------- ------------- ---------- ------------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
accounts ................... $ 307,509 15% $ 285,070 12%
NOW accounts ................ 208,500 0.75% 10 228,515 0.85% 10
Savings accounts ............ 296,561 3.35 14 360,384 3.59 15
Money market accounts ....... 176,330 3.44 9 170,017 3.41 7
Certificates of deposit ..... 1,076,036 5.31 52 1,324,374 5.60 56
---------- ---- --- ---------- ---- ---
TOTAL DEPOSITS .............. $2,064,936 3.61% 100% $2,368,360 4.00% 100%
========== ==== === ========== ==== ===
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
WEIGHTED PERCENT
AVERAGE OF TOTAL
AMOUNT STATED RATE DEPOSITS
------------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-interest bearing
accounts ................... $ 232,096 11%
NOW accounts ................ 190,063 1.56% 9
Savings accounts ............ 274,170 3.46 12
Money market accounts ....... 149,032 3.27 7
Certificates of deposit ..... 1,315,509 5.78 61
---------- ---- --
TOTAL DEPOSITS .............. $2,160,870 4.31% 100%
========== ==== ===
</TABLE>
BORROWINGS
Several credit options are made available to banks from time to time by
the FHLB to meet seasonal or other withdrawals of deposits and to permit the
expansion of lending activities. Each credit option has a specified maturity
and either a fixed or a variable interest rate determined by the FHLB. Rates
offered for variable rate FHLB borrowings are set from time to time by the
FHLB. FHLB policy prescribes the acceptable uses for which the proceeds of such
borrowings may be used. The Bank has a credit facility from the FHLB in the
amount of $638.8 million at December 31, 1999, based on the Bank's total
assets. At December 31, 1999, advances outstanding under the FHLB credit
facility totaled $618.1 million. The Bank also has the ability to draw on
existing lines of credit with two commercial banks for an aggregate amount of
$10.0 million. No amounts were drawn on the commercial bank lines at December
31, 1999, 1998 and 1997.
FHLB advances are collateralized by FHLB stock, mortgage loans and
mortgage backed securities pledged in accordance with agreements the Bank
entered into with the FHLB. In accordance with the agreements, the Bank had
pledged as collateral loans with an aggregate principal balance of
approximately $422.4 million, $388.9 million and $604.2 million at December 31,
1999, 1998 and 1997, respectively. At December 31, 1999, 1998 and 1997, the
Bank also had pledged mortgage backed securities in the amount of
$233.1million, $57.4 million and $23.5 million, respectively.
From time to time the Bank enters into repurchase agreements with
customers, securities dealers and commercial banks. A repurchase agreement is a
form of securities borrowing which involves the sale and delivery of securities
by the Bank to an independent safekeeping agent, securities broker or dealer in
an amount equal to a percentage of the fair market value of the securities,
coupled with the Bank's agreement to repurchase the securities at a later date.
The Bank pays the customer, broker or dealer a variable or fixed rate of
interest for the use of the funds for the period involved which ranges from
overnight to two years. At maturity, the loans are repaid and the securities
are returned to the Bank. The amount of securities sold under such agreements
vary widely and depend on many factors which include the terms available for
such transactions, the ability of the Bank to apply the proceeds to investments
having higher returns, the demand for such transactions, and management's
perception of trends in short-term interest rates. The Bank, in each such
transaction, requires the broker or
9
<PAGE>
dealer to adhere to procedures for the safekeeping of the Bank's securities. As
of December 31, 1999, the Bank had $248.5 million outstanding in repurchase
agreements.
The following table presents selected information on borrowings:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FHLB ADVANCES AND OTHER BORROWINGS:
Amounts outstanding at end of year ........... $ 618,996 $ 410,368 $ 454,322 $ 235,880 $ 197,125
Weighted average rate at end of year ......... 5.61% 5.49% 6.05% 5.91% 6.20%
Maximum amount outstanding at any
month end .................................. $ 618,996 $ 514,097 $ 454,322 $ 238,100 $ 198,125
Approximate average amount outstanding
during year ................................ $ 420,580 $ 376,252 $ 232,071 $ 202,158 $ 149,776
Approximate weighted average rate
for year ................................... 5.48% 5.67% 5.94% 5.98% 6.12%
SECURITIES SOLD UNDER
AGREEMENT TO REPURCHASE:
Amounts outstanding at end of year ........... $ 248,521 $ 9,144 $ 43,389 $ 24,613 $ 27,660
Weighted average rate at end of year ......... 5.81% 3.88% 5.27% 4.78% 5.65%
Maximum amount outstanding at any
month end .................................. $ 248,521 $ 29,394 $ 45,542 $ 43,021 $ 87,314
Approximate average outstanding
during year ................................ $ 85,106 $ 11,391 $ 27,001 $ 20,105 $ 46,519
Approximate weighted average rate
for year ................................... 5.33% 4.43% 5.41% 5.10% 5.65%
TOTAL BORROWINGS:
Amounts outstanding at end of year ........... $ 867,517 $ 419,512 $ 497,711 $ 260,493 $ 224,785
Weighted average rate at end of year ......... 5.67% 5.45% 6.00% 5.79% 6.13%
Maximum amount outstanding at any
month end .................................. $ 867,517 $ 543,491 $ 472,467 $ 281,121 $ 283,439
Approximate average amount outstanding
during year ................................ $ 505,686 $ 387,643 $ 259,072 $ 222,263 $ 196,295
Approximate weighted average rate
for year ................................... 5.45% 5.63% 5.89% 5.90% 6.01%
</TABLE>
On June 30, 1997, FPBB issued $35.0 million of 10.35% Senior Debentures,
maturing on June 30, 2002. The interest on the Senior Debentures is payable
semi-annually in arrears on June 30 and December 31 of each year. The net
proceeds of the debenture issuance were used for general corporate purposes,
including contributing $25.0 million of the net proceeds to the Bank. During
the quarter ended December 31, 1998 and throughout 1999, the Company purchased
an aggregate of $13.7 million of its Senior Debentures in an effort to reduce
the cost of interest-bearing liabilities. As of December 31, 1999, the net
outstanding balance of Senior Debentures was $20.5 million.
MARKET AREA AND COMPETITION
The Bank experiences strong competition both in attracting deposits and
originating loans in its South and Central Florida market areas. Direct
competition for loans and deposits comes from other commercial banks, savings
and loan associations, credit unions, money market funds, brokerage firms,
insurance companies and mortgage brokers. Competition in South Florida markets
is significant. The Bank also competes with companies engaged in offering
financial products and services through the Internet. Many of the Bank's
competitors have greater financial resources, larger branch networks, better
name recognition, greater economies of scale, fewer regulatory burdens, less
onerous capital
10
<PAGE>
requirements and larger employee bases than the Bank. The primary methods used
to attract deposit and loan accounts include interest rates, variety and
quality of products and services, convenience of branches and advertising and
promotions.
SUBSIDIARY ACTIVITIES
The Company has an inactive insurance agency subsidiary, Republic Security
Insurance Agency, which may act as an agent in the sale of mortgage life
insurance, credit life insurance and homeowner property insurance to customers
of the Bank. Subsidiaries of the Bank include RS Maritime Corporation d/b/a
First New England Financial and RSAM Holdings, Inc. RSAM Holdings, Inc. is a
Delaware chartered holding company established during 1999 to hold all the
common stock and more than 80% of the preferred stock of RS Asset Management
Corp., a real estate investment trust ("REIT"). The REIT was established in
1999 to hold certain loan portfolios transferred from the Bank comprised
primarily of commercial loans secured by real estate. The net outstanding
balance of loans in the REIT was approximately $207.9 million at December 31,
1999. RS Maritime Corporation is a Delaware chartered company engaged in yacht
financing.
EMPLOYEES
The Company and Bank employed approximately 880 persons as of December 31,
1999. The Company places a high priority on staff development, which involves
training in sales, operational procedures, customer service and regulatory
compliance. Extensive incentive programs that focus on and are dependent on the
achievement of certain financial and customer service goals are in place for
employees.
None of the Company's, the Bank's or FNEF's employees are subject to a
collective bargaining agreement, and the Company believes that its employee
relations are good.
11
<PAGE>
REGULATION AND SUPERVISION
GENERAL
The Bank is a Florida-chartered commercial bank and a member of the
Federal Reserve Bank of Atlanta, and its deposit accounts are insured up to
applicable limits by the Federal Deposit Insurance Corporation (the "FDIC").
The Company is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHCA"). The Bank is subject to supervision and
regulation by the Florida Department of Banking and Finance (the "FDBF") in its
capacity as a state chartered commercial bank, by the Board of Governors of the
Federal Reserve System (the "FRB") in its capacity as a member of the Federal
Reserve System and by the Federal Deposit Insurance Corporation (the "FDIC") in
its capacity as an insured depository institution. The Bank must file reports
with the FDBF, the FRB and the FDIC concerning its activities and financial
condition, and it must obtain regulatory approval prior to entering into
certain transactions, such as mergers with, or acquisitions of, other
depository institutions and opening branch offices. The FDBF and the FRB
conduct periodic examinations to assess the Bank's compliance with various
regulatory requirements. The Company is also subject to regulation and
supervision by the FRB as a bank holding company.
Certain of the laws and regulations applicable to the Bank and the Company
are summarized below or elsewhere herein. These summaries do not purport to be
complete and are qualified in their entirety by reference to the full text of
the statute or regulation to which they relate. Applicable laws and
regulations, as well as relevant enforcement, fiscal and monetary policies, are
subject to change at any time, and such changes may materially affect the
operations of the Company or the Bank. The Company cannot predict the nature or
extent of the effects on its business or earnings that may be occasioned by any
such changes.
FEDERAL BANK HOLDING COMPANY REGULATION
EXAMINATION AND REPORTING. The Company and Bank are subject to periodic
examination by the FRB and are required to file with the FRB periodic reports
of its operations and such additional information as the FRB may require. The
Bank is subject to periodic examination by the FDBF and is required to file
certain reports with the FDBF.
IMPACT OF ENACTMENT OF THE GRAMM-LEACH-BLILEY ACT. On November 12, 1999,
President Clinton signed the Gramm-Leach Bliley Act ("Gramm-Leach"), which
among other things, establishes a comprehensive framework to permit
affiliations among commercial banks, insurance companies and securities firms.
Generally, the new law (i) repeals the historical restrictions and eliminates
many federal and state law barriers to affiliations among banks and securities
firms, insurance companies and other financial service providers, (ii) provides
a uniform framework for the activities of banks, savings institutions and their
holding companies, (iii) broadens the activities that may be conducted by
subsidiaries of national banks and state banks, (iv) provides an enhanced
framework for protecting the privacy of information gathered by financial
institutions regarding their customers and consumers, (v) adopts a number of
provisions related to the capitalization, membership, corporate governance and
other measures designed to modernize the Federal Home Loan Bank System, (vi)
requires public disclosure of certain agreements relating to funds expended in
connection with an institution's compliance with the Community Retirement Act,
and (vii) addresses a variety of other legal and regulatory issues affecting
both day-to-day operations and long-term activities of financial institutions,
including the functional regulation of bank securities and insurance
activities.
Bank holding companies are now permitted to engage in a wider variety of
financial activities than permitted under the prior law, particularly with
respect to insurance and securities activities. In addition, in a change from
the prior law, bank holding companies are in a position to be owned, controlled
or acquired by any company engaged in financially related activities.
ACTIVITY RESTRICTIONS. The BHCA generally limits the Company's activities
to managing or controlling banks, furnishing services to or performing services
for its subsidiaries and engaging in
12
<PAGE>
other activities that the FRB determines to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In
determining whether a particular activity is permissible, the FRB must consider
whether the performance of such an activity reasonably can be expected to
produce benefits to the public that outweigh possible adverse effects. Possible
benefits include greater convenience, increased competition and gains in
efficiency. Possible adverse effects include undue concentration of resources,
decreased or unfair competition, conflicts of interest and unsound banking
practices. The FRB has determined the following activities, among others, to be
permissible for bank holding companies:
* Factoring accounts receivable;
* Acquiring or servicing loans;
* Leasing personal property;
* Conducting discount securities brokerage activities;
* Performing certain data processing services;
* Acting as agent or broker and selling credit life insurance and certain
other types of insurance in connection with credit transactions;
* Performing certain limited insurance underwriting activities;
* Acting as a fiduciary, investment or financial advisor;
* Making investments in corporations or projects designed primarily to
promote community welfare; and
* Acquiring savings and loan associations.
Effective March 11, 2000, Gramm-Leach expands the range of permitted
activities of certain bank holding companies to include the offering of
virtually any type of service that is financial in nature or incidental
thereto, including banking, securities underwriting, insurance (both
underwriting and agency), merchant banking, acquisitions of and combinations
with insurance companies and securities firms and additional activities that
the FRB, in consultation with the Secretary of the Treasury, determines to be
financial in nature, incidental to such financial activities, or complementary
activities that do not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally. In order to engage
in these new activities, a bank holding company must qualify and register with
the FRB as a financial holding company. To qualify as a financial holding
company, a bank holding company must demonstrate that each of its bank
subsidiaries is well-capitalized and well-managed and has a rating of
"satisfactory" or better under the Community Reinvestment Act of 1977 (the
"CRA"). Certain of the additional activities authorized under Gramm-Leach may
also be undertaken by a financial subsidiary of a bank. Under Gramm-Leach, a
functional system of regulation will apply to financial holding companies under
which banking activities will be regulated by the federal banking regulators,
securities activities will be regulated by the federal securities regulators,
and insurance activities will be subject to regulation by the appropriate state
insurance authorities.
Although the Company currently meets all standards required for
qualification as a financial holding company, it has not yet determined whether
it will seek to qualify as, or engage in any of the additional activities
authorized for, a financial holding company. The Company is exploring strategic
opportunities to determine whether, based on market conditions, the financial
condition of the Company and its subsidiaries, regulatory capital requirements,
general economic conditions and other requirements, it desires to utilize any
of the expanded powers permitted by Gramm-Leach.
13
<PAGE>
ACQUISITION AND SALE OF CONTROL. The BHCA and the Change in Bank Control
Act place restrictions on the acquisition of control of a bank holding company,
such as the Company. A conclusive presumption of control exists if an
individual or company acquires 25% or more of any class of voting securities of
the bank holding company. A rebuttable presumption of control exists if a
person acquires 10% or more but less than 25% of any class of voting securities
and either the Company has registered securities under Section 12 of the
Securities Exchange Act of 1934, as amended, or no other person will own a
greater percentage of that class of voting securities immediately after the
transaction. A person seeking to acquire control of a bank holding company
generally must obtain the prior approval of the FRB, or give prior notice to
the FRB and receive no objection or disapproval from the FRB to such
acquisition.
The BHCA also requires a bank holding company such as the Company to
obtain the approval of the FRB prior to, among other things: (i) acquiring all
or substantially all of the assets of any bank; (ii) acquiring direct or
indirect ownership or control of 5% of the outstanding voting stock of any bank
(unless it owns a majority of such bank's voting shares), or (iii) merging or
consolidating with any other bank holding company. The BHCA also generally
prohibits a bank holding company from (i) acquiring or retaining direct or
indirect ownership or control of more than 5% of the outstanding voting stock
of any company which is not a bank or bank holding company, or (ii) engaging
directly or indirectly in activities other than those of banking, managing or
controlling banks, or performing services for its subsidiaries unless such
non-banking business is determined by the FRB to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto or,
in the case of a financial holding company or activities conducted through a
financial subsidiary, such activity is authorized for the financial holding
company or financial subsidiary, as applicable.
CAPITAL; DIVIDENDS; SHARE REPURCHASES; SOURCE OF STRENGTH. The FRB imposes
certain capital requirements on the Company under the BHCA, including a minimum
leverage ratio and a minimum ratio of "qualifying" capital to risk-weighted
assets. These requirements are described below under "Capital Requirements."
Subject to its capital requirements and certain other restrictions, the Company
is able to borrow money to make a capital contribution to the Bank, and such
loans may be repaid from dividends paid from the Bank to the Company (although
the ability of the Bank to pay dividends will be subject to regulatory
restrictions as described below under "Federal Bank Regulation--Dividends").
The Company is also able to raise capital for contribution to the Bank by
issuing securities without having to receive regulatory approval, subject to
compliance with federal and state securities laws.
A bank holding company, such as the Company, is required to give the FRB
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, will be equal to 10% or more of the Company's
consolidated net worth. The FRB may disapprove such a purchase or redemption if
it determines that the proposal would constitute an unsafe and unsound
practice, or would violate any law, regulation, FRB order or directive, or any
condition imposed by, or written agreement with, the FRB. Such notice and
approval is not required for a bank holding company that would be treated as
"well capitalized" under applicable regulations of the FRB, that has received a
composite "1" or "2" rating at its most recent bank holding company inspection
by the FRB, and that is not the subject of any unresolved supervisory issues.
In accordance with FRB policy, the Company is expected to act as a source
of financial strength to the Bank and to commit resources to support the Bank
in circumstances in which the Company might not otherwise do so. Under the
BHCA, the FRB may require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of
a bank) upon the FRB's determination that such activity or control constitutes
a serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.
14
<PAGE>
FEDERAL BANK REGULATION
ACTIVITY RESTRICTIONS ON STATE-CHARTERED BANKS. Section 24 of the Federal
Deposit Insurance Act, as amended ("FDIA"), which was added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), generally
limits the activities and investments of state-chartered FDIC insured banks and
their subsidiaries to those permissible for national banks and their
subsidiaries, unless such activities and investments are specifically exempted
by Section 24 or consented to by the FDIC.
Section 24 provides an exception for investments by a bank in common and
preferred stocks listed on a national securities exchange or the shares of
registered investment companies if (1) the bank held such types of investments
during the 14-month period from September 30, 1990 through November 26, 1991,
(2) the state in which the bank is chartered permitted such investments as of
September 30, 1991, and (3) the bank notifies the FDIC and obtains approval
from the FDIC to make or retain such investments. Section 24 also contains an
exception for certain majority owned subsidiaries, but the activities of such
subsidiaries are limited to those permissible for a national bank, permissible
under Section 24 of the FDIA and the FDIC regulations issued pursuant thereto,
or as approved by the FDIC.
Any bank that held an impermissible investment or engaged in an
impermissible activity and that did not receive FDIC approval to retain such
investment or to continue such activity was required to submit to the FDIC a
plan for divesting of such investment or activity as quickly and prudently as
possible. Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under Section 24 or
the FDIC regulations thereunder, an insured bank must seek approval from the
FDIC to make such investment or engage in such activity. The FDIC will not
approve the activity unless such bank meets its minimum capital requirements
and the FDIC determines that the activity does not present a significant risk
to the FDIC insurance funds.
Effective March 11, 2000, Gramm-Leach permits a state-chartered bank to
engage, through financial subsidiaries, in any activity in which a national
bank may engage through a financial subsidiary and on substantially the same
terms and conditions. In general, Gramm-Leach permits a national bank that is
well-capitalized and well-managed to conduct, through a financial subsidiary,
any activity permitted for a financial holding company other than insurance
underwriting, insurance investments, real estate investment or development or
merchant banking. The total assets of all such financial subsidiaries may not
exceed the lesser of 45% of the bank's total assets or $50 billion. The bank
must have policies and procedures to assess the financial subsidiary's risk and
protect the bank from such risk and potential liability, must not consolidate
the financial subsidiary's assets with the bank's and must exclude from its own
assets and equity all equity investments, including retained earnings, in the
financial subsidiary. State chartered banks may retain after March 11, 2000
existing subsidiaries engaged in activities that are not authorized under
Gramm-Leach; otherwise, Gramm-Leach will preempt all state laws authorizing a
broader or narrower range of activities for state chartered banks Although the
Bank meets all conditions necessary to establish and engage in permitted
activities through financial subsidiaries, it has not yet determined whether or
the extent to which it will seek to engage in such activities.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is member of the FHLB system,
which consists of twelve regional FHLBs, each subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB"), an agency created by
the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"). The
FHLB provides a central credit facility primarily for member thrift
institutions as well as other entities involved in home mortgage lending. The
Bank, as a member of the Atlanta-FHLB, is required to purchase and hold shares
of capital stock in that FHLB in an amount at least equal to the greater of (i)
1% of the aggregate principal amount of its unpaid mortgage loans, home
purchase contracts and similar obligations at the beginning of each year; (ii)
0.35% of its assets; or (iii) 5% (or such greater fraction as established by
the FHLB) of its advances from the FHLB. Pursuant to Gramm-Leach, the foregoing
minimum share ownership requirements will be replaced by
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regulations to be promulgated by the FHFB. Gramm-Leach specifically provides
that the minimum requirements in existence immediately prior to adoption of
Gramm-Leach shall remain in effect until such regulations are adopted. The Bank
is in compliance with this requirement. Each FHLB bank serves as a reserve or
central bank for its home financing members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLBs. It makes loans to members (i.e., advances) in
accordance with policies and procedures, including collateral requirements,
established by the respective boards of directors of the FHLBs. These policies
and procedures are subject to the regulation and oversight of the FHFB. All
long-term advances are required to provide funds for residential home
financing. The FHFB has also established standards of community or investment
service that members must meet to maintain access to such long-term advances.
FEDERAL RESERVE SYSTEM. The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily checking
accounts) and non-personal time deposits. The balances maintained to meet the
reserve requirements imposed by the FRB may be used to satisfy liquidity
requirements. Institutions are authorized to borrow from the Federal Reserve
Bank "discount window," but FRB regulations require institutions to exhaust
other reasonable alternative sources of funds, including FHLB advances, before
borrowing from the Federal Reserve Bank.
DIVIDENDS. The Bank is subject to legal limitations on the frequency and
amount of dividends that can be paid to the Company. The FRB may restrict the
ability of a bank to pay dividends if such payments would constitute an unsafe
or unsound banking practice. These regulations and restrictions may limit the
Company's ability to obtain funds from the Bank for its cash needs, including
funds for acquisitions and the payment of dividends, interest and operating
expenses. In addition, Florida law also places certain restrictions on the
declaration of dividends from state chartered banks to their holding companies.
Pursuant to Section 658.37 of the Florida Banking Code, the board of directors
of state chartered banks, after charging off bad debts, depreciation and other
worthless assets, if any, and making provisions for reasonably anticipated
future losses on loans and other assets, may quarterly, semi-annually or
annually declare a dividend of up to the aggregate net profits of that period
combined with the bank's retained net profits for the preceding two years and,
with the approval of the FDBF, declare a dividend from retained net profits
which accrued prior to the preceding two years. Before declaring such
dividends, 20% of the net profits for the preceding period as is covered by the
dividend must be transferred to the surplus fund of the bank until this fund
becomes equal to the amount of the bank's common stock then issued and
outstanding. A state chartered bank may not declare any dividend if (i) its net
income from the current year combined with the retained net income for the
preceding two years is a loss or (ii) the payment of such dividend would cause
the capital account of the bank to fall below the minimum amount required by
law, regulation, order or any written agreement with the FDBF or a federal
regulatory agency.
INSURANCE OF ACCOUNTS AND OTHER ASSESSMENTS. The majority of the Bank's
deposit accounts are insured by the Savings Association Insurance Fund ("SAIF")
and the remaining deposit accounts of the Bank are insured by the Bank
Insurance Fund ("BIF"). Both SAIF and BIF are insurance funds of the FDIC which
insure the respective deposit accounts of the Bank to a maximum of $100,000 for
each insured depositor. Pursuant to FDICIA, the FDIC established a system for
setting deposit insurance premiums based upon the risks a particular bank or
savings association posed to its deposit insurance funds. Under the risk-based
deposit insurance assessment system, the FDIC assigns an institution to one of
three capital categories based on the institution's financial information, as
of the reporting period ending six months before the assessment period,
consisting of (1) well capitalized (2) adequately capitalized or (3)
undercapitalized, and one of three supervisory subcategories within each
capital group. With respect to the capital ratios, institutions are classified
as well capitalized, or adequately capitalized using ratios that are
substantially similar to the prompt corrective action capital ratios discussed
below. Any institution that does not meet these two definitions is deemed to be
undercapitalized for this purpose. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information that the
FDIC determines to be relevant to the institution's financial condition and
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the risk posed to the deposit insurance funds (which may include, if
applicable, information provided by the institution's state supervisor). An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned. Under the final risk-based assessment system,
there are nine assessment risk classifications (i.e., combinations of capital
groups and supervisory subgroups) to which different assessment rates are
applied. Assessments rates for deposit insurance currently range from 0 basis
points to 27 basis points. The capital and supervisory subgroup to which an
institution is assigned by the FDIC is confidential and may not be disclosed. A
bank's rate of deposit insurance assessments will depend upon the category and
subcategory to which the bank is assigned by the FDIC. Any increase in
insurance assessments could have an adverse effect on the earnings of the Bank.
Effective January 1, 1997, DIFA also separated from the SAIF assessments
the Financing Corporation ("FICO") assessments which service the interest on
its bond obligations. According to the FDIC's risk-related assessment rate
schedules, the amount assessed on individual institutions by the FICO will be
in addition to the amount paid for deposit insurance. By law, the FICO rate on
BIF-assessable deposits must be one-fifth the rate on SAIF-assessable deposits
until the insurance funds are merged as specified in DIFA or until January 1,
2000, whichever occurs first. The federal banking agencies require an annual
audit by independent accountants of the Bank and make their own periodic
examinations of the Bank. They may revalue assets of an insured institution
based upon appraisals, and require establishment of specific reserves in
amounts equal to the difference between such revaluation and the book value of
the assets, as well as require specific charge-offs relating to such assets.
The federal banking agencies may prohibit any FDIC-insured institution from
engaging in any activity they determine by regulation or order poses a serious
threat to the insurance funds.
TRANSACTIONS WITH AFFILIATES. The authority of the Bank to engage in
transactions with related parties or "affiliates" or to make loans to insiders
is limited by certain provisions of law and regulations. Commercial banks, such
as the Bank, are prohibited from making extensions of credit to any affiliate
that engages in an activity not permissible under the regulations of the FRB
for a bank holding company. Pursuant to Sections 23A and 23B of the Federal
Reserve Act ("FRA"), member banks are subject to restrictions regarding
transactions with affiliates ("Covered Transactions"). With respect to any
Covered Transaction, the term "affiliate" includes any company that controls or
is under common control with the Bank, a bank or savings association subsidiary
of the Bank, any persons who own, control or vote more than 25% of any class of
stock of the Bank or the Company and any persons who the Board of Directors
determines exercises a controlling influence over the management of the Bank or
the Company. The term "affiliate"also includes any company controlled by
controlling stockholders of the Bank or the Company and any company sponsored
and advised on a contractual basis by the Bank or any subsidiary or affiliate
of the Bank. Such transactions between the Bank and its respective affiliates
are subject to certain requirements and limitations, including limitations on
the amounts of such Covered Transactions that may be undertaken with any one
affiliate and with all affiliates in the aggregate. The federal banking
agencies may further restrict such transactions with affiliates in the interest
of safety and soundness. Section 23A of the FRA limits Covered Transactions
with any one affiliate to 10% of an institution's capital stock and surplus and
limits aggregate affiliate transactions to 20% of the Bank's capital stock and
surplus. Sections 23A and 23B of the FRA provide that a loan transaction with
an affiliate generally must be collateralized (but may not be collateralized by
a low quality asset or securities issued by an affiliate) and that all Covered
Transactions, as well as the sale of assets, the payment of money or the
provision of services by the Bank to an affiliate, must be on terms and
conditions that are substantially the same, or at least as favorable to the
Bank, as those prevailing for comparable nonaffiliated transactions. A Covered
Transaction generally is defined as a loan to an affiliate, the purchase of
securities issued by an affiliate, the purchase of assets from an affiliate,
the acceptance of securities issued by an affiliate as collateral for a loan,
or the issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate. In addition, the Bank generally may not purchase securities issued
or underwritten by an affiliate.
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Loans to executive officers, directors or to any person who directly or
indirectly, or acting through or in concert with one or more persons, owns,
controls or has the power to vote more than 10% of any class of voting
securities of a bank ("Principal Shareholders") and their related interests
(i.e., any company controlled by such executive officer, director, or Principal
Shareholders), or to any political or campaign committee the funds or services
of which will benefit such executive officers, directors, or Principal
Shareholders or which is controlled by such executive officers, directors or
Principal Shareholders, are subject to Sections 22(g) and 22(h) of the FRA and
the regulations promulgated thereunder (Regulation O). Among other things,
these loans must be made on terms substantially the same as those prevailing on
transactions made to unaffiliated individuals and certain extensions of credit
to such persons must first be approved in advance by a disinterested majority
of the entire board of directors. Section 22(h) of the FRA prohibits loans to
any such individuals where the aggregate amount exceeds an amount equal to 15%
of an institution's unimpaired capital and surplus plus an additional 10% of
unimpaired capital and surplus in the case of loans that are fully secured by
readily marketable collateral, or when the aggregate amount on all such
extensions of credit outstanding to all such persons would exceed the Bank's
unimpaired capital and unimpaired surplus. Section 22(g) identifies limited
circumstances in which the Bank is permitted to extend credit to executive
officers.
STATE BANKING REGULATION
The FDBF supervises and regulates all areas of the Bank's operations,
including, without limitation, the making of loans, the issuance of securities,
the conduct of the Bank's corporate affairs, capital adequacy requirements, the
payment of dividends and the establishment or closing of branches. Various
Florida consumer laws, such as usury laws and laws relating to fiduciaries,
also affect the operations of the Bank.
As a state chartered banking institution in the state of Florida, the Bank
is empowered by statute, subject to the limitations contained in those
statutes, to take savings and time deposits and pay interest on them, to accept
checking accounts, to make loans on residential and other real estate, to make
consumer and commercial loans, to invest, with certain limitations, in equity
securities and in debt obligations of banks and corporations, and to provide
various other services to the Bank's customers. In 1999 the Florida legislature
passed a law repealing the Florida statute which prohibited financial
institutions from engaging in insurance agency activities except in small
towns. The new law sets out certain regulatory and customer disclosure
requirements applicable when a financial institution offers insurance products
along with other financial products. These requirements include (i) financial
institutions must disclose that choice of insurance provider will not affect
the institution's decision to extend credit; and (ii) financial institutions
must disclose that insurance products are not guaranteed against loss and may
expose the customer to investment risk. Otherwise, the new law effectively
treats banks and bank holding companies like other companies which can offer
insurance, if they comply with Florida's insurance laws.
CAPITAL REQUIREMENTS
The FRB has adopted capital adequacy guidelines for bank holding companies
and their subsidiary state-chartered banks that are members of the Federal
Reserve System. Bank holding companies and their subsidiary state-chartered
member banks must comply with the FRB's risk-based capital guidelines. The
risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and
bank holding companies, to account for off-balance sheet exposure, to minimize
incentives for holding liquid assets and to achieve greater consistency in
evaluating the capital adequacy of major banks throughout the world. Under
these guidelines assets and off-balance sheet items are assigned to broad risk
categories each with designated weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 Capital. Tier 1 Capital, which
includes common stockholders'
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equity, noncumulative perpetual preferred stock, and a limited amount of
cumulative perpetual preferred stock, less certain goodwill items and other
intangible assets, is required to equal at least 4% of risk-weighted assets. In
addition, based on guidance issued by the FRB in a press release, bank holding
companies may include trust preferred securities meeting certain requirements
in up to 25% of Tier 1 Capital. The remainder ("Tier 2 Capital") may consist of
(i) an allowance for loan losses of up to 1.25% of risk-weighted assets, (ii)
excess of qualifying perpetual preferred stock, (iii) hybrid capital
instruments, (iv) perpetual debt (for bank holding companies only), (v)
mandatory convertible securities, subordinated debt and intermediate-term
preferred stock up to 50% of Tier 1 Capital and (vi) unrealized gains on equity
securities and other assets. Total capital is the sum of Tier 1 and Tier 2
Capital less reciprocal holdings of other banking organizations' capital
instruments, investments in unconsolidated subsidiaries and any other
deductions as determined by the FRB (determined on a case by case basis or as a
matter of policy after formal rule making).
In computing total risk-weighted assets, bank and bank holding company
assets are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain
off-balance sheet items are given similar credit conversion factors to convert
them to asset equivalent amounts to which an appropriate risk-weight will
apply. Most loans will be assigned to the 100% risk category, except for
performing first mortgage loans fully secured by residential property, which
carry a 50% risk rating. Most investment securities (including, primarily,
general obligation claims on states or other political subdivisions of the
United States) will be assigned to the 20% category, except for municipal or
state revenue bonds, which have a 50% risk-weight, and direct obligations of
the U.S. Treasury or obligations backed by the full faith and credit of the
U.S. Government, which have a 0% risk-weight. In covering off-balance sheet
items, direct credit substitutes, including general guarantees and standby
letters of credit backing financial obligations, are given a 100% conversion
factor. Transaction-related contingencies such as bid bonds, standby letters of
credit backing non-financial obligations, and undrawn commitments (including
commercial credit lines with an initial maturity of more than one year) have a
50% conversion factor. Short-term commercial letters of credit are converted at
20% and certain short-term unconditionally cancelable commitments have a 0%
factor.
The federal bank regulatory authorities have also adopted regulations
which supplement the risk-based guideline. These regulations generally require
banks and bank holding companies to maintain a minimum level of Tier 1 Capital
to total assets less goodwill of 4% (the "leverage ratio"); provided, however,
that if the Bank has a composite rating of "1" under the Uniform Financial
Institutions Rating System, the minimum Tier 1 Capital ratio is 3%. Banking
organizations experiencing or anticipating significant growth, as well as those
organizations which do not satisfy the criteria described above, will be
required to maintain a minimum leverage ratio ranging generally from 4% to 5%.
The FRB also continues to consider a "tangible Tier 1 leverage ratio" in
evaluating proposals for expansion or new activities. The tangible Tier 1
leverage ratio is the ratio of a banking organization's Tier 1 Capital, less
deductions for intangibles otherwise includable in Tier 1 Capital, to total
tangible assets. The minimum ratios referred to above are merely guidelines and
the FRB possesses the discretionary authority to require higher ratios with
respect to bank holding companies and state-member banks. The Company and the
Bank currently exceed the requirements contained in FRB regulations, policies
and directives pertaining to capital adequacy, and management of the Company
and the Bank are not aware of any violation or alleged violation of these
regulations, policies or directives.
OTHER FEDERAL REGULATION
INTERSTATE BANKING AND BRANCHING. The BHCA was amended in September 1994
by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"). The Interstate Banking Act provides that, effective
September 29, 1995, adequately capitalized and managed bank holding companies
were permitted to acquire banks in any state. State laws prohibiting interstate
banking or discriminating against out-of-state banks are preempted as of the
effective date. States were not permitted to enact laws opting out of this
provision; however, states were allowed to adopt a minimum age restriction
requiring that target banks located within the state be in existence
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for a period of years, up to a maximum of five years, before such bank may be
subject to the Interstate Banking Act. The Interstate Banking Act establishes
deposit caps which prohibit acquisitions that result in the acquiring company
controlling 30 percent or more of the deposits of insured banks and thrift
institutions held in the state in which the target maintains a branch or 10
percent or more of the deposits nationwide. States have the authority to waive
the 30 percent deposit cap. State-level deposit caps are not preempted as long
as they do not discriminate against out-of-state companies, and the federal
deposit caps apply only to initial entry acquisitions. The Interstate Banking
Act also provides that as of June 1, 1997, adequately capitalized and managed
banks are able to engage in interstate branching by merging with banks in
different states. States were permitted to enact legislation authorizing
interstate mergers earlier than June 1, 1997, or, unlike the interstate banking
provision discussed above, states were permitted to opt out of the application
of the interstate merger provision by enacting specific legislation before June
1, 1997.
Florida responded to the enactment of the Interstate Banking Act by
enacting the Florida Interstate Branching Act (the "Florida Branching Act")
which became effective on May 31, 1997. The purpose of the Florida Branching
Act was to permit interstate branching, effective June 1, 1997, through merger
transactions under the Interstate Banking Act. Under the Florida Branching Act,
with the prior approval of the FDBF, a Florida bank may establish, maintain and
operate one or more branches in a state other than the State of Florida
pursuant to a merger transaction in which the Florida bank is the resulting
bank. In addition, the Florida Branching Act provides that one or more Florida
banks may enter into a merger transaction with one or more out-of-state banks,
and an out-of-state bank resulting from such transaction may maintain and
operate the branches of the Florida bank that participated in such merger. An
out-of-state bank, however, is not permitted to acquire a Florida bank in a
merger transaction unless the Florida bank has been in existence and
continuously operated for more than three years.
COMMUNITY REINVESTMENT ACT. CRA requires a financial institution to help
meet the credit needs of its entire community, including low-income and
moderate-income areas. The regulations adopt a performance-based evaluation
system which bases CRA ratings on an institution's actual lending, service and
investment performance, rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with other
procedural requirements. Federal banking agencies may take CRA compliance into
account when regulating and supervising bank and holding company activities;
for example, CRA performance may be considered in approving proposed bank
acquisitions and extensions of powers and the qualification of financial
holding companies.
TYING ARRANGEMENTS. The BHCA also prohibits bank holding companies and
their affiliates from tying the provision of certain services, such as
extending credit, to other services offered by the bank holding company or its
affiliates.
PRIVACY STANDARDS. Pursuant to Gramm-Leach, financial institutions are
required to establish a policy governing the collection, use and protection of
non-public information about their customers and consumers, provide notice of
such policy to consumers and provide a mechanism for consumers to opt out of
any practice of the institution whereby nonpublic personal information would
otherwise be disclosed to unaffiliated third parties. The federal banking
agencies, jointly with the Federal Trade Commission and the Securities and
Exchange Commission, have published proposed regulations to implement the
privacy standards of Gramm-Leach. Under the regulations, the Company and the
Bank will be required to adopt and implement a privacy policy no later than
November 13, 2000. The Company and the Bank are in the process of determining
the extent to which the privacy standards will affect their operations.
SAFETY AND SOUNDNESS; ENFORCEMENT. The FDIC and the FRB have extensive
enforcement authority over bank holding companies and their depository
institution subsidiaries. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease and desist
orders and to remove directors and officers, to order divestitures and withhold
approval of the acquisition of a business or the exercise of powers, to
terminate deposit insurance coverage and to
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place a depository institution in receivership. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and
to unsafe or unsound practices.
Pursuant to the requirements of FDICIA, as amended by the Riegle Community
Development and Regulatory Improvement Act of 1994, each federal banking agency
has adopted guidelines establishing general standards relating to internal
controls, information and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, asset quality, earnings,
and compensation, fees and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. In addition, the FRB adopted
regulations to require a state member bank that is given notice that it is not
satisfying any of such safety and soundness standards to submit a compliance
plan to the FRB. If, after being so notified, a bank fails to submit an
acceptable compliance plan or fails in any material respect to implement an
accepted compliance plan, the FRB may issue an order directing corrective and
other actions of the types to which a significantly undercapitalized
institution is subject under the "prompt corrective action" provisions of
FDICIA. If a bank fails to comply with such an order, the FRB may seek to
enforce such an order in judicial proceedings and to impose civil monetary
penalties.
FDICIA also established a system of prompt corrective action to resolve
the problems of undercapitalized institutions. The FRB has adopted regulations
governing the supervisory actions that may be taken against state member banks
and their holding companies. The regulations establish five categories,
consisting of "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." Generally,
an institution will be treated as "well capitalized" if its ratio of total
capital to risk-weighted assets is at least 10%, its ratio of Tier 1 capital to
risk-weighted assets is at least 6%, its ratio of Tier 1 capital to total
assets is at least 5%, and it is not subject to any order or directive to meet
a specific capital level. An institution will be treated as "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8%, its ratio of Tier 1 capital to risk-weighted assets is at least 4%, and its
ratio of Tier 1 capital to total assets is at least 4% (3% if the bank receives
the highest rating under the Uniform Financial Institutions Rating System and
is not experiencing or expecting significant growth) and it is not a
well-capitalized institution. An institution that has total risk-based capital
of less than 8%, Tier 1 risk-based-capital of less than 4% or a leverage ratio
that is less than 4% (or less than 3% if the institution is rated a composite
"1" under the Uniform Financial Institutions Rating System and is not
experiencing or expecting significant growth) would be considered to be
"undercapitalized." An institution that has total risk-based capital of less
than 6%, Tier 1 capital of less than 3% or a leverage ratio that is less than
3% would be considered to be "significantly undercapitalized," and an
institution that has a tangible capital to assets ratio equal to or less than
2% would be deemed to be "critically undercapitalized."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital deteriorates
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to
any controlling person if, following such distribution, the bank would be
undercapitalized. The FRB is required to monitor closely the condition of an
undercapitalized state member bank and to restrict the growth of its assets. An
undercapitalized bank is required to file a capital restoration plan within 45
days of the date the bank receives notice that it is within any of the three
undercapitalized categories, and the plan must be guaranteed by any parent
holding company. The aggregate liability of a parent holding company is limited
to the lesser of: (i) an amount equal to the five percent of the bank's total
assets at the time it became "undercapitalized," and (ii) the amount that is
necessary (or would have been necessary) to bring the bank into compliance with
all capital standards applicable with respect to such bank as of the time it
fails to comply with the plan. If a bank fails to submit an acceptable plan, it
is treated as if it were "significantly undercapitalized." Banks that are
significantly or critically undercapitalized are subject to a wider range of
regulatory requirements and restrictions.
The FDIC has a broad range of grounds under which it may appoint a
receiver or conservator for an insured depositary bank. If one or more grounds
exist for appointing a conservator or receiver for
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a bank, the FDIC may require the bank to issue additional debt or stock, sell
assets, be acquired by a depository bank holding company or combine with
another depository bank. Under FDICIA, the FDIC is required to appoint a
receiver or a conservator for a critically undercapitalized bank within 90 days
after the bank becomes critically undercapitalized or to take such other action
that would better achieve the purposes of the prompt corrective action
provisions. Such alternative action can be renewed for successive 90-day
periods. However, if the bank continues to be critically undercapitalized on
average during the quarter that begins 270 days after it first became
critically undercapitalized, a receiver must be appointed, unless the FDIC
makes certain findings that the bank is viable.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible capital to total assets of less than 2%. The FDIC may also
appoint a conservator or receiver for a state bank on the basis of the
institution's financial condition or upon the occurrence of certain events,
including: (i) insolvency (whereby the assets of the bank are less than its
liabilities to depositors and others); (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound practices; (iii)
existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the bank will be unable to meet the demands of its depositors
or to pay its obligations in the normal course of business; and (v)
insufficient capital, or the incurring or likely incurring of losses that will
deplete substantially all of the institution's capital with no reasonable
prospect of replenishment of capital without federal assistance.
UNIFORM REAL ESTATE LENDING STANDARDS. Pursuant to FDICIA, the federal
banking agencies have adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the banking
agencies, all financial institutions must adopt and maintain written policies
that establish appropriate limits and standards for extensions of credit that
are secured by liens or interests in real estate or are made for the purpose of
financing permanent improvements to real estate. These policies must establish
loan portfolio diversification standards, prudent underwriting standards
(including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of
the Interagency Guidelines for Real Estate Lending Policies ("Interagency
Guidelines") that have been adopted by the federal bank regulators.
The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral; (ii) for land development loans (I.E., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%; (iii) for loans for the construction of commercial,
multi-family or other non-residential property, the supervisory limit is 80%;
(iv) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and (v) for loans secured by other improved property
(E.G., farmland, completed commercial property and other income-producing
property including non-owner occupied, one- to four-family property), the limit
is 85%. Although no supervisory loan-to-value limit has been established for
owner-occupied, one to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
INTERNET BANKING. Technological developments are dramatically altering the
ways in which most companies, including financial institutions, conduct their
business. The growth of the Internet is prompting banks to reconsider business
strategies and adopt alternative distribution and marketing systems. The
federal bank regulatory agencies have conducted seminars and published
materials targeted to various aspects of Internet banking, and have indicated
their intention to reevaluate their regulations to ensure that they encourage
banks' efficiency and competitiveness consistent with safe
22
<PAGE>
and sound banking practices. We cannot predict the effect any such new
regulations or future taxation will have on the Bank's Internet operations.
EFFECT OF GOVERNMENTAL MONETARY POLICIES
The commercial banking business in which the Bank engages is affected not
only by general economic conditions, but also by the monetary policies of the
FRB. Changes in the discount rate on member bank borrowing, availability of
borrowing at the "discount window," open market operations, the imposition of
changes in reserve requirements against member banks' deposits and assets of
foreign branches and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the FRB. These monetary policies
are used in varying combinations to influence overall growth and distributions
of bank loans, investments and deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary policies of the FRB have had
a significant effect on the operating results of commercial banks and are
expected to do so in the future. The monetary policies of the FRB are
influenced by various factors, including inflation, unemployment, short-term
and long-term changes in the international trade balance and in the fiscal
policies of the U.S. Government. Future monetary policies and the effect of
such policies on the future business and earnings of the Bank cannot be
projected.
23
<PAGE>
ITEM 2. PROPERTIES
The Company and the Bank are located and conduct their business at the
Company's executive office located at 450 South Australian Avenue, West Palm
Beach, Florida 33401. In addition, the Company or the Bank maintains the
following properties:
<TABLE>
<CAPTION>
LOCATION DATE LEASED OR ACQUIRED LEASED OR OWNED
- ------------------------------------- ------------------------- ----------------
<S> <C> <C>
CONGRESS 1993 Owned
4440 Congress Avenue
West Palm Beach, FL 33407-4298
JUPITER 1997 Owned
900 West Indiantown Road
Jupiter, FL 33458
PROMENADE 1995 Owned
9860 Alternate A1A
Palm Beach Gardens, FL 33410
PALM BEACH LAKES 1999 Leased
1555 Palm Beach Lakes Boulevard
West Palm Beach, FL 33401
PHILLIPS POINT 1996 Leased
777 South Flagler Drive
West Palm Beach, FL 33401
LAKE WORTH 1997 Leased
7300 Lake Worth Road
Lake Worth, FL 33467
BOYNTON 1996 Leased
1301 North Congress Avenue
Boynton Beach, FL 33426
DELRAY 1995 Leased
5061 West Atlantic Avenue
Delray Beach, FL 33484
BOCA 1996 Leased
7601 North Federal Highway
Boca Raton, FL 33487
SAWGRASS 1994 Owned
12396 West Sunrise Boulevard
Plantation, FL 33323
DAVIE 1989 Leased
4991 South State Road #7
Davie, FL 33314
WESTON 1993 Owned
2630 Weston Road
Fort Lauderdale, FL 33330
DANIA 1988 Leased
5991 Ravenswood Road
Fort Lauderdale, FL 33312
HOLLYWOOD 1989 Owned
1220 South State Road #7
Hollywood, FL 33023
HALLANDALE 1986 Leased
1000 East Hallandale Beach Boulevard
Hallandale, FL 33009
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
LOCATION DATE LEASED OR ACQUIRED LEASED OR OWNED
- ------------------------------ ------------------------- ----------------
<S> <C> <C>
SILVER LAKES 1995 Owned
18395 Pines Boulevard
Pembroke Pines, FL 33029
HOMESTEAD 1993 Owned
600 North Homestead Boulevard
Homestead, FL 33030
NORTH MIAMI BEACH 1962 Owned
801N.E. 167th Street
North Miami Beach, FL 33162
MIAMI LAKES 1979 Leased
15700 N.W. 67th Avenue
Miami Lakes, FL 33014
HIALEAH 1981 Leased
1651 W. 37th Street
Hialeah, FL 33012
AVENTURA 1989 Leased
20801 Biscayne Boulevard
North Miami Beach, FL 33180
BROWARD BOULEVARD 1989 Leased
1401 E. Broward Boulevard
Fort Lauderdale, FL 33301
CAL CLUB 1983 Leased
850 Ives Dairy Road
North Miami Beach, FL 33179
BAY POINT 1983 Leased
4770 Biscayne Boulevard
Miami, FL 33137
CORAL SPRINGS 1995 Leased
2855 University Drive
Coral Springs, FL 33065
LINTON BOULEVARD 1986 Leased
900 West Linton Boulevard
Delray Beach, FL 33444
CAMINO REAL 1997 Leased
7400 West Camino Real
Boca Raton, FL 33433
PEMBROKE PINES 1997 Leased
12405 Taft Street
Pembroke Pines, FL 33028
CORAL WAY 1980 Leased
7171 Southwest 24th Street
Miami, FL 33155
PEMBROKE PINES EAST 1998 Owned
8411 Pines Boulevard
Pembroke Pines, FL 33024
ARVIDA 1998 Owned
5131 Congress Avenue
Boca Raton, FL 33487
NORTH PALM BEACH 1998 Leased
701 U.S. Highway 1
North Palm Beach, FL 33408
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
LOCATION DATE LEASED OR ACQUIRED LEASED OR OWNED
- ---------------------------------- ------------------------- ----------------
<S> <C> <C>
BAYVIEW 1998 Leased
2929 E. Commercial Boulevard
Ft. Lauderdale, FL 33308
PRESIDENTIAL CIRCLE 1985 Owned
3850 Hollywood Boulevard
Hollywood, FL 33021
AUSTRALIAN AVENUE 1997 Owned
450 South Australian Avenue
West Palm Beach, FL 33401
SOUTHERN BOULEVARD 1959 Owned
301 Southern Boulevard
West Palm Beach, FL 33405
WESTWARD 1960 Owned
2701 Okeechobee Boulevard
West Palm Beach, FL 33409
LAKE PARK 1962 Owned
500 Federal Highway
Lake Park, FL 33403
DELRAY EAST 1971 Owned
95 N.E. 5th Avenue
Delray Beach, FL 33483
BOCA EAST 1973 Owned
2400 Federal Highway
Boca Raton, FL 33431
LUCERNE AVENUE 1974 Owned
531 Lucerne Avenue
Lake Worth, FL 33460
GALLERIA 1980 Leased
165 Bradley Place
Palm Beach, FL 33480
GLADES ROAD 1981 Owned
9033 Glades Road
Boca Raton, FL 33434
GOLDEN LAKES 1984 Owned
1950 Golden Lakes Boulevard
West Palm Beach, FL 33411
BLUFF SQUARE SHOPPES 1986 Leased
4050 U.S. Highway One
Jupiter, FL 33477
GARDENS MALL 1988 Leased
3101 PGA Boulevard
Palm Beach Gardens, FL 33477
PALM SPRINGS 1993 Owned
2950 10th Avenue North
Lake Worth, FL 33461
BOYNTON LAKES 1994 Leased
4770 North Congress Avenue
Lantana, FL 33462
ROYAL PALM BEACH 1994 Leased
1135-A Royal Palm Beach Boulevard
Royal Palm Beach, FL 33411
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
LOCATION DATE LEASED OR ACQUIRED LEASED OR OWNED
- -------------------------------- ------------------------- ----------------
<S> <C> <C>
STUART SQUARE 1994 Leased
2160 S.E. Federal Highway
Stuart, FL 34994
WELLINGTON 1994 Leased
13841-A Wellington Trace
West Palm Beach, FL 33414
CLEMATIS 1995 Leased
301 Clematis Street
West Palm Beach, FL 33401
FT. MYERS SOUTH 1995 Leased
16970-A San Carlos Boulevard
Ft. Myers, FL 33908
LAKE WORTH ALBERTSONS 1995 Leased
4481-A Lake Worth Road
Lake Worth, FL 33461
PEMBROKE ISLE PLAZA 1995 Leased
17171-A Pines Boulevard
Pembroke Pines, FL 33027
OAKLAND PARK 1995 Leased
9919-A West Oakland Park
Sunrise, FL 33351
WESTCHESTER 1995 Leased
7807-A S.W. 40th Street
Miami, FL 33165
BONITA SPRINGS 1996 Leased
26831-A South Tamiami Trail
Bonita Springs, FL 34134
BOYNTON BEACH MARKET 1996 Leased
9839-A South Military Trail
Boynton Beach, FL 33436
UNIVERSITY 1996 Leased
2201-A University Drive
Coral Springs, FL 33065
KENDALL LAKES 1996 Leased
14655-A S.W. 56th Street
Miami, FL 33175
MISSION BAY 1996 Leased
20409-A State Road 7
Boca Raton, FL 33434
TAMARAC 1996 Leased
7100-A North University Drive
Tamarac, FL 33319
TURTLE RUN 1996 Leased
6355-A Sample Road
Coral Springs, FL 33067
CAPE CORAL 1997 Leased
127-A Cape Coral Parkway
Cape Coral, FL 33914
DEERFIELD BEACH 1997 Leased
3701-A West Hillsboro Boulevard
Deerfield Beach, FL 33442
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
LOCATION DATE LEASED OR ACQUIRED LEASED OR OWNED
- --------------------------------- ------------------------- ----------------
<S> <C> <C>
DELRAY TOWN CENTER 1997 Leased
4801-A Linton Boulevard
Delray Beach, FL 33445
FT. MYERS CENTRAL 1997 Leased
13401-A Summerlin Road
Ft. Myers, FL 33907
JONATHAN'S LANDING 1997 Leased
17400-A Alternate A1A
Jupiter, FL 33477
PEMBROKE PINES ALBERTSONS 1997 Leased
8030-A Pines Boulevard
Pembroke Pines, FL 33024
RIVERWALK 1997 Leased
7477 Riverwalk Circle, Suite 215
West Palm Beach, FL 33411
WESTVIEW 1997 Leased
9545-A Westview Drive
Coral Springs, FL 33076
COOPER CITY 1998 Leased
10018-A Griffin Road
Cooper City, FL 33328
WEST PALM BEACH 1997 Leased
1901-A Military Trail
West Palm Beach, FL 33409
PORT ST. LUCIE 1998 Leased
10105-A U.S. Highway One
Port St. Lucie, FL 34952
NEWBERRY 1998 Owned
25365 W. Newberry Road
Newberry, FL 32669
OCALA 1998 Leased
1410 N.E. 8th Avenue
Ocala, FL 34479
BUMBY 1983 Owned
400 North Bumby Avenue
Orlando, FL 32803
GAINESVILLE 1998 Leased
2323 N.W. 13th Street
Gainesville, FL 32609
SAMPLE CROSSROADS 1999 Leased
2201 West Sample Road
Pompano Beach, FL 33073
NORTH CAPE CORAL 1999 Leased
1735 N.E. Pine Island Road
North Cape Coral, FL 33909
HOMESTEAD 1999 Leased
831 N.E. 8th Street
Homestead, FL 33030
FIELD OF DREAMS 1999 Leased
7131 North US Highway 441
Ocala, FL 34475
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
LOCATION DATE LEASED OR ACQUIRED LEASED OR OWNED
- ------------------------------------- ------------------------- ----------------
<S> <C> <C>
FLORIDA AVENUE 1989 Owned
12233 North Florida Avenue
Tampa, FL 33612
UNIVERSITY PLAZA 1993 Owned
2802 East Fletcher Avenue
Tampa, FL 33612
ZEPHRYHILLS 1999 Leased
7325 Gall Boulevard
Zephryhills, FL 33541
NORTHDALE 1999 Leased
15692 North Dale Mabry Highway
Tampa, FL 33618
NORTH POINTE 1999 Leased
13508 North Florida Avenue, Suite A
Tampa, FL 33613
WEST HILLSBOROUGH 1999 Leased
2333 West Hillsborough Avenue
Tampa, FL 33603
TOWN AND COUNTRY 1999 Leased
7095 West Waters Avenue
Tampa, FL 33634
WEST VILLAGE 1999 Leased
5320 Ehrlich Road
Tampa, FL 33625
HYDE PARK 1999 Leased
2100 West Swann Avenue
Tampa, FL 33606
TEMPLE TERRACE 1999 Leased
8837 North 56th Street
Temple Terrace, FL 33617
FLAGLER WATERVIEW 1999 Leased
1515 North Flagler Drive, Suite 100
West Palm Beach, FL 33617
CORPORATE OFFICE BUILDINGS
400 and 450 South Australian Avenue 1998 Owned
West Palm Beach, FL 33401
OPERATION CENTERS
2206 Mercer Avenue 1984 Owned
West Palm Beach, FL 33401
9074 State Road 84 1998 Leased
Davie, FL 33324
FNEF REGIONAL OFFICES
SOUTHEAST REGION 1999 Leased
1600 S.E. 17th Street, Suite 300
Fort Lauderdale, FL 33316
NORTHEAST REGION 1999 Leased
1000 Bridgeport Avenue, Suite 501
Shelton, CT 06484
WEST COAST REGION 1999 Leased
1601 Dove Street, Suite 125
Newport Beach, CA 92660
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
LOCATION DATE LEASED OR ACQUIRED LEASED OR OWNED
- ---------------------------------- ------------------------- ----------------
<S> <C> <C>
SOUTHWEST REGION 2000 Leased
1500 Marina Bay Drive, Suite 3555
Kemah, TX 77565
FNEF SATELLITE OFFICES
NORTHERN CALIFORNIA 1999 Leased
1138A Ballena Blvd., Suite 4
Alameda, CA 94501
NEW JERSEY 1999 Leased
2516 Highway 35 #25
Manasquan, NJ 08736
MARYLAND 1999 Leased
328 First Street, Suite 39
Annapolis, MD 21403
RHODE ISLAND 1999 Leased
One Maritime Drive
Portsmouth, RI 02871
</TABLE>
Net book value for office buildings and land was approximately $44.9
million at December 31, 1999. In addition to the properties identified above,
the Bank had eight branch offices as of December 31, 1999 that were
consolidated into other existing offices located within their respective
geographic areas on January 28, 2000.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its subsidiaries are involved in any pending legal
proceeding other than routine legal matters occurring in the ordinary course of
business which in the aggregate involves amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
30
<PAGE>
PART II
ITEM 5. MARKET FOR REPUBLIC SECURITY FINANCIAL CORPORATION'S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS
MARKET PRICE AND DIVIDENDS
The Common Stock of the Company, par value $.01 per share, is traded on
the NASDAQ National Market under the symbol RSFC. The following table sets
forth the high and low bid prices for the Common Stock for the periods
indicated as reported by NASDAQ.
BID PRICE
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
----------------------- ---------------------
HIGH LOW HIGH LOW
----------- --------- ---------- --------
<S> <C> <C> <C> <C>
Quarter ended March 31 ............. $11 15/16 $8 $11 7/16 $ 8 1/4
Quarter ended June 30 .............. $10 3/4 $8 $13 13/16 $10 5/8
Quarter ended September 30 ......... $ 9 29/32 $8 1/32 $11 1/2 $ 7 1/2
Quarter ended December 31 .......... $ 9 $6 9/16 $12 5/16 $ 6 1/2
</TABLE>
Currently the Company has seventeen market makers in its Common Stock, as
follows:
Advest, Inc. Allen C. Ewing & Co.
Dean Witter Reynolds, Inc. F. J. Morrissey & Co., Inc.
Herzog, Heine, Geduld, Inc. Keefe, Bruyette & Woods, Inc.
Knight Securites, L.P. Mayer & Schweitzer, Inc.
Raymond James & Associates Robert W. Baird & Co., Inc.
Ryan Beck & Co., Inc. Salomon Smith Barney Inc.
Sandler O'Neill & Partners, L.P. Sherwood Securities Corp.
Spear, Leeds & Kellogg Sterne, Agee & Leach, Inc.
William R. Hough & Co.
As of March 16, 2000, there were 48,758,419 common shares issued and
outstanding held by approximately 3,415 shareholders of record, not including
the number of persons or entities whose stock is held in nominee or "street"
name through various brokerage firms or banks.
The following table sets forth cash dividends paid:
YEAR ENDED
DECEMBER 31,
-----------------------
QUARTER ENDED 1999 1998
- ---------------------------- ---------- ----------
March 31 ............. $ 0.06 $ 0.05
June 30 .............. $ 0.06 $ 0.06
September 30 ......... $ 0.06 $ 0.06
December 31 .......... $ 0.06 $ 0.06
Future payment of dividends is subject to determination and declaration by
the Board of Directors. See Note 11 to the audited consolidated financial
statements for discussion of restrictions on dividend payments.
31
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------------------------------------------------- DECEMBER 31,
1999 1998(A) 1997(B) 1996(C) 1995
------------- ------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Interest income .............................. $ 210,525 $ 209,499 $ 198,525 $ 178,917 $ 116,038
Interest expense ............................. 112,439 120,171 105,720 90,903 60,566
--------- --------- --------- --------- ---------
Net interest income .......................... 98,086 89,328 92,805 88,014 55,472
Provision for loan losses .................... 1,550 22,909 5,143 16,864 853
--------- --------- --------- --------- ---------
Net interest income after provision
for loan losses ............................ 96,536 66,419 87,662 71,150 54,619
Non-interest income .......................... 28,151 25,830 18,976 20,111 9,327
Operating expenses ........................... 78,189 105,397 86,509 78,292 45,057
--------- --------- --------- --------- ---------
Income (loss) before income taxes ............ 46,498 (13,148) 20,129 12,969 18,889
Provision (benefit) for income taxes ......... 17,029 (2,692) 7,522 4,518 6,869
--------- --------- --------- --------- ---------
Net income (loss) ............................ $ 29,469 $ (10,456) $ 12,607 $ 8,451 $ 12,020
========= ========= ========= ========= =========
PER SHARE DATA:
Basic earnings (loss) ........................ $ 0.58 $ (0.22) $ 0.25 $ 0.19 $ 0.29
Diluted earnings (loss) ...................... $ 0.58 $ (0.22) $ 0.25 $ 0.18 $ 0.28
Weighted average common shares and
common stock equivalents outstanding:
Basic ....................................... 50,469 48,807 46,489 43,699 41,573
Diluted ..................................... 51,047 48,807 48,147 45,854 43,633
Book value per common share(d) ............... $ 4.02 $ 4.38 $ 4.50 $ 4.20 $ 4.11
Dividends per common share ................... $ 0.24 $ 0.22 $ 0.19 $ 0.12 $ 0.07
<FN>
- ----------------
(a) Includes pretax merger related and one-time expenses of $45.3 million of
which $26.1 million is included in operating expenses and $19.2 million is
included in provision for loan losses.
(b) Includes pretax merger related expenses of $10.6 million of which $9.9
million is included in operating expenses and $0.7 million is included in
provision for loan losses.
(c) Includes pretax litigation settlement and FDIC assessment of $11.7 million
which is included in operating expenses.
(d) Book value per share is calculated by dividing common shareholders' equity
plus the proceeds of the assumed conversion of "in the money" options,
warrants and convertible preferred stock by the number of common stock
outstanding and conversion of all "in the money" options, warrants and
convertible preferred stock.
</FN>
</TABLE>
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995
--------------- ---------------- --------------- --------------- ---------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
AT PERIOD END:
Total assets ................................. $ 3,192,212 $3,081,225 $ 2,970,120 $ 2,541,610 $ 2,146,056
Investments .................................. 939,400 739,231 644,908 440,008 450,103
Loans(e) ..................................... 1,906,734 2,040,338 1,935,365 1,726,868 1,487,798
Allowance for loan losses .................... 22,301 26,664 13,677 20,007 10,622
Total deposits ............................... 2,064,936 2,368,360 2,160,715 2,010,311 1,659,438
Borrowed money ............................... 888,048 447,030 497,711 260,493 230,873
Shareholders' equity ......................... 200,662 207,978 215,585 208,721 203,002
Senior debentures ............................ 20,531 27,518 33,839
Shares outstanding ........................... 49,696 49,677 46,980 46,135 44,732
AVERAGE BALANCES:
Assets ....................................... $ 3,018,395 $2,970,538 $ 2,656,913 $ 2,361,910 $ 2,063,129
Shareholders' equity ......................... 209,836 221,714 212,884 214,360 181,890
Interest-earning assets ...................... 2,808,241 2,755,432 2,473,106 2,213,073 1,953,273
Interest-bearing liabilities ................. 2,430,403 2,398,245 2,152,746 1,901,659 1,674,745
OTHER DATA:
Return on average assets(f) .................. 0.98% (0.35)% 0.47% 0.36% 0.78%
Return on average shareholders'
equity(f) .................................. 14.04% (4.72)% 5.92% 3.94% 8.81%
Average shareholders' equity to
average total assets ....................... 6.95% 7.46% 8.01% 9.08% 8.82%
Shareholders' equity to total assets ......... 6.29% 6.75% 7.26% 8.21% 9.46%
Net interest spread .......................... 2.87% 2.59% 3.12% 3.30% 3.10%
Net interest margin .......................... 3.49% 3.24% 3.75% 3.98% 3.79%
Non-performing loans(g) ...................... $ 16,369 $ 13,852 $ 15,348 $ 22,609 $ 11,703
Non-performing assets(g) ..................... $ 18,372 $ 17,298 $ 24,040 $ 34,925 $ 22,029
Non-performing loans to total loans .......... 0.86% 0.68% 0.79% 1.31% 0.79%
Non-performing assets to
total assets ............................... 0.58% 0.56% 0.81% 1.37% 1.03%
Allowance for loan losses to
total loans ................................ 1.17% 1.31% 0.71% 1.16% 0.71%
Net charge-offs to average loans ............. 0.30% 0.53% 0.64% 0.59% 0.06%
Efficiency ratio(h) .......................... 61% 74% 71% 66% 70%
Dividend payout ratio(i) ..................... 41% 48% 51% 36% 24%
Number of full-service offices ............... 102 96 81 67 54
<FN>
- ----------------
(e) Net of deferred loan fees, purchased loan discounts and premiums and
undisbursed loans-in-process. Includes loans held for sale.
(f) Includes merger related and one-time expenses of $2.4 million, $32.6
million and $6.5 million, net of taxes, for the years ended December 31,
1999, 1998 and 1997, respectively and the effect of the reduction of the
allowance for deferred tax assets of $1.1 million for the year ended
December 31, 1997. Excludes a litigation settlement and FDIC assessment of
$7.4 million, net of taxes, for the year ended December 31, 1996.
(g) Non-performing loans are loans contractually past due 90 days and still
accruing and non-accrual loans. Non-performing assets include
non-performing loans, other real estate owned and repossessed assets.
(h) The efficiency ratio is calculated by dividing non-interest expense by net
interest income plus non-interest income excluding realized securities
gains/losses and non recurring expenses as described in note (f).
(i) Dividend payout ratio is calculated by dividing dividends declared per
share by basic earnings per share. Amount for the years ended December 31,
1999, 1998 and 1997 is adjusted to exclude merger related expenses (see
note (f)).
</FN>
</TABLE>
33
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
---------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER(A) QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income ............................................. $ 52,289 $ 52,793 $ 51,871 $ 53,572
Interest expense ............................................ 28,345 27,367 27,412 29,315
-------- -------- -------- --------
Net interest income ......................................... 23,944 25,426 24,459 24,257
Provision for loan losses ................................... 500 300 300 450
-------- -------- -------- --------
Net interest income after provision for loan losses ......... 23,444 25,126 24,159 23,807
Non-interest income ......................................... 5,974 7,124 8,259 6,794
Operating expense ........................................... 20,683 19,041 19,896 18,569
-------- -------- -------- --------
Income before income taxes .................................. 8,735 13,209 12,522 12,032
Provision for income taxes .................................. 3,183 4,755 4,487 4,604
-------- -------- -------- --------
Net income .................................................. $ 5,552 $ 8,454 $ 8,035 $ 7,428
======== ======== ======== ========
PER SHARE DATA:
Basic earnings per common share ............................. $ 0.11 $ 0.17 $ 0.16 $ 0.15
Diluted earnings per common share ........................... $ 0.11 $ 0.17 $ 0.16 $ 0.15
Dividends per common share .................................. $ 0.06 $ 0.06 $ 0.06 $ 0.06
Weighted average common shares and common stock
equivalents outstanding ................................... 51,236 51,147 51,201 50,666
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998 (RESTATED)
----------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(B) QUARTER QUARTER(B)
------------ ------------ ------------ -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $ 53,552 $ 52,137 $ 51,990 $ 51,820
Interest expense 30,382 29,864 30,399 29,526
-------- -------- -------- ---------
Net interest income 23,170 22,273 21,591 22,294
Provision for loan losses 2,973 425 1,458 18,053
-------- -------- -------- ---------
Net interest income after provision for loan losses 20,197 21,848 20,133 4,241
Non-interest income 7,587 6,370 4,888 6,985
Operating expense 18,788 20,360 22,118 44,131
-------- -------- -------- ---------
Income (loss) before income taxes 8,996 7,858 2,903 (32,905)
Provision (benefit) for income taxes 3,348 2,905 1,339 (10,284)
-------- -------- -------- ---------
Net income (loss) $ 5,648 $ 4,953 $ 1,564 $ (22,621)
======== ======== ======== =========
PER SHARE DATA:
Basic earnings (loss) per common share $ 0.12 $ 0.10 $ 0.03 $ (0.46)
Diluted earnings (loss) per common share $ 0.12 $ 0.10 $ 0.03 $ (0.46)
Dividends per common share $ 0.05 $ 0.05 $ 0.06 $ 0.06
Weighted average common shares and common stock
equivalents outstanding 48,842 50,153 50,200 49,430
<FN>
- ----------------
(a) Includes merger related and one-time expenses of $2.4 million, net of taxes
for the three months ended March 31, 1999.
(b) Includes merger related and one-time expenses of $30.9 million and $2.1
million, net of taxes, for the three months ended December 31, 1998 and
September 30, 1998, respectively.
</FN>
</TABLE>
34
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Information in this Annual Report on Form 10-K 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, for the period beginning July 30, 1999, 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/ rapid changes in interest rates and
/bullet/ adverse changes in law 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.
This discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and accompanying Notes included
elsewhere in this report.
CORPORATE OVERVIEW
Republic Security Financial Corporation is a commercial bank holding
company headquartered in West Palm Beach, Florida. The Company's principal
business is the operation of Republic Security
35
<PAGE>
Bank, a state chartered commercial bank. The Bank currently has 98 banking
facilities, of which 58 are traditional branches and 40 are in-store
supermarket branches. The Bank has 38 branches located in Palm Beach County, 23
in Broward County, 12 in Dade County, 10 in Hillsborough County, 5 are in Lee
County, 4 are in Martin and Marion counties, 3 in Alachua County and one each
are in Orange, Pasco, and St. Lucie counties. Four of the Bank's in-store
supermarket branches are located in Winn Dixie stores, nine are located in Kash
N' Karry stores and the remaining in-store supermarket branches are located in
Albertsons stores. Exclusive of the banking facilities acquired pursuant to
acquisition, during 1999 the Bank opened 4 new branches. The Bank anticipates
continued growth of its branch network, primarily through traditional branch
locations. In addition, the Company has targeted certain non-traditional,
fee-income based operations as a market that the Company intends to pursue for
purposes of expanding its product offerings.
Republic Security Bank is a community bank which offers a full range of
business and personal banking services and products as well as trust and
investment services. The Bank has targeted business and commercial real estate
lending relationships including small businesses while maintaining its presence
in residential mortgage, construction and consumer lending. In conjunction with
targeted business relationships, the Bank has concentrated on business and
personal transaction accounts by committing resources to electronic banking and
other non-traditional distribution channels, diversified products and quality
customer service. The Bank's progressive approach to product development and
service delivery has positioned the Bank to be competitive with larger
financial institutions in the areas of electronic banking and high quality
financial products and services for business and consumer customers.
The Bank has a trust and investment services division which was
established during 1997. The division offers asset management, trust and
brokerage services to individuals and businesses primarily in Palm Beach,
Broward and Dade counties. Management does not anticipate the trust and
investment division to have a significant effect on the Company's operations or
cash flows for several years.
In addition, through its recently acquired FNEF subsidiary, the Bank
provides yacht financing in various strategic markets located in several
states. Along with the three regional marketing offices that were originally
acquired in connection with the 1999 asset acquisition of FNEF, another
regional marketing office has been opened in Kemah, Texas. For a description of
the markets that FNEF operates in, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Business Combinations."
BUSINESS COMBINATIONS
Over the past three years, the Company has completed nine acquisitions.
On June 30, 1997, the Company acquired Family Bank ("Family"), a
commercial bank headquartered in Hallandale, Florida, with six branch locations
in Broward County, Florida. Family was simultaneously merged into the Bank and
the acquisition was accounted for as a pooling-of-interests which resulted in
the Bank acquiring assets of $256.0 million, liabilities of $234.2 million and
equity of $21.8 million. All information contained herein has been
retroactively restated to include the accounts and results of operations of
Family.
On December 2, 1997, the Company acquired County Financial Corporation
("CFC"), a commercial bank holding company, headquartered in North Miami Beach,
Florida. County National Bank of South Florida ("County"), CFC's wholly owned
subsidiary, had 14 branch locations in Dade, Broward and Palm Beach counties
and was simultaneously merged into the Bank. The acquisition was accounted for
as a pooling of interests and resulted in the Bank acquiring assets of $255.0
million, liabilities of $230.6 million and equity of $24.4 million. All
information contained herein has been retroactively restated to include the
accounts and results of operations of CFC.
On July 2, 1998, the Company acquired Unifirst Federal Savings Bank
("Unifirst"), a federally chartered savings bank headquartered in Hollywood,
Florida with one additional branch located in
36
<PAGE>
Broward County, Florida. The acquisition was accounted for as a pooling of
interests and resulted in the Bank acquiring assets of $141.9 million,
liabilities of $132.7 million and equity of $9.2 million. All information
contained herein has been retroactively restated to include the accounts and
results of operations of Unifirst.
On October 29, 1998, the Company acquired FPBB, a Delaware chartered
thrift holding company headquartered in West Palm Beach, Florida. First Bank of
Florida ("First Bank"), a federally chartered savings and loan association and
FPBB's wholly owned subsidiary, operated 52 offices in Palm Beach, Broward,
Dade, Martin and Lee counties. The acquisition was accounted for as a pooling
of interests and resulted in the Bank acquiring assets of approximately $1.8
billion, total loans of $1.1 billion, total deposits of $1.3 billion and total
equity of $128 million. First Bank was merged into the Bank as of October 29,
1998. All information contained herein has been retroactively restated to
include the accounts and results of operations of FPBB.
On November 20, 1998, the Bank purchased two branch offices of Household
Bank, FSB ("Household"), a wholly owned subsidiary of Household International,
Inc. The Bank acquired a total of $28.3 million in net loans and $19.0 million
in deposits and branches located in Tampa and Orlando, Florida.
On December 11, 1998, the Company acquired Newberry Bank ("Newberry"), a
Florida state chartered commercial bank headquartered in Newberry, Florida with
one branch office in Ocala, Florida. Newberry was simultaneously merged into
the Bank and resulted in the Bank acquiring $38.9 million in assets, $28.7
million in net loans and $34.8 million in deposits. The transaction was
accounted for as a purchase business combination and the operations of Newberry
are included since the date of acquisition.
On February 26, 1999, the Company acquired Northside Bank of Tampa
("Northside"), a Florida state commercial bank headquartered in Tampa, Florida
with one additional branch office in Tampa. The acquisition was accounted for
as a pooling of interests and resulted in the Bank acquiring assets of $74.6
million, including total loans of $39.6 million, total deposits of $64.1
million and total equity of $9.9 million. Northside was merged into the Bank on
February 26, 1999. A ll information contained herein has been retroactively
restated to include the accounts and results of operations of Northside.
On June 11, 1999, the Bank acquired nine bank branches operating in Kash
N' Karry supermarkets from First National Bank of Central Florida for
approximately $1.0 million, which was paid in cash. The Bank assumed $27.6
million in deposits in conjunction with the acquisition.
On July 30, 1999, the Bank acquired the assets of FNEF, a marine loan
production operation, from John Deere Credit, Inc. for approximately $6.8
million, which was paid in cash. FNEF was founded in 1976 and is one of the
premier names in the yacht lending market-place. The Bank acquired the brand
name "First New England Financial" and the 1-800-BOAT-LOAN phone number, as
well as proprietary loan processing software and professional staff in three
regional offices located in Ft. Lauderdale, Florida; Shelton, Connecticut and
Newport, California. In addition, FNEF has four satellite offices located in
Alameda, California; Manasquan, New Jersey; Annapolis, Maryland and Portsmouth,
Rhode Island. The Company operates FNEF as a wholly-owned subsidiary of the
Bank.
Looking forward, the Bank's business strategy is to continue its (i) focus
in commercial relationship lending, particularly in the small business sector,
(ii) focus in consumer lending, (iii) provision of residential mortgage lending
products and services with emphasis on residential construction lending, (iv)
emphasis on business and personal transaction accounts, (v) focus on non-
interest income opportunities, including cash management services and
non-traditional banking opportunities, (vi) development and implementation of
new products, services and delivery channels, and (vii) growth through a
combination of bank and branch acquisitions, as well as de novo expansion of
the branch network and achievement of a higher profile through additional
strategically located banking offices and increased marketing efforts. The
Company's strategies for the next 24 to 36
37
<PAGE>
months also include continued shifting of the thrift assets and liabilities
acquired from First Bank into commercial bank products. The objective of this
shift is to have the Company's asset and liability compositions and net
interest margin similar to that of peer commercial banks.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
RESULTS OF OPERATIONS
The following is a discussion and analysis of the Company's consolidated
results of operations. All information has been retroactively restated to
include the accounts and results of operations of Family, CFC, Unifirst, FPBB
and Northside. In addition, the Company's operating results include the results
of Newberry and FNEF since their acquisitions on December 11, 1998 and July 30,
1999, respectively.
The combination of merger transactions completed by the Company and
internal growth in 1999 and 1998 had the effect of increasing the Company's
assets in excess of 300% since December 31, 1997. These merger transactions as
well as internal growth transformed the Bank from a financial institution with
total assets of $949 million operating in three South Florida counties at
December 31, 1997 to the largest commercial bank headquartered in Florida with
total assets of approximately $3.2 billion operating in 11 counties throughout
the state at December 31, 1999. Since the Company's financial statements have
been restated for the merger transactions accounted for as pooling of
interests, certain operating trends, such as the Company's significant growth,
are not reflected in the financial statements. In addition, the Company's core
operating performance has been on a positive trend with respect to market
share, revenue growth and profitability, even though net income has been
negatively affected by merger related expenses.
The Company's net income for the year ended December 31, 1999 was $29.5
million or $0.58 basic and diluted earnings per common share compared to a net
loss of $10.5 million or $0.22 basic and diluted loss per common share for the
year ended December 31, 1998. Net income (loss) for the years ended December
31, 1999 and 1998 includes merger related expenses and one time charges of $2.4
million and $33.0 million, net of taxes, respectively. Net income, excluding
merger related expenses and one time charges increased to $31.9 million for the
year ended December 31, 1999, due primarily to an increase in net interest
income, an increase in non-interest income and realized cost savings from the
integration of FPBB which was acquired October 29, 1998.
During the year ended December 31, 1999, merger related and other one time
charges related primarily to the acquisition of Northside, which closed on
February 26, 1999, along with certain period costs associated with the
remaining integration of FPBB. Merger expenses associated with Northside, which
totaled $1.7 million, net of taxes, include $630,000 in severance and change of
control payments, $532,000 in professional fees, $107,000 in contract buyouts
and $416,000 in other merger related expenses comprised primarily of an
additional provision for loan losses, the write-off of certain assets and costs
attributable to the integration of Northside into the Bank. In addition, during
the year ended December 31, 1999, the Company recognized approximately
$693,000, net of taxes, in period costs associated with the remaining
integration of FPBB.
For the year ended December 31, 1998, merger related expenses associated
with the acquisitions of FPBB and Unifirst were approximately $15.6 million,
net of taxes, related to professional fees, fixed asset write-downs and
employee severance and retention payments and $3.8 million, net of taxes, in
additional merger related loan loss provision recorded to conform FPBB and
Unifirst's accounting and credit policies to those of the Bank. Additional
charges of approximately $3.2 million, net of taxes, related to asset
write-downs associated primarily with assets acquired from FPBB were recognized
in the year ended December 31, 1998. The increase in the provision for loan
losses in 1998 was recorded to provide for the inherent loan portfolio risks
associated with the Bank's recent merger transactions, increased commercial
loan production and other factors associated with the Bank's growth in
commercial lending. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Provision for Loan Losses and Allowance
for Loan Losses."
38
<PAGE>
Net income for the year ended December 31, 1997 was $12.6 million or $0.25
basic and diluted earnings per common share, which includes merger related
expenses of $5.9 million, net of taxes. Net income, excluding merger related
expenses and one-time charges for the year ended December 31, 1998 increased to
$22.5 million compared to $18.5 million for the year ended December 31, 1997.
The increase is primarily due to an increase of $6.9 million in non-interest
income.
For the year ended December 31, 1997, merger related expenses associated
with the acquisitions of Family and CFC consisted of approximately $5.9
million, net of taxes, related to employee severance, professional fees and
fixed asset write-offs, $400,000, net of taxes, for additional merger related
loan loss provisions recorded to conform Family and CFC's accounting policies
to those of the Bank's and $400,000, net of taxes, for additional other real
estate owned write-downs.
The primary component of earnings for most financial institutions
including the Company is net interest income. Net interest income is the
difference between the interest income received on its interest-earning assets
and the interest paid on its interest-bearing liabilities. Net interest income
is determined primarily by interest rate spread and the relative amounts of
interest-earning assets and interest-bearing liabilities.
NET INTEREST INCOME
Net interest income increased $8.8 million to $98.1 million for the year
ended December 31, 1999 from $89.3 million for the year ended December 31,
1998. Interest income increased approximately $1.0 million and interest expense
decreased by $7.7 million. The increase in interest income is due to an
increase of $52.8 million in average interest-earning assets offset by a
decrease of 10 basis points in asset yield for the year ended December 31,
1999, compared to the year ended December 31, 1998. Interest expense decreased
$7.7 million due to a decrease in the rate paid on interest-bearing liabilities
of 41 basis points, offset by an increase of $46.2 million in average
interest-bearing liabilities during the year ended December 31, 1999 compared
to the year ended December 31, 1998. Interest expense decreased primarily due
to the Bank's strategy to reduce overall rates paid on certificates of deposit
and an increase in the balances of non interest-bearing and low
interest-bearing deposits. Since the acquisition of FPBB, the Bank has lowered
interest rates offered in the former First Bank branch offices on new and
renewed certificate of deposit accounts to become more aligned with rates
offered by commercial banks. During the year ended December 31, 1999,
certificate of deposit balances, primarily from the former First Bank deposit
base, decreased approximately $248.3 million. In addition, during the quarter
ended December 31, 1998 and throughout 1999, the Company purchased an aggregate
of $13.7 million of its 10.35% senior debentures due June 2002 ("Senior
Debentures") in an effort to further reduce the cost of interest-bearing
liabilities. While the Bank expects to continue to execute its strategy to
change its deposit mix, due to recent increases in market interest rates
management does not expect significant further declines in the cost of
interest-bearing liabilities throughout 2000. Net interest margin increased 27
basis points to 3.52% for the year ended December 31, 1999 compared to 3.25%
for the year ended December 31, 1998.
Net interest income decreased $3.5 million to $89.3 million for the year
ended December 31, 1998, from $92.8 million for the year ended December 31,
1997. Interest income increased approximately $11.0 million offset by a rise of
$14.5 million in interest expense. The increase in interest income is due to an
increase of $286.2 million in average interest-earning assets offset by a
decrease of 43 basis points in asset yield for the year ended December 31, 1998
compared to the year ended December 31, 1997. Interest expense increased
primarily due to an increase in interest bearing liabilities of $245.5 million
and an increase in the rate paid on interest bearing liabilities of 10 basis
points in the year ended December 31, 1998 compared to the year ended December
31, 1997. The Company's net interest margin for the year ended December 31,
1998 was 3.25% compared to 3.77% for the year ended December 31, 1997. The
decrease in net interest income for the year ended December 31, 1998 compared
to the year ended December 31, 1997 was primarily due to the decline in market
interest rates during 1998. The declining rate environment led to an increase
in residential
39
<PAGE>
loan refinancings at lower interest rates without a corresponding decrease in
the Bank's cost of funds. First Bank's primary lending activities were in
residential loans with aggressively competitive rates in the Palm Beach county
market.
INTEREST INCOME
Interest income increased approximately $1.0 million for the year ended
December 31, 1999 compared to the year ended December 31, 1998 due to an
increase in interest and dividends on investments of $3.3 million offset by a
decrease in interest and fees on loans of $2.3 million. Interest and fees on
loans decreased due to a reduction in the average yield on loans of 15 basis
points, offset by a $6.4 million increase in the average outstanding balance of
loans for the year ended December 31, 1999 compared to the year ended December
31, 1998. The decrease in loan yield is primarily due to increased residential
loan refinancings and, to a lesser extent, refinancings of commercial loans
(business and real estate) due to the declining rate environment during the
early part of 1999. In addition, commercial loans are typically adjustable rate
loans and adjust with interest rate changes. During 1999, rates offered for
commercial loans in the Bank's market areas remained very competitive. The Bank
expects to continue its focus in commercial lending in 2000, particularly in
the small business sector. In addition the Bank expects to continue its
reduction in the outstanding balances of its residential loan portfolio while
increasing the outstanding balances in its commercial and consumer loan
portfolios. Average investments increased $89.4 million and the average yield
on such investments remained relatively flat during the year ended December 31,
1999 compared to the year ended December 31, 1998.
Interest income increased approximately $11.0 million for the year ended
December 31, 1998 compared to the year ended December 31, 1997 due to an
increase in interest and dividends on investments of $9.5 million and $1.5
million in interest and fees on loans . The increase in interest and fees on
loans was due to an increase of $11.6 million due to an increase of $134.1
million in average loan balances outstanding, offset by a decrease of $10.1
million due to a decrease in loan yield of 52 basis points for the year ended
December 31, 1998 compared to the year ended December 31, 1997. The decrease in
loan yield was primarily due to increased residential loan refinancings and to
a lesser extent refinancings of commercial loans (business and real estate) due
to the declining rate environment in 1998. The prime interest rate decreased
from 8.50% at the beginning of the year to 7.75% at December 31, 1998. First
Bank's primary lending activity was in residential loans with aggressively
competitive rates in the Palm Beach county market. In addition, commercial
loans are typically adjustable rate loans and adjust with interest rate
changes. During 1998, rates offered for commercial loans became increasingly
competitive. The increase in loans outstanding was primarily in residential
real estate, commercial real estate and commercial business loans. The increase
in interest and dividends on investments was due to a $170.9 million increase
in average outstanding investments for the year ended December 31, 1998
compared to the year ended December 31, 1997, with a relatively flat investment
yield during the comparison periods.
INTEREST EXPENSE
Interest expense decreased approximately $7.7 million for the year ended
December 31, 1999 compared to the year ended December 31, 1998 due primarily to
a decrease in the cost of interest-bearing liabilities. Interest on deposits
decreased $12.6 million offset by an increase in interest on borrowed money of
$4.9 million. The decrease in interest on deposits was attributable to a
decrease of $6.5 million due to a reduction of $77.2 million in average
outstanding deposits and a decrease of $6.1 million attributable to a reduction
in the average cost of deposits, which declined 47 basis points. The reduction
in average deposits is primarily attributable to the planned run-off of the
former First Bank certificates of deposit. Since the acquisition of FPBB, the
Bank has lowered interest rates offered in the former First Bank offices on new
and renewed certificate of deposit accounts to become more aligned with rates
offered by commercial banks. As of result of this strategy, certificate of
deposit balances, primarily from the former First Bank deposit base, decreased
approximately $248.3 million during 1999. The increase in interest expense on
borrowed money is attributable to an increase of $7.9
40
<PAGE>
million due to a $123.5 million increase in the average outstanding balance of
borrowed money, offset by a $3.0 million decrease due to a reduction in the
rate paid on borrowed money of 56 basis points. During the quarter ended
December 31, 1998 and throughout 1999, the Company purchased an aggregate of
$13.7 million of its Senior Debentures in an effort to further reduce the cost
of interest-bearing liabilities.
The Bank's strategy is to reduce the overall rates paid on deposits by
decreasing the balances of certificates of deposits outstanding and increasing
the balances of non interest bearing and low interest bearing deposits.
Although the Bank anticipates continued run-off in the outstanding balances of
its higher-rate paying certificates of deposit during 2000, the rate of such
run-off is expected to decline from the levels experienced during 1999.
Interest expense increased approximately $14.5 million for the year ended
December 31, 1998 compared to the year ended December 31, 1997 primarily due to
an increase of $245.5 million in interest-bearing liabilities. Interest expense
on borrowed money increased $8.0 million for the year ended December 31, 1998
compared to the year ended December 31, 1997. The increase was comprised of
$6.7 million attributable to an increase of approximately $110.5 million in the
average balance of borrowed money outstanding and $1.3 million due to an
increase in the rate paid on borrowed money of 32 basis points. FPBB issued
$35.0 million of 10.35% Senior Debentures on June 30, 1997, which resulted in
an increase in interest expense of approximately $2.7 million for the year
ended December 31, 1998 compared to December 31, 1997. Approximately $75.0
million of borrowings were used to fund investment purchases during 1998. The
remaining increase in interest expense of approximately $6.5 million is due
primarily to the increases in average savings and certificate of deposit
balances outstanding of $79.4 million and $42.5 million, respectively, for the
year ended December 31, 1998 compared to the year ended December 31, 1997.
Savings account balances increased primarily as a result of FPBB offering a
special tiered rate savings product during 1998. No special certificate of
deposit programs were offered in 1998. The rate on interest-bearing liabilities
increased from 4.91% for the year ended December 31, 1997 to 5.01% for the year
ended December 31, 1998, primarily due to increased rates paid on borrowed
money and savings accounts.
41
<PAGE>
The following table presents the average balances of the Company's
interest-earning assets and interest-bearing liabilities, interest income
earned and interest expense incurred and weighted average yield or cost for the
years ended December 31, 1999, 1998 and 1997. Average balances were obtained
from the best available daily or monthly data which in all cases approximated
the average balances calculated on a daily basis.
NET INTEREST INCOME, AVERAGE BALANCE AND RATES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------- ---------- ---------- --------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Loans ............................. $ 1,942,053 $155,267 7.99% $ 1,935,649 $157,562 8.14%
Interest-bearing deposits
and Federal Funds sold ........... 28,668 1,473 5.14 71,674 3,818 5.33
Taxable investments ............... 786,690 51,315 6.52 712,002 46,224 6.49
Non-taxable investments ........... 50,621 3,112 6.15 35,908 2,248 6.26
----------- -------- ----- ----------- -------- -----
Total interest-earning assets 2,808,032 211,167 7.52 2,755,233 209,852 7.62
Other assets ...................... 206,238 215,305
----------- -----------
Total ............................. $ 3,014,270 $ 2,970,538
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts ...................... $ 202,778 $ 2,153 1.06 $ 190,184 $ 2,633 1.38
Money Market accounts ............. 207,771 6,622 3.19 150,420 4,428 2.94
Savings deposits .................. 329,433 11,080 3.36 325,837 12,380 3.80
Certificate of deposits ........... 1,173,336 61,843 5.27 1,324,118 74,841 5.65
Borrowed money .................... 531,162 30,740 5.79 407,686 25,889 6.35
----------- -------- ----- ----------- -------- -----
Total interest-bearing
liabilities ...................... 2,444,480 112,438 4.60 2,398,245 120,171 5.01
----------- -------- ----- ----------- -------- -----
Non interest-bearing
deposits ......................... 316,386 255,788
Other liabilities ................. 43,731 94,791
Shareholders' equity .............. 209,673 221,714
----------- -----------
Total liabilities and
shareholders' equity ............. $ 3,014,270 $ 2,970,538
=========== ===========
Net interest income/
Net interest rate spread ......... $ 98,729 2.92% $ 89,681 2.61%
-------- ----- -------- -----
Net average interest-earning
assets/Net interest margin $ 363,552 3.52% $ 356,988 3.25%
----------- ----- ----------- -----
Ratio of average interest-
earning earning assets to
average interest-bearing
liabilities ...................... 1.15x 1.15x
=========== ===========
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997
-------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
--------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Loans ............................. $ 1,801,568 $156,093 8.66%
Interest-bearing deposits
and Federal Funds sold ........... 90,465 5,077 5.61
Taxable investments ............... 557,793 36,494 6.54
Non-taxable investments ........... 19,201 1,145 5.96
----------- -------- -----
Total interest-earning assets 2,469,027 198,809 8.05
Other assets ...................... 187,886
-----------
Total ............................. $ 2,656,913
===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
NOW accounts ...................... $ 173,436 $ 2,885 1.66
Money Market accounts ............. 154,037 4,471 2.90
Savings deposits .................. 246,484 8,483 3.44
Certificate of deposits ........... 1,281,584 71,948 5.61
Borrowed money .................... 297,205 17,933 6.03
----------- -------- -----
Total interest-bearing
liabilities ...................... 2,152,746 105,720 4.91
----------- -------- -----
Non interest-bearing
deposits ......................... 211,343
Other liabilities ................. 79,940
Shareholders' equity .............. 212,884
-----------
Total liabilities and
shareholders' equity ............. $ 2,656,913
===========
Net interest income/
Net interest rate spread ......... $ 93,089 3.14%
-------- -----
Net average interest-earning
assets/Net interest margin $ 316,281 3.77%
----------- -----
Ratio of average interest-
earning earning assets to
average interest-bearing
liabilities ...................... 1.15x
===========
<FN>
- ---------------
(1) The above table is presented on a tax equivalent basis.
(2) Non-accrual loans are included in the average loan balances.
</FN>
</TABLE>
42
<PAGE>
Net interest income before provision for loan losses can be analyzed in
terms of the impact of changing rates and changing volumes of interest-earning
assets and interest-bearing liabilities. The following table sets forth certain
information regarding changes in net interest income due to changes in the
average balance of interest-earning assets and interest-bearing liabilities and
due to changes in average rates for the periods indicated. Information is
provided in each category with respect to (i) changes attributable to changes
in volume (change in volume multiplied by prior year's rate), (ii) changes
attributable to changes in rate (change in rate multiplied by prior year's
volume) and (iii) the net change (total changes in rate and volume). The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 VERSUS 1998 DECEMBER 31, 1998 VERSUS 1997
----------------------------------------- -----------------------------------------
INCREASE (DECREASE) DUE TO CHANGE IN: INCREASE (DECREASE) DUE TO CHANGE IN:
----------------------------------------- -----------------------------------------
AVERAGE AVERAGE NET AVERAGE AVERAGE NET
RATE VOLUME CHANGE RATE VOLUME CHANGE
------------ ----------- ------------ ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans--net ...................... $ (2,816) $ 521 $ (2,295) $ (10,142) $ 11,611 $ 1,469
Interest-bearing deposits
Federal Funds sold ............. (53) (2,292) (2,345) (205) (1,054) (1,259)
Taxable investments ............. 244 4,847 5,091 (355) 10,085 9,730
Non-taxable investments ......... (59) 921 862 108 996 1,104
-------- -------- --------- --------- -------- --------
(2,684) 3,997 1,313 (10,594) 21,638 11,044
-------- -------- --------- --------- -------- --------
INTEREST EXPENSE:
NOW accounts .................... (653) 174 (479) 23 (278) (255)
Money Market accounts ........... 508 1,686 2,194 62 (105) (43)
Savings deposits ................ (1,438) 137 (1,301) 1,169 2,730 3,899
Certificates of deposit ......... (4,479) (8,519) (12,998) 509 2,386 2,895
Borrowed money .................. (2,988) 7,840 4,852 1,294 6,662 7,956
-------- -------- --------- --------- -------- --------
(9,050) 1,318 (7,732) 3,057 11,395 14,452
-------- -------- --------- --------- -------- --------
Net interest income ............. $ 6,366 $ 2,679 $ 9,045 $ (13,651) $ 10,243 $ (3,408)
======== ======== ========= ========= ======== ========
</TABLE>
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based upon management's assessment of the
adequacy of the allowance for loan losses inherent in the Bank's loan
portfolio. An evaluation of the adequacy of the overall allowance for loan
losses and, correspondingly, the provision for loan losses is determined by
management considering factors such as current economic conditions, the
underlying quality of the loan portfolio including the Bank's credit
administration policy and procedures, loan concentrations, portfolio mix, prior
loan loss experience, growth of the loan portfolio and other relevant factors.
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. 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.
The provision for loan losses was $1.6 million for the year ended December
31, 1999, compared to $22.9 million and $5.1 million for the years ended
December 31, 1998 and 1997, respectively. The $21.3 million reduction in the
provision for loan losses for the year ended December 31, 1999 was primarily
attributable to certain issues related to the Bank's merger transactions in
1998, trends identified in the indirect automobile loan portfolio during the
year ended December 31, 1998 and $5.2 million provision recorded in the year
ended December 31, 1998 to conform credit policies of acquired banks to those
of the Bank (see 1998 discussion below). The provision for the year ended
December 31, 1999 reflects $300,000 in merger related provision adjustments to
conform Northside's
43
<PAGE>
credit policies to those of the Bank. Merger related provisions for loan losses
recorded in the year ended December 31, 1998 include adjustments totaling $5.2
million to conform Unifirst and FPBB's credit policies to those of the Bank. An
additional loan loss provision of $2.2 million was recorded in the year ended
December 31, 1998 with respect to issues arising from FPBB's indirect
automobile loan portfolio.
The additional decrease in the provision for loan losses for the year
ended December 31, 1999 compared to the year ended December 31, 1998 was
primarily a result of certain factors that significantly impacted the
calculation of the provision recorded for 1998. Such factors experienced during
1998 included increased commercial loan production and increased competition in
the commercial lending market from the levels experienced for 1997. New
commercial loan production increased from an average of approximately $8.0
million per month during 1997 to approximately $15.0 million per month during
1998. The competition for loans from other financial institutions intensified
during 1998, which resulted in certain financial institutions lowering
underwriting standards as well as lowering interest rates offered on loans.
While the Bank did not materially ease any requirements in its underwriting
policies, a lowering of underwriting standards in the industry, as well as
among the Bank 's local competitors, was noted during 1998. Consideration was
given to this increased competition by management in it s assessment of the
risks in the combined loan portfolios. In addition, the risk in the loan
portfolio increased as a result of merger integration issues associated with
the merger transaction consummated during the year ended December 31, 1998.
These factors, as well as the different underwriting policies of the merged
institutions, resulted in an increase in risk associated with the combined
portfolios.
The provision for loan losses increased $17.8 million for the year ended
December 31, 1998 compared to the year ended December 31, 1997. The provision
for the year ended December 31, 1998 includes adjustments totaling $5.2 million
to conform Unifirst and FPBB's credit policies to those of the Bank, along with
an additional provision of $2.2 million attributable to issues arising out of
the FPBB's indirect automobile loan portfolio. During 1997, the Bank recorded
$650,000 to the provision for loan losses in connection with merger
transactions to conform Family and County's accounting and credit policies
regarding loan valuations to those of the Bank. In addition, the provision for
loan losses recorded in the year ended December 31, 1997 included losses
related to FPBB's indirect automobile lending program. FPBB had been engaged in
originating indirect automobile loans until September 1996, when it ceased its
originations of indirect automobile loans due to higher delinquencies and
charge-offs associated with these operations.
Management's evaluation of the allowance for loan losses includes
determining and applying relevant risk factors to the entire loan portfolio.
Risk factors applied to the performing loan portfolio are based on management's
assessment of the risks in the loan portfolio considering current economic
conditions, the Bank's merger transactions, changes in commercial loan
production, prior loan loss history and other factors. The systematic method
prescribed in the Bank's loan policy, which includes procedures for early
detection of potential problem loans, is consistently used to determine the
adequacy of the allowance for loan losses and also considers the
characteristics of the loan portfolio, historical charge-off history,
delinquencies, current economic conditions, as well as other relevant factors.
Non-performing loans are carried at fair value based on the most recent
information available. Risk factors as prescribed in the Bank's loan policy are
applied to the remaining book balances of classified loans.
The allowance for loan losses as a percent of total loans decreased to
1.18% at December 31, 1999 from 1.29% at December 31, 1998. The allowance for
loan losses to non-performing loans decreased to 136% at December 31, 1999 from
178% at December 31, 1998. The lower allowance for loan losses to
non-performing loans and total loans at December 31, 1999 is primarily a result
of the completion, in 1999, of integrating the credit administration policies
and underwriting procedures of the institutions acquired in 1998 as well as the
Bank's effective management of the portfolios acquired from those institutions.
In addition, the amount of non-performing assets at December 31, 1999 remained
relatively flat compared to December 31, 1998 while $4.2 million in
non-performing assets at
44
<PAGE>
December 31, 1999 represents two commercial real estate loans for which
management expects to dispose of without additional significant losses.
In accordance with the Bank's asset classification policy, non-performing
loans (loans contractually past-due 90 days or more) are recorded at the lesser
of the loan balance or estimated fair value of the collateral underlying the
loan, for collateral dependent loans, or the net present value of estimated
future cash flows discounted at the loan's original effective interest rate. As
a result, any expected losses from loans identified at December 31, 1999 as
non-performing have been recognized by the Bank and should not have a future
impact on the allowance for loan losses unless the condition of the loan
further deteriorates.
NON-INTEREST INCOME
Non-interest income increased $2.3 million or 9% for the year ended
December 31, 1999 compared to the year ended December 31, 1998. The increase
was due to increases of $1.5 million in service charges on deposit accounts,
$1.5 million in other income and $1.4 million in net gain on sales of loans,
offset by a decrease of $2.1 million in net gain on sales of investments
available-for-sale.
Non-interest income increased $6.9 million or 36% for the year ended
December 31, 1998 compared to the year ended December 31, 1997, due to
increases of $2.9 million in net gain on sales of loans, $1.6 million in net
gain on sales of investments available-for-sale, $1.3 million in other income
and $1.1 million in service charges on deposit accounts.
SERVICE CHARGES ON DEPOSIT ACCOUNTS. Service charges on deposit accounts
increased $1.5 million or 13% for the year ended December 31, 1999 compared to
the year ended December 31, 1998. The increase is primarily due to an increased
volume in transaction accounts and an increase in the usage of products subject
to service charges. Further, in 1999 the Bank established a formal cash
management department to enhance and sell cash management services to business
customers. Non-interest bearing average account balances increased
approximately $60.6 million or 24% for the year ended December 31, 1999
compared to the year ended December 31, 1998.
Service charges on deposit accounts increased $1.1 million or 11% for the
year ended December 31, 1998 compared to the year ended December 31, 1997
primarily as a result of increased volume in transaction accounts. Non-interest
bearing average account balances increased approximately $44.4 million or 21%
for the year ended December 31, 1998 compared to the year ended December 31,
1997. In addition, certain deposit fees were increased in March of 1998,
contributing slightly to the increase in service charges on deposits.
NET GAIN ON SALES OF LOANS. Net gain on sales of loans increased $1.4
million for the year ended December 31, 1999 compared to the year ended
December 31, 1998. The increase is due primarily to the declining interest rate
environment in late 1998 and early 1999, which increased the market value of
certain of the Bank's residential real estate loans that were originated at
higher yields in previous years. With respect to loan sales, the level of gains
and/or losses is generally dependent on market interest rates at the time the
loans are sold and to the extent that such loans are sold servicing released or
servicing retained. During 1999, loans with an aggregate principal balance of
approximately $251.7 million were sold as compared to approximately $300.0
million in the prior year. Gain on sale of loans also includes approximately
$650,000 related to the operation of FNEF for the five months ended December
31, 1999.
Net gain on sales of loans increased $2.9 million for the year ended
December 31, 1998 compared to the year ended December 31, 1997 primarily due to
an increase in the volume of loans sold. During 1998, loans with principal
balances of approximately $300.0 million were sold as compared to $72.5 million
in the prior period. The increase in loans sold is due to $160.7 million of
fixed and adjustable rate loans sold by FPBB during 1998. No significant loan
sales were made by FPBB during 1997.
NET GAIN ON SALE OF INVESTMENTS AVAILABLE-FOR-SALE. Net gain on sale of
investments available-for-sale decreased by $2.1 million for the year ended
December 31, 1999 compared to the year ended
45
<PAGE>
December 31, 1998 due to decreases in both the volume of investments
available-for-sale that were sold and in the gains realized on those sales.
During 1999 approximately $217.9 million of investments available-for-sale were
sold as compared to approximately $365.4 million during 1998.
Net gain on sale of investments available-for-sale increased by $1.6
million for the year ended December 31, 1998 compared to the year ended
December 31, 1997 primarily due to the increase in the volume of investments
available-for-sale sold and in the gains realized on the sale of those
investments. During 1998 approximately $365.4 million investments
available-for-sale were sold as compared to approximately $295.0 million during
1997.
OTHER INCOME. Other income consists of loan servicing income net of the
amortization of loan servicing rights, loan fees, rental income, gain on sale
of fixed assets, ATM fees and other miscellaneous fee income. Other income
increased $1.5 million for the year ended December 31, 1999 compared to the
year ended December 31, 1998. The increase is due primarily to a $1.1 million
gain realized on the sale of real estate associated with one of the Bank's
branch offices. The Bank continues to operate a branch office at this location.
Other income increased $1.2 million for the year ended December 31, 1998
compared to the year ended December 31, 1997. The increase is primarily
associated with the overall growth in the Bank's customer base, ATM network and
products offered. In addition, ATM fees increased due to First Bank charging
for certain ATM transactions in 1998 that were not previously charged. Loan
servicing fees also increased due to the increase in loans serviced for others.
OPERATING EXPENSES
Operating expenses, excluding merger related expenses of $2.4 million and
other non-recurring charges of $1.4 million, were $74.4 million for the year
ended December 31, 1999. Operating expenses, excluding merger related expenses
of $21.7 million and other non recurring charges of $5 million related to asset
write-downs, were $78.7 million for the year ended December 31, 1998. The
decrease in operating expenses of $4.3 million for the year ended December 31,
1999 compared to the year ended December 31, 1998 is primarily attributable to
decreases in employee compensation and benefits and other expenses, offset by
increases in occupancy and equipment and data processing expenses.
The decrease of $4.9 million 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 the
Company's Stock Appreciation Rights ("SARs"), offset by increased compensation
expense associated with new branch locations and additions to the Company's
senior management team.
Occupancy and equipment expenses for the year ended December 31, 1999
increased by $2.4 million as compared to the year ended December 31, 1998. The
increases in rent expense, furniture and equipment depreciation expense,
utilities expense and equipment maintenance expenses are associated with the
addition of new branch locations. A total of 13 new branches were added in
1999, as well as an additional trust service office and two new business
banking locations. Included in the branches added during 1999 are nine bank
branches operating in Kash N' Karry supermarkets that the Bank acquired on June
11, 1999.
Data processing expenses increased $1.8 million for the year ended
December 31, 1999 as compared to the year ended December 31, 1998. The increase
in data processing expense is primarily attributable to the addition of the new
branch locations, the conversion of FPBB's operations from an in-house system
to the Bank's outside service bureau as well as the implementation of image
processing and other improved information technologies.
Operating expenses, excluding merger related expenses of $21.7 million and
other non recurring charges of $5 million related to asset write-downs, were
$78.7 million for the year ended
46
<PAGE>
December 31, 1998. Operating expenses, excluding merger related expenses of
$9.3 million and OREO write-downs related to the mergers of $640,000, were
$76.6 million for the year ended December 31, 1997. Operating expenses
increased approximately $2.1 million during the comparison periods. The
increase is primarily due to the increases in employee compensation and
benefits, occupancy and equipment and communications expenses.
Employee compensation and benefits, excluding one time charges related to
the FPBB merger of $594,000, increased $916,000 for the year ended December 31,
1998. The increase in compensation and benefits is due to the addition of seven
new branch locations in 1998, the addition of staff in the credit training and
loan servicing departments in late 1997, the establishment of the trust and
investment services division in mid-1997 and a $700,000 increase in ESOP
expense, offset by decreases of approximately $1.4 million related to the
accrual associated with the Company's Stock Appreciation Rights ("SARs") and
cost savings realized as a result of the mergers with Family on June 30, 1997
and County on December 2, 1997. SARs expense decreased as a result of
postponing the initial vesting and exercisable dates in order to restore the
purpose of the SAR grants providing long-term incentive for board members and
executive officers.
Occupancy and equipment expenses for the year ended December 31, 1998
increased by $1.7 million as compared to the year ended December 31, 1997. The
increases in rent expense, furniture and equipment depreciation expense,
utilities expense and equipment maintenance expenses are associated with the
addition of seven new branch locations.
Communications expenses increased $817,000 for the year ended December 31,
1998 as compared to the year ended December 31, 1997. The increase in telephone
and telegraph expense is associated with the addition of the new branch
locations, and the increase in postage expense is primarily associated with the
increased deposit account growth.
INCOME TAXES
Income tax expense increased $19.7 million for the year ended December 31,
1999 to $17.0 million from a $2.7 million income tax benefit for the year ended
December 31, 1998. This increase is primarily due to an increase in income
before income taxes of $59.6 million, as a result of improved operating
performance and certain merger related charges and other one-time charges
incurred during 1998. The increase in income tax expense due to the increase in
income before income taxes for the year ended December 31, 1999 compared to
December 31, 1998 was offset by a decrease in the effective tax rate for the
year ended December 31, 1999. The increase in the effective rate or decrease in
the tax benefit in the year ended December 31, 1998 was attributable to certain
non deductible merger expenses that were incurred in 1998.
Income tax expense decreased $10.2 million for the year ended December 31,
1998 to an income tax benefit of $2.7 million from an income tax expense of
$7.5 million for the year ended December 31, 1997. This decrease is primarily
due to a decrease in income before income taxes of $33.3 million as a result of
merger related charges and other one-time charges. The decrease in income tax
expenses related to the decrease in income before income taxes was offset by a
decrease in the effective tax benefit rate for the year ended December 31, 1998
compared to the year ended December 31, 1997. The increase in the effective
rate or a lower effective tax benefit rate was due to non deductible merger
expenses incurred in 1998.
LIQUIDITY
The Company's liquid assets consist primarily of interest bearing deposits
in other financial institutions, marketable securities and loans held for sale.
Considerations in managing the Company's liquidity position include scheduled
cash flows from existing assets, contingencies and liabilities, as well as
projected liquidity needs arising from approved extensions of credit.
Furthermore, liquidity position is monitored daily by management to maintain a
level of liquidity conducive to efficient operations and is continuously
evaluated as part of the asset/liability management process.
47
<PAGE>
The Company's cash inflows for the year ended December 31, 1999 consist
primarily of proceeds from the sale of loans and investments
available-for-sale, the collection of loan principal and interest payments,
along with increases in securities sold under agreements to repurchase and FHLB
advances. Uses of cash consist primarily of purchases of investments and
decreases in time deposits. Primary sources of borrowings include advances from
the FHLB and borrowings under repurchase agreements.
Access to funds from depositors is affected by the rate the Bank pays on
certificates of deposit and other savings accounts and convenience and service
provided to transaction account holders. The rate the Bank pays on certificates
of deposit is dependent to some extent on rates paid by other financial
institutions within the Bank's market areas. The Bank manages the cash inflows
and outflows from certificates of deposit by increasing or decreasing the rates
offered in its market areas.
The Company's sources of liquidity are impacted by various matters beyond
the control of the Company. Scheduled loan payments are a relatively stable
source of funds, while loan prepayments and deposit flows vary widely in
reaction to market conditions, primarily prevailing interest rates. Asset sales
are influenced by the availability of loans for sale, general market demand and
other unforeseen market conditions. The Company's ability to borrow at
attractive rates is affected by its credit ratings and other market conditions.
Consistent with the Bank's strategy to decrease its cost of deposits by
reducing outstanding time deposits, certificate of deposit account balances
declined $248.3 million during the year ended December 31, 1999. Such decrease
was funded primarily by advances from the FHLB and borrowings under repurchase
agreements, along with proceeds from residential loan sales. Management expects
further declines in certificate of deposit account balances during 2000 due
primarily to the lowering of former First Bank certificate of deposit rates to
become more aligned with the commercial bank pricing offered by the Bank.
However the rate of such run-off is expected to decline from the levels
experienced during 1999. Management anticipates growth in transaction account
balances to fund the certificate of deposit run-off.
In order to manage the uncertainty inherent in its sources of funds, the
Company continually evaluates alternate sources of funds and maintains and
develops diversity and flexibility in the number of such sources. The effect of
a decline in any one source of funds generally can be offset by use of an
alternative source although potentially at a different cost to the Company.
CAPITAL COMPLIANCE
The Bank and the Company are in compliance with regulatory capital
requirements at December 31, 1999 (see Note 13 to Consolidated Financial
Statements).
The Bank and the Company, as a bank holding company, are subject to the
capital requirements of the FRB. Under FRB guidelines, bank holding companies
such as the Company are required to maintain capital based on risk-adjusted
assets. Under risk-based capital guidelines, categories of assets with
potentially higher credit risk require more capital than assets with lower
risk. In addition to balance sheet assets, bank holding companies are required
to maintain capital, on a risk-adjusted basis, to support certain off-balance
sheet activities such as loan commitments. The FRB standards classify capital
into two tiers, Tier I and Total. Tier I risk-based capital consists of common
stockholders' equity, non cumulative and cumulative (bank holding companies
only) perpetual preferred stock, and minority interests, less goodwill and
deposit intangibles. Total risk based capital consists of Tier I capital plus a
portion of the allowance for loan losses, hybrid capital instruments, term
subordinated debt and intermediate preferred stock. In addition to risk-based
capital requirements, the FRB requires bank holding companies to maintain a
minimum leverage capital ratio of Tier I capital to total average assets. Total
assets for this purpose do not include goodwill and any other intangible assets
and investments that the FRB determines should be deducted from Tier I capital.
The FRB requires banks and bank holding companies to maintain Tier I and Total
risk-based capital ratios of 4.0% and 8.0%, respectively, and a Tier I leverage
capital ratio of 4.0%. See Item 1--"Business: Certain Regulatory
Considerations."
48
<PAGE>
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
information presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or same magnitude as the price of
goods and services. See Item 7A--"Quantitative and Qualitative Disclosures
about Market Risk."
FINANCIAL CONDITION
Consolidated total assets increased approximately $111.0 million or 4% to
$3.2 billion at December 31, 1999 compared to $3.1 billion at December 31,
1998. The increase in total assets was primarily attributable to increases in
total investments and bank-owned life insurance of $200.2 million and $50.0
million, respectively, offset by a decrease in total loans of $129.2 million.
Consistent with the Bank's strategy to reduce the outstanding balance in its
residential loan portfolio, the proceeds from certain sales of loans were
invested in the Bank's investment portfolio. In addition, a bank-owned life
insurance investment program was funded in the amount of $50.0 million on
December 31, 1999. The purpose of the life insurance investment is to fund
certain employee benefits in the future. Also contributing to the change in
total assets were increases of $13.6 million attributable to deferred taxes,
$12.0 million for property and equipment, $11.1 million for FHLB Stock and
$10.4 million in other assets, offset by a $63.3 million decrease in cash and
cash equivalents.
Total liabilities increased $118.3 million or 4% to $3.0 billion at
December 31, 1999 compared to $2.9 billion at December 31, 1998. The increase in
consolidated total liabilities was primarily due to increases in securities sold
under agreements to repurchase and FHLB advances and other borrowing of $239.4
million and $208.6 million, respectively, offset by a decrease in total deposits
of $303.4 million. The reduction in total deposits is due primarily to planned
runoff of the higher-rate certificates of deposit acquired in the acquisition of
FPBB. Certificate of deposit runoff has been funded by proceeds from residential
loan sales and borrowed money from the FHLB and securities sold under agreements
to repurchase. In addition, proceeds from FHLB advances were used to fund
investment in certain mortgage-backed securities. Also contributing to the
change in total liabilities was a decrease of $7.0 million in Senior Debentures
attributable primarily to the Bank's purchase of such obligations during 1999,
and a decrease in bank drafts payable of $16.5 million.
Total consolidated shareholders' equity decreased by $7.3 million to
$200.7 million at December 31, 1999 compared to $208.0 million at December 31,
1998. The decrease is attributable to an increase of $21.4 million in
unrealized loss on available-for-sale securities, $12.3 million for cash
dividends paid on the Company's common stock and $8.7 million due to the
purchase of the Company's common stock in accordance with a program announced
in November 1999, offset by increases of $29.5 million for net income
recognized during 1999 and $5.6 million from the exercise of stock options.
IMPACT OF YEAR 2000
In prior years, the Company disclosed the nature and progress of its plans
to become Year 2000 ready. In 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes
those systems successfully responded to the Year 2000 date change. Costs to
purchase new compliant hardware and software were approximately $2.0 million,
which have been capitalized. The cost of the Year 2000 project has been funded
through operating cash flows and has not had a material impact on the
49
<PAGE>
Company's financial condition, operations or cash flows. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
financial products and services, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its borrowers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
50
<PAGE>
ITEM 7A. 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. 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 and Lee
counties in Florida, is subject to risks associated with the local economy.
The operations of the Bank are subject to risk resulting from interest
rate fluctuations to the extent that there is a difference between the amount
of the Company's interest-earning assets and the amount of interest-bearing
liabilities that are prepaid/withdrawn, mature or reprice in specified periods.
Management of interest rate sensitivity involves matching the maturity and
repricing dates of interest-earning assets with those of interest-bearing
liabilities in an effort to manage the impact of fluctuating interest rates on
net interest margins. The Company's Asset Liability Committee ("ALCO") has the
responsibility for the management of interest rate risk. Operating within risk
tolerance levels approved by the Board of Directors ("Board ALCO"), the
management and Board ALCOs meet at least quarterly to establish, communicate,
coordinate and manage the asset/liability process and procedures. The purpose
of the ALCO is to monitor the volume and mix of the Bank's interest sensitive
assets and liabilities consistent with the Company's overall liquidity,
capital, growth, risk and profitability goals.
The Bank utilizes an interest rate sensitivity model as the primary
quantitative tool in measuring the amount of interest rate risk that is
present. Interest rate sensitivity is measured as the difference between the
percentage of financial assets and liabilities in the Company's existing
portfolio that are subject to repricing within specific time periods. In
addition, the Bank measures interest rate sensitivity of its budgeted volume
and mix of financial assets and liabilities. These differences, known as
interest sensitivity gaps, are usually calculated cumulatively for blocks of
time. The model quantifies the potential changes in future earnings which is
measured by the effects of various interest rate changes on net income over the
ensuing one and two year periods.
The Company 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, 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 Company's exposure to interest rate risk
at December 31, 1999.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------------
ONE YEAR 1 TO 3 3 TO 5 OVER 5
OR LESS YEARS YEARS YEARS TOTAL
-------------- -------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total interest-earning assets .................... $ 993,132 $ 758,867 $ 417,144 $ 751,203 $2,920,346
Total interest-bearing liabilities ............... 1,700,863 313,865 98,078 138,966 2,251,772
--------- --------- --------- --------- ----------
Interest rate sensitivity gap .................... $(707,731) $ 445,002 $ 319,066 $ 612,237 $ 668,574
========= ========= ========= ========= ==========
Cumulative interest rate sensitivity gap ......... $(707,731) $(262,729) $ 56,337 $ 668,574
========= ========= ========= =========
Cumulative interest rate sensitivity gap as
a percent of total assets ....................... (22.2)% (8.3)% 1.8% 21.0%
========= ========= ========= =========
</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
51
<PAGE>
CONSENSUS ESTIMATES FOR SIMILAR SECURITIES. MONEY MARKET AND SAVINGS ACCOUNT
BALANCES ARE ASSUMED TO REPRICE WITH A LAG BETWEEN THREE THROUGH 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 COMPANY. 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 $265.9 million in
new loans and $41.0 million in construction loans-in-process at December 31,
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 reduce the effects that interest rate
fluctuations have on income.
At December 31, 1999, the Bank's one-year, cumulative interest rate
sensitivity gap as a percent of total assets at (22.2)% was in excess of the
Board approved policy limit of (20.0)%. However, management and the Board of
Directors continue to support the Bank's original plan to change loan and
deposit mix to reduce the level of interest rate risk exposure. While
management and the Board recognize such a strategy requires a longer-term
commitment, both believe changes in mix remain the best strategy for the Bank.
Furthermore, the Bank made significant progress in this plan during the year
ended December 31, 1999 resulting in a 17.6% reduction in the one-year,
cumulative interest rate sensitivity gap from (39.8)% at December 31, 1998.
Based on the Bank's current plan, the one-year, cumulative interest rate
sensitivity gap is expected to be within the Bank's policy limits by December
31, 2000.
The current potential changes in future earnings relating to financial
assets and liabilities as of December 31, 1999 are as follows:
POTENTIAL CHANGE
IN FUTURE EARNINGS
-------------------
2000
-------------------
Interest Rate Change in Basis Points:
+ 100 ............................. (13.62)%
- 100 ............................. 8.06%
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 an increase in the market rate.
NOW accounts are considered to be non-interest rate sensitive in an increasing
rate environment. Money market, savings and NOW 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 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 table above. 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.
52
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- -------------
(RESTATED)
(AMOUNTS IN THOUSANDS EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions ............................... $ 73,054 $ 52,336
Interest-bearing deposits in other financial institutions ....................... 41,201 114,471
Federal funds sold .............................................................. 3,595 14,334
---------- ----------
Cash and cash equivalents ...................................................... 117,850 181,141
Investments available-for-sale .................................................. 792,125 722,913
Investments held to maturity (Market value of $139,383 and $16,605 at
December 31, 1999 and 1998, respectively) ...................................... 147,275 16,318
Loans receivable--net ........................................................... 1,822,433 1,997,674
Loans held for sale (Market value of $62,000 and $16,272 at December 31, 1999
and 1998, respectively) ........................................................ 62,000 16,000
Property and equipment--net ..................................................... 65,349 53,341
Other real estate owned--net .................................................... 2,004 2,646
Federal Home Loan Bank Stock .................................................... 34,821 23,754
Goodwill--net ................................................................... 17,715 11,961
Bank owned life insurance ....................................................... 58,039 8,059
Deferred taxes, net ............................................................. 16,564 4,416
Accrued interest receivable ..................................................... 16,986 15,848
Other assets .................................................................... 39,051 27,154
---------- ----------
Total ........................................................................... $3,192,212 $3,081,225
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $2,064,936 $2,368,360
Federal Home Loan Bank advances and other borrowings ............................ 618,996 410,368
Securities sold under agreements to repurchase .................................. 248,521 9,144
Senior debentures, net of unamortized issuance costs ............................ 20,531 27,518
Advances from borrowers for taxes and insurance ................................. 5,908 7,677
Bank drafts payable ............................................................. 11,208 27,706
Other liabilities ............................................................... 21,450 22,474
---------- ----------
Total liabilities ............................................................... 2,991,550 2,873,247
---------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value; 500,000,000 shares authorized;
50,748,419 issued shares; outstanding 49,696,419 (net of treasury stock)
at December 31, 1999 and 49,677,130 issued and outstanding at
December 31, 1998 .............................................................. 508 497
Treasury Stock (1,052,000 shares repurchased at December 31, 1999) .............. (11)
Additional paid-in capital ...................................................... 124,931 128,044
Retained earnings ............................................................... 94,934 77,732
Accumulated other comprehensive (loss) income, net of taxes ..................... (19,700) 1,705
---------- ----------
Total shareholders' equity ...................................................... 200,662 207,978
---------- ----------
Total ........................................................................... $3,192,212 $3,081,225
========== ==========
</TABLE>
See notes to consolidated financial statements.
53
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------- ------------ -------------
(RESTATED) (RESTATED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans .................................. $ 155,267 $ 157,562 $ 156,093
Interest and dividends on investments ....................... 55,258 51,937 42,432
--------- --------- ---------
210,525 209,499 198,525
--------- --------- ---------
INTEREST EXPENSE:
Interest on deposits ........................................ 81,698 94,282 87,787
Interest on borrowings ...................................... 30,741 25,889 17,933
--------- --------- ---------
112,439 120,171 105,720
--------- --------- ---------
Net interest income ......................................... 98,086 89,328 92,805
Provision for loan losses ................................... 1,550 22,909 5,143
--------- --------- ---------
Net interest income after provision for loan losses ......... 96,536 66,419 87,662
--------- --------- ---------
NON-INTEREST INCOME:
Service charges on deposit accounts ......................... 12,741 11,229 10,154
Net gain on sales of loans .................................. 5,098 3,732 797
Net gain on sales of trading securities and investments
available-for-sale ........................................ 1,051 3,139 1,524
Other income ................................................ 9,261 7,730 6,501
--------- --------- ---------
28,151 25,830 18,976
--------- --------- ---------
OPERATING EXPENSES:
Employee compensation and benefits .......................... 36,323 41,243 39,733
Occupancy and equipment ..................................... 18,324 15,905 14,186
Professional fees ........................................... 1,402 3,103 4,202
Advertising and promotion ................................... 1,355 2,417 1,674
Communications .............................................. 2,483 2,786 1,969
Data processing ............................................. 3,602 1,776 1,165
Insurance ................................................... 1,761 2,116 1,441
Other real estate owned--net ................................ 359 1,519 2,882
Goodwill amortization ....................................... 1,548 920 759
Other ....................................................... 8,651 11,957 9,213
Merger expenses ............................................. 2,381 21,655 9,285
--------- --------- ---------
78,189 105,397 86,509
--------- --------- ---------
Income (loss) before income taxes ........................... 46,498 (13,148) 20,129
Income tax expense (benefit) ................................ 17,029 (2,692) 7,522
--------- --------- ---------
NET INCOME (LOSS) $ 29,469 $ (10,456) $ 12,607
========= ========= =========
INCOME (LOSS) APPLICABLE TO COMMON STOCK .................... $ 29,469 $ (10,685) $ 11,843
========= ========= =========
PER SHARE DATA:
Basic earnings (loss) ....................................... $ 0.58 $ (0.22) $ 0.25
Diluted earnings (loss) ..................................... $ 0.58 $ (0.22) $ 0.25
Dividends ................................................... $ 0.24 $ 0.22 $ 0.19
--------- --------- ---------
WEIGHTED AVERAGE COMMON SHARES AND
COMMON STOCK EQUIVALENTS OUTSTANDING:
Basic ...................................................... 50,469 48,807 46,489
Diluted .................................................... 51,047 48,807 48,147
</TABLE>
See notes to consolidated financial statements.
54
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
(RESTATED) (RESTATED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss) ............................................ $ 29,469 $ (10,456) $12,607
Other comprehensive income, net of tax:
Unrealized (loss) gain on investments available-for-sale
arising during the period, net of taxes of ($12,571),
$1,448 and $1,035, respectively ........................... (20,743) 4,087 2,554
Reclassification adjustment for amounts realized on sale of
investments included in net income, net of taxes of
($389), ($1,224) and ($594), respectively ................. (662) (1,915) (930)
--------- --------- -------
Comprehensive income (loss) .................................. $ 8,064 $ (8,284) $14,231
========= ========= =======
</TABLE>
See notes to consolidated financial statements.
55
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN
STOCK STOCK CAPITAL
----------- -------- ------------
(AMOUNTS IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996, AS RESTATED .............. $11,146 $ 460 $107,970
Exercise of stock options--1,319,401 shares .......... 13 3,480
Issuance of stock grants--3,000 shares ............... 27
Conversion of preferred stock series "C" into
common stock--133,306 shares ........................ (860) 2 858
Acquisition and retirement of common stock
by pooled company--148,170 shares ................... (1) (552)
Cash dividends--common stock .........................
Cash dividends paid by pooled companies--
common stock ........................................
Cash dividends--preferred stock ($56 paid by
pooled company) .....................................
Amortization of deferred compensation--
ESOP & RRP .......................................... 906
Purchase of treasury stock at cost by pooled
company--478,116 shares ............................. (4) (2,664)
Net income ...........................................
Changes in accumulated other comprehensive
income, net of taxes ................................
------- ---- --------
BALANCE DECEMBER 31, 1997, AS RESTATED ............... 10,286 470 110,025
Exercise of stock options and
warrants--952,061 ................................... 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 .........................
Cash dividends--paid by pooled company--
common stock ........................................
Cash dividends--preferred stock series "C"
($27 paid by pooled company) ........................
Stock dividends paid by pooled company--
209,835 shares ...................................... 2 836
Amortization of deferred compensation--
ESOP & RRP .......................................... 2,750
Net loss .............................................
Net income of pooled company for three
months ended December 31, 1997 ......................
Changes in accumulated other comprehensive
income, net of taxes ................................
------- ---- --------
BALANCE DECEMBER 31, 1998, AS RESTATED ............... 497 128,044
Exercise of stock options--1,071,290 shares .......... 11 5,613
Purchase of treasury stock--1,052,000 shares ......... (11) (8,726)
Cash dividends--common stock .........................
Cash dividends--paid by pooled company
--common stock ......................................
Net income ...........................................
Changes in accumulated other comprehensive
income (loss), net of taxes .........................
------- ---- --------
BALANCE DECEMBER 31, 1999 ............................ $497 $124,931
======= ==== ========
<CAPTION>
COMMON COMMON ACCUMULATED
STOCK STOCK COMPREHENSIVE
RETAINED PURCHASED PURCHASED INCOME (LOSS),
EARNINGS BY ESOP BY RRP NET OF TAXES
------------ ----------- ----------- ---------------
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996, AS RESTATED .............. $93,167 $(1,769) $ (161) $ (2,091)
Exercise of stock options--1,319,401 shares ..........
Issuance of stock grants--3,000 shares ...............
Conversion of preferred stock series "C" into
common stock--133,306 shares ........................
Acquisition and retirement of common stock
by pooled company--148,170 shares ................... (287)
Cash dividends--common stock ......................... (2,175)
Cash dividends paid by pooled companies--
common stock ........................................ (6,205)
Cash dividends--preferred stock ($56 paid by
pooled company) ..................................... (764)
Amortization of deferred compensation--
ESOP & RRP .......................................... 814 44
Purchase of treasury stock at cost by pooled
company--478,116 shares .............................
Net income ........................................... 12,607
Changes in accumulated other comprehensive
income, net of taxes ................................ 1,624
------- ------- ------ --------
BALANCE DECEMBER 31, 1997, AS RESTATED ............... 96,343 (955) (117) (467)
Exercise of stock options and
warrants--952,061 ...................................
Purchase of common stock by 401(k) plan--
4,474 shares ........................................
Conversion of preferred stock series "C" into
common stock--1,463,347 shares ......................
Cash redemption of preferred stock
series "C" ..........................................
Conversion of pooled company preferred stock
into common stock--111,660 shares ...................
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)
Stock dividends paid by pooled company--
209,835 shares ...................................... (838)
Amortization of deferred compensation--
ESOP & RRP .......................................... (155) 955 117
Net loss ............................................. (10,456)
Net income of pooled company for three
months ended December 31, 1997 ...................... 2,531
Changes in accumulated other comprehensive
income, net of taxes ................................ 2,172
------- ------- ------ --------
BALANCE DECEMBER 31, 1998, AS RESTATED ............... 77,732 1,705
Exercise of stock options--1,071,290 shares ..........
Purchase of treasury stock--1,052,000 shares .........
Cash dividends--common stock ......................... (11,978)
Cash dividends--paid by pooled company
--common stock ...................................... (289)
Net income ........................................... 29,469
Changes in accumulated other comprehensive
income (loss), net of taxes ......................... (21,405)
------- ------- ------ --------
BALANCE DECEMBER 31, 1999 ............................ $94,934 $(19,700)
======= ======= ====== ========
</TABLE>
See notes to consolidated financial statements.
56
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1999
-------------
(AMOUNTS IN
THOUSANDS)
<S> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................................................................ $ 29,469
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for loan losses ................................................................ 1,550
Depreciation and amortization ............................................................ 8,049
Deferred income taxes .................................................................... 1,312
Amortization of deferred loan fees and costs ............................................. 564
Gain on sales of loans ................................................................... (5,098)
Proceeds from loan sales, net ............................................................ 158,925
Increase in trading securities, net ......................................................
Net gain on sale of investments available-for-sale ....................................... (1,051)
Other--net ............................................................................... (28,099)
-----------
Net cash provided by operating activities ................................................ 165,621
-----------
INVESTING ACTIVITIES:
Cash and cash equivalents acquired (paid) in purchase business combination, net .......... 17,874
Purchase of investments available-for-sale ............................................... (453,004)
Proceeds from sales of investments available-for-sale .................................... 218,989
Maturities and calls of investments held to maturity ..................................... 4,550
Purchases of investments held to maturity ................................................ (147,945)
Principal payments on securities ......................................................... 145,439
Loans purchased for investment ........................................................... (167,478)
Net decrease (increase) in loans ......................................................... 134,308
Funding of Bank Owned Life Insurance (BOLI) .............................................. (50,000)
Purchases of property and equipment ...................................................... (16,045)
Other--net ............................................................................... (9,971)
-----------
Net cash used in investing activities .................................................... (323,283)
-----------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts, Money Market accounts
and savings accounts .................................................................... (74,916)
Net (decrease) increase in time deposits ................................................. (256,126)
Purchase of treasury stock, at cost ...................................................... (8,737)
Increase (decrease) in FHLB advances ..................................................... 208,628
Proceeds from issuance of senior debentures, net of issuance costs .......................
Purchase of senior debentures ............................................................ (7,212)
Net increase (decrease) securities sold under agreements to repurchase ................... 239,377
Cash dividends--common and preferred ..................................................... (12,267)
Other--net ............................................................................... 5,624
-----------
Net cash provided by financing activities ................................................ 94,371
-----------
Decrease in cash and cash equivalents .................................................... (63,291)
Adjustments to reconcile for different year ends of pooled companies (see Note 2)
Net income for thee months ended December 31, 1997 ......................................
Cash dividends paid by pooled companies .................................................
Other cash flows--net ...................................................................
Cash and cash equivalents at beginning of year ........................................... 181,141
-----------
Cash and cash equivalents at end of year ................................................. $ 117,850
===========
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997
------------ -------------
(RESTATED) (RESTATED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................................................................ $ (10,456) $ 12,607
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for loan losses ................................................................ 22,909 5,143
Depreciation and amortization ............................................................ 5,988 5,939
Deferred income taxes .................................................................... (4,589) 4,717
Amortization of deferred loan fees and costs ............................................. 5,667 (2,019)
Gain on sales of loans ................................................................... (3,732) (406)
Proceeds from loan sales, net ............................................................ 210,554 48,143
Increase in trading securities, net ...................................................... 4,645 204
Net gain on sale of investments available-for-sale ....................................... (3,139) (1,524)
Other--net ............................................................................... 5,836 (20,292)
---------- -----------
Net cash provided by operating activities ................................................ 233,683 52,512
---------- -----------
INVESTING ACTIVITIES:
Cash and cash equivalents acquired (paid) in purchase business combination, net .......... (7,704)
Purchase of investments available-for-sale ............................................... (643,354) (460,075)
Proceeds from sales of investments available-for-sale .................................... 370,684 296,484
Maturities and calls of investments held to maturity ..................................... 31,243 69,059
Purchases of investments held to maturity ................................................ (1,419) (170,099)
Principal payments on securities ......................................................... 119,828 61,494
Loans purchased for investment ........................................................... (23,363) (59,361)
Net decrease (increase) in loans ......................................................... (198,352) (217,938)
Funding of Bank Owned Life Insurance (BOLI) ..............................................
Purchases of property and equipment ...................................................... (15,096) (15,794)
Other--net ............................................................................... 11,817 18,555
---------- -----------
Net cash used in investing activities .................................................... (355,716) (477,675)
---------- -----------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts, Money Market accounts
and savings accounts .................................................................... 155,101 66,587
Net (decrease) increase in time deposits ................................................. (30,596) 84,125
Purchase of treasury stock, at cost ...................................................... (3,508)
Increase (decrease) in FHLB advances ..................................................... (59,601) 218,442
Proceeds from issuance of senior debentures, net of issuance costs ....................... 33,778
Purchase of senior debentures ............................................................ (6,500)
Net increase (decrease) securities sold under agreements to repurchase ................... (20,485) 18,776
Cash dividends--common and preferred ..................................................... (8,781) (9,144)
Other--net ............................................................................... 4,172 3,992
---------- -----------
Net cash provided by financing activities ................................................ 33,310 413,048
---------- -----------
Decrease in cash and cash equivalents .................................................... (88,723) (12,115)
Adjustments to reconcile for different year ends of pooled companies (see Note 2)
Net income for thee months ended December 31, 1997 ...................................... 2,531
Cash dividends paid by pooled companies ................................................. (912)
Other cash flows--net ................................................................... 1,560
Cash and cash equivalents at beginning of year ........................................... 266,685 278,800
---------- -----------
Cash and cash equivalents at end of year ................................................. $ 181,141 $ 266,685
========== ===========
</TABLE>
57
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
------------- ------------ -----------
(RESTATED) (RESTATED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes .................................................. $ 13,577 $ 5,842 $ 3,294
Cash paid for interest on deposits and other borrowings ..................... $ 110,208 $125,606 $104,636
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Transfer to available for sale securities ................................... $ 9,772 $193,493 $ 39,500
Repossessed automobiles acquired in settlement of loans ..................... $ 4,749 $ 6,084 $ 15,452
Real estate acquired in settlement of loans ................................. $ 5,456 $ 6,982 $ 10,833
(Increase) decrease in unrealized loss on available-for-sale securities ..... $ (33,944) $ 2,172 $ 1,624
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Redemption of convertible preferred stock ................................... $ 9,425
Redemption of convertible preferred stock by pooled company ................. $ 796
</TABLE>
See notes to consolidated financial statements.
58
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Republic Security Financial Corporation (the "Company" or "RSFC") is a
commercial bank holding company, the principal business of which is the
operation of a commercial bank through Republic Security Bank (the "Bank"), its
wholly owned subsidiary, a state chartered commercial bank. The Bank is a
member of the Federal Reserve Bank and the Federal Home Loan Bank System
("FHLB"). Its deposits are insured by the FDIC up to applicable limits. At
December 31, 1999 the Bank had 102 full service branches (64 traditional
branches and 38 in-store supermarket branches), of which 42 are located in Palm
Beach County, 24 in Broward County, 12 in Dade County, 10 in Hillsborough
County, 5 in Lee County, 2 in Martin , Marion and Alachua Counties, and one
each in Orange, Pasco, and St Lucie Counties. On January 28, 2000 the Bank
consolidated eight of its branch offices into existing offices in the same
geographical area. The Bank's main business activities are attracting deposits,
originating loans, making investments and servicing loans for the Bank and for
others.
In preparing the consolidated financial statements in conformity with
general accepted accounting principles, management is required to make use of
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, as well as the Bank's wholly owned
subsidiaries, RS Maritime Corporation d/b/a First New England Financial and
RSAM Holdings, Inc., and have been retroactively restated to include the
accounts and results of operations of Northside Bank of Tampa ("Northside"),
First Palm Beach Bancorp, Inc. ("FPBB"), Unifirst FSB ("Unifirst"), County
Financial Corporation ("CFC") and Family Bank ("Family") which mergers,
accounted for as poolings of interests, were consummated on February 26, 1999,
October 29, 1998, July 2, 1998, December 2, 1997 and June 30, 1997,
respectively, (See Note 2). The statements of financial condition of RSFC as of
December 1997 is combined with the statements of financial condition of FPBB
and Unifirst as of September 30, 1997. The statement of operations of RSFC for
the year ended December 31, 1997 is combined with the statements of operations
of FPBB and Unifirst for the year ended September 30, 1997.
Due to the difference in year end reporting periods, the net income for
the three months ended December 31, 1997, for FPBB and Unifirst, appears as an
adjustment in the consolidated statement of shareholders' equity.
The following is a summary of significant accounting policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Republic
Security Financial Corporation and its wholly-owned subsidiary, Republic
Security Bank, as well as the Bank's wholly owned subsidiaries, RS Maritime
Corporation d/b/a First New England Financial and RSAM Holdings, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, federal funds sold and interest-bearing
deposits in other financial institutions. Net loans of $342,000 and deposits of
$27.6 million were acquired in connection with the purchase of nine
59
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
in-store branches from First National Bank of Central Florida on June 11, 1999.
Assets of $38.6 million and liabilities of $36.3 million were acquired in
connection with the purchase of Newberry Bank on December 11, 1998. In
addition, the Bank acquired assets of $28.9 million and liabilities of $19.3
million related to the branches purchased. Redemption of the Company's 7%
cumulative convertible preferred stock, Series "C" resulted in the issuance of
1,463,347 of the Company's common stock in exchange for 944,094 shares of the
Series "C" preferred stock during the year ended December 31, 1998. In
addition, a pooled company (Unifirst) redeemed 111,660 shares of preferred
stock in exchange for 111,660 shares of common stock during the year ended
December 31, 1998.
INVESTMENTS
Management determines the appropriate classification of debt and equity
securities at the time of purchase. Debt securities are classified as held to
maturity when the Company has the positive intent and ability to hold the
securities to maturity. Held to maturity securities are stated at amortized
cost. Securities classified as available-for-sale are to be held for indefinite
periods of time and may be sold in response to movements in market interest
rates, changes in the maturity mix of bank assets and liabilities or demand on
liquidity. Securities classified as available-for-sale are carried at fair
value. Unrealized gains and losses on these securities are excluded from
earnings and are reported as a component of other comprehensive income, net of
income taxes.
Interest income on debt securities is included in income using the level
yield method. Gains and losses on sales of securities are determined on a
specific identification basis.
LOANS RECEIVABLE-NET AND LOANS HELD FOR SALE
Loans receivable-net are stated at the principal amount outstanding and
are net of unearned purchased premiums or discounts, deferred loan origination
fees and costs, and the allowance for loan losses. Certain loans are held for
sale and are carried at the lower of cost or market.
Interest on loans is accrued as earned. Amortization of premiums and
accretion of discounts are recognized as adjustments to interest income over
the lives of the related loans. The Bank defers substantially all loan fees and
direct costs associated with loan originations. Deferred loan fees and costs
are amortized as a yield adjustment over the lives of the loans.
NON-ACCRUAL LOANS
Generally, loans contractually past due 90 days or more are placed on
non-accrual and any previously accrued and unpaid interest is charged against
interest income. Loans remain on non-accrual status until the obligation is
brought current and has performed in accordance with its contractual terms for
a reasonable period of time. In addition, accrual of interest on loans less
than 90 days past due is discontinued when, in the opinion of management,
reasonable doubt exists as to the full, timely collection of interest or
principal. Interest income, at the effective rate of the loan, is recognized
when cash is received on impaired loans and collection of principal is no
longer doubtful.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established by provision for loan losses
charged against earnings. Loans deemed to be uncollectible are charged against
the allowance for loan losses and subsequent recoveries, if any, are credited
to the allowance.
60
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The allowance for loan losses is maintained at a level believed adequate
by management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
All non-accrual loans, excluding smaller balance, homogeneous loans
(defined as consumer loans less than $100,000 and residential mortgage loans),
are considered to be impaired. In addition, management may determine a
performing loan to be impaired if, based on current information and events, it
is probable that the Bank will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Impaired loans are measured
based on discounted cash flows using the loan's effective interest rate or the
fair value of the collateral for collateral dependent loans.
In accordance with the Bank's classification policy, impaired loan amounts
in excess of the fair market value of the underlying collateral for collateral
dependent loans or the net present value of future cash flows are charged off
against the allowance for loan losses.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from five to twelve years for furniture and
equipment and twenty five years for office buildings. Leasehold improvements
are amortized over the lesser of the remaining lease term or the estimated
useful lives of the assets. Repairs and maintenance costs are charged to
expense as incurred and gains or losses on disposals are credited or charged to
earnings.
OTHER REAL ESTATE OWNED
A loan is classified as foreclosure when the Company has taken possession
of the collateral. Property acquired by foreclosure, or deed in lieu of
foreclosure, is recorded as other real estate owned at the estimated fair value
less estimated disposal costs at the time of foreclosure. Costs related to the
development and improvement of the property are capitalized, if recoverable,
whereas costs related to maintaining the property, net of income received, are
charged to other real estate owned expense. In addition, any subsequent
reductions in the valuation of the property is included in other real estate
owned expense in the consolidated statements of operations.
The Bank follows the practice of reducing the carrying value of individual
properties in other real estate owned for any amounts in excess of the fair
value of properties less estimated disposal costs. The amount the Bank will
ultimately recover from other real estate owned could differ from the amounts
used in determining the carrying value of the property due to future market
factors beyond the Bank's control. For the years ended December 31, 1999, 1998
and 1997, provisions for other real estate losses in the amounts of $271,800,
$437,800 and $1.8 million, respectively, were recorded and included in other
real estate owned expense in the consolidated statements of operations.
61
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
GOODWILL
The Company assesses long lived assets and related goodwill for impairment
under FASB Statement No. 121. "ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED
ASSETS AND FOR LONG LIVED ASSETS TO BE DISPOSED OF" and APB Opinion No. 17.
"INTANGIBLE ASSETS". Accordingly, goodwill associated with assets acquired in a
purchase business combination is included in impairment evaluations when events
or circumstances exist that indicate the carrying amount of those assets may
not be recoverable. The Company amortizes goodwill and other identified
intangibles over 7 to 15 years using the straight-line method. Accumulated
amortization totaled $3.9 million and $2.6 million at December 31, 1999 and
1998, respectively.
MERGER RELATED EXPENSES
The Company records transaction-related expenses in conjunction with its
major business combinations. Transaction-related expenses are comprised of
three major categories: employee severance costs, the write down of duplicate
or excess premises and equipment, and other incremental expenses related to
effecting a business combination.
The Company recognizes a liability for the cost of employee termination
benefits that management decides to provide (or which the Company or the Bank
is contractually obligated to provide) involuntarily terminated employees, if
all of the following conditions exist: (i) management has the appropriate level
of authority to involuntarily terminate employees, (ii) management approves and
commits the enterprise to the plan of termination, (iii) management establishes
the benefits that current employees will receive upon termination, (iv) the
benefit arrangement has been communicated to employees, (v) the communication
of the benefit arrangement includes sufficient detail to enable employees to
determine the type and amount of benefits they will receive if they are
terminated, (vi) the plan of termination specifically identifies the number of
employees to be terminated, their job classifications or functions, and their
locations, and (vii) the period of time to complete the plan of termination
indicates that significant changes to the plan of termination are not likely.
Upon consummation of a business combination, the Company specifically
identifies duplicate or excess facilities in the combined operations. Duplicate
or excess facilities fall into two categories: facilities owned by the Company
and facilities leased by the Company. Duplicate or excess facilities owned by
the Company are recorded at the lower of cost or fair value. The loss estimated
and recorded while these facilities remain in service does not include the
portion of the cost that is properly allocable to anticipated future service of
the facility. Depreciation is recorded on these facilities while they remain in
service. The loss estimated and recorded on leased duplicate or excess
facilities represents either costs to be incurred by the Company under
contractual obligations or represents penalties that will be incurred to cancel
the contractual obligations. Lease payments made on these facilities while they
remain in service are included in occupancy and equipment expense and are not
included in transaction-related expenses.
The other incremental expenses related to effecting a business combination
consist of both period costs and accrued contract exit fees for duplicate
services provided. The period costs include actual fees of professional
services firms (legal, underwriting, etc.) that were incurred in conjunction
with the combinations, and one-time, nonrecurring incremental costs associated
with combining the entities which are being expensed as incurred. The liability
for contract exit fees for duplicate services provided is recognized when
Company management makes the decision to terminate such contracts.
62
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INCOME PER COMMON SHARE
Basic and diluted earnings per share is calculated in accordance with FASB
Statement No. 128, "EARNINGS PER SHARE". All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to the
requirements of Statement No. 128.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" (APB 25) and related
interpretations because the Company believes the alternative fair value
accounting provided for under FASB Statement No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION", requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
RECLASSIFICATION
Certain amounts presented in the consolidated financial statements for
prior periods have been reclassified for comparative purposes.
NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Derivative Instruments and Hedging Activities: SFAS No.
133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES", as amended
by SFAS No. 137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133", requires
derivative instruments be carried at fair value on the balance sheets. The
statement continues to allow derivative instruments to be used to hedge various
risks and sets forth specific criteria to be used to determine when hedge
accounting can be used. The statement also provides for offsetting changes in
fair value or cash flows of both the derivative and the hedged asset or
liability to be recognized in earnings in the same period; however, any changes
in fair value or cash flow that represent the ineffective portion of a hedge
are required to be recognized in earnings and cannot be deferred. For
derivative instruments not accounted for as hedges, changes in fair value are
required to be recognized in earnings. The Company plans to adopt SFAS No. 133
in fiscal 2001; however, the impact of the adoption of this statement is not
expected to have a material impact on the financial condition, operations or
cash flows of the Company.
2. MERGERS AND BRANCH ACQUISITIONS
On July 30, 1999, the Bank completed the acquisition of First New England
Financial ("FNEF"), a division of John Deere Credit. FNEF was founded in 1976
and is one of the premier names in the yacht lending marketplace. The
transaction was accounted for as a purchase and approximately $6.8 million was
recorded in goodwill which is being amortized over fifteen years using the
straight-line method.
On June 11, 1999, the Bank acquired nine in-store branches from First
National Bank of Central Florida and paid a purchase price equal to 4% of the
total outstanding deposit balance at the closing
63
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. MERGERS AND BRANCH ACQUISITIONS--(CONTINUED)
date. The Bank acquired a total of $342,000 in net loans and $27.6 million in
deposits. The transaction was accounted for as a purchase and approximately
$1.1 million was recorded in deposit intangibles which is being amortized over
seven years using the straight-line method.
On February 26, 1999, RSFC acquired Northside, a Florida state commercial
bank headquartered in Tampa, Florida. Upon consummation of the merger,
Northside was merged into the Bank. Northside had two branch locations in
Tampa. RSFC issued 2.5 million shares of its common stock for all the
outstanding shares of Northside. The business combination was accounted for as
pooling of interests and resulted in the Bank acquiring assets of $74.6
million, liabilities of $64.7 million and equity of $9.9 million. All
information contained herein has been retroactively restated to include the
accounts and results of operations of Northside. Non-recurring merger related
costs and one-time charges recorded in connection with the merger of Northside
totaled approximately $2.4 million for the year ended December 31, 1999. These
costs consisted primarily of $0.8 million in professional fees, $1.0 million in
employee related change in control, severance and stay bonuses and $0.5 million
in fixed asset write-offs and other merger related expenses. In addition, a
$300,000 adjustment to the allowance for loan losses was recorded to conform
Northside's accounting and credit policies regarding loan valuation to those of
the Bank's. This adjustment is included in the provision for loan losses.
On December 11, 1998, RSFC acquired Newberry Bank ("Newberry"), a Florida
state commercial bank headquartered in Newberry, Florida. Newberry had $38.9
million in assets, $28.7 million in net loans and $34.8 million in deposits.
The purchase price totaled approximately $5.1 million and was paid in the form
of cash. The transaction was accounted for as a purchase business combination.
All outstanding shares of common stock were purchased and approximately $3
million in goodwill was recorded. Operations of Newberry are included since the
date of acquisition.
On November 20, 1998, the Bank acquired the Florida branch offices of
Household Bank, FSB ("Household"), a wholly owned subsidiary of Household
International, Inc. The Bank acquired a total of $28.3 million in net loans and
$19 million in deposits. The Bank paid a purchase price equal to 4% of the
total outstanding deposit balances at the closing date. The transaction was
accounted for as a purchase and approximately $1.0 million was recorded in
deposit intangibles which is being amortized over seven years using the
straight-line method.
On October 29, 1998, RSFC acquired FPBB, which was merged into RSFC. RSFC
issued 21,731,248 shares of its common stock in exchange for all of the
outstanding common stock of FPBB. The business combination was accounted for as
a pooling of interests and resulted in RSFC acquiring assets of approximately
$1.8 billion, including total loans of $1.1 billion, total deposits of $1.3
billion and equity of $128 million. All information herein has been
retroactively restated to include the accounts and results of operations of
FPBB. Non-recurring merger related costs and one-time charges recorded in
connection with the merger of FPBB totaled approximately $19.5 million for the
year ended December 31, 1998. These costs consisted primarily of $6.0 million
in professional fees, $4.0 million in fixed asset write-downs, $7.1 million in
employee severance payments and stay bonuses, and $1.0 million in costs
associated with branch consolidations. In addition, a $4 million adjustment to
the allowance for loan losses was recorded to conform FPBB's accounting and
credit policies regarding loan valuation to those of the Bank. This adjustment
is included as a component of the provision for loan losses. Approximately 118
positions were eliminated due to duplication. At December 31, 1999, the Bank
had $700,000 remaining in accrued merger expenses, primarily related to
remaining employee severance payments.
64
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. MERGERS AND BRANCH ACQUISITIONS--(CONTINUED)
On July 2, 1998, RSFC acquired Unifirst, a federally chartered savings
bank headquartered in Hollywood, Florida. Upon consummation of the merger,
Unifirst was merged into the Bank. Unifirst had two branch locations in Broward
County, Florida. RSFC issued 1.2 million shares of its common stock in exchange
for all outstanding common stock of Unifirst. The business combination was
accounted for as a pooling of interests and resulted in the Bank acquiring
assets of $141.9 million, liabilities of $132.7 million and equity of $9.2
million. All information contained herein has been retroactively restated to
include the accounts and results of operations of Unifirst.
Non-recurring costs of approximately $2.1 million were recorded in
connection with the merger of Unifirst for the year ended December 31, 1998.
These costs consisted primarily of electronic data processing and personnel
costs to combine the operations, employee severance payments, employment
contract buyouts and professional fees. In addition, management recorded an
adjustment of approximately $1.2 million to the allowance for loan losses to
conform Unifirst's accounting and credit policies regarding loan valuations to
those of the Bank. This adjustment is a component of the provision for loan
losses.
On December 2, 1997, the Company acquired CFC, a commercial bank holding
company headquartered in North Miami Beach, Florida. CFC's wholly-owned banking
subsidiary, County National Bank of South Florida ("County"), was merged into
the Bank on December 2, 1997. County had 14 branch locations in Northern Dade,
Broward and Palm Beach counties. RSFC issued 6.2 million shares of its common
stock in exchange for all of the outstanding common stock and stock options of
CFC. The business combination was accounted for as a pooling of interests and
resulted in the Bank acquiring assets of $255.0 million, liabilities of $230.6
million and equity of $24.4 million. All information contained herein has been
retroactively restated to include the accounts and results of operations of
CFC.
On June 30, 1997, the Company acquired Family, a commercial bank
headquartered in Hallandale, Florida, with seven branch locations in Broward
County, Florida. Family was merged into the Bank on June 30, 1997. RSFC issued
8.3 million shares of its common stock in exchange for all outstanding common
stock of Family. The business combination was accounted for as a pooling-of-
interests and resulted in the Bank acquiring assets of $256.0 million,
liabilities of $234.2 million and equity of $21.8 million. All information
contained herein has been retroactively restated to include the accounts and
results of operations of Family Bank.
For the year ended December 31, 1997, non-recurring merger expenses
included in operating expenses in the consolidated statements of operations of
$9.3 million consist of severance charges, charges associated with the disposal
of certain duplicate assets, professional fees, OREO write downs and other fees
and expenses related to the mergers with Family and CFC. In addition, merger
related provision for loan losses to conform Family and County's accounting and
credit policies regarding loan valuation to those of the Bank amounted to
$650,000.
65
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. MERGERS AND BRANCH ACQUISITIONS--(CONTINUED)
Details of the merger-related expenses are as follows:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1997 UTILIZED 1997 1998
PROVISION IN 1997 BALANCE PROVISION
----------- ---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Severance and personnel
related expenses ............... $2,153 $ 557 $1,596 $ 7,904
Professional fees ............... 3,530 3,204 326 6,510
Fixed asset write-downs ......... 721 721 -- 4,099
Systems conversion
expenses ....................... 1,254 904 350 274
Miscellaneous integration
expenses ....................... 1,627 326 1,301 1,087
Branch consolidations ........... -- -- -- 1,781
------ ------ ------ -------
Total ........................... $9,285 $5,712 $3,573 $21,655
====== ====== ====== =======
<CAPTION>
DEC. 31,
UTILIZED 1998 1999 UTILIZED 1999
IN 1998 BALANCE PROVISION IN 1999 BALANCE
---------- --------- ----------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Severance and personnel
related expenses ............... $ 6,950 $2,550 $1,000 $2,850 $700
Professional fees ............... 5,695 1,141 846 1,987 --
Fixed asset write-downs ......... 4,099 -- 279 279 --
Systems conversion
expenses ....................... 535 89 53 142 --
Miscellaneous integration
expenses ....................... 2,148 240 203 443 --
Branch consolidations ........... -- 1,781 -- 1,781 --
------- ------ ------ ------ ----
Total ........................... $19,427 $5,801 $2,381 $7,482 $700
======= ====== ====== ====== ====
</TABLE>
The results of operations previously reported by the separate companies
and the combined amounts presented in the accompanying consolidated statements
of operations are summarized below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME AND NON-INTEREST INCOME:
RSFC .................................. $237,977 $ 121,726 $ 48,419
Family(1) ............................. 10,770
CFC(1) ................................ 16,494
Unifirst(2) ........................... 5,039 10,940
FPBB(3) ............................... 103,160 125,931
Northside(4) .......................... 699 5,404 4,947
-------- --------- --------
Combined .............................. $238,676 $ 235,329 $217,501
======== ========= ========
NET (LOSS) INCOME:
RSFC(5) ............................... $ 29,242 $ (15,293) $ (3,727)
Family(1) ............................. 2,541
CFC(1) ................................ 2,992
Unifirst(2) ........................... 367 295
FPBB(3) ............................... 3,267 9,356
Northside(4) .......................... 227 1,203 1,150
-------- --------- --------
Combined .............................. $ 29,469 $ (10,456) $ 12,607
======== ========= ========
<FN>
- ----------------
(1) The amount reported for Family for the year ended December 31, 1997
represents the results for the six months of earnings realized prior to
the merger. The amount reported for CFC for the year ended December 31,
1997 represents the results for the nine months of earnings realized prior
to the merger.
(2) The amounts reported for Unifirst, included in the year ended December 31,
1998 represents the results for the six months ended June 30, 1998, prior
to the merger. The years ended December 31, 1997 and 1996, represent the
results for the twelve months ended September 30, 1997 and 1996,
respectively.
(3) The amounts reported for FPBB, included in the year ended December 31, 1998
represents the results for the nine months ended September 30, 1998, prior
to the merger. The years ended December 31, 1997 and 1996, represent the
results of the twelve months ended September 30, 1997 and 1996,
respectively.
(4) The amounts reported for Northside for the year ended December 31, 1999
represents results for two months ended February 28, 1999 prior to merger.
(5) The years ended December 31, 1999, 1998 and 1997 include the merger related
and one-time expenses of $2.4 million, net of taxes, $33.0 million, net of
taxes and $6.5 million, net of taxes, respectively, related to the
Northside, Unifirst, FPBB, CFC and Family acquisitions.
</FN>
</TABLE>
66
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. MERGERS AND BRANCH ACQUISITIONS--(CONTINUED)
Securities held by Northside with a book value of approximately $9.8
million and a market value of approximately $10.0 million at February 26, 1999
were transferred as of the date of acquisition from held to maturity to
available-for-sale to maintain RSFC's existing liquidity and interest rate risk
positions for the combined company.
Securities held by Family with a book value of approximately $39.4 million
and a market value of approximately $39.5 million at June 30, 1997 were
transferred as of the date of acquisition from held to maturity to
available-for-sale to maintain RSFC's existing interest rate risk position for
the combined company.
Due to the difference in year end reporting periods, the net income for
the three months ended December 31, 1997 for FPBB and Unifirst appears as an
adjustment in the consolidated statement of shareholders' equity, and consists
of the following:
THREE MONTHS
ENDED
DECEMBER 31,
1997
---------------
(IN THOUSANDS)
REVENUES:
Unifirst ........... $ 2,726
FPBB ............... 35,870
-------
Combined ........... 38,596
-------
EXPENSES:
Unifirst ........... 2,509
FPBB ............... 33,556
-------
Combined ........... 36,065
-------
Net Income ......... $ 2,531
=======
67
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENTS
The following is a summary of available-for-sale and held to maturity
securities at December 31, 1999, 1998, and 1997:
AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government and agency securities ......... $ 10,013 $ 9 $ 41 $ 9,981
Corporate and other debt securities ........... 119,243 3 3,549 115,697
Mortgage-backed securities .................... 642,904 223 24,727 618,400
Other securities .............................. 51,229 71 3,253 48,047
-------- ------ ------- --------
Total at December 31, 1999 .................... $823,389 $ 306 $31,570 $792,125
======== ====== ======= ========
U.S. Government and agency securities ......... $ 13,701 $ 167 $ 13,868
Corporate and other debt securities ........... 151,324 336 1,253 150,407
Mortgage-backed securities .................... 495,138 4,040 1,426 497,752
Other securities .............................. 59,991 912 17 60,886
-------- ------ ------- --------
Total at December 31, 1998, restated .......... $720,154 $5,455 $ 2,696 $722,913
======== ====== ======= ========
U.S. Government and agency securities ......... $ 82,400 $ 370 $ 87 $ 82,683
Corporate and other debt securities ........... 38,102 500 69 38,533
Mortgage-backed securities .................... 273,324 1,115 2,728 271,711
Other securities .............................. 4,593 38 4,631
-------- ------ ------- --------
Total at December 31, 1997, restated .......... $398,419 $2,023 $ 2,884 $397,558
======== ====== ======= ========
</TABLE>
HELD TO MATURITY
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government and agency securities ......... $ 1,999 $ 3 $ 1,996
Mortgage backed securities .................... 144,471 7,889 136,582
Other securities .............................. 805 805
-------- ------ ------ --------
Total at December 31, 1999 .................... $147,275 $7,892 $139,383
======== ====== ====== ========
U.S. Government and agency securities ......... $ 6,046 $ 70 $ 6,116
Mortgage-backed securities .................... 1,746 16 1,730
Other securities .............................. 8,526 233 8,759
-------- ------ --------
Total at December 31, 1998, restated .......... $ 16,318 $ 303 $ 16 $ 16,605
======== ====== ====== ========
U.S. Government and agency securities ......... $ 27,499 $ 203 $ 44 $ 27,658
Mortgage-backed securities .................... 215,472 3,274 250 218,496
Other securities .............................. 4,879 201 5,080
-------- ------ --------
Total at December 31, 1997, restated .......... $247,850 $3,678 $ 294 $251,234
======== ====== ====== ========
</TABLE>
68
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENTS--(CONTINUED)
The amortized cost and estimated market value of all investments held to
maturity at December 31, 1999 by contractual maturity are shown below:
HELD TO MATURITY
<TABLE>
<CAPTION>
WEIGHTED AMORTIZED MARKET
AVERAGE RATE COST VALUE
-------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Due in 1 year or less ...................... 5.84% $ 2,179 $ 2,176
Due after 1 through 5 years ................ 7.78% 475 475
Due after 5 years through 10 years ......... 6.38% 150 150
Due after 10 years ......................... 6.66% 144,471 136,582
---- -------- --------
Total at December 31, 1999 ................. 6.65% $147,275 $139,383
==== ======== ========
</TABLE>
The amortized cost and estimated market value of all investments
available-for-sale at December 31, 1999 by contractual maturity are shown
below:
AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
WEIGHTED AMORTIZED MARKET
AVERAGE RATE COST VALUE
-------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Due in 1 year or less ...................... 4.84% $ 9,355 $ 9,359
Due after 1 through 5 years ................ 5.38% 17,840 17,797
Due after 5 years through 10 years ......... 5.98% 51,096 49,845
Due after 10 years ......................... 5.75% 102,194 96,724
---- -------- --------
$180,485 $173,725
---- -------- --------
Mortgage-backed securities ................. 6.71% 642,904 618,400
---- -------- --------
Total at December 31, 1999 ................. 6.50% $823,389 $792,125
==== ======== ========
</TABLE>
Actual maturities may differ from those presented in the tables due to
prepayments of the underlying assets or call features built into the
investment.
At December 31, 1999 and 1998 securities with a book value of
approximately $507.6 million and $94.5 million, respectively, were pledged to
collateralize Federal Home Loan Bank advances, repurchase agreements, public
deposits and other items.
Gross realized gains on securities available-for-sale amounted to $1.1
million, $3.7 million, and $1.5 million for the years ended December 31, 1999,
1998 and 1997, respectively. Gross realized losses on securities
available-for-sale amounted to $5,000, $31,000 and $220,000 for the years
ending December 31, 1999, 1998 and 1997 respectively.
No gross realized gains or losses on trading securities were recognized
for the year ended December 31, 1999. Gross realized gains on trading
securities amounted to $234,000 and $316,000 for the years ended December 31,
1998 and 1997, respectively. Gross realized losses on trading securities
amounted to $737,000 and $22,000 for the years ended December 31, 1998 and
1997, respectively.
69
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS RECEIVABLE--NET
Loans receivable--net is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- -------------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C>
Residential mortgage ............................... $ 856,443 $1,150,250
Commercial mortgage ................................ 400,168 408,185
Real estate construction ........................... 114,243 115,448
Yacht loans ........................................ 138,928
Installment loans to individuals ................... 250,088 261,203
Commercial and financial ........................... 122,695 131,185
---------- ----------
Total loans ...................................... 1,882,565 2,066,271
---------- ----------
Discounts, premiums and deferred loan fees ......... 3,148 3,627
Undisbursed portion of loans-in-process ............ (40,979) (45,559)
Allowance for loan losses .......................... (22,301) (26,665)
---------- ----------
Loans receivable--net .............................. $1,822,433 $1,997,674
========== ==========
</TABLE>
5. NON-PERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 1999 and 1998, the Bank had $16.4 million and $15.0
million, respectively, in non-performing loans. Interest income not recognized
on non-performing loans was $692,400, $779,000 and $1.2 million during the
years ended December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $8.1 million and $4.7 million,
respectively. The related allowance for loan losses for such loans was $1.4
million and $1.0 at December 31, 1999 and 1998, respectively. The average
recorded investment in impaired loans during the years ended December 31, 1999
and 1998 was approximately $4.9 million and $4.1 million, respectively. For the
years ended December 31, 1999, 1998 and 1997, the Company recognized $498,700,
$202,000 and $1.3 million, respectively, in interest income on impaired loans.
Although management uses its best judgement in underwriting each loan,
industry experience indicates that a portion of the Bank's loans will become
delinquent. Regardless of the underwriting criteria utilized by financial
institutions, losses may be experienced as a result of many factors beyond
their control including, among other things, changes in market conditions
affecting the value of security and unrelated problems affecting the credit of
the borrower. Due to the concentration of loans in South Florida, adverse
economic conditions in this area could result in a decrease in the value of a
significant portion of the Bank's collateral.
70
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. NON-PERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES--(CONTINUED)
An analysis of changes in the allowance for loan losses is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- -------------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C>
Beginning balance .................................... $ 26,665 $ 13,677
Net change in allowance for the three months ended
December 31, 1997, for pooled company ............... (885)
Reserves acquired in connection with purchase business
combination and branch purchases .................... 1,211
Provision for losses ................................. 1,550 22,909
Recoveries ........................................... 2,229 862
Charge-offs .......................................... (8,143) (11,109)
-------- ---------
Ending balance ....................................... $ 22,301 $ 26,665
======== =========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- -------------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C>
Land and buildings ..................................... $44,933 $43,019
Furniture and equipment ................................ 30,525 20,274
Leasehold improvements ................................. 10,758 7,984
------- -------
Total .................................................. 86,216 71,277
Less accumulated depreciation and amortization ......... 20,867 17,936
------- -------
Property and equipment-net ............................. $65,349 $53,341
======= =======
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was $5.7
million, $3.8 million and $3.2 million, respectively, and is included in
occupancy and equipment expense on the consolidated statements of operations.
71
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DEPOSITS
Components of deposits were as follows:
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- -------------
(RESTATED)
(IN THOUSANDS)
Non-interest bearing accounts ......... $ 307,509 $ 285,070
NOW accounts .......................... 208,500 228,515
Money market accounts ................. 176,330 170,017
Savings accounts ...................... 296,561 360,384
Certificate accounts .................. 1,076,036 1,324,374
---------- ----------
Total ................................. $2,064,936 $2,368,360
========== ==========
The Bank incurred interest expense on deposits as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
-------------- -------------- -------------
(RESTATED) (RESTATED)
(IN THOUSANDS)
NOW accounts ............... $ 2,153 $ 2,633 $ 2,885
Money market accounts ...... 6,622 4,428 4,471
Savings accounts ........... 11,080 12,380 8,483
Certificate accounts ....... 61,843 74,841 71,948
------- ------- -------
Total ...................... $81,698 $94,282 $87,787
======= ======= =======
The amounts and maturities of certificate accounts at December 31, 1999
are as follows:
(IN THOUSANDS)
Within 12 months .......... $ 829,541
12 to 24 months ........... 163,277
24 to 36 months ........... 34,730
36 to 48 months ........... 34,676
Over 48 months ............ 13,812
----------
Total ..................... $1,076,036
==========
The amounts and scheduled maturities of certificate accounts in the amount
of $100,000 or more at December 31, 1999 are as follows:
(IN THOUSANDS)
Within 3 months .......... $ 55,679
3 to 6 months ............ 47,207
6 to 12 months ........... 68,673
Over 12 months ........... 46,739
--------
Total .................... $218,298
========
72
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The following is a summary of securities sold under agreements to
repurchase ("SSURA") for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Amounts outstanding at end of year .................. $ 248,521 $ 9,144
Weighted average rate at end of year ................ 5.81% 3.88%
Maximum amount outstanding at any month end ......... $ 248,521 $29,394
Approximate average outstanding during year ......... $ 85,106 $11,391
Approximate weighted average rate for year .......... 5.33% 4.43%
</TABLE>
Qualifying SSURA are treated as financings and the obligations to
repurchase securities sold are reflected as a liability in the consolidated
balance sheets. The dollar amount of the securities underlying the agreements
remains in the asset accounts. All securities underlying agreements are held by
independent safekeeping agents and all agreements are to repurchase the same
securities.
The following is a summary of amortized cost and fair value of securities
collateralizing SSURA's, in addition to the amounts of and interest rate on the
related borrowings:
<TABLE>
<CAPTION>
U.S. GOVERNMENT AGENCIES AND MBS
SECURITIES
----------------------------------------
WEIGHTED AMORTIZED MARKET WEIGHTED
SSURA AVERAGE RATE COST VALUE AVERAGE RATE
----------- -------------- ----------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Up to 30 Days ............... $ 8,843 5.95%
30 to 90 Days ............... 44,500 5.63% $ 1,501 $ 1,500 4.87%
90 Days to 1 Year ........... 95,178 5.87% 2,998 2,996 5.87%
In excess of 1 Year ......... 100,000 5.82% 241,541 232,064 6.86%
-------- ---- -------- -------- ----
Total ....................... $248,521 5.81% $246,040 $236,560 6.84%
======== ==== ======== ======== ====
</TABLE>
Due to transaction activity in the overnight SSURA's the Bank was
under-collateralized at December 31, 1999; however, additional investments have
subsequently been pledged to match the corresponding liability obligations.
9. FHLB ADVANCES AND OTHER BORROWINGS
The Bank has entered into an agreement with the Federal Home Loan Bank
which enables the Bank to obtain advances that are collateralized by FHLB stock
and residential mortgage loans. In accordance with the agreement, the Bank has
pledged, as collateral, residential mortgage loans with principal balances of
approximately $422.4 million and $388.9 million at December 31, 1999 and 1998,
respectively. Mortgage-backed securities of $233.1 million and $57.4 million
were pledged as collateral at December 31, 1999 and 1998, respectively. Based
on the current pledged amount, the Bank's borrowing limit is approximately
$638.8 million with a remaining borrowing capacity of $20.7 million at December
31, 1999. Subsequent to December 31, 1999, the Bank modified its agreement with
the Federal Home Loan Bank to revise the collateral base to reflect a blanket
lien on its residential mortgage loans. Availability under the credit facility
is now limited to 75% of the Bank's qualifying residential mortgage loans and
97% of its qualifying mortgage-backed securities. The Bank also has the ability
to draw on existing lines-of-credit with two commercial banks for an aggregate
amount of
73
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. FHLB ADVANCES AND OTHER BORROWINGS--(CONTINUED)
$10.0 million. No amounts were drawn on these lines at December 31, 1999 and
1998. At December 31, 1999, outstanding advances from the Federal Home Loan
Bank consisted of the following:
WEIGHTED DECEMBER 31,
AVERAGE RATE 1999
-------------- -------------
(IN THOUSANDS)
MATURE DURING:
2000 .......... 5.09% $204,789
2001 .......... 5.46% 25,207
2002 .......... 5.48% 150,000
2003 .......... 6.54% 571
2008 .......... 4.83% 75,000
2009 .......... 4.98% 162,500
---- --------
Total ......... 5.14% $618,067
==== ========
During 2000 and each quarter thereafter, the FHLB has the option to
convert $275.0 million in fixed rate advances to three month LIBOR-based
floating rate advances at the then current three month LIBOR. During 2001 and
each quarter thereafter, the FHLB has the option to convert $50.0 million of
fixed rate advances to three month LIBOR-based floating rate advances at the
then current three month LIBOR. During 2002 and each quarter thereafter, the
FHLB has the option to convert $37.5 million of fixed rate advances to three
month LIBOR-based floating rate advances at the then current three month LIBOR.
During 2003 the FHLB has a one-time option to convert $25.0 million of fixed
rate advances to three month LIBOR-based floating rate advances at the then
current three month LIBOR. If the FHLB elects to convert the advances, then the
Bank will have the option to terminate the advances without a prepayment fee.
Notes payable, included in other borrowings, consists of capital notes of
the Bank in the amount of $379,305 and $380,000 at December 31, 1999 and 1998,
respectively, bearing interest at 9% per annum, payable semi-annually and a
mortgage payable of $550,000 and $650,000 at December 31, 1999 and 1998,
respectively, bearing interest at 10% per annum, principal and interest payable
quarterly. The capital notes become due and payable on January 1, 2004 and are
subordinate to existing and future indebtedness of the Bank. The mortgage is
collateralized by Bank property and matures in April 2005.
10. SENIOR DEBENTURES
On June 30, 1997, FPBB (a pooled company) issued $35.0 million of 10.35%
Senior Debentures, maturing on June 30, 2002. Issuance costs related to the
Senior Debentures were $1.2 million and are being amortized over the life of
the debt using the interest method. As of December 31, 1999 the outstanding
balance was $20.5 million, net of unamortized issuance costs, reflecting the
retirement of $7.2 million and $6.5 million of the debentures during 1999 and
1998, respectively. The interest on the Senior Debentures is payable
semi-annually in arrears on June 30 and December 31 of each year commencing
December 31, 1997. The Senior Debentures may not be redeemed prior to maturity.
The indenture entered into by FPBB in connection with the Senior Debentures
includes certain covenants which, among other things, limit the disposition of
voting stock of the Bank, limit the ability to become liable on certain forms
of indebtedness, provide for consolidated net worth requirements, provide that
the Company shall not allow the Bank to be classified as other than "Well
Capitalized"
74
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SENIOR DEBENTURES--(CONTINUED)
and restrict dividend or other distributions and stock repurchases. The net
proceeds of the debenture issue were used for general corporate purposes.
11. SHAREHOLDERS' EQUITY
The Company's ability to pay cash dividends on its Common Stock is limited
to the amount of dividends it could receive from the Bank plus its own cash and
cash equivalents, which amounted to $12.2 million at December 31, 1999. The
amount of dividends the Bank is permitted to pay to the Company is restricted
by regulation to 100% of its calendar year-to-date net income plus net profits
for the preceding two years. With the approval of the Florida Department of
Banking and Finance (the "Department") and the Federal Reserve, the Bank may
declare a dividend from retained net profits which accrued prior to the
preceding two years, but, first, 20% of the net profits for the preceding
period, as is covered by the dividend, must be transferred to the surplus fund
of the Bank until the fund is at least equal to the amount of the Bank's common
stock then issued and outstanding. In addition, unless it receives Department
and Federal Reserve approval, the Bank shall not declare any dividend if its
net income from the current year, combined with the retained net income for the
preceding two years, is a loss or if the dividend would cause the capital
account of the Bank to fall below the minimum amount required by law,
regulation, order, or any written agreement with the Department or a federal
regulatory agency. The Bank paid $26.4 million and $7.7 million in dividends to
the Company during the years ended December 31, 1999 and 1998, respectively.
On November 3, 1999, the Board of Directors authorized the repurchase of
up to 2.0 million shares of Republic Security Financial Corporation common
stock. Of the shares authorized for repurchase, 1.05 million shares were
repurchased during the fourth quarter of 1999. Subsequent to December 31, 1999,
the Company repurchased an additional 190,000 shares of its common stock.
On July 1, 1998, Unifirst (a pooled company) called 109,750 shares of
Series A 7% Non-Cumulative Convertible Redeemable Preferred Stock, par value
$.01 at a price of $7.25 per share. These Non-Cumulative Convertible Redeemable
Preferred shares were converted into shares of common stock at the option of
the Board of Directors immediately prior to the date of the transaction, as
defined (sale or merger of the Bank).
On March 9, 1998, RSFC called the 7% Cumulative Convertible Preferred
Stock series C for redemption on April 30, 1998 ("Redemption Date"). The Series
C Preferred Stock became payable and ceased to accrue dividends on the
Redemption Date. Upon surrender of the Series C Preferred Stock certificate for
redemption, the holder received the redemption price of $10.00 per share, or
alternatively, received 1.55 shares of RSFC's Common Stock for each share of
Series C Preferred Stock. In connection with the redemption approximately
1,463,347 shares of RSFC's Common Stock were issued.
The Company operates a shareholder rights plan. Under the terms of the
plan, preferred share purchase rights will be distributed as a dividend at the
rate of one right for each share of Common Stock. Each right will entitle the
holder to buy 1/100th of a share of Series B Junior Participating Preferred
Stock at an exercise price of $18.00 per share. Each preferred share fraction
will have voting and dividend rights equivalent to one common share. The rights
become exercisable upon the occurrence of certain events as defined in the
Shareholder Rights Plan and expire April 4, 2005.
75
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION, OTHER INCENTIVE PLANS, PENSION AND
OTHER POSTRETIREMENT BENEFIT PLANS
The Company's 1997 Performance Incentive Plan (the "Plan") authorizes the
issuance of stock options, restricted stock, stock appreciation rights
("SARS"), performance units, performance shares, phantom stock and dividend
equivalents to all directors, officers and employees of the Company and the
Bank for up to 5,000,000 shares of the Company's common stock. The term of any
options or SARS may not exceed ten years from the date of grant. The vesting
and exercise terms will be determined by the committee administering the Plan.
Stock options under all plans are generally exercisable on a phased-in
schedule over three years, depending upon the date of grant, and expire ten
years from the grant date. The 3,105,495 outstanding options at December 31,
1999 represent options granted under all plans. At December 31, 1999, options
to purchase 1,250,244 shares, with a weighted average exercise price of $5.91,
were fully exercisable.
A summary of the Company's stock option activity and related information
for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
TOTAL WEIGHTED
TOTAL NUMBER AVERAGE EXERCISE
OF OPTIONS PRICE PER SHARE
-------------- -----------------
<S> <C> <C>
BALANCE DECEMBER 31, 1996, AS RESTATED ......... 3,160,581 $ 2.61
Granted ........................................ 1,560,868 7.76
Exercised(1) ................................... (1,343,181) 2.25
Expired ........................................ (16,414) 5.70
Forfeited ...................................... (25,000) 10.38
---------- ------
BALANCE DECEMBER 31, 1997, AS RESTATED ......... 3,336,854 5.10
Granted ........................................ 1,431,362 9.24
Exercised(2) ................................... (1,051,419) 4.09
Expired ........................................ (67,104) 6.65
Forfeited ...................................... (65,247) 9.47
---------- ------
BALANCE DECEMBER 31, 1998, AS RESTATED ......... 3,584,446 4.21
Granted ........................................ 1,082,000 8.51
Exercised(3) ................................... (1,103,202) 5.39
Forfeited ...................................... (457,749) 8.71
---------- ------
BALANCE DECEMBER 31, 1999 ...................... 3,105,495 $ 7.65
========== ======
<FN>
- ----------------
(1) Includes 23,780 options that were included in the shares issued in the
conversion of a pooling of interest transaction.
(2) 210,538 options exercised in 1998 were limited rights options which
converted to 83,644 shares issued.
(3) 62,910 options exercised in 1999 were exercised as limited rights and
resulted in the issuance of 11,619 shares.
</FN>
</TABLE>
The following schedule reflects the range of option prices and their
related weighted average contractual maturities as of December 31, 1999:
RANGE OF WEIGHTED AVERAGE REMAINING TOTAL NUMBER
OPTION PRICES CONTRACTUAL LIFE OF OPTIONS
- --------------------------- ---------------------------- -------------
$1.14 - $1.65 .......... 52 months 49,350
$2.08 - $3.33 .......... 46 months 507,329
$5.47 - $6.53 .......... 84 months 87,025
$8.25 - $10.38 ......... 108 months 2,461,791
76
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION, OTHER INCENTIVE PLANS, PENSION AND
OTHER POSTRETIREMENT BENEFIT PLANS--(CONTINUED)
Activity associated with the Company's warrants is as follows:
Exercise Price ................................. $ 5.00
Expiration Date ................................ 11/01/2000
BALANCE DECEMBER 31, 1996, AS RESTATED ......... 137,680
----------
BALANCE DECEMBER 31, 1997, AS RESTATED ......... 137,680
Exercised ...................................... (27,536)
----------
BALANCE DECEMBER 31, 1998, AS RESTATED ......... 110,144
----------
BALANCE DECEMBER 31, 1999 ...................... 110,144
==========
The price of all options, warrants and equity contracts issued was equal
to the market value of the stock at the time of issuance. Accordingly, no
compensation expense was recognized.
On December 20, 1995, the Company awarded SARs to two executives and to
its non-employee directors. The balance, activity, price and
vesting/exercisable dates are as follows:
Base Price ........................ $ 5.75 $ 8.00
Vesting/Exercisable Date .......... 01/01/2003 01/01/2003
BALANCE DECEMBER 31, 1996 ......... 220,000 620,000
Exercised ......................... (75,000)
---------- ----------
BALANCE DECEMBER 31, 1997 ......... 145,000 620,000
Exercised ......................... (65,000) (36,000)
---------- ----------
BALANCE DECEMBER 31, 1998 ......... 80,000 584,000
---------- ----------
BALANCE DECEMBER 31, 1999 ......... 80,000 584,000
========== ==========
On June 30, 1998, the Company renegotiated and postponed the initial
vesting and exercisable dates for the SARS with the exercise price of $5.75
from January 1, 1997 to January 1, 2003, and from January 1, 1998 to January 1,
2003 for the SARS with the exercise price of $8.00. The Company incurred costs
of $0.25 per SAR outstanding as of June 30, 1998, as compensation expense for
the postponement of SARs vesting and exercise periods.
All unexercised SARs expire on January 1, 2006. Compensation expense,
equal to the difference in the market price of the Company's common stock and
the base price of the SARs, is being recognized during the vesting period and
is adjusted for changes in the market price. The Company recognized $625,000
and $1.9 million in compensation expense associated with SARs during the years
ended December 31, 1998 and 1997, respectively. No compensation expense was
recognized for SARs during the year ended December 31, 1999.
The weighted average fair value of the 1.1 million options granted during
the year ended December 31, 1999 is $3.72 per share.
Had compensation for the Company's stock options been determined based on
the fair value at the grant date, for awards under those plans consistent with
the method of SFAS No. 123, the Company's net income and earnings per share for
the years ended December 31, 1999, 1998 and 1997 would have reduced to the pro
forma amounts indicated below:
77
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION, OTHER INCENTIVE PLANS, PENSION AND
OTHER POSTRETIREMENT BENEFIT PLANS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
---------- ------------ -----------
(RESTATED) (RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
NET (LOSS) INCOME APPLICABLE TO COMMON STOCK
As reported ................................ $29,469 $ (10,456) $12,607
Pro Forma .................................. $27,985 $ (11,599) $11,394
BASIC EARNINGS (LOSS) PER SHARE
As reported ................................ $ 0.58 $ (0.22) $ 0.25
Pro Forma .................................. $ 0.55 $ (0.24) $ 0.25
DILUTED EARNINGS (LOSS) PER SHARE
As reported ................................ $ 0.58 $ (0.22) $ 0.25
Pro Forma .................................. $ 0.55 $ (0.24) $ 0.24
</TABLE>
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
The fair market value of options granted under the Company's stock option
plans during the fiscal years ended December 31, 1999, 1998 and 1997 was
estimated using the Binomial Option Pricing Model with the following
assumptions used: dividend yield of 2.00% expected volatility of 34%, 57% and
29%, respectively, and a risk-free interest rate of 6.00% for expected lives of
10 years.
EMPLOYEE STOCK OWNERSHIP PLAN--FPBB (a pooled company) established an
Employee Stock Ownership Plan ("ESOP") for eligible employees in connection
with the conversion of First Federal Savings and Loan of the Palm Beaches from
a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association ("Conversion"). The ESOP borrowed
$4.2 million from FPBB and purchased 1.8 million common shares issued in the
Conversion. All shares were allocated as of December 31, 1999 and 1998. The
ESOP allocated shares to participants based on the ESOP debt reduction during
the corresponding period. Compensation expense is recognized for the fair value
of shares allocated to participants. During 1998, the dividends on these
unallocated shares were used to repay the ESOP debt. FPBB has made scheduled
discretionary cash contributions to the ESOP and as of December 31, 1998, there
was no outstanding loan between the Company and the plan, and all outstanding
shares were allocated. The plan was terminated on August 31, 1999. In
accordance with generally accepted accounting principles, the unallocated
common stock held by the ESOP is shown as a reduction of shareholders' equity.
During the fiscal years ended December 31, 1998 and 1997, ESOP expenses were
$2.8 million and $1.5 million, respectively, which is included in employee
compensation and benefits on the accompanying statement of operations.
RECOGNITION AND RETENTION PLANS--FPBB (a pooled company) established two
Recognition and Retention Plans ("RRPs") which purchased in the aggregate
887,450 shares of common stock in the Conversion. FPBB contributed $2.1 million
to fund the purchase of the RRP shares. Awards generally vest in three annual
installments commencing on the first anniversary date of the effective date of
the awards. The aggregate purchase price of these shares is amortized as
compensation expense as
78
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION, OTHER INCENTIVE PLANS, PENSION AND
OTHER POSTRETIREMENT BENEFIT PLANS--(CONTINUED)
participants become vested. The unamortized cost, which is comparable to
deferred compensation, is reflected as a reduction of shareholder's equity. RRP
expense totaled $154,000 and $44,000 for the years ended December 31, 1998 and
1997, respectively. No RRP expense was incurred during the year ended December
31, 1999 and all shares were vested and distributed in 1999.
The Bank has a non-qualified unfunded retirement plan for three present
executives and one former executive of the Bank. Pension costs, consisting of
service costs and interest costs, amounted to approximately $180,000, $108,000
and $148,000, for the years ended December 31, 1999, 1998 and 1997,
respectively. The retirement benefit to the employees will range between 30% to
75% of his or her average base salary for the last three years of employment
and will commence no earlier than age 55 nor later than age 62. A discount rate
of 8% and 7% at December 31, 1999 and 1998, respectively, and a rate of
compensation increase of 4% is used to measure the projected benefit
obligation. The net pension liability (all vested) at December 31, 1999 and
1998 was approximately $1,052,000 and $698,000, respectively.
The Company established a non-qualified unfunded directors retirement plan
in February 1997. Fourteen (14) directors of the Company currently participate
in the Plan. Benefit costs associated with the Plan amounted to approximately
$188,000, $163,000 and $42,000 for the years ended December 31, 1999, 1998 and
1997, respectively. The annual retirement benefit for the directors will be 5%
times the director's years of service (including service on a predecessor
Board), with a maximum of 75% of the final fees paid in the calendar year of
the director's termination of service for a duration of 180 months.
The Bank established a 401(k) plan covering substantially all employees.
The employer contribution to the 401(k) plan is determined annually by the
Board of Directors and is based upon the percentage of employee's salaries
contributed. Expense under the plan for the years ended December 31, 1999, 1998
and 1997 amounted to $429,000, $388,000 and $355,000, respectively.
PENSION PLAN--Substantially all FPBB employees participated in FPBB's
funded qualified defined benefit pension plan (the "Plan"). The Plan was
terminated and the Company recognized $750,000 in gain in 1999 on the
termination of the Plan. The Company recognized no expense related to the Plan
in 1999. In addition, the Company allocated $250,000 from the Plan to the
401(k) plan. The Company recognized pension expense related to the plan of
($22,000) and $377,000 for the years ended December 31, 1998 and 1997.
EMPLOYMENT AGREEMENTS--The Company and the Bank or the Bank alone have
entered into employment agreements with 9 executives. These agreements have
three, two or one year terms, and provide for payment to the officers of
salary, bonus and benefits upon involuntary, and in certain circumstances
voluntary, termination of employment. Four of the agreements also provide for
payments following a change of control of the Company of the Bank. Nine
officers of the Bank, including the four whose employment agreements do not
include change of control provisions, have entered into change of control
agreements with the Bank, which generally provide for severance in the amount
of two years' salary and bonus, and continued benefits, in the event of a
change of control which provide for severance arrangements in the event of
involuntary termination from a change in control (as defined) of the Company.
79
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION, OTHER INCENTIVE PLANS, PENSION AND
OTHER POSTRETIREMENT BENEFIT PLANS--(CONTINUED)
Four officers of FNEF have one year employment agreements with FNEF which
are substantially similar to the employment agreements described above. These
agreements also provide for payments following a change of control of FNEF.
13. CAPITAL COMPLIANCE
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary, action by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to quantitative judgements by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital (as defined) to average assets (as
defined). As of December 31, 1999, the Company and the Bank exceeded all
capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Federal
Reserve Bank categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the following table. There are no actual
conditions or events since that notification that management believes have
changed the Bank's category.
The following table shows the actual capital amounts and ratios of the
Bank, minimum capital requirements and well capitalized requirements:
<TABLE>
<CAPTION>
MINIMUM FOR MINIMUM FOR
ACTUAL CAPITAL ADEQUACY WELL CAPITALIZED
--------------------- ------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- --------- ----------- ------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total risk based capital ............... $222,927 11.9% $150,108 8.0% $187,635 10.0%
Tier 1 risk based capital .............. $200,247 10.7% $ 75,054 4.0% $112,581 6.0%
Leverage capital ....................... $200,247 6.6% $121,701 4.0% $152,126 5.0%
AS OF DECEMBER 31, 1998, AS RESTATED:
Total risk based capital ............... $224,779 12.1% $148,051 8.0% $185,063 10.0%
Tier 1 risk based capital .............. $201,386 10.9% $ 74,025 4.0% $111,038 6.0%
Leverage capital ....................... $201,386 6.8% $118,045 4.0% $147,557 5.0%
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments primarily include commitments to extend credit.
80
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments is represented by the
contractual notional amount of those instruments. The Bank uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require the payment of a fee. The total commitment amounts do not
necessarily represent future cash requirements as some commitments expire
without being drawn upon. The Bank evaluates each customer's creditworthiness
on a case by case basis. The amount of collateral obtained, if deemed necessary
by the Bank, upon extension of credit is based on management's credit
evaluation of the counter party.
At December 31, 1999, the Bank had adjustable rate commitments to extend
credit and standby letters of credit of approximately $265.9 million excluding
the undisbursed portion of loans-in-process. These commitments are primarily
for commercial lines-of-credit secured by commercial real estate or other
business assets and one-to-four family residential properties.
The Company and its subsidiaries have entered into noncancellable
operating leases with future minimum lease payments of the following:
(IN THOUSANDS)
2000 ................ $ 5,497
2001 ................ 4,694
2002 ................ 4,007
2003 ................ 3,434
2004 ................ 2,868
Thereafter .......... 10,564
-------
$31,064
=======
Certain leases contain provisions for renewal and for rents to adjust with
the consumer price index. In addition, the Company subleases portions of the
leased space. Future minimum lease payments to be received by the Company
amounts to $245,000, $104,000 and $90,000 in 2000, 2001 and 2002, respectively.
In addition to the above commitments and contingencies, there are various
matters of litigation pending against the Company that management has reviewed
with legal counsel. In the opinion of management of the Company, amounts
accrued for awards 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.
15. RELATED PARTY TRANSACTIONS
Loans to directors, officers and associates of such persons totaled
approximately $2.1 million and $3.5 million at December 31, 1999 and 1998,
respectively.
81
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- -------------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carry forward ................................. $ 416 $ 955
Loan loss provision .............................................. 7,055 7,600
Deferred compensation ............................................ 406 554
OREO expenses .................................................... 164 380
Retirement plan .................................................. 106 103
Mark-to-market adjustments securities available-for-sale ......... 11,505
Tax credits ...................................................... 100 100
Other ............................................................ 68 1
------- ------
19,820 9,693
Valuation allowance .............................................. (813) (813)
------- ------
Deferred tax assets, net of allowance ............................ 19,007 8,880
------- ------
DEFERRED TAX LIABILITIES:
Deferred loan fees ............................................... 172 721
FHLB Stock dividends ............................................. 341 332
Mark-to-market adjustments securities available-for-sale ......... 1,038
Fixed assets ..................................................... 1,715 1,877
Mortgage servicing ............................................... 293
Other ............................................................ 7 203
------- ------
Total ............................................................ 2,235 4,464
------- ------
Net deferred tax asset ........................................... $16,772 $4,416
======= ======
</TABLE>
Significant components of the provision for income taxes for the years
ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
---------- ------------ -----------
(RESTATED) (RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT EXPENSE:
Federal ................................... $13,840 $ 1,701 $2,533
State ..................................... 1,877 196 272
------- -------- ------
15,717 1,897 2,805
------- -------- ------
DEFERRED EXPENSE (BENEFIT):
Federal ................................... 1,125 (4,141) 4,002
State ..................................... 187 (448) 715
------- -------- ------
1,312 (4,589) 4,717
------- -------- ------
TOTAL INCOME TAX EXPENSE (BENEFIT) ......... $17,029 $ (2,692) $7,522
======= ======== ======
</TABLE>
82
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES--(CONTINUED)
A reconciliation of income tax expense (benefit) with the amount computed
by applying the statutory federal income tax rate of 35% to income before
income taxes for the year ended December 31, 1999 and 34% to (loss) income
before income taxes for the years ended December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
---------- ------------ -----------
(RESTATED) (RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) at federal rate ............ $16,274 $ (4,471) $ 6,844
DIFFERENCES RESULTING FROM:
State income taxes, net of federal tax benefit ......... 1,349 (312) 660
Change in valuation allowance .......................... (1,277)
Merger expenses ........................................ 1,929 1,029
Amortization of goodwill ............................... 340 272 258
Amortization of ESOP ................................... 557
Tax exempt interest income ............................. (679) (633) (102)
Corporate owned life insurance ......................... (252) 2 --
Other, net ............................................. (3) (36) 110
------- -------- --------
Income tax expense (benefit) ............................ $17,029 $ (2,692) $ 7,522
======= ======== ========
</TABLE>
As of December 31, 1999, the Company had net operating loss carryforwards,
acquired in connection with mergers, of approximately $1.1 million for income
tax purposes if not utilized, expire in various years from 2003 through 2013.
As a result of the ownership changes, the utilization of these net operating
loss carryforwards is limited annually to specified amounts determined in
accordance with the Internal Revenue Code. At December 31, 1999, a valuation
allowance of approximately $813,000 is recorded primarily to offset the
deferred tax assets related to the net operating loss carry forwards resulting
from the Governors Bank merger. If realized, the tax benefit for these
operating loss carry forwards will be applied to reduce goodwill related to
this merger.
In accordance with SFAS 109, "Accounting for Income Taxes," a deferred tax
liability is not recognized for the tax bad debt reserves of thrift
institutions that arose in tax years beginning prior to December 31, 1987. At
December 31, 1999, the portion of such tax bad debt reserves was approximately
$19.5 million. The amount of unrecognized deferred tax liability related to
these pre-1998 tax loan loss reserves at December 31, 1999, was approximately
$7.3 million. This deferred tax liability could be recognized if the bad debt
reserve is used for any purpose other than absorbing bad debt losses.
83
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
---------- ------------ -----------
(RESTATED) (RESTATED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NUMERATOR:
Net income (loss) ............................................. $29,469 $ (10,456) $12,607
Preferred stock dividends ..................................... (229) (764)
------- --------- -------
Numerator for basic earnings per share--income (loss)
applicable to common stock ................................... 29,469 (10,685) 11,843
------- --------- -------
Numerator for diluted earnings per share--income (loss)
applicable to common stock after assumed conversions ......... $29,469 $ (10,685) $11,843
======= ========= =======
DENOMINATOR:
Denominator for basic earnings per share--
weighted-average shares ...................................... 50,469 48,807 46,489
Effect of dilutive securities:
Employee stock options ....................................... 578 1,658
------- --------- -------
Dilutive potential common shares .............................. 578 -- 1,658
------- --------- -------
Denominator for diluted earnings per share--adjusted
weighted--average shares and assumed conversions ............. 51,047 48,807 48,147
======= ========= =======
Basic earnings (loss) per share ............................... $ 0.58 $ (0.22) $ 0.25
Diluted earnings (loss) per share ............................. $ 0.58 $ (0.22) $ 0.25
</TABLE>
At December 31, 1999, 1,584,791 stock options and warrants were
outstanding that could potentially dilute basic earnings per share in the
future but were not included in the computation of diluted earnings per share
for the year ended December 31, 1999 (See Note 12). The effect of these shares
is antidilutive to diluted earnings per share for the year ended December 31,
1999.
84
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Investments in and advances to subsidiaries ........... $ 200,825 $217,122
Cash and cash equivalents ............................. 12,160 8,950
Investments available-for-sale ........................ 4,036 4,799
Property and equipment, net ........................... 2,993 2,809
Other assets .......................................... 2,614 4,505
--------- --------
Total ................................................. $ 222,628 $238,185
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses ................. $ 1,435 $ 2,689
Senior Debentures, net of issuance costs .............. 20,531 27,518
Shareholders' Equity:
Common stock .......................................... 508 497
Treasury stock ........................................ (11)
Additional paid-in-capital ............................ 124,931 128,044
Retained earnings ..................................... 94,934 77,732
Accumulated other comprehensive (loss) income ......... (19,700) 1,705
--------- --------
Total shareholders' equity ............................ 200,662 207,978
--------- --------
Total ................................................. $ 222,628 $238,185
========= ========
</TABLE>
85
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION--(CONTINUED)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
---------- ------------ -----------
(RESTATED) (RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Dividends from subsidiary ......................................... $26,388 $ 7,703 $ 6,138
Interest .......................................................... 736 898 855
Other ............................................................. 1,130 576 424
------- --------- -------
Total ............................................................. 28,254 9,177 7,417
------- --------- -------
EXPENSES:
Interest .......................................................... 3,119 3,716 967
General and administrative ........................................ 1,153 1,455 854
Merger expenses ................................................... 404 98
------- --------- -------
Total ............................................................. 4,272 5,575 1,919
------- --------- -------
Income before equity in net earnings (loss) of subsidiary and
income tax expense (benefit) ..................................... 23,982 3,602 5,498
Income tax (benefit) expense ...................................... (875) (1,468) (222)
------- --------- -------
Income before equity in net earnings (loss) of subsidiary ......... 24,857 5,070 5,720
Equity in net earnings (loss) of subsidiary ....................... 4,612 (15,526) 6,887
------- --------- -------
Net income (loss) ................................................. $29,469 $ (10,456) $12,607
======= ========= =======
</TABLE>
86
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION--(CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
(RESTATED) (RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in) operating activities ......... $ 23,199 $ (2,592) $ 5,913
Additional investment in subsidiary ......................... (26,339)
Decrease in receivable from Bank ............................ 1,555 5,040 1,510
Principal payment received on ESOP loan ..................... 748 814
Proceeds from sale of investments
available-for-sale ......................................... 1,000 7,728 --
Purchase of investment available-for-sale ................... (12,077) (500)
Other ....................................................... (2)
--------- --------- ---------
Net cash provided by (used in) investing activities ......... 2,555 1,439 (24,517)
--------- --------- ---------
Financing Activities:
Cash dividends--common and preferred ........................ (12,267) (9,619) (8,896)
Proceeds of senior debentures-net of issuance cost .......... 33,778
Purchase of senior debentures ............................... (7,185) (6,500) --
Purchase of Treasury Stock at cost .......................... (8,737) -- (2,668)
Other, net .................................................. 5,645 4,172 3,295
--------- --------- ---------
Net cash (used in) provided by financing activities ......... (22,544) (11,947) 25,509
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ............ 3,210 (13,100) 6,905
Net adjustment to reconcile for different year ends of
pooled companies (See Note 2) .............................. 3,179 --
--------- --------- ---------
Cash and cash equivalents at beginning of year .............. 8,950 18,871 11,966
--------- --------- ---------
Cash and cash equivalents at end of year .................... $ 12,160 $ 8,950 $ 18,871
========= ========= =========
</TABLE>
19. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following is a disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Certain financial instruments and
all non-financial instruments are excluded from its disclosure requirements.
Accordingly, the aggregate fair value amount presented does not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance
sheet for these assets approximate their fair values.
87
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
INVESTMENTS AVAILABLE-FOR-SALE AND HELD TO MATURITY: Fair values for
investments are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market prices
of comparable instruments.
LOANS RECEIVABLE--NET: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on carrying
values. The fair values for certain fixed rate mortgage loans (e.g.,
one-to-four family residential), and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
for other loans (e.g., commercial real estate and rental property mortgage
loans) are estimated using discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. The fair values of mortgage-backed securities are based on
quoted market prices.
LOANS HELD FOR SALE: The fair value represents the anticipated proceeds
from sale of the loans.
FEDERAL HOME LOAN BANK STOCK: Current carrying amounts approximate
estimated fair value.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's loan
commitments are based on estimated market prices of comparable instruments
taking into account the remaining terms of the agreements and the counter
parties' credit standing. The aggregate fair value of loan commitments is not
material.
DEPOSITS: The fair values disclosed for demand deposits (e.g., interest
and non-interest checking, statement savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (e.g., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposits
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated contractual monthly maturities on time deposits. The
fair value of demand deposits is the amount payable on demand, without
adjusting for any value derived from retaining those deposits for an expected
future period of time. That component, commonly referred to as a deposit base
intangible, is not considered in the above fair value amount nor is it recorded
as an intangible asset in the balance sheet.
FHLB ADVANCES AND OTHER BORROWINGS: The fair value is estimated using
rates currently offered for advances of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: Fair value is estimated
using rates currently offered for securities sold under agreements to
repurchase or similar remaining maturities.
SENIOR DEBENTURES: Fair value is estimated using rates currently offered
for debentures of similar remaining maturities.
BANK DRAFTS PAYABLE: The fair value of bank drafts payable is assumed to
equal its carrying value due to its short maturity.
88
<PAGE>
REPUBLIC SECURITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------- ------------ -------------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents .................. $ 117,850 $ 117,850 $ 181,141 $ 181,141
Investments available-for-sale ............. 792,125 792,125 722,913 722,913
Investments held to maturity ............... 147,275 139,383 16,318 16,605
Loans receivable--net ...................... 1,822,433 1,797,092 1,997,674 1,991,510
Loans held for sale ........................ 62,000 62,000 16,000 16,272
Federal Home Loan Bank Stock ............... 34,821 34,821 23,754 23,754
FINANCIAL LIABILITIES:
Deposits ................................... $2,064,936 $1,993,553 $2,368,360 $2,288,720
FHLB advances and other borrowings ......... 618,996 466,073 410,368 344,316
Securities sold under agreements to
repurchase ................................. 248,521 248,521 9,144 9,144
Senior debentures .......................... 20,531 21,288 27,518 28,894
Bank drafts payable ........................ 11,208 11,208 27,706 27,706
</TABLE>
89
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Republic Security Financial Corporation
We have audited the consolidated statements of financial condition of
Republic Security Financial Corporation and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
comprehensive income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the 1997 financial statements of Unifirst Federal Savings Bank which
was acquired by Republic Security Financial Corporation in 1998 and accounted
for under the pooling-of-interests method (see Note 2), which statements
reflect total revenues constituting 5.03% of the related consolidated totals.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to data included for Unifirst
Federal Savings Bank, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for 1997, the report of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Republic Security Financial Corporation and subsidiaries at December 31, 1999
and 1998 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
West Palm Beach, Florida
February 11, 2000
90
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Unifirst Federal Savings Bank
We have audited the consolidated statements of income, stockholders'
equity and cash flows for the year ended December 31, 1997 of Unifirst Federal
Savings Bank and subsidiaries. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the result of operations and cash
flows for the year ended December 31, 1997 of Unifirst Federal Savings Bank and
subsidiaries, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
October 29, 1997
Ft. Lauderdale, Florida
91
<PAGE>
REPORT OF MANAGEMENT
December 31, 1999
FINANCIAL STATEMENTS
Republic Security Bank, (the "Bank"), a wholly owned subsidiary of
Republic Security Financial Corporation, is responsible for the preparation,
integrity and fair presentation of its published financial statements included
in the consolidated financial statements of Republic Security Financial
Corporation as of December 31, 1999, and for the year then ended. The financial
statements of the Bank, which are included in the consolidated financial
statements of Republic Security Financial Corporation, have been prepared in
accordance with accounting principles generally accepted in the United States
and, as such, include some amounts that are based on judgments and estimates of
management.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining effective
internal control over financial reporting presented in conformity with
accounting principles generally accepted in the United States and the Federal
Financial Institutions Examination Council instructions for Consolidated
Reports of Condition and Income (call report instructions). The system contains
monitoring mechanisms, and actions are taken to correct deficiencies
identified.
There are inherent limitations in the effectiveness of any internal
control including the possibility of human error and circumvention or
overriding of controls. Accordingly, even effective internal control can
provide only reasonable assurance with respect to financial statements
preparation. Further, because of changes in conditions, the effectiveness of
internal control may vary over time.
Management assessed the Bank's internal control over financial reporting
presented in conformity with accounting principles generally accepted in the
United States and call report instructions as of December 31, 1999. This
assessment was based on criteria for effective internal control over financial
reporting described in "Internal Control-Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes Republic Security Bank maintained effective
internal control over financial reporting presented in conformity with
accounting principles generally accepted in the United States and call report
instructions as of December 31, 1999.
/s/ RUDY E. SCHUPP
- ---------------------------------------------------------------
Rudy E. Schupp
Chairman, President and Chief Executive Officer
/s/ RICHARD J. HASKINS
- ---------------------------------------------------------------
Richard J. Haskins
Senior Executive Vice President and Chief Financial Officer
/s/ CARLA H. POLLARD
- ---------------------------------------------------------------
Carla H. Pollard
Senior Vice President and Controller
92
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information relating to directors and executive officers of the Company
appears in the Company's definitive Proxy Statement, which was filed with the
SEC in connection with the Annual Meeting of Shareholders (the "Proxy
Statement"), to be held on April 26, 2000, at pages 5 through 7 under the
heading "The Directors Standing For Election Are" and pages 10 through 11 under
the heading "Who Are the Company's and Bank's Executive Officers" and is
incorporated herein by reference.
Information relating to the filing of reports required under Section 16(a)
of the Exchange Act by directors, executive officers and 1090 beneficial owners
of the Company's common stock appears in the Company's Proxy Statement at page
21 under the heading "Compliance with Section 16(a) of the Exchange Act" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation appears in the Proxy
Statement at pages 13 through 19 under the headings "Employment Agreements"
through "Supplemental Executive Retirement Plan" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information relating to security ownership of certain beneficial
owners and management appears in the Proxy Statement at pages 3 through 4 under
the heading "Stock Ownership" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions
appears in the Proxy Statement at page 9 under the heading "Certain
Relationships and Related Transactions" and is incorporated herein by
reference.
93
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THE REPORT:
(1) FINANCIAL STATEMENTS:
PAGE
-----
Consolidated Statements of Financial Condition
for the years ended December 31, 1999 and 1998. ............... 53
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997. ......... 54
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997. ......... 55
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 .......... 56
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997. ......... 57
Notes to Consolidated Financial Statements ...................... 59
(2) FINANCIAL STATEMENT SCHEDULES:
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(3) EXHIBITS:
The following is a list of all exhibits filed as a part of this Report:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------------ -----------------------------------------------------------------------------------------------
<S> <C>
3.1(a) Articles of Incorporation of the Company (incorporated by reference to the Exhibits to
Form S-1 Registration Statement initially filed August 7, 1985, Registration No. 2-99505)
3.1(b) Amendment to Articles of Incorporation of the Company (incorporated by reference to the
Exhibits to Form S-4 Registration Statement initially filed July 14, 1998, Registration No.
333-59059)
3.2(a) Bylaws of the Company (incorporated by reference to the Exhibits to Form S-1 Registration
Statement initially filed August 7, 1985 , File No. 2-99505)
3.2(b) Amendments to Bylaws of the Company (incorporated by reference to Exhibit 3.2(b) to the
Company's Form 10-K filed on March 25, 1999)
3.2(c) Amendments to Bylaws of the Company (filed herewith)
4.1 Form of Common Stock Certificate of the Company (incorporated by reference to the
Exhibits to Form S-1 Registration Statement initially filed August 7, 1985 , File No. 2-99505)
4.2 Rights Agreement by and between the Company and IBJ Schroder Bank and Trust Company
(incorporated by reference to Form 8-A filed on April 23, 1995, File No. 000-14671)
4.3 Indenture dated as of June 30, 1997 by and between First Palm Beach Bancorp, Inc. and The
Bank of New York, as Trustee, relating to the Company's 10.35% Senior Debentures due
June 30, 2002 (incorporated by reference to the Exhibits to Form S-4 Registration Statement
filed by First Palm Beach Bancorp, Inc. on September 11, 1997, Registration No. 333-35431)
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- --------- --------------------------------------------------------------------------------------------
<S> <C>
4.4 Supplemental Indenture dated as of October 29, 1998 by and among the Company, First Palm
Beach Bancorp, Inc. and The Bank of New York, as Trustee, relating to the Company's
10.35% Senior Debentures due June 30, 2002 (incorporated by reference to Exhibits to
Form 8-K filed on November 2, 1998, File No. 000-14671)
4.5 Form of 10.35% Senior Debenture Due June 30, 2002 (included in the Indenture filed as
Exhibit 4.2 hereto)
4.6 Form of Series B 10.35% Senior Debenture due June 30, 2002 (incorporated by reference to
Exhibit 4.5 to Form 10-K filed by First Palm Beach Bancorp, Inc. for the fiscal year ended
September 30, 1997, File No. 0-21942)
10.1 Amended and Restated Employment Agreement among the Company, Republic Security
Bank and Rudy E. Schupp dated as of January 1, 1999 (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-K filed March 25, 1999)
10.2 Amended and Restated Employment Agreement among the Company, Republic Security
Bank and Richard J. Haskins dated as of November 17, 1999 (filed herewith)
10.3 Employment Agreement among the Company, Republic Security Bank and R. Michael
Strickland dated as of February 16, 1999 (incorporated by reference to Exhibit 10.3 to the
Company's Form 10-K filed March 25, 1999 )
10.4 Employment Agreement among the Company, Republic Security Bank and Louis J. Dunham
dated as of February 26, 1999 (incorporated by reference to Exhibit 10.4 to the Company's
Form 10-K filed March 25, 1999 )
10.5 Form of Employment Agreement between Republic Security Bank and each of Roger Savage
and John G. Primeau (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-K filed March 25, 1999 )
10.6 Employment Agreement between Republic Security Bank and Bruce Keir (incorporated by
reference to Form S-4 Registration Statement initially filed on April 9, 1997, Registration
No. 333-24821)
10.7 Employment Agreement between Republic Security Bank and Richard Kuci, Jr.
(incorporated by reference to Form S-4 Registration Statement initially filed on
September 30, 1997, Registration No. 333-36717)
10.8 Employment Agreement between Republic Security Bank and Thomas Tribby dated as of
July 15, 1997 (incorporated by reference to Exhibit 10.8 to the Company's Form 10-K filed
March 25, 1999 )
10.9 Employment Agreement among the Company, Republic Security Bank and Carla H. Pollard
(filed herewith)
10.10 Employment Agreement among the Company, Republic Security Bank and W. Andrew
Kirkman (filed herewith)
10.11 Employment Agreement among Republic Security Bank and Eduardo Godoy (filed herewith)
10.12 Form of Employment Agreement among the Company, RS Maritime Corporation and each
of David Blancett, Anthony DiPinto, Bernard J. Kiley and Fred Roman (filed herewith)
10.13 Form of Change of Control Agreement by and among the Company, Republic Security Bank
and each of Alissa E. Ballot, Brenda Dolan, Bruce Keir, W. Andrew Kirkman, John G.
Primeau, Roger Savage, Joan Schimelman, and Thomas Tribby (incorporated by reference to
Exhibit 10.9 to the Company's Form 10-K filed March 25, 1999)
10.14 Consulting Agreement between Republic Security Bank and Carol Owen (incorporated by
reference to Form S-4 Registration Statement initially filed on April 9, 1997, Registration
No. 333-24821)
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- --------- ----------------------------------------------------------------------------------------------
<S> <C>
10.15 Form of Amended and Restated Supplemental Retirement Plan Agreement dated as of
July 1, 1997 by and between Republic Security Bank and each of Rudy E. Schupp and
Richard J. Haskins (incorporated by reference to Exhibit 10.11 to the Company's Form 10-K
filed March 25, 1999)
10.16 Supplemental Retirement Plan Agreement dated as of January 1, 1996 between Republic
Security Bank and Roger Savage (incorporated by reference to Exhibit 10.12 to the
Company's Form 10-K filed March 25, 1999)
10.17 Amended and Restated Stock Appreciation Rights Agreement dated as of June 24, 1998 by
and between the Company and Rudy E. Schupp (incorporated by reference to Exhibit 10.13
to the Company's Form 10-K filed March 25, 1999)
10.18 Amended and Restated Stock Appreciation Rights Agreement dated as of June 24, 1998 by
and between the Company and Richard J. Haskins (incorporated by reference to Exhibit
10.14 to the Company's Form 10-K filed March 25, 1999 )
10.19 Form of Amended and Restated Stock Appreciation Rights Agreement dated as of June 24,
1998 by and between the Company and each of Gearl Gore, Lennart Lindahl, Jr., Richard
Rathke, William Spitznagel, Dr. Bruce Wiita, and William Wolfson (incorporated by reference
to Exhibit 10.15 to the Company's Form 10-K filed March 25, 1999)
10.20 Republic Security Financial Corporation 1997 Performance Incentive Plan, as amended
(incorporated by reference to to the Exhibits to Form S-4 Registration Statement initially
filed July 14, 1998, Registration No. 333-59059)
10.21 Amendment No. 1 to the Republic Security Financial Corporation 1997 Performance
Incentive Plan, as amended (incorporated by reference to Exhibit 10.17 to the Company's
Form 10-K filed March 25, 1999)
10.22 Amendment No. 2 to the Republic Security Financial Corporation 1997 Performance
Incentive Plan, as amended (incorporated by reference to Appendix A to the proxy
statement dated March 25, 1999 with respect to the Company's 1999 Annual Meeting)
10.23 Form of Directors Retirement Agreement between Republic Security Bank and each of
Paula Berliner, Thomas F. Carney, Joseph D. Cesarotti, Mary Anna Fowler, H. Gearl Gore,
Eugene W. Hughes, Thomas J. Langan, Jr., Lennart E. Lindahl, Jr., Mary A. McCarty, Carol
R. Owen, Richard C. Rathke, William F. Spitznagel, Bruce E. Wiita and William Wolfson
(incorporated by reference to Exhibit 10.18 to the Company's Form 10-K filed March 25,
1999)
10.24 Director Endorsement Method Split Dollar Plan Agreement between Northside Bank of
Tampa and Johnny Adcock (filed herewith)
10.25 Director Indexed Fee Continuation Plan Agreement between Northside Bank of Tampa and
Johnny Adcock (filed herewith)
11 Statement re: Computation of per share earnings
21 Subsidiaries of Republic Security Financial Corporation
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
There were no Current Reports on Form 8-K filed during the last quarter of
the year ending December 31, 1999.
96
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
BY: /s/ RUDY E. SCHUPP
-----------------------------------------------
Rudy E. Schupp
Chairman of the Board, President
and Chief Executive Officer
BY: /s/ RICHARD J. HASKINS
-----------------------------------------------
Richard J. Haskins
Senior Executive Vice President,
Chief Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ JOHNNY R. ADCOCK Director March 20, 2000
- -------------------------------------
Johnny R. Adcock
/s/ PAULA BERLINER Director March 20, 2000
- -------------------------------------
Paula Berliner
/s/ THOMAS F. CARNEY Director March 20, 2000
- -------------------------------------
Thomas F. Carney
/s/ JOSEPH D. CESAROTTI, SR. Director March 20, 2000
- -------------------------------------
Joseph D. Cesarotti, Sr.
/s/ MARY ANNA FOWLER Director March 20, 2000
- -------------------------------------
Mary Anna Fowler
/s/ H. GEARL GORE Director March 20, 2000
- -------------------------------------
H. Gearl Gore
/s/ FRED A. GREENE Director March 20, 2000
- -------------------------------------
Fred A. Greene
/s/ R. RANDY GUEMPLE Director March 20, 2000
- -------------------------------------
R. Randy Guemple
97
<PAGE>
SIGNATURES TITLE DATE
---------- ----- ----
/s/ RICHARD J. HASKINS Director March 20, 2000
- ---------------------------------
Richard J. Haskins
/s/ EUGENE W. HUGHES, JR. Director March 20, 2000
- ---------------------------------
Eugene W. Hughes, Jr.
/s/ THOMAS J. LANGAN, JR. Director March 20, 2000
- ---------------------------------
Thomas J. Langan, Jr.
/s/ LENNART LINDAHL Director March 20, 2000
- ---------------------------------
Lennart Lindahl
/s/ MARY A. MCCARTY Director March 20, 2000
- ---------------------------------
Mary A. McCarty
/s/ CAROL R. OWEN Director March 20, 2000
- ---------------------------------
Carol R. Owen
/s/ RICHARD C. RATHKE Director March 20, 2000
- ---------------------------------
Richard C. Rathke
/s/ DANIEL O. SOKOLOFF Director March 20, 2000
- ---------------------------------
Daniel O. Sokoloff
/s/ RUDY E. SCHUPP Director March 20, 2000
- ---------------------------------
Rudy E. Schupp
/s/ WILLIAM F. SPITZNAGEL Director March 20, 2000
- ---------------------------------
William F. Spitznagel
/s/ BRUCE E. WIITA Director March 20, 2000
- ---------------------------------
Bruce E. Wiita
/s/ WILLIAM WOLFSON Director March 20, 2000
- ---------------------------------
William Wolfson
98
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Ex # Exhibit Description
- ---- -------------------
<S> <C>
3.2(c) Amendments to Bylaws of the Company
10.2 Amended and Restated Employment Agreement among the Company, Republic Security
Bank and Richard J. Haskins dated as of November 17, 1999
10.9 Employment Agreement among the Company, Republic Security Bank and Carla H. Pollard
10.10 Employment Agreement among the Company, Republic Security Bank and W. Andrew
Kirkman
10.11 Employment Agreement among Republic Security Bank and Eduardo Godoy
10.12 Form of Employment Agreement among the Company, RS Maritime Corporation and Each of
David Blancett, Anthony Di Pinto, Bernard J. Kiley and Fred Roman
10.24 Director Endorsement Method Split Dollar Plan Agreement between Northside Bank of
Tampa and Johnny Adcock
10.25 Director Indexed Fee Continuation Plan Agreement between Northside Bank of Tampa and
Johnny Adcock)
11 Statement re: Computation of per share earnings
21 Subsidiaries of Republic Security Financial Corporation
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
EXHIBIT 3.2(C)
AMENDMENT TO THE BYLAWS OF REPUBLIC SECURITY FINANCIAL CORPORATION
ADOPTED JANUARY 26, 2000
1) The third sentence of Section 3.02 of the Bylaws shall be deleted in its
entirety.
2) The following shall be added between Section 3.02 and Section 3.03 of the
Bylaws as a new Section 3.02A:
"NOMINATION OF DIRECTORS. Every nomination for the election of directors an
annual meeting submitted by a shareholder in accordance with the articles
of incorporation of the corporation must include, in addition to the
information required pursuant to the articles of incorporation, (a) as to
each person being nominated, all information relating to the person being
nominated that is required to be disclosed in solicitations of proxies for
the election of directors in an election contest, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended, and Rule 14a-11 thereunder, and (b) as to the
shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination proposal is made, (i) the name and address of such
shareholder, as it appears on the corporation's books, and of such
beneficial owner; (ii) the class or series and number of shares of the
corporation which are owned of record or beneficially by such shareholder
and such beneficial owner; and (iii) a description of all arrangements or
understandings among the shareholders and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination
or nominations are to be made by the shareholder."
3) The following shall be added between Section 2.01 and Section 2.02 of the
Bylaws as a new Section 2.01A:
"NOTICE OF SHAREHOLDER BUSINESS. For business to be properly brought before
an annual meeting by a shareholder, the shareholder must have given written
notice thereof, either by personal delivery or by United States mail,
postage prepaid, to the Secretary at the principal office of the
corporation not later than the close of business on the 60th day, nor
earlier than the close of business on the 90th day, prior to the
anniversary of the preceding year's annual meeting; provided, however, that
in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date,
notice by the shareholder must be delivered to the corporation not later
than the later of the close of business on the 60th day prior to such
annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the corporation,
and no earlier than the close of business on the 90th day prior to such
annual meeting. Any such notice shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the meeting and
the reasons for conducting such business at the annual meeting, and, in the
event that such business includes a proposal to amend either the articles
of incorporation or bylaws, the language of the proposed amendment, (b) the
name and address of the shareholder proposing such business, (c) a
representation that the shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to propose such business, (d) any
material interest of the shareholder in such business and (e) any
information relating to such proposal that would be required under
Regulation 14A of the Securities Exchange Act if the
<PAGE>
corporation were proposing such business rather than the shareholder. No
business (other than the election of directors) shall be conducted by any
shareholder at an annual meeting of shareholders except in accordance with
this Section 2.01A, and the chairman of any annual meeting of shareholders
may refuse to permit any business to be brought by a shareholder before an
annual meeting (1) without compliance with the foregoing procedure, or (2)
if any such business (a) is not proper business to be brought before the
shareholders or (b) violates the corporation's articles of incorporation or
federal or state law."
EXHIBIT 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made and entered into as of November 17, 1999 by and among Republic Security
Financial Corporation, a business corporation organized and operating under the
laws of the State of Florida and having an office at 450 South Australian
Avenue, West Palm Beach, FL 33401 (the "Company"), Republic Security Bank, a
commercial bank organized and operating under the laws of the State of Florida
and having an office at 450 South Australian Avenue, West Palm Beach, FL 33401
(the "Bank"), and Richard J. Haskins, an individual residing at 1181 Morse
Blvd., Singer Island, FL 33404 (the "Executive"). The Agreement amends and
restates in its entirety that certain Employment Agreement by and between
Republic Security Financial Corporation and the Executive dated April 1, 1992,
as amended February 1, 1998, and as amended and restated as of January 27, 1999.
W I T N E S S E T H :
WHEREAS, the Executive has been elected as Senior Executive Vice
President and Chief Financial Officer of the Company and the Bank; and
WHEREAS, the Company and the Bank desire to assure for themselves the
continued availability of the Executive's services and the ability of the
Executive to perform such services with a minimum of personal distraction in the
event of a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to serve the Company and the Bank on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Company, the Bank and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Company and the Bank agree to employ the Executive, and the
Executive hereby agrees to such employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the date of this Agreement and ending on the third
anniversary date of this Agreement, plus such extensions, if any, as are
provided pursuant to section 2(b).
(b) Beginning on the date of this Agreement, the Employment Period
shall automatically be extended for one (1) additional day each day, unless
either the
1
<PAGE>
Company and the Bank, acting jointly, or the Executive, elects not to extend the
Agreement further by giving written notice to the other parties, in which case
the Employment Period shall end on the third anniversary of the date on which
such written notice is given. For all purposes of this Agreement, the term
"Remaining Unexpired Employment Period" as of any date shall mean the period
beginning on such date and ending on: (i) if a notice of non-extension has been
given in accordance with this section 2(b), the third anniversary of the date on
which such notice is given; and (ii) in all other cases, the third anniversary
of the date as of which the Remaining Unexpired Employment Period is being
determined. Upon termination of the Executive's employment with the Company and
the Bank for any reason whatsoever, any daily extensions provided pursuant to
this section 2(b), if not therefore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Company
and the Bank from terminating the Executive's employment at any time during the
Employment Period with or without notice for any reason; PROVIDED, HOWEVER, that
the relative rights and obligations of the Company, the Bank and the Executive
in the event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Senior Executive Vice President and Chief
Financial Officer of the Company and the Bank, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Bank, or assigned by the Board of Directors of the Company or the
Bank or the President of the Company or the Bank, and otherwise as are
customarily associated with such position. The Executive shall devote his full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Company and the Bank and shall use his best efforts
to advance the interests of the Company and the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Company and the Bank shall pay to Executive a salary at an
initial annual rate of ONE HUNDRED SEVENTY THOUSAND DOLLARS ($170,000), payable
in approximately equal installments in accordance with the Company's and the
Bank's customary payroll practices for senior officers. At least annually during
the Employment Period, the Board of Directors of the Company and the Bank, or
the Compensation Committees thereof, shall review the Executive's annual rate of
salary and may, in its discretion, approve an increase therein. In no event
shall the Executive's annual rate of salary under this Agreement in effect at a
particular time be reduced without his prior written consent. In addition to
salary, the Executive may receive other cash compensation from the Company and
the Bank for services hereunder at such times, in such amounts and on such terms
and conditions as the Board may determine from time to time. Such amount shall
generally be computed as a percentage (to be determined by the mutual agreement
of the Executive and the Company and the Bank) of the Company's quarterly
consolidated net income before taxes (excluding extraordinary items as defined
in APB #30 and excluding restructuring charges and other charges relating to
mergers, acquisitions or transactions of similar effect).
2
<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
(a) During the Employment Period, the Executive shall be treated as an
employee of the Company and the Bank and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Company or the Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Company's and the Bank's customary practices.
(b) The Company or the Bank shall own and pay the costs of premiums on
life insurance insuring the life of the Executive in an amount not less than
$200,000, and the Company or Bank shall designate the beneficiary of such policy
as such person or persons named by the Executive from time to time.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period, the Company and the Bank shall cause
the Executive to be covered by and named as an insured under any policy or
contract of insurance obtained by it to insure its directors and officers
against personal liability for acts or omissions in connection with service as
an officer or director of the Company and the Bank or service in other
capacities at the request of the Company or the Bank. The coverage provided to
the Executive pursuant to this section 6 shall be of the same scope and on the
same terms and conditions as the coverage (if any) provided to other officers or
directors of the Company and the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period, the Company and the Bank shall indemnify the Executive
against, and hold him harmless from, any costs, liabilities, losses and
exposures to the fullest extent and on the most favorable terms and conditions
that similar indemnification is offered to any director or officer of the
Company or the Bank or any subsidiary or affiliate of either of them.
SECTION 7. OTHER ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the President of the Company or the Bank (which approval
shall not be unreasonably withheld); PROVIDED, HOWEVER, that such service shall
not materially interfere with the performance of his duties under this
Agreement. The Executive may also engage in personal business and investment
activities which do not materially interfere with the performance of his duties
hereunder; PROVIDED, HOWEVER, that such activities are not prohibited under any
code of conduct or investment or securities trading policy established by the
Company or the Bank and generally applicable to all similarly situated
executives.
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SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Company's
and the Bank's executive offices at the address first above written, or at such
other location within Palm Beach County or Broward County, Florida at which the
Bank shall maintain its principal executive offices, or at such other location
as the Company, the Bank and the Executive may mutually agree upon. The Company
and the Bank shall provide the Executive at his principal place of employment
with a private office, secretarial services and other support services and
facilities suitable to his positions with the Company and the Bank and necessary
or appropriate in connection with the performance of his assigned duties under
this Agreement. The Bank shall provide to the Executive for his exclusive use an
automobile owned or leased by the Bank and appropriate to his position, to be
used in the performance of his duties hereunder. All costs of operation,
maintenance and insurance shall be paid by the Bank. The Executive shall account
for the use and expenses of the automobile in accordance with the policies and
procedures of the Bank in effect from time to time. The Bank shall reimburse the
Executive for his ordinary and necessary business expenses, including, without
limitation, all expenses associated with his business use of the aforementioned
automobile, fees for memberships in such clubs and organizations as the
Executive and the Bank shall mutually agree are necessary and appropriate for
business purposes, and his travel and entertainment expenses incurred in
connection with the performance of his duties under this Agreement, in each case
upon presentation to the Bank of an itemized account of such expenses in such
form as the Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) The Executive shall be entitled to the severance benefits described
herein in the event that his employment with the Company and the Bank terminate
during the Employment Period under any of the following circumstances:
(i) the Executive's voluntary resignation from employment with the
Company and the Bank within ninety (90) days following:
(A) the failure of the Board of Directors of the Company or
the Bank to appoint or re-appoint or elect or re-elect the
Executive to the offices of Senior Executive Vice President
and Chief Financial Officer (or a more senior office, if any)
of the Company and the Bank;
(B) the expiration of a thirty (30) day period following the
date on which the Executive gives written notice to the
Company and the Bank of its material failure, whether by
amendment of the Company's or the Bank's Articles of
Incorporation or By-laws, action of the Company's or the
Bank's Board of Directors or the Company's or the Bank's
stockholders or otherwise, to vest in the Executive the
functions, duties, or responsibilities prescribed in section 3
of this Agreement as of the date hereof;
(C) the expiration of a thirty (30) day period following the
date on which the Executive gives written notice to the
Company or the Bank of its material breach of any term,
condition or covenant contained in this Agreement (including,
without limitation, any reduction of the Executive's rate of
base salary in effect from time to time and any change in the
terms and conditions of any
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compensation or benefit program in which the Executive
participates which, either individually or together with other
changes, has a material adverse effect on the aggregate value
of his total compensation package), unless, during such thirty
(30) day period, the Company or the Bank cures such failure in
a manner determined by the Executive, in his discretion, to be
satisfactory; or
(D) the relocation of the Executive's principal place of
employment, without his written consent, to a location outside
of Palm Beach County or Broward County, Florida; or
(E) the failure of the stockholders of the Company or Bank to
elect or re-elect the Executive to the Board of Directors of
the Company or the Bank, respectively, or the failure of the
Board of Directors of the Company or the Bank (or the
nominating committees thereof) to nominate the Executive for
such election or re-election;
(ii) the termination of the Executive's employment with the Company
or the Bank for any other reason not described in section 10(a).
In such event, the Company or the Bank (in such proportions as they may mutually
agree upon) shall provide the benefits and pay to the Executive the amounts
described in section 9(b).
(b) Upon the termination of the Executive's employment with the Company
and the Bank under circumstances described in section 9(a) of this Agreement,
the Company and the Bank (in such proportions as they may mutually agree upon)
shall pay and provide to the Executive (or, in the event of his death following
such termination, to his estate):
(i) his earned but unpaid compensation as of the date of the
termination of his employment with the Company and the Bank, such
payment to be made at the time and in the manner prescribed by law
applicable to the payment of wages but in no event later than thirty
(30) days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Company's or the
Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for a period of three years from the date his employment
terminates, coverage equivalent to the coverage to which he would have
been entitled under such plans (as in effect on the date of his
termination of employment, or, if his termination of employment occurs
after a Change of Control, on the date of such Change of Control,
whichever benefits are greater), if he had continued working for the
Company and Bank during the Remaining
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Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Company and the
Bank;
(iv) within thirty (30) days following his termination of
employment with the Company and the Bank, a lump sum payment in an
amount equal to the salary that the Executive would have earned if he
had continued working for the Company and the Bank for a period of
three years from the date his employment terminates at the highest
annual rate of salary achieved during that portion of the Employment
Period which is prior to the Executive's termination of employment with
the Company and the Bank, such lump sum to be paid in lieu of all other
payments of salary provided for under this Agreement in respect of the
period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Company and the Bank, a lump sum payment in an
amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Company or the Bank, if he were
100% vested thereunder and had continued working for the
Company and the Bank for a period of three years from the date
his employment terminates, such benefits to be determined as
of the date of termination of employment by adding to the
service actually recognized under such plans an additional
period equal to the Remaining Unexpired Employment Period and
by adding to the compensation recognized under such plans for
the most recent year recognized all amounts payable under
sections 9(b)(i), (iv), and (vii); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Company and the Bank, a lump sum payment in an
amount equal to the present value of the additional employer
contributions (or if greater in the case of a leveraged employee stock
ownership plan or similar arrangement, the additional assets allocable
to him through debt service, based on the fair market value of such
assets at termination of employment) to which he would have been
entitled under any and all qualified and non-qualified defined
contribution plans maintained by, or covering employees of, the Company
or the Bank, as if
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he were 100% vested thereunder and had continued working for the
Company and the Bank for a period of three years from the date his
employment terminates at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Company and the
Bank, and making the maximum amount of employee contributions, if any,
required under such plan or plans, such present value to be determined
on the basis of a discount rate, compounded using the compounding
period that corresponds to the frequency with which employer
contributions are made to the relevant plan, equal to the Applicable
PBGC Rate;
(vii) within thirty (30) days following his termination of
employment with the Company and the Bank, a lump sum payment in an
amount equal to three times the higher of (A) the highest cash
incentive compensation or bonus (annualized, if paid for a period other
than annually) paid to the Executive during or accrued with respect to
the Executive for either (i) any of the two years immediately preceding
that in which, or (ii) the year in which, Executive's employment with
the Company and the Bank terminates, or (B) the highest cash incentive
compensation or bonus (annualized, if paid for a period other than
annually) so paid or accrued in respect of either (x) any of the two
years immediately preceding that in which, or (y) the year in which, a
Change of Control (as hereinafter defined) occurs.
The Company, the Bank and the Executive hereby stipulate that the damages which
may be incurred by the Executive following any such termination of employment
are not capable of accurate measurement as of the date first above written and
that the payments and benefits contemplated by this section 9(b) constitute
reasonable damages under the circumstances and shall be payable without any
requirement of proof of actual damage and without regard to the Executive's
efforts, if any, to mitigate damages. The Company, the Bank and the Executive
further agree that the Company and the Bank may condition the payments and
benefits (if any) due under sections 9(b)(iii), (iv), (v), (vi) and (vii) on the
receipt of the Executive's resignation from any and all positions which he holds
as an officer, director or committee member with respect to the Company, the
Bank or any subsidiary or affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY OR BANK LIABILITY.
(a) In the event that the Executive's employment with the Company and
the Bank shall terminate during the Employment Period on account of:
(i) the discharge of the Executive for "cause," which, for
purposes of this Agreement (I) prior to a Change of Control (as
hereinafter defined) shall mean: (A) gross negligence or willful
misconduct by the Executive in connection with his employment hereunder
or the business of the Company and the Bank; (B) the Executive's
misappropriation of the Company's or the Bank's assets or property; (C)
the Executive willfully fails or refuses to perform his duties under
this Agreement, or fails to comply with any material term, covenant or
condition contained herein; (D) the Executive breaches his fiduciary
duties to the Company or the Bank for personal profit; or (E) the
Executive's willful breach or violation of any law, rule or regulation
(other
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than traffic violations or similar offenses), or final cease and desist
order in connection with his performance of services for the Company or
the Bank; and (II), upon and after a Change of Control, shall mean (A)
the Executive intentionally engages in dishonest conduct in connection
with his performance of services for the Company or the Bank resulting
in his conviction of a felony; (B) the Executive is convicted of, or
pleads guilty or nolo contendere to, a felony or any crime involving
moral turpitude; (C) the Executive willfully fails or refuses to
perform his duties under this Agreement and fails to cure such breach
within sixty (60) days following written notice thereof from the
Company or the Bank; (D) the Executive breaches his fiduciary duties to
the Company or the Bank for personal profit; or (E) the Executive's
willful breach or violation of any law, rule or regulation (other than
traffic violations or similar offenses), or final cease and desist
order in connection with his performance of services for the Company or
the Bank;
(ii) the Executive's voluntary resignation from employment
with the Company and the Bank for reasons other than those specified in
section 9(a) or 11(b);
(iii) the Executive's death; or
(iv) a determination that the Executive is eligible for
long-term disability benefits under the Bank's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
then the Company and the Bank shall have no further obligations under this
Agreement, other than the payment to the Executive (or, in the event of his
death, to his estate) of his earned but unpaid compensation as of the date of
the termination of his employment, and the provision of such other benefits, if
any, to which he is entitled as a former employee under the employee benefit
plans and programs and compensation plans and programs maintained by, or
covering employees of, the Company or the Bank; PROVIDED, HOWEVER, that, in the
event of the Executive's death, the Company or the Bank shall pay to his estate
an amount equal to three months' cash compensation within thirty days of the
appointment of the executor of such estate.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL
(a) A Change of Control ("Change of Control") shall be deemed to have
occurred upon the happening of any of the following events:
(i) approval by the stockholders of the Company of a
transaction that would result in the reorganization, merger or
consolidation of the Company with one or more other persons, other than
a transaction following which:
(A) at least 50.1% of the common stock or equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to
such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 50.1%
of the
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outstanding common stock or equity ownership interests in the
Company; and
(B) At least 50.1% of the combined voting power of
the securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least 50.1% of
the combined voting power of the securities entitled to vote
generally in the election of directors of the Company; and
(C) No person, or persons acting in concert,
beneficially own (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) 20% or more of the outstanding common
stock or equity ownership interests in, or 20% or more of the
combined voting power of the securities entitled to vote
generally in the election of directors of, the entity
resulting from such transaction; and
(D) At least a majority of the members of the board
of directors of the entity resulting from such transaction are
individuals who were described in sections 11(a)(iv)(A) or (B)
of this Agreement as of the date of execution of the initial
definitive agreement providing for such transaction (or, if
earlier, as of the date on which the Board of Directors of the
Company authorized such transaction).
(ii) the acquisition of all or substantially all of the assets
of the Company or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
outstanding securities or of the combined voting power of the
outstanding securities of the Company entitled to vote generally in the
election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Company of any
transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or
approval by the stockholders of the Company of a plan for such
liquidation or dissolution; or
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Company do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Company on the date of this Agreement; or
(B) individuals who first became members of the Board
of the Company after the date of this Agreement either:
(I) upon election to serve as a member of
the Board of directors of the Company by affirmative
vote of
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three-quarters of the members of such Board, or of a
nominating committee thereof, in office at the time
of such first election; or
(II) upon election by the stockholders of
the Company to serve as a member of the Board of the
Company, but only if nominated for election by
affirmative vote of three-quarters of the members of
the board of directors of the Company, or of a
nominating committee thereof, in office at the time
of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of the Company; or
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Bank" were substituted for the term
"Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or a subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, the Executive shall be
entitled to the payments and benefits contemplated by section 9(b) in the event
of his termination of employment with the Bank under any of the circumstances
described in section 9(a) of this Agreement or under any of the following
circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following his demotion, loss of
title, office or significant authority or responsibility, or following
any reduction in any element of his package of compensation and
benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following any relocation of his
principal place of employment or any change in working conditions at
such principal place of employment which the Executive, in his
reasonable discretion, determines to be embarrassing, derogatory or
otherwise adverse;
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Company or the Bank in the Change of Control to
include the Executive in any compensation or benefit program maintained
by it or covering any of its executive officers, unless the Executive
is already covered by a substantially similar plan of the Company or
the Bank which is at least as favorable to him; or
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(iv) resignation, voluntary or otherwise, for any reason
whatsoever within 90 days following the effective date of the Change of
Control, PROVIDED, HOWEVER, that if the Change of Control is of the
type described in Section 11(a) (1), such 90 day period shall not be
deemed to commence until the actual consummation of the transaction
approved by the stockholders.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is
terminated upon or following (i) a Change of Control (as defined in section 11
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Company or the Bank or "in the ownership of a substantial portion of the
assets" of the Company or the Bank within the meaning of section 280G of the
Code. If this section 12 applies, then, if, for any taxable year, the Executive
shall be liable for the payment of an excise tax under section 4999 of the Code
with respect to any payment in the nature of compensation made by the Company,
the Bank or any direct or indirect subsidiary or affiliate of the Company or the
Bank to (or for the benefit of) the Executive, the Company or the Bank shall pay
to the Executive an amount equal to X determined under the following formula:
X = E x P
------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under section
4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI = the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and
local laws for the taxable year in question; and
M = the highest marginal rate of Medicare tax applicable to the
Executive under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, or
otherwise, and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this section 12(a) shall be made to the
Executive on the earlier of (i) the date the Company, the Bank or any direct or
indirect subsidiary or affiliate of the Company or the Bank is required to
withhold such tax, or (ii) the date the tax is required to be paid by the
Executive. The determination of the amount due hereunder shall be made by Ernst
& Young, or such other accounting firm as the parties may mutually agree upon
(the "Accounting Firm"). In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control the parties shall appoint another nationally recognized accounting
firm to make the determination required hereunder (which accounting firm shall
then be referred to as the Accounting
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Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Company or Bank, as the case may
be, shall pay to the other party at the time that the amount of such excise tax
is finally determined, an appropriate amount, plus interest, such that the
payment made under section 12(a), when increased by the amount of the payment
made to the Executive under this section 12(b) by the Company or the Bank, or
when reduced by the amount of the payment made to the Company or Bank under this
section 12(b) by the Executive, equals the amount that should have properly been
paid to the Executive under section 12(a). The interest paid under this section
12(b) shall be determined at the rate provided under section 1274(b)(2)(B) of
the Code. To confirm that the proper amount, if any, was paid to the Executive
under this section 12, the Executive shall furnish to the Company and the Bank a
copy of each tax return which reflects a liability for an excise tax payment
made by the Company or the Bank, at least 20 days before the date on which such
return is required to be filed with the Internal Revenue Service.
(c) The Executive shall notify the Company and the Bank in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of additional amounts hereunder. Such notification shall
be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company and
the Bank of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the thirty day period following the date on which it gives such
notice that any payment of taxes with respect to such claim is due. If the
Company or the Bank notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
(i) give the Company or the Bank any information reasonably
requested by the Company or the Bank relating to such claim;
(ii) take such action in connection with contesting such claim as
the Company or the Bank shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company or the Bank;
(iii) cooperate with the Company or the Bank in good faith in order
effectively to contest such claim; and
(iv) permit the Company and the Bank to participate in any
proceedings relating to such claim;
PROVIDED, HOWEVER, that the Company or the Bank shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any excise tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Notwithstanding the foregoing,
the Executive shall control the conduct of any such proceeding and all decisions
relating to the settlement or other disposition thereof.
(d) The provisions of this section 12 are designed to reflect the
provisions of applicable federal, state and local tax laws in effect on the date
of this Agreement. If, after the date hereof, there shall be any change in any
such laws, this section 12 shall
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be modified in such manner as the Executive and the Company and the Bank may
mutually agree upon if and to the extent necessary to assure that the Executive
is fully indemnified against the economic effects of the tax imposed under
section 4999 of the Code or any similar federal, state or local tax.
SECTION 13. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company and the
Bank, the Executive shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Company or any entity
which is a subsidiary of the Company or of which the Company is a subsidiary,
any material document or information obtained from the Company, or from its
parent or subsidiaries, in the course of his employment with any of them
concerning their properties, operations or business (unless such document or
information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 13
shall prevent the Executive, with or without the Company's or the Bank's
consent, from participating in or disclosing documents or information in
connection with any judic or administrative investigation, inquiry or proceeding
to the extent that such participation or disclosure is required under applicable
law.
SECTION 14. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Bank, the Company or by the Executive,
shall have no effect on the rights and obligations of the parties hereto under
the Company's or the Bank's qualified or non-qualified retirement, pension,
savings, thrift, profit-sharing or stock bonus plans, group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans or such other employee benefit plans or
programs, or compensation plans or programs, as may be maintained by, or cover
employees of, the Company or the Bank from time to time.
SECTION 15. HEALTH AND MAJOR MEDICAL INSURANCE.
(a) Notwithstanding anything herein to the contrary, upon the first to
occur of (i) a Change of Control (excluding a Change of Control in connection
with which Executive enters into any employment agreement with the Company or
the acquiring entity with a term of at least three years), (ii) termination of
Executive's employment hereunder by the Company or Bank other than for cause, or
(iii) termination of Executive's employment by reason of retirement at age 65
(or at age 55 through age 64 provided that a majority of the Board of Directors
of the Company confirms that this subsection 15(a) shall be effective in
connection with the retirement), the Company or the Bank shall thereafter
provide Executive with health and major medical insurance through the date on
which Executive shall be eligible to receive Medicare (or any successor
governmental health insurance program) and, after such eligibility date,
Medicare supplemental insurance for life. The Company or the Bank shall not
provide such health and medical insurance during any period, after a termination
of Executive's employment by the Company or Bank other than for cause, during
which Executive is employed by an employer which provides health and major
medical insurance in which Executive is qualified to participate. If insurance
is provided to Executive under this subsection 15(a), the Company's or the
Bank's obligation to provide Executive any such
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health or major medical insurance otherwise referred to in this Agreement shall
terminate.
(b) The Company and the Bank shall not be obligated to provide any
insurance pursuant to subsection 15(a) to the extent that the cost thereof
exceeds the amount which would accrue at the rate of $7,700 per annum from
October 1, 1995. In the event the cost of such insurance exceeds such accrual,
Executive, at his option, may continue the insurance by paying, at his own
expense, the amount in excess of such accrual.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Company and the Bank and their respective successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Company or the Bank may be sold or otherwise transferred.
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or one (1) day after it is sent by reputable overnight delivery
service, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
Richard J. Haskins
1181 Morse Blvd.
Singer Island, FL 33404
If to the Company:
Republic Security Financial Corporation
450 S. Australian Avenue
West Palm Beach, FL 33401
Attention: Rudy E. Schupp, Chairman & CEO
If to the Bank:
Republic Security Bank
450 S. Australian Avenue
West Palm Beach, FL 33401
Attention: Rudy E. Schupp, Chairman & CEO
SECTION 18. INDEMNIFICATION FOR ATTORNEYS' FEES.
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The Bank and the Company shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida applicable to contracts entered
into and to be performed entirely within the State of Florida.
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
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SECTION 24. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof, PROVIDED, HOWEVER, that any options granted to the Executive in any
agreement entered into prior to the date hereof in any agreement styled as an
Employment Agreement shall remain available for exercise by the Executive in
accordance with the terms thereof. No modifications of this Agreement shall be
valid unless made in writing and signed by the parties hereto.
SECTION 25. SURVIVAL.
The provisions of sections 6, 9, 10, 11, 12, 13, 14, 15, 18, 20, 22, 26
and 27 shall survive the expiration of the Employment Period or termination of
this Agreement.
SECTION 26. EQUITABLE REMEDIES.
The Company, the Bank and the Executive hereby stipulate that money
damages are an inadequate remedy for violations of sections 6(a), or 13 of this
Agreement and agree that equitable remedies, including, without limitations, the
remedies of specific performance and injunctive relief, shall be available with
respect to the enforcement of such provisions.
SECTION 27. REQUIRED REGULATORY PROVISION.
(a) Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Company or the Bank, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their compliance
with section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. 1828(k), and
any regulations promulgated thereunder.
(b) Nothing in this Agreement shall be construed to subject the Bank or
its assets to any contractual obligation undertaken by the Company hereunder or
to liability for any breach by the Company.
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IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement
to be executed and the Executive has hereunto set his hand, all as of the day
and year first above written.
REPUBLIC SECURITY FINANCIAL CORPORATION
By: /s/ Rudy E. Schupp
--------------------------------------
Rudy E. Schupp
Chairman, President & CEO
REPUBLIC SECURITY BANK
By: /s/ Rudy E. Schupp
--------------------------------------
Rudy E. Schupp
Chairman, President & CEO
/s/ Richard J. Haskins
--------------------------------------
Richard J. Haskins
17
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of February 23, 2000 by and among REPUBLIC SECURITY FINANCIAL
CORPORATION, a business corporation organized and operating under the laws of
the State of Florida and having an office at 450 South Australian Avenue, West
Palm Beach, FL 33401 (the "Company"), REPUBLIC SECURITY BANK, a commercial bank
organized and operating under the laws of the State of Florida and having an
office at 450 South Australian Avenue, West Palm Beach, FL 33401 (the "Bank"),
and CARLA H. POLLARD, an individual residing at 1351 Sycamore Road, Boca Raton,
FL 33486 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive has been elected as Senior Executive
Vice President and Chief Information Officer of the Bank; and
WHEREAS, the Company and the Bank desire to assure for
themselves the continued availability of the Executive's services and the
ability of the Executive to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change of Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Company, the Bank and
the Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to employ the Executive, and the Executive
hereby agrees to such employment, during the period and upon the terms and
conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT
PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
two years beginning on the date of this Agreement and ending on the second
anniversary date of this Agreement, plus such extensions, if any, as are
provided pursuant to section 2(b).
(b) Beginning on the date of this Agreement, the Employment
Period shall automatically be extended for one (1) additional day each day,
unless either the Company and the Bank, acting jointly, or the Executive, elects
not to extend the Agreement further by giving written notice to the other
parties, in which case the
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Employment Period shall end on the second anniversary of the date on which such
written notice is given. For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on: (i) if a notice of non-extension has been given in
accordance with this section 2(b), the second anniversary of the date on which
such notice is given; and (ii) in all other cases, the second anniversary of the
date as of which the Remaining Unexpired Employment Period is being determined.
Upon termination of the Executive's employment with the Bank for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
therefore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank from terminating the Executive's employment at any time during the
Employment Period with or without notice for any reason; PROVIDED, HOWEVER, that
the relative rights and obligations of the Company, the Bank and the Executive
in the event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Senior Executive Vice President
and Chief Information Officer of the Bank, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Bank, or assigned by the Board of Directors of the Bank or the
President of the Bank, and otherwise as are customarily associated with such
position. The Executive shall devote her full business time and attention (other
than during weekends, holidays, approved vacation periods, and periods of
illness or approved leaves of absence) to the business and affairs of the Bank
and shall use her best efforts to advance the interests of the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Bank shall pay to Executive a salary at an initial
annual rate of ONE HUNDRED TEN THOUSAND DOLLARS ($110,000), payable in
approximately equal installments in accordance with the Bank's customary payroll
practices for senior officers. At least annually during the Employment Period,
the Board of Directors of the Bank, or the Compensation Committee thereof, shall
review the Executive's annual rate of salary and may, in its discretion, approve
an increase therein. In no event shall the Executive's annual rate of salary
under this Agreement in effect at a particular time be reduced without her prior
written consent. In addition to salary, the Executive may receive other cash
compensation from the Bank for services hereunder at such times, in such amounts
and on such terms and conditions as the Board may determine from time to time.
The Executive and the Bank understand that the maximum amount available for such
other cash compensation for the first year of the term hereof shall be FORTY
THOUSAND DOLLARS ($40,000), and the amount actually paid shall be at the
discretion of the Board or the President in accordance with goals to be
established by the President and/or the Board.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and receive
benefits under any and all
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qualified or non-qualified retirement, pension, savings, profit-sharing or stock
bonus plans, any and all group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance plans,
and any other employee benefit and compensation plans (including, but not
limited to, any incentive compensation plans or programs, stock option and
appreciation rights plans and restricted stock plans) as may from time to time
be maintained by, or cover employees of, the Bank, in accordance with the terms
and conditions of such employee benefit plans and programs and compensation
plans and programs and consistent with the the Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period, the Bank shall cause the Executive to
be covered by and named as an insured under any policy or contract of insurance
obtained by it to insure its directors and officers against personal liability
for acts or omissions in connection with service as an officer or director of
the Bank or service in other capacities at the request of the Company or the
Bank. The coverage provided to the Executive pursuant to this section 6 shall be
of the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Company and the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period, the Bank shall indemnify the Executive against, and hold him
harmless from, any costs, liabilities, losses and exposures to the fullest
extent and on the most favorable terms and conditions that similar
indemnification is offered to any director or officer of the Bank or any
subsidiary or affiliate of either of them.
SECTION 7. OTHER ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as she may disclose to
and as may be approved by the President of the Company or the Bank (which
approval shall not be unreasonably withheld); PROVIDED, HOWEVER, that such
service shall not materially interfere with the performance of her duties under
this Agreement. The Executive may also engage in personal business and
investment activities which do not materially interfere with the performance of
her duties hereunder; PROVIDED, HOWEVER, that such activities are not prohibited
under any code of conduct or investment or securities trading policy established
by the Company or the Bank and generally applicable to all similarly situated
executives.
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SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the
Bank's executive offices at the address first above written, or at such other
location within Palm Beach County or Broward County, Florida at which the Bank
shall maintain its principal executive offices, or at such other location as the
Company, the Bank and the Executive may mutually agree upon. The Bank shall
provide the Executive at her principal place of employment with a private
office, secretarial services and other support services and facilities suitable
to her position with the Bank and necessary or appropriate in connection with
the performance of her assigned duties under this Agreement. The Bank shall
provide to the Executive for her exclusive use an automobile owned or leased by
the Bank and appropriate to her position, to be used in the performance of her
duties hereunder. All costs of operation, maintenance and insurance shall be
paid by the Bank. The Executive shall account for the use and expenses of the
automobile in accordance with the policies and procedures of the Bank in effect
from time to time. The Bank shall reimburse the Executive for her ordinary and
necessary business expenses, including, without limitation, all expenses
associated with her business use of the aforementioned automobile, fees for
memberships in such clubs and organizations as the Executive and the Bank shall
mutually agree are necessary and appropriate for business purposes, and her
travel and entertainment expenses incurred in connection with the performance of
her duties under this Agreement, in each case upon presentation to the Bank of
an itemized account of such expenses in such form as the Bank may reasonably
require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that her employment with the Bank terminates
during the Employment Period under any of the following circumstances:
(i) the Executive's voluntary resignation from employment with
the Bank within ninety (90) days following:
(A) the failure of the Board of Directors of the Bank
to appoint or re-appoint or elect or re-elect the Executive to
the offices of Senior Executive Vice President and Chief
Banking Officer (or a more senior office) of the Bank;
(B) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Bank of its material failure, whether by amendment of
the Bank's Articles of Incorporation or By-laws, action of the
Bank's Board of Directors or the Bank's stockholders or
otherwise, to vest in the Executive the functions, duties, or
responsibilities prescribed in section 3 of this Agreement as
of the date hereof, unless, during such thirty (30) day
period, the Bank cures such failure; or
(C) the relocation of the Executive's principal place
of employment, without her written consent, to a location
outside of Palm Beach County or Broward County, Florida;
(ii) the termination of the Executive's employment with the
Bank for any other reason not described in section 10(a).
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In such event, the Bank shall provide the benefits and pay to the Executive the
amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Bank under circumstances described in section 9(a) of this Agreement, the
Bank shall pay and provide to the Executive (or, in the event of her death
following such termination, to her estate):
(i) her earned but unpaid compensation as of the date of the
termination of her employment with the Bank, such payment to be made at
the time and in the manner prescribed by law applicable to the payment
of wages but in no event later than thirty (30) days after termination
of employment;
(ii) the benefits, if any, to which she is entitled as a
former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for a period of two years from the date her employment
terminates, coverage equivalent to the coverage to which she would have
been entitled under such plans (as in effect on the date of her
termination of employment, or, if her termination of employment occurs
after a Change of Control, on the date of such Change of Control,
whichever benefits are greater), if she had continued working for the
Bank during the Remaining Unexpired Employment Period at the highest
annual rate of compensation achieved during that portion of the
Employment Period which is prior to the Executive's termination of
employment with the Bank;
(iv) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment in an amount equal to the
salary that the Executive would have earned if she had continued
working for the Bank for a period of two years from the date her
employment terminates at the highest annual rate of salary achieved
during that portion of the Employment Period which is prior to the
Executive's termination of employment with the Bank, such lump sum to
be paid in lieu of all other payments of salary provided for under this
Agreement in respect of the period following any such termination;
(v) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment in an amount equal to the
excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Bank, if she were 100% vested
thereunder and had continued working for the Bank for a period
of two years from the date her employment terminates, such
benefits to be
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determined as of the date of termination of employment by
adding to the service actually recognized under such plans an
additional period equal to the Remaining Unexpired Employment
Period and by adding to the compensation recognized under such
plans for the most recent year recognized all amounts payable
under sections 9(b)(i), (iv), and (vii); over
(B) the present value of the benefits to which she is
actually entitled under such defined benefit pension plans as
of the date of her termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional employer contributions (or if greater
in the case of a leveraged employee stock ownership plan or similar
arrangement, the additional assets allocable to him through debt
service, based on the fair market value of such assets at termination
of employment) to which she would have been entitled under any and all
qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Bank, as if she were 100% vested
thereunder and had continued working for the Bank for a period of two
years from the date her employment terminates at the highest annual
rate of compensation achieved during that portion of the Employment
Period which is prior to the Executive's termination of employment with
the Bank, and making the maximum amount of employee contributions, if
any, required under such plan or plans, such present value to be
determined on the basis of a discount rate, compounded using the
compounding period that corresponds to the frequency with which
employer contributions are made to the relevant plan, equal to the
Applicable PBGC Rate;
(vii) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment in an amount equal to two
times the higher of (A) the highest cash incentive compensation or
bonus (annualized, if paid for a period other than annually) paid to
the Executive during or accrued with respect to the Executive for
either (i) any of the two years immediately preceding that in which, or
(ii) the year in which, Executive's employment with the Bank
terminates, or (B) the highest cash incentive compensation or bonus
(annualized, if paid for a period other than annually) so paid or
accrued in respect of either (x) any of the two years immediately
preceding that in which, or (y) the year in which, a Change of Control
(as hereinafter defined) occurs.
The Company, the Bank and the Executive hereby stipulate that the damages which
may be incurred by the Executive following any such termination of employment
are not capable of accurate measurement as of the date first above written and
that the
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payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company, the Bank and the Executive further agree that the
Company and the Bank may condition the payments and benefits (if any) due under
sections 9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of the Executive's
resignation from any and all positions which she holds as an officer, director
or committee member with respect to the Company, the Bank or any subsidiary or
affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY OR BANK
LIABILITY.
(a) In the event that the Executive's employment with the Bank
shall terminate during the Employment Period on account of:
(i) the discharge of the Executive for "cause," which, for
purposes of this Agreement (I) prior to a Change of Control (as
hereinafter defined) shall mean: (A) gross negligence or willful
misconduct by the Executive in connection with her employment hereunder
or the business of the Bank; (B) the Executive's misappropriation of
the Bank's assets or property; (C) the Executive willfully fails or
refuses to perform her duties under this Agreement, or fails to comply
with any material term, covenant or condition contained herein; (D) the
Executive breaches her fiduciary duties to the Bank for personal
profit; or (E) the Executive's willful breach or violation of any law,
rule or regulation (other than traffic violations or similar offenses),
or final cease and desist order in connection with her performance of
services for the Bank; and (II), upon and after a Change of Control,
shall mean (A) the Executive intentionally engages in dishonest conduct
in connection with her performance of services for the Company or the
Bank resulting in her conviction of a felony; (B) the Executive is
convicted of, or pleads guilty or NOLO CONTENDERE to, a felony or any
crime involving moral turpitude; (C) the Executive willfully fails or
refuses to perform her duties under this Agreement and fails to cure
such breach within sixty (60) days following written notice thereof
from the Bank; (D) the Executive breaches her fiduciary duties to the
Company or the Bank for personal profit; or (E) the Executive's willful
breach or violation of any law, rule or regulation (other than traffic
violations or similar offenses), or final cease and desist order in
connection with her performance of services for the Bank;
(ii) the Executive's voluntary resignation from employment
with the Bank for reasons other than those specified in section 9(a) or
11(b);
(iii) the Executive's death; or
(iv) a determination that the Executive is eligible for
long-term disability benefits under the Bank's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
then the Company and the Bank shall have no further obligations under this
Agreement, other than the payment to the Executive (or, in the event of her
death, to her estate) of her earned but unpaid compensation as of the date of
the termination of her
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employment, and the provision of such other benefits, if any, to which she is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Bank.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL
(a) A Change of Control ("Change of Control") shall be deemed
to have occurred upon the happening of any of the following events:
(i) approval by the stockholders of the Company of a
transaction that would result in the reorganization, merger or
consolidation of the Company with one or more other persons, other than
a transaction following which:
(A) at least 50.1% of the common stock or equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to
such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 50.1%
of the outstanding common stock or equity ownership interests
in the Company; and
(B) At least 50.1% of the combined voting power of
the securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least 50.1% of
the combined voting power of the securities entitled to vote
generally in the election of directors of the Company; and
(C) No person, or persons acting in concert,
beneficially own (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) 20% or more of the outstanding common
stock or equity ownership interests in, or 20% or more of the
combined voting power of the securities entitled to vote
generally in the election of directors of, the entity
resulting from such transaction; and
(D) At least a majority of the members of the board
of directors of the entity resulting from such transaction are
individuals who were described in sections 11(a)(iv)(A) or (B)
of this Agreement as of the date of execution of the initial
definitive agreement providing for such transaction (or, if
earlier, as of the date on which the Board of Directors of the
Company authorized such transaction).
(ii) the acquisition of all or substantially all of the assets
of the Company or beneficial ownership (within the meaning of Rule
13d-3
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promulgated under the Exchange Act) of 20% or more of the outstanding
securities or of the combined voting power of the outstanding
securities of the Company entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or
approval by the stockholders of the Company of any transaction which
would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or
approval by the stockholders of the Company of a plan for such
liquidation or dissolution; or
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Company do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Company on the date of this Agreement; or
(B) individuals who first became members of the Board
of the Company after the date of this Agreement either:
(I) upon election to serve as a member of
the Board of directors of the Company by affirmative
vote of three-quarters of the members of such Board,
or of a nominating committee thereof, in office at
the time of such first election; or
(II) upon election by the stockholders of
the Company to serve as a member of the Board of the
Company, but only if nominated for election by
affirmative vote of three-quarters of the members of
the board of directors of the Company, or of a
nominating committee thereof, in office at the time
of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of the Company; or
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Bank" were substituted for the term
"Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or a subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
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(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of her termination of employment with the Bank under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following her demotion, loss of
title, office or significant authority or responsibility, or following
any reduction in any element of her package of compensation and
benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following any relocation of her
principal place of employment or any change in working conditions at
such principal place of employment which the Executive, in her
reasonable discretion, determines to be embarrassing, derogatory or
otherwise adverse;
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Company or the Bank in the Change of Control to
include the Executive in any compensation or benefit program maintained
by it or covering any of its executive officers, unless the Executive
is already covered by a substantially similar plan of the Company or
the Bank which is at least as favorable to her; or
(iv) resignation, voluntary or otherwise, for any reason
whatsoever within 90 days following the effective date of the Change of
Control, PROVIDED, HOWEVER, that if the Change of Control is of the
type described in Section 11(a) (1), such 90 day period shall not be
deemed to commence until the actual consummation of the transaction
approved by the stockholders.
SECTION 12. TAX LIMITATIONS.
(a) Notwithstanding any other provision of this Agreement, in the event
that any payment or benefit received or to be received by the Executive in
connection with a Change of Control of the Bank or the Company or the
termination of the Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company or the
Bank, any person whose actions result in a Change of Control of the Company or
any person affiliated with the Company or the Bank or such person) (all such
payments and benefits, including the payments and benefits provided under this
Agreement (the "Severance Payments"), being hereinafter called "Total Payments")
would not be deductible (in whole or in part) by the Company, the Bank, an
affiliate or a person making such payment or providing such benefit as a result
of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
then, to the extent necessary to make such portion of the Total Payments
deductible (and after taking into account any reduction in the Total Payments
provided in such other plan, arrangement or agreement), the cash Severance
Payments shall first be reduced (if necessary, to zero); provided, however, that
the Executive may elect (at any time prior to the payment of amounts payable
hereunder) to have the noncash severance payments reduced (or eliminated) prior
to any reduction of the cash Severance Payments.
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(b) For purposes of the limitation contained in subsection (a) of this section
12, (i) no portion of the Total Payments the receipt or enjoyment of which
Executive shall have effectively waived in writing prior to the delivery of a
notice of termination of employment shall be taken into account, (ii) no portion
of the Total Payments shall be taken into account which, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm which was, immediately prior to the Change of Control of the
Company or the Bank, the Company's independent auditor (the "Auditor"), does not
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code, including by reason of Section 280G(b)(4)(A) of the Code, (iii) the
Severance Payments shall be reduced only to the extent necessary so that the
Total Payments (other than those referred to in clauses (i) or (ii)) in their
entirety constitute reasonable compensation for services actually rendered
within the meaning of Section 280(G)(b)(4)(B) of the Code or are otherwise not
subject to disallowance as deductions by reason of Section 280G of the Code, in
the opinion of Tax Counsel, and (iv) the value of any noncash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
(c) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good faith
of the Executive and the Bank and the Company in applying the terms of this
section 12, the aggregate "parachute payments" paid to of for the Executive's
benefit are in an amount that would result in any portion of such "parachute
payments" not being deductible by reason of Section 280G of the Code, then the
Executive shall have an obligation to pay the Bank upon demand an amount equal
to the sum of (i) the excess of the aggregate "parachute payments" paid to or
for the Executive's benefit over the aggregate "parachute payments" that could
have been paid to or for the Executive's benefit without any portion of such
"parachute payments" not being deductible by reason of Section 280G of the Code;
and (ii) interest on the amount set forth in clause (i) of this sentence at 120%
of the rate provided in Section 1274(b)(2)(B) of the Code from the date of
Executive's receipt of such excess until the date of such payment. If the
Severance Payments shall be decreased pursuant to section (a) hereof, and the
benefits under section 8(b)(iii) which remain payable after the application of
this section 12 are thereafter reduced pursuant thereto because of the receipt
by the Executive of substantially similar benefits, the Bank shall, at the time
of such reduction, pay to the Executive the lowest of (a) the amount of the
decrease made in the Severance Payments pursuant to this section 12, (b) the
amount of the subsequent reduction in such benefits, or (c) the maximum amount
which can be paid to the Executive without being, or causing any other payment
to be, nondeductible by reason of Section 280G of the Code.
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SECTION 13. CONFIDENTIALITY.
Unless she obtains the prior written consent of the Company
and the Bank, the Executive shall keep confidential and shall refrain from using
for the benefit of herself, or any person or entity other than the Company or
any entity which is a subsidiary of the Company or of which the Company is a
subsidiary, any material document or information obtained from the Company, or
from its parent or subsidiaries, in the course of her employment with any of
them concerning their properties, operations or business (unless such document
or information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of her own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 13
shall prevent the Executive, with or without the Company's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
SECTION 14. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Bank or by the Executive, shall
have no effect on the rights and obligations of the parties hereto under the
Bank's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Bank from time to time.
SECTION 15. NON-SOLICITATION.
(a) NON-COMPETITION. During the Employment Period, the Executive agrees not to
engage, directly or indirectly, in any aspect of the financial institutions
business, including without limitation engaging in business activities for or on
behalf of state, national or foreign banks, state or federal savings
associations or savings banks, credit unions, mortgage or loan companies or any
other entity which makes or acquires loans or takes deposits or engages in any
other business engaged in by the Bank on the date hereof (the "Banking
Business"), other than the Bank, whether as stockholder (except for immaterial
interests in publicly-traded institutions), partner, director, officer,
employee, agent, consultant or otherwise. In the event of termination of the
Executive's employment hereunder prior to a Change of Control, the Executive,
until one (1) year after the date of such termination, agrees not to engage,
directly or indirectly, in the Banking Business in any capacity in any city,
town or county in which the Bank or the Company has an office or has filed an
application for regulatory approval to establish an office, determined as of the
date of this Agreement.
(b) NON-SOLICITATION. The Executive hereby covenants and agrees that, for a
period of one (1) year following her termination of employment with the Bank,
she shall not, without the written consent of the Bank, either directly or
indirectly:
(i) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Company, the Bank or any affiliate, as
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of the date of this Agreement, of either of them, to terminate his or
her employment and accept employment or become affiliated with, or
provide services for compensation in any capacity whatsoever to, any
savings bank, savings and loan association, bank, bank holding company,
savings and loan holding company, or other institution engaged in the
business of accepting deposits, making loans or doing other business
done by the Bank, doing business in any city, town or county in which
the Bank or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the date
of this Agreement;
(ii) provide any information, advice or recommendation with
respect to any such officer or employee to any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business in any city, town
or county in which the Bank or the Company has an office or has filed
an application for regulatory approval to establish an office,
determined as of the date of this Agreement, that is intended, or that
a reasonable person acting in like circumstances would expect, to have
the effect of causing any officer or employee of the Company, the Bank,
or any affiliate, as of the date of this Agreement, of either of them,
to terminate his or her employment and accept employment or become
affiliated with, or provide services for compensation in any capacity
whatsoever to, any such savings bank, savings and loan association,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits and making
loans; or
(iii) solicit, provide any information, advice or
recommendation or take any other action intended, or that a reasonable
person acting in like circumstances would expect, to have the effect of
causing any customer of the Bank to terminate an existing business or
commercial relationship with the Bank.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, her legal representatives and testate or intestate
distributees, and the Company and the Bank and their respective successors and
assigns, including any successor by merger or consolidation or a statutory
receiver or any other person or firm or corporation to which all or
substantially all of the assets and business of the Company or the Bank may be
sold or otherwise transferred.
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or one (1) day after it is sent by reputable overnight delivery
service, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
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If to the Executive:
Carla H. Pollard
1351 Sycamore Road
Boca Raton, FL 33486
If to the Company:
Republic Security Financial Corporation
450 S. Australian Avenue
West Palm Beach, FL 33401
Attention: Rudy E. Schupp, Chairman & CEO
If to the Bank:
Republic Security Bank
450 S. Australian Avenue
West Palm Beach, FL 33401
Attention: Rudy E. Schupp, Chairman & CEO
SECTION 18. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of her efforts, in good faith, to defend or enforce the
terms of this Agreement.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
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SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Florida applicable to contracts
entered into and to be performed entirely within the State of Florida.
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 24. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. This Agreement specifically supercedes that certain Change of
Control Agreement dated as of January 27, 1999 by and among the parties hereto.
No modifications of this Agreement shall be valid unless made in writing and
signed by the parties hereto.
SECTION 25. SURVIVAL.
The provisions of sections 6, 9, 10, 11, 12, 13, 14, 18, 20,
22, 26, 27 and 28 shall survive the expiration of the Employment Period or
termination of this Agreement.
SECTION 26. EQUITABLE REMEDIES.
The Company, the Bank and the Executive hereby stipulate that
money damages are an inadequate remedy for violations of sections 6(a), or 13 of
this Agreement and agree that equitable remedies, including, without
limitations, the remedies of specific performance and injunctive relief, shall
be available with respect to the enforcement of such provisions.
SECTION 27. REQUIRED REGULATORY PROVISION.
(a) Notwithstanding anything herein contained to the contrary,
any payments to the Executive by the Company or the Bank, whether pursuant to
this Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1828(k), and any regulations promulgated thereunder.
(b) Nothing in this Agreement shall be construed to subject
the Bank or its assets to any contractual obligation undertaken by the Company
hereunder or to liability for any breach by the Company.
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SECTION 28. GUARANTEE.
The Company hereby irrevocably and unconditionally guarantees to the
Executive the payment of all amounts, and the performance of all other
obligations, due from the Bank in accordance with the terms of this Agreement as
and when due without any requirement of presentment, demand of payment, protest
or notice of dishonor or nonpayment.
IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement
to be executed and the Executive has hereunto set her hand, all as of the day
and year first above written.
REPUBLIC SECURITY FINANCIAL CORPORATION
By: /s/ Rudy E. Schupp
------------------------------------
NAME: Rudy E. Schupp
----------------------------------
TITLE: Chairman/CEO
---------------------------------
REPUBLIC SECURITY BANK
By: /s/ Rudy E. Schupp
------------------------------------
NAME: Rudy E. Schupp
----------------------------------
TITLE: Chairman/CEO
---------------------------------
/s/ Carla H. Pollard
- ---------------------------------------
Carla H. Pollard
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of January 10, 2000 by and between REPUBLIC SECURITY BANK, a
commercial bank organized and operating under the laws of the State of Florida
and having an office at 450 South Australian Avenue, West Palm Beach, FL 33401
(the "Bank"), and W. ANDREW KIRKMAN, an individual residing at 501 Knights Run
Ave. #0102, Tampa, Florida 33602 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Bank desires to employ the Executive as Market
President--Central Florida of the Bank on the condition that Executive agrees to
enter into the non-competition and non-solicitation covenants contained herein;
and
WHEREAS, the Executive is willing to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Bank and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to employ the Executive, and the Executive
hereby agrees to such employment, during the period and upon the terms and
conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT
PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term
beginning on January 10, 2000 and ending on December 31, 2000 (the "First
Anniversary Date"), plus such extensions, if any, as are provided pursuant to
section 2(b).
(b) The Employment Period shall automatically be extended for
one (1) additional year on the First Anniversary Date and on each anniversary of
the First Anniversary Date, unless either the Bank or the Executive elects not
to extend the Agreement further by giving written notice to the other party at
least 60 days prior to the First Anniversary Date or any subsequent anniversary
of the First Anniversary Date, in which case the Employment Period shall end on
the First Anniversary Date or any subsequent anniversary of the First
Anniversary Date. Upon termination of the Executive's employment with the Bank
for any reason whatsoever, any renewals provided pursuant to this section 2(b),
if not theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank from terminating the Executive's employment at any time during the
Employment Period with or without notice for any reason; PROVIDED, HOWEVER, that
the relative rights and obligations of the
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Bank and the Executive in the event of any such termination shall be determined
under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Market President--Central Florida
of the Bank, having such power, authority and responsibility and performing such
duties as are prescribed by or under the By-Laws of the Bank, or assigned by the
Board of Directors of the Bank or the Chief Banking Officer of the Bank (or
other officer of equal or senior rank) and otherwise as are customarily
associated with such position. Except as otherwise provided herein, the
Executive shall devote his full business time and attention (other than during
weekends, holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Bank and shall
use his best efforts to advance the interests of the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Bank shall pay to Executive a base salary at an initial annual
rate of ONE HUNDRED TWENTY THOUSAND DOLLARS ($120,000), payable in approximately
equal installments in accordance with the Bank's customary payroll practices for
senior officers. The Board of Directors of the Bank (or such committee or person
to whom the Board shall delegate this authority) shall from time to time review
the Executive's annual rate of salary and may, in its discretion, approve an
increase therein. In no event shall the Executive's annual rate of salary under
this Agreement in effect at a particular time be reduced without his prior
written consent. In addition to salary, the Executive shall be eligible to
receive incentive compensation from the Bank in accordance with the schedule
attached hereto as Exhibit A, which schedule may be amended annually by the
Bank.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, savings,
profit-sharing or stock bonus plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Bank, in
accordance with the terms and conditions of such employee benefit plans and
programs and compensation plans and programs and consistent with the the Bank's
customary practices.
SECTION 6. OTHER ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board of Directors of the Bank (which approval
shall not be unreasonably withheld); PROVIDED, HOWEVER, that such service shall
not materially interfere with the performance of his duties under this
Agreement. The Executive may also engage in personal business and investment
activities which do not materially interfere with the performance of his duties
hereunder; PROVIDED, HOWEVER, that such activities are not prohibited under any
code of
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conduct or investment or securities trading policy established by the Bank or
Republic Security Financial Corporation and generally applicable to all
similarly situated executives.
SECTION 7. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at
Tampa, Florida, or at such other location as the Bank and the Executive may
mutually agree upon. The Bank shall reimburse the Executive for his ordinary and
necessary business expenses, and his travel and entertainment expenses incurred
in connection with the performance of his duties under this Agreement, in each
case upon presentation to the Bank of an itemized account of such expenses in
such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Bank terminates
during the Employment Period under any of the following circumstances:
(i) the Executive's voluntary resignation from employment with
the Bank within ninety (90) days following:
(A) the failure to appoint or re-appoint or elect or
re-elect the Executive to the office of Market
President--Central Florida (or a more senior office) of the
Bank;
(B) the relocation of the Executive's principal place
of employment, without his written consent, to a location
outside of Hillsborough County (or adjacent counties in the
greater Tampa metropolitan area), Florida, Broward County,
Florida, Dade County, Florida or Palm Beach County, Florida;
(ii) the termination of the Executive's employment with the
Bank for any other reason not described in section 9.
In such event, the Bank shall provide the benefits and pay to the Executive the
amounts described in section 8(b).
(b) Upon the termination of the Executive's employment with
the Bank under circumstances described in section 8(a) of this Agreement, the
Bank shall pay and provide to the Executive (or, in the event of his death
following such termination, to his estate):
(i) his earned but unpaid compensation as of the date of the
termination of his employment with the Bank, such payment to be made at
the time and in the manner prescribed by law applicable to the payment
of wages but in no event later than thirty (30) days after termination
of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Bank's officers
and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), and dental insurance benefits, in addition
to that provided pursuant to section 8(b)(ii), and after taking into
account the coverage provided
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by any subsequent employer, if and to the extent necessary to provide
for the Executive, for a period beginning on the date his employment
terminates and ending on the last day of the Employment Period,
coverage equivalent to the coverage to which he would have been
entitled under such plans, if he had continued working for the Bank
during the Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Bank;
(iv) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to the
salary that the Executive would have earned if he had continued working
for the Bank for the remainder of the Employment Period at the highest
annual rate of salary achieved during that portion of the Employment
Period which is prior to the Executive's termination of employment with
the Bank, such lump sum to be paid in lieu of all other payments of
salary provided for under this Agreement in respect of the period
following any such termination;
(v) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to the
average annual cash incentive compensation or bonus paid to the
Executive with respect to the two complete calendar years immediately
preceding the year in which Executive's employment with the Bank
terminates, multiplied by a fraction, the numerator of which is the
amount of lump sum payment described in section 8(b)(iv) and the
denominator of which is the highest annual rate of base salary achieved
during the portion of the Employment Period that is prior to the
Executive's termination of employment.
The Bank and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 8(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Bank and the Executive further agree that the Bank may
condition the payments and benefits (if any) due under sections 8(b)(iii), (iv)
and (v) on the receipt of the Executive's resignation from any and all positions
which he holds as an officer, director or committee member with respect to the
Bank or any parent or affiliate of the Bank.
SECTION 9. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Executive's employment with the Bank
shall terminate during the Employment Period on account of:
(i) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean: (A) gross negligence or willful
misconduct by the Executive in connection with his employment hereunder
or the business of the Bank; (B) the Executive's misappropriation of
the Bank's assets or property; (C) the Executive willfully fails or
refuses to perform his duties under this Agreement, or fails to comply
with any material term, covenant or condition contained herein; (D) the
Executive breaches his fiduciary duties to the Bank for personal
profit; or (E) the Executive's willful breach or violation of any law,
rule or regulation (other than traffic violations or similar offenses),
or final cease and desist order in connection with his performance of
services for the Bank;
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(ii) the Executive's voluntary resignation from employment
with the Bank for reasons other than those specified in section 8(a);
(iii) the Executive's death; or
(iv) a determination that the Executive is eligible for
long-term disability benefits under the Bank's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Executive (or, in the event of his death, to his estate) of
his earned but unpaid compensation (including incentive compensation) as of the
date of the termination of his employment, and the provision of such other
benefits, if any, to which he is entitled as a former employee under the
employee benefit plans and programs and compensation plans and programs
maintained by, or covering employees of, the Bank.
SECTION 10. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Bank, the
Executive shall keep confidential and shall refrain from using for the benefit
of himself, or any person or entity other than the Bank or any entity which is a
subsidiary of the Bank or of which the Bank is a subsidiary, any material
document or information obtained from the Bank, or from its parent, parent's
parent, affiliates or subsidiaries, in the course of his employment with any of
them concerning their properties, operations or business (unless such document
or information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 10
shall prevent the Executive, with or without the Bank's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Bank or by the Executive, shall
have no effect on the rights and obligations of the parties hereto under the
Bank's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Bank from time to time.
SECTION 12. NON-COMPETITION AND NON-SOLICITATION.
(a) NON-COMPETITION. During the Employment Period, the Executive agrees not to
engage, directly or indirectly, in any aspect of the financial institutions
business, including without limitation engaging in business activities for or on
behalf of state, national or foreign banks, state or federal savings
associations or savings banks, credit unions, mortgage or loan companies or any
other entity which makes or acquires loans or takes deposits or engages in any
other business engaged in by the Bank on the date hereof (the "Banking
Business"), other than for the Bank, whether as stockholder (except for
immaterial interests in publicly-traded institutions), partner, director,
officer, employee, agent, consultant or otherwise. In the event of termination
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of the Executive's employment hereunder by the Bank with cause or voluntarily by
the Executive other than pursuant to Section 8(a)(i), until twelve (12) months
after the date of such termination, the Executive agrees not to engage, directly
or indirectly, in the Banking Business in any capacity in any city, town or
county in which the Bank has an office, determined as of the date of such
termination.
(b) NON-SOLICITATION. The Executive hereby covenants and agrees that, following
his termination of employment with the Bank for any reason whatsoever, he shall
not, without the written consent of the Bank, either directly or indirectly:
(i) for a period of twelve (12) months after such termination,
solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to
have the effect of causing any officer or employee of the Bank or any
affiliate, as of the date of this Agreement, of either of them, to
terminate his or her employment and accept employment or become
affiliated with, or provide services for compensation in any capacity
whatsoever to, any Bank engaged in the Banking Business doing business
in any city, town or county in which the Bank has an office, determined
as of the date of such termination;
(ii) for a period of twelve (12) months after such
termination, provide any information, advice or recommendation with
respect to any such officer or employee to any Bank engaged in the
Banking Business doing business in any city, town or county in which
the Bank has an office, determined as of the date of such termination,
that is intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any officer
or employee of the Bank or any affiliate, as of the date of this
Agreement, of either of them, to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any such Bank engaged in
the Banking Business; or
(iii) solicit, provide any information, advice or
recommendation or take any other action intended, or that a reasonable
person acting in like circumstances would expect, to have the effect of
causing any customer of the Bank to terminate an existing business or
commercial relationship with the Bank.
SECTION 13. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Bank and its respective successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Bank may be sold or otherwise transferred.
SECTION 14. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or one (1) day after it is sent by reputable overnight delivery
service, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
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If to the Executive:
W. Andrew Kirkman
If to the Bank:
Republic Security Bank
450 S. Australian Avenue
West Palm Beach, FL 33401
Attention: R. Michael Strickland,
Chief Banking Officer
SECTION 15. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement.
SECTION 16. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 17. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 18. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 19. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Florida applicable to contracts
entered into and to be performed entirely within the State of Florida.
SECTION 20. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
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SECTION 21. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. The parties acknowledge and agree, however, that that certain
Change of Control Agreement dated January __, 1999 by and among the parties
hereto and Republic Security Financial Corporation shall supersede this
Employment Agreement from and after the occurrence of a Change of Control (as
defined in such Change of Control Agreement). No modifications of this Agreement
shall be valid unless made in writing and signed by the parties hereto.
SECTION 22. SURVIVAL.
The provisions of sections 6, 8, 9, 10, 11, 12, 15, 17, 19,
23, 24 and 25 shall survive the expiration of the Employment Period or
termination of this Agreement.
SECTION 23. EQUITABLE REMEDIES.
The Bank and the Executive hereby stipulate that money damages
are an inadequate remedy for violations of sections 6, 10 or 12 of this
Agreement and agree that equitable remedies, including, without limitations, the
remedies of specific performance and injunctive relief, shall be available with
respect to the enforcement of such provisions.
SECTION 24. REQUIRED REGULATORY PROVISION.
Notwithstanding anything herein contained to the contrary, any payments to the
Executive by the Bank, whether pursuant to this Agreement or otherwise, are
subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. ss.1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and the
Executive has hereunto set his hand, all as of the day and year first above
written.
REPUBLIC SECURITY BANK
By: /s/ Rudy E. Schupp
-----------------------------
NAME: Rudy E. Schupp
TITLE: President
/s/ Andrew Kirkman
- ---------------------------------
W. Andrew Kirkman
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EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of January 10, 2000 by and between REPUBLIC SECURITY BANK, a
commercial bank organized and operating under the laws of the State of Florida
and having an office at 450 South Australian Avenue, West Palm Beach, FL 33401
(the "Bank"), and EDUARDO GODOY, an individual residing at 17552 Conch Bar
Avenue, Tequesta, Florida 33469 (the "Executive").
W I T N E S S E T H :
WHEREAS, upon commencement of employment the Executive is
expected to be elected as Senior Vice President, SBA Director of the Bank; and
WHEREAS, the Bank desires to assure for itself the
availability of the Executive's services; and
WHEREAS, the Executive is willing to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Bank and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to employ the Executive, and the Executive
hereby agrees to such employment, during the period and upon the terms and
conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT
PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
one year beginning on the date the Executive actually begins employment with the
Bank (the "Employment Date") and ending on the first anniversary of such
Employment Date, plus such extensions, if any, as are provided pursuant to
section 2(b).
(b) The Employment Period shall automatically be extended for
one (1) additional year on each anniversary of the Employment Date, unless
either the Bank or the Executive elects not to extend the Agreement further by
giving written notice to the other party at least 60 days prior to any
anniversary of the Employment Date, in
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which case the Employment Period shall end on such anniversary of the Employment
Date. Upon termination of the Executive's employment with the Bank for any
reason whatsoever, any renewals provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank from terminating the Executive's employment at any time during the
Employment Period with or without notice for any reason; PROVIDED, HOWEVER, that
the relative rights and obligations of the Bank and the Executive in the event
of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Senior Vice President, SBA Director of the
Bank, having such power, authority and responsibility and performing such duties
as are prescribed by or under the By-Laws of the Bank, or assigned by the Board
of Directors of the Bank, the Senior Executive Vice President and Chief Banking
Officer, or the senior corporate/commercial officer, and otherwise as are
customarily associated with such position. The Executive shall devote his full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Bank and shall use his best efforts to advance the
interests of the Bank.
SECTION 4. CASH COMPENSATION.
(a) In consideration for the services to be rendered by the Executive hereunder,
the Bank shall pay to Executive a salary at an initial annual rate of ONE
HUNDRED FIFTY THOUSAND DOLLARS ($150,000), payable in approximately equal
installments in accordance with the Bank's customary payroll practices for
senior officers. At least annually during the Employment Period, the Board of
Directors of the Bank, the Compensation Committee thereof, or the appropriate
management committee shall review the Executive's annual rate of salary and may,
in its discretion, approve an increase therein. In no event shall the
Executive's annual rate of salary under this Agreement in effect at a particular
time be reduced without his prior written consent. In addition to salary, the
Executive shall be paid incentive compensation as follows:
(i) For up to the first $20 million in aggregate SBA loan production
actually produced by the Executive and sold by the Bank (with both
parties recognizing that 75%, and in some circumstances 80%, of each
SBA loan is saleable) during the first year of the Employment Period,
and for up to the first $10 million in aggregate SBA loan production
actually produced by the Executive and sold by the Bank during the
second year of the Employment Period (if any), the Executive shall
receive incentive compensation equal to thirty percent (30%) of the
amount received by the Bank (not including accrued interest, if any) in
excess of the aggregate principal amount of the loan(s) sold (such
amount received by the Bank (not including accrued interest, if any) in
excess of the aggregate principal amount of the loan sold being
hereinafter referred to as the "Premium"); plus
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(ii) For SBA loans produced by loan officers in the SBA Department
other than Executive and sold by the Bank (with the proviso set forth
above with respect to the percentage of each SBA loan which is
saleable), the Executive shall receive incentive compensation equal to
fifteen percent (15%) of the Premium.
(b) Incentive compensation shall be paid as soon as reasonably practicable
following the closing of the sale of each SBA loan. The Executive understands
that such closing must occur, and all information concerning such closing must
be verified by the Bank's accounting department, at least one week prior to the
end of each pay period for incentive compensation to be paid in that pay period.
For SBA loans which are saleable but which the Bank in its sole discretion
chooses not to sell, incentive compensation determined in accordance with the
formula set forth above and subparagraph (c), below, shall be due and payable as
soon as reasonably practicable following the later of (x) the closing of the SBA
loan and (y) the Bank's notifying the Executive of its decision not to sell the
SBA loan.
(c) The Bank shall use its best efforts to determine whether or not to sell any
SBA loan within thirty (30) days of the closing of such SBA loan. For loans
which the Bank determines not to sell, incentive compensation payable to the
Executive hereunder shall be based upon the highest written bid received from a
third party prior to the Bank's making its decision not to sell the SBA loan.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
(a) During the Employment Period, the Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Bank, in accordance with the terms and conditions of such employee benefit
plans and programs and compensation plans and programs and consistent with the
Bank's customary practices. In addition, Executive shall receive a car allowance
of $750 per month, subject to applicable withholding, which shall be paid with
the first payroll paid in each month, and Executive shall be authorized to
charge gasoline used for business purposes to a Company credit card.
(b) The Bank will reimburse the Executive for his COBRA expenses
actually incurred with respect to his first three months of employment.
(c) The Bank will provide the Executive with a cellular phone to be
used for business purposes. The Executive will reimburse the Bank for expenses
incurred in connection with personal phone calls. Costs for the use of a pager
for business purposes shall be reimbursed by the Bank upon presentation of
appropriate documentation. The Bank will provide the Executive with a Bank
credit card which he may use in accordance with established Bank policies and
procedures for business expenses only.
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SECTION 6. OTHER ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the President or Senior Executive Vice President and
Chief Banking Officer of the Bank (which approval shall not be unreasonably
withheld); PROVIDED, HOWEVER, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; PROVIDED, HOWEVER, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly situated executives.
SECTION 7. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the
Bank's executive offices at the address first above written, or at the Bank's
offices on Palm Beach Lakes Blvd. in West Palm Beach, or at such other location
within Palm Beach County, Florida at which the Bank shall maintain its principal
executive offices, or at such other location as the Bank and the Executive may
mutually agree upon. The Bank shall provide the Executive at his principal place
of employment with a private office and other support services and facilities
suitable to his position with the Bank and necessary or appropriate in
connection with the performance of his assigned duties under this Agreement. The
Bank shall reimburse the Executive for his ordinary and necessary business
expenses incurred in connection with the performance of his duties under this
Agreement upon presentation to the Bank of an itemized account of such expenses
in such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Bank terminates
during the Employment Period under any of the following circumstances:
(i) the Executive's voluntary resignation from employment with
the Bank within ninety (90) days following:
(A) the failure of the Board of Directors of the Bank
to appoint or re-appoint or elect or re-elect the Executive to
the offices of Senior Vice President, SBA Director (or a more
senior office) of the Bank;
(B) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Bank of its material failure, whether by amendment of
the Bank's Articles of Incorporation or By-laws, action of the
Bank's Board of Directors or the Bank's stockholders or
otherwise, to vest in the Executive the functions, duties, or
responsibilities prescribed in
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section 3 of this Agreement as of the date hereof, unless,
during such thirty (30) day period, the Bank cures such
failure;
(C) the relocation of the Executive's principal place of
employment, without his written consent, to a location outside
of Palm Beach County, Florida; or
(D) the sale of the Bank and the purchasing entity's decision
to discontinue the SBA loan program at the Bank;
(ii) the determination by the Bank to materially discontinue
its SBA program;
(iii) the termination of the Executive's employment with the
Bank for any other reason not described in section 9(a).
In such event, the Bank shall provide the benefits and pay to the Executive the
amounts described in section 8(b).
(b) Upon the termination of the Executive's employment with
the Bank under circumstances described in section 8(a) of this Agreement, the
Bank shall pay and provide to the Executive (or, in the event of his death
following such termination, to his estate):
(i) his earned but unpaid compensation as of the date of the
termination of his employment with the Bank, such payment to be made at
the time and in the manner prescribed by law applicable to the payment
of wages but in no event later than thirty (30) days after termination
of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Bank's officers
and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for a period of one year from the date his employment
terminates, coverage equivalent to the coverage to which he would have
been entitled under such plans as in effect on the date of his
termination of employment if he had continued working for the Bank for
one year at the highest annual rate of compensation achieved during
that portion of the Employment Period which is prior to the Executive's
termination of employment with the Bank;
(iv) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to the
base salary that the Executive would have earned if he had continued
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working for the Bank for a period of one year from the date his
employment terminates at the highest annual rate of base salary
achieved during that portion of the Employment Period which is prior to
the Executive's termination of employment with the Bank, such lump sum
to be paid in lieu of all other payments of salary provided for under
this Agreement in respect of the period following any such termination;
and
(v) the amount of incentive compensation which Executive would
have been entitled to under Section 4 hereof with respect to SBA loans
which were approved, but not closed and sold, prior to the termination
of Executive's employment hereunder, but only during a period beginning
on the date of Executive's termination of employment and ending on the
date which is six (6) months after such termination date, and only as
soon as reasonably practicable after such SBA loans are sold.
The Bank and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 8(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Bank and the Executive further agree that the Bank may
condition the payments and benefits (if any) due under sections 8(b)(iii) and
(iv) on the receipt of the Executive's resignation from any and all positions
which he holds as an officer, director or committee member with respect to the
Bank or any subsidiary or affiliate of either of them.
SECTION 9. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
(a) In the event that the Executive's employment with the Bank
shall terminate during the Employment Period on account of:
(i) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean: (A) gross negligence or willful
misconduct by the Executive in connection with his employment hereunder
or the business of the Bank; (B) the Executive's misappropriation of
the Bank's assets or property; (C) the Executive willfully fails or
refuses to perform his duties under this Agreement, or fails to comply
with any material term, covenant or condition contained herein, which
failure or refusal shall not be cured to the Bank's reasonable
satisfaction within five (5) business days of Executive's receipt of
written notice concerning such failure or refusal from the Bank; (D)
the Executive breaches his fiduciary duties to the Bank for personal
profit; or (E) the Executive's willful breach or violation of any law,
rule or regulation (other than traffic violations or similar offenses),
or final cease and desist order in connection with his performance of
services for the Bank;
(ii) the Executive's voluntary resignation from employment
with the Bank for reasons other than those specified in section 8(a);
(iii) the Executive's death; or
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(iv) a determination that the Executive is eligible for
long-term disability benefits under the Bank's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Executive (or, in the event of his death, to his estate) of
his earned but unpaid compensation as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which he is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Bank.
SECTION 10. TAX LIMITATIONS.
(a) Notwithstanding any other provision of this Agreement, in the event
that any payment or benefit received or to be received by the Executive (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Bank (all such payments and benefits, including the payments
and benefits provided under this Agreement (the "Severance Payments"), being
hereinafter called "Total Payments") would not be deductible (in whole or in
part) by the Bank, its parent, an affiliate or a person making such payment or
providing such benefit as a result of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), then, to the extent necessary to make such
portion of the Total Payments deductible (and after taking into account any
reduction in the Total Payments provided in such other plan, arrangement or
agreement), the cash Severance Payments shall first be reduced (if necessary, to
zero); provided, however, that the Executive may elect (at any time prior to the
payment of amounts payable hereunder) to have the noncash severance payments
reduced (or eliminated) prior to any reduction of the cash Severance Payments.
(b) For purposes of the limitation contained in subsection (a) of this
section 10, (i) no portion of the Total Payments the receipt or enjoyment of
which Executive shall have effectively waived in writing prior to the delivery
of a notice of termination of employment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and
selected by the accounting firm which was, immediately prior to the event
triggering the payment, the Company's independent auditor (the "Auditor"), does
not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of
the Code, including by reason of Section 280G(b)(4)(A) of the Code, (iii) the
Severance Payments shall be reduced only to the extent necessary so that the
Total Payments (other than those referred to in clauses (i) or (ii)) in their
entirety constitute reasonable compensation for services actually rendered
within the meaning of Section 280(G)(b)(4)(B) of the Code or are otherwise not
subject to disallowance as deductions by reason of Section 280G of the Code, in
the opinion of Tax Counsel, and (iv) the value of any noncash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
(c) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good faith
of the Executive and the Bank in applying the terms of this section 10, the
aggregate "parachute payments"
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paid to of for the Executive's benefit are in an amount that would result in any
portion of such "parachute payments" not being deductible by reason of Section
280G of the Code, then the Executive shall have an obligation to pay the Bank
upon demand an amount equal to the sum of (i) the excess of the aggregate
"parachute payments" paid to or for the Executive's benefit over the aggregate
"parachute payments" that could have been paid to or for the Executive's benefit
without any portion of such "parachute payments" not being deductible by reason
of Section 280G of the Code; and (ii) interest on the amount set forth in clause
(i) of this sentence at 120% of the rate provided in Section 1274(b)(2)(B) of
the Code from the date of Executive's receipt of such excess until the date of
such payment. If the Severance Payments shall be decreased pursuant to section
(a) hereof, and the benefits under section 8(b)(iii) which remain payable after
the application of this section 10 are thereafter reduced pursuant thereto
because of the receipt by the Executive of substantially similar benefits, the
Bank shall, at the time of such reduction, pay to the Executive the lowest of
(a) the amount of the decrease made in the Severance Payments pursuant to this
section 10, (b) the amount of the subsequent reduction in such benefits, or (c)
the maximum amount which can be paid to the Executive without being, or causing
any other payment to be, nondeductible by reason of Section 280G of the Code.
SECTION 11. CONFIDENTIALITY.
(a) Unless he obtains the prior written consent of the Bank,
the Executive shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Bank or any entity
which is a subsidiary of the Bank or of which the Bank is a subsidiary, any
material document or information obtained from the Bank, or from its parent or
subsidiaries, in the course of his employment with any of them concerning their
properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of his own),
including without limitation trade secrets and the confidential or proprietary
information of the Bank (including the names and circumstances of loan and
deposit customers of the Bank) until the same ceases to be material (or becomes
so ascertainable or available); PROVIDED, HOWEVER, that nothing in this section
11 shall prevent the Executive, with or without the Bank's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law. The Bank
acknowledges that the Executive claims a proprietary interest in his program for
setting up and running a bank SBA department, as set forth in Exhibit A hereto.
The Bank agrees that it shall not make a claim of proprietary interest or trade
secret in such program for itself at the end of the Employment Period. The
Executive shall use such program solely for the benefit of the Bank during the
Employment Period.
(b) The Executive shall be liable for damages incurred by the
Bank as a result of disclosure of any information described in section 11(a) by
the Executive without the prior written consent of the Bank (except if such
disclosure is made in accordance with the proviso set forth at the end of
section 11(a)), for any purpose other than the business of the Bank, either
during his employment or at any time after termination of his employment with
the Bank for any reason whatsoever (including without Cause).
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SECTION 12. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Bank or by the Executive, shall
have no effect on the rights and obligations of the parties hereto under the
Bank's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Bank from time to time.
SECTION 13. NON-COMPETITION AND NON-SOLICITATION.
(a) NON-COMPETITION. During the Employment Period, the Executive agrees
not to engage, directly or indirectly, in any aspect of the financial
institutions business, including without limitation engaging in business
activities for or on behalf of state, national or foreign banks, state or
federal savings associations or savings banks, credit unions, mortgage or loan
companies or any other entity which makes or acquires loans or takes deposits or
engages in any other business engaged in by the Bank on the date hereof,
including without limitation, the Small Business Administration ("SBA") lending
business (the "Banking Business"), other than for the Bank, whether as
stockholder (except for immaterial interests in publicly-traded institutions),
partner, director, officer, employee, agent, consultant or otherwise. In the
event of termination of the Executive's employment with the Bank for any reason
other than (A) those set forth in Sections 8(a)(i) or 8(a)(ii) or (B)
termination of Executive's employment by the Bank without cause, the Executive,
until two (2) years after the date of such termination, agrees not to engage,
directly or indirectly, in the Banking Business in any capacity in the state of
Florida.
(b) NON-SOLICITATION. The Executive hereby covenants and agrees that,
for a period of two (2) years following his termination of employment with the
Bank, he shall not, without the written consent of the Bank, either directly or
indirectly:
(i) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Bank or any affiliate, as of the date of this Agreement, of the
Bank, to terminate his or her employment and accept employment or
become affiliated with, or provide services for compensation in any
capacity whatsoever to, any savings bank, savings and loan association,
bank, bank holding company, savings and loan holding company, credit
union, mortgage or loan company or any other entity or other
institution or organization engaged in the Banking Business in the
state of Florida;
(ii) provide any information, advice or recommendation with
respect to any such officer or employee to any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, credit union, mortgage or loan company or any other
entity or other institution engaged in the Banking Business, that is
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Bank, or any affiliate, as of the date of this Agreement,
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of the Bank, to terminate his or her employment and accept employment
or become affiliated with, or provide services for compensation in any
capacity whatsoever to, any such savings bank, savings and loan
association, bank, bank holding company, savings and loan holding
company, credit union, mortgage or loan company or any other entity or
other institution engaged in the Banking Business in the state of
Florida; or
(iii) solicit, provide any information, advice or
recommendation or take any other action intended, or that a reasonable
person acting in like circumstances would expect, to have the effect of
causing any customer of the Bank to terminate an existing business or
commercial relationship with the Bank.
Sections 13(b)(i) and 13(b)(ii) shall not apply if the Executive's employment
terminates due to the Bank's or any successor's decision to discontinue making
SBA loans, or if the Executive's employment terminates (A) for the reasons set
forth in Sections 8(a)(i) or 8(a)(ii), or (B) by the Bank without cause.
SECTION 14. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Bank and its successors and assigns, including any
successor by merger or consolidation or a statutory receiver or any other person
or firm or corporation to which all or substantially all of the assets and
business of the Bank may be sold or otherwise transferred.
SECTION 15. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or one (1) day after it is sent by reputable overnight delivery
service, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
Eduardo Godoy
17552 Conch Bar Avenue
Tequesta, FL 33469
If to the Bank:
Republic Security Bank
450 S. Australian Avenue
West Palm Beach, FL 33401
Attention: R. Michael Strickland, SEVP and CBO
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SECTION 16. ATTORNEYS' FEES.
In the event that any litigation or other dispute arises to
enforce or interpret any term or terms of this Agreement, the prevailing party
shall be entitled, in addition to any other damages or remedy, to receive from
the other party its reasonable attorneys' fees and costs.
SECTION 17. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 18. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 19. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 20. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Florida applicable to contracts
entered into and to be performed entirely within the State of Florida.
SECTION 21. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 22. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No
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modifications of this Agreement shall be valid unless made in writing and signed
by the parties hereto.
SECTION 23. SURVIVAL.
The provisions of sections 8, 9, 10, 11, 12, 13, 16, 18, 20,
24, 25 and 26 shall survive the expiration of the Employment Period or
termination of this Agreement.
SECTION 24. EQUITABLE REMEDIES.
The Company, the Bank and the Executive hereby stipulate that
money damages are an inadequate remedy for violations of sections 11 and 13 of
this Agreement and agree that equitable remedies, including, without
limitations, the remedies of specific performance and injunctive relief, shall
be available with respect to the enforcement of such provisions.
SECTION 25. REQUIRED REGULATORY PROVISION.
Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Bank, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1828(k), and any
regulations promulgated thereunder.
SECTION 26. SIGNING BONUS.
(a) Attached hereto as Exhibit B is a list of all loans originated by the
Executive during his employment at Palm Beach National Bank on which commissions
have not yet been paid to the Executive but on which commissions are owed to the
Executive by Palm Beach National Bank. The Executive believes, due to his
termination of employment with Palm Beach National Bank and his commencement of
employment with the Bank, that these commissions may not be paid to him. Exhibit
B sets forth the Premium on each loan listed, as well as the percentage of such
Premium owed to the Executive as commission. The Bank agrees to pay, as a
signing bonus, the amount of the commissions due to Executive listed in Exhibit
B; PROVIDED, HOWEVER, that each such commission shall become due and payable
from the Bank only under the following circumstances:
(i) The Executive shall provide the Bank with proof reasonably
satisfactory to the Bank that the loan actually closed;
(ii) The Executive shall use his best efforts to have the commission
paid by Palm Beach National Bank and shall provide the Bank with
reasonable proof of his efforts, which proof shall consist of a
copy of the letter sent to Palm Beach National Bank demanding
payment, along with the return receipt indicating that such
letter was received by Palm Beach National Bank; and
(iii) The Executive shall provide the Bank with an affidavit that he
has not received the commission from Palm Beach National Bank.
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Provided that the conditions set forth above are met, the signing bonus with
respect to any particular loan shall be paid by the Bank within thirty (30) days
after such conditions are met. If any amount paid by the Bank hereunder shall
thereafter be paid to the Executive by Palm Beach National Bank, the Executive
shall promptly reimburse the Bank for the entire amount paid to him by Palm
Beach National Bank. Failure to do so shall constitute "Cause" under section
9(a)(i) hereof.
SECTION 27. EXECUTIVE REPRESENTATIONS.
The Executive hereby represents and warrants that he is not subject to any
non-competition or non-solicitation covenants, or covenants of similar impact,
in connection with his employment with Palm Beach National Bank or the
termination of such employment. The Executive hereby agrees to indemnify and
hold the Bank harmless from and against any claims or liabilities (including
reasonable attorneys fees) arising from or in connection with the breach of the
foregoing representations and warranties.
SECTION 28. BANK REPRESENTATIONS.
(a) The Bank agrees to use its best efforts to ensure that all credit decisions
necessary with respect to SBA loans are made within fourteen (14) business
days of the credit department's receipt of all items necessary for such
department to make its credit decision. The parties understand and agree
that isolated or intermittent failures by the Bank to meet this schedule
shall not constitute a breach of this Agreement by the Bank.
(b) The Bank shall promote SBA loans at such times and on such schedule as may
be deemed most appropriate by the Bank. Notwithstanding the foregoing, the
Bank hereby agrees to allocate $50,000 for SBA loan promotion in the
calendar year 2000.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and the
Executive has hereunto set his hand, all as of the day and year first above
written.
REPUBLIC SECURITY BANK
By: /s/ Rudy E. Schupp
---------------------------------------
NAME: Rudy E. Schupp
-------------------------------------
TITLE: Chairman/CEO
------------------------------------
/s/ Eduardo Godoy
- ------------------------------------------
Eduardo Godoy
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EXHIBIT A:
PROGRAM FOR SBA DEPARTMENT:
none
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EXHIBIT B:
LOANS IN PROCESS AT PALM BEACH NATIONAL:
As more specifically set forth in the attached, there are five loans fitting the
requirements of Section 26(a) of the Agreement, with a total aggregate principal
of $1,560,000 and expected premiums of $65,850. Executive's compensation, if not
paid by Palm Beach National Bank, would be 31.75% of such premiums.
Therefore, the maximum amount of the signing bonus which may become payable
under Section 26 is $20,907.38.
15
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of ___________, 1999 by and between RS MARITIME CORPORATION (D/B/A FIRST NEW
ENGLAND FINANCIAL), a business corporation organized and operating under the
laws of the State of Delaware and having an office at 450 South Australian
Avenue, West Palm Beach, FL 33401 (the "Company"), and _____________, an
individual residing at _____________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive as _______ of the
Company on the condition that Executive agrees to enter into the non-competition
and non-solicitation covenants contained herein; and
WHEREAS, the Company desires to assure for itself the continued
availability of the Executive's services and the ability of the Executive to
perform such services with a minimum of personal distraction in the event of a
pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to serve the Company on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Company and the Executive
hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Company agrees to employ the Executive, and the Executive hereby
agrees to such employment, during the period and upon the terms and conditions
set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of one
year beginning on _______ and ending on ________ (the "First Anniversary Date"),
plus such extensions, if any, as are provided pursuant to section 2(b).
(b) The Employment Period shall automatically be extended for one (1)
additional year on the First Anniversary Date and on each anniversary of the
First Anniversary Date, unless either the Company or the Executive elects not to
extend the Agreement further by giving written notice to the other party at
least 60 days prior to the First Anniversary Date or any subsequent anniversary
of the First Anniversary Date, in which case the Employment Period shall end on
the First Anniversary Date or any subsequent anniversary of the First
Anniversary Date. Upon termination of the Executive's employment with the
Company for any reason whatsoever, any renewals provided pursuant to this
section 2(b), if not theretofore discontinued, shall automatically cease.
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(c) Nothing in this Agreement shall be deemed to prohibit the Company
from terminating the Executive's employment at any time during the Employment
Period with or without notice for any reason; PROVIDED, HOWEVER, that the
relative rights and obligations of the Company and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as _______ of the Company, having such power,
authority and responsibility and performing such duties as are prescribed by or
under the By-Laws of the Company, or assigned by the Board of Directors of the
Company or the Chief Banking Officer of the Company's parent, Republic Security
Bank, and otherwise as are customarily associated with such position. Except as
otherwise provided herein, the Executive shall devote his full business time and
attention (other than during weekends, holidays, approved vacation periods, and
periods of illness or approved leaves of absence) to the business and affairs of
the Company and shall use his best efforts to advance the interests of the
Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Company shall pay to Executive a base salary at an initial annual
rate of __________ ($______), payable in approximately equal installments in
accordance with the Company's customary payroll practices for senior officers.
The Board of Directors of the Company shall from time to time review the
Executive's annual rate of salary and may, in its discretion, approve an
increase therein. In no event shall the Executive's annual rate of salary under
this Agreement in effect at a particular time be reduced without his prior
written consent. In addition to salary, the Executive shall be eligible to
receive incentive compensation from the Company in accordance with the schedule
attached hereto as Exhibit A, which schedule may be amended annually by the
Company.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an
employee of the Company and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, savings,
profit-sharing or stock bonus plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Company,
in accordance with the terms and conditions of such employee benefit plans and
programs and compensation plans and programs and consistent with the the
Company's customary practices.
SECTION 6. OTHER ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board of Directors of the Company (which approval shall
not be unreasonably withheld); PROVIDED, HOWEVER, that such service shall not
materially interfere with the
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performance of his duties under this Agreement. The Executive may also engage in
personal business and investment activities which do not materially interfere
with the performance of his duties hereunder; PROVIDED, HOWEVER, that such
activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Company or Republic Security Bank
and generally applicable to all similarly situated executives.
SECTION 7. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at
_________________, or at such other location as the Company and the Executive
may mutually agree upon. The Company shall reimburse the Executive for his
ordinary and necessary business expenses, and his travel and entertainment
expenses incurred in connection with the performance of his duties under this
Agreement, in each case upon presentation to the Company of an itemized account
of such expenses in such form as the Company may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) The Executive shall be entitled to the severance benefits described
herein in the event that his employment with the Company terminates during the
Employment Period under any of the following circumstances:
(i) the Executive's voluntary resignation from employment with
the Company within ninety (90) days following:
(A) the failure to appoint or re-appoint or elect or re-elect
the Executive to the office of President (or a more senior office) of
the Company;
(B) the relocation of the Executive's principal place of
employment, without his written consent, to a location outside of
_____________;
(ii) the termination of the Executive's employment with the
Company for any other reason not described in section 9.
In such event, the Company shall provide the benefits and pay to the Executive
the amounts described in section 8(b).
(b) Upon the termination of the Executive's employment with the Company
under circumstances described in section 8(a) of this Agreement, the Company
shall pay and provide to the Executive (or, in the event of his death following
such termination, to his estate):
(i) his earned but unpaid compensation as of the date of the
termination of his employment with the Company, such payment to be made
at the time and in the manner prescribed by law applicable to the
payment of wages but in no event later than thirty (30) days after
termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Company's officers
and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), and dental insurance benefits, in addition
to that provided
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pursuant to section 8(b)(ii), and after taking into account the
coverage provided by any subsequent employer, if and to the extent
necessary to provide for the Executive, for a period beginning on the
date his employment terminates and ending on the last day of the
Employment Period, coverage equivalent to the coverage to which he
would have been entitled under such plans, if he had continued working
for the Company during the Employment Period at the highest annual rate
of compensation achieved during that portion of the Employment Period
which is prior to the Executive's termination of employment with the
Company;
(iv) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the salary that the Executive would have earned if he had continued
working for the Company for the remainder of the Employment Period at
the highest annual rate of salary achieved during that portion of the
Employment Period which is prior to the Executive's termination of
employment with the Company, such lump sum to be paid in lieu of all
other payments of salary provided for under this Agreement in respect
of the period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the average annual cash incentive compensation or bonus paid to the
Executive with respect to the two complete calendar years immediately
preceding the year in which Executive's employment with the Company
terminates, multiplied by a fraction, the numerator of which is the
amount of lump sum payment described in section 8(b)(iv) and the
denominator of which is the highest annual rate of base salary achieved
during the portion of the Employment Period that is prior to the
Executive's termination of employment. For purposes of this section
8(b)(v), incentive compensation paid to the Executive while employed by
John Deere Credit, Inc. d/b/a First New England Financial shall be
deemed incentive compensation paid to the Executive by the Company.
The Company and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 8(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company and the Executive further agree that the Company
may condition the payments and benefits (if any) due under sections 8(b)(iii),
(iv) and (v) on the receipt of the Executive's resignation from any and all
positions which he holds as an officer, director or committee member with
respect to the Company or any parent or affiliate of the Company.
SECTION 9. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY.
In the event that the Executive's employment with the Company shall
terminate during the Employment Period on account of:
(i) the discharge of the Executive for "cause," which, for
purposes of this Agreement (I) prior to a Change of Control (as
hereinafter defined) shall mean: (A) gross negligence or willful
misconduct by the Executive in connection with his employment hereunder
or the business of the Company; (B) the Executive's misappropriation of
the Company's assets or property; (C) the Executive willfully fails or
refuses to perform his duties under this Agreement, or
4
<PAGE>
fails to comply with any material term, covenant or condition contained
herein; (D) the Executive breaches his fiduciary duties to the Company
for personal profit; or (E) the Executive's willful breach or violation
of any law, rule or regulation (other than traffic violations or
similar offenses), or final cease and desist order in connection with
his performance of services for the Company; and (II) upon and after a
Change of Control, shall mean (A) the Executive intentionally engages
in dishonest conduct in connection with his performance of services for
the Company resulting in his conviction of a felony; (B) the Executive
is convicted of, or pleads guilty or nolo contendere to, a felony or
any crime involving moral turpitude; (C) the Executive willfully fails
or refuses to perform his duties under this Agreement and fails to cure
such breach within sixty (60) days following written notice thereof
from the Company; (D) the Executive breaches his fiduciary duties to
the Company for personal profit; or (E) the Executive's willful breach
or violation of any law, rule or regulation (other than traffic
violations or similar offenses), or final cease and desist order in
connection with his performance of services for the Company;
(ii) the Executive's voluntary resignation from employment
with the Company for reasons other than those specified in section 8(a)
or 10(b);
(iii) the Executive's death; or
(iv) a determination that the Executive is eligible for
long-term disability benefits under the Company's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
then the Company shall have no further obligations under this Agreement, other
than the payment to the Executive (or, in the event of his death, to his estate)
of his earned but unpaid compensation (including incentive compensation) as of
the date of the termination of his employment, and the provision of such other
benefits, if any, to which he is entitled as a former employee under the
employee benefit plans and programs and compensation plans and programs
maintained by, or covering employees of, the Company.
SECTION 10. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL
(a) A Change of Control ("Change of Control") shall be deemed to have
occurred upon the happening of any of the following events:
(i) approval by the stockholder of the Company of a
transaction that would result in the reorganization, merger or
consolidation of the Company with one or more other persons, other than
a transaction following which:
(A) at least 50.1% of the common stock or equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to
such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 50.1%
of the outstanding common stock or equity ownership interests
in the Company; and
(B) At least 50.1% of the combined voting power of
the securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the
5
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meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 50.1% of the combined voting power of
the securities entitled to vote generally in the election of
directors of the Company; and
(C) No person, or persons acting in concert, other
than Republic Security Bank or any affiliate thereof,
beneficially own (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) 25% or more of the outstanding common
stock or equity ownership interests in, or 25% or more of the
combined voting power of the securities entitled to vote
generally in the election of directors of, the entity
resulting from such transaction; and
(D) At least a majority of the members of the board
of directors of the entity resulting from such transaction are
individuals who were described in sections 10(a)(iv)(A) or (B)
of this Agreement as of the date of execution of the initial
definitive agreement providing for such transaction (or, if
earlier, as of the date on which the Board of Directors of the
Company authorized such transaction).
(ii) the acquisition of all or substantially all of the assets
of the Company or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
outstanding securities or of the combined voting power of the
outstanding securities of the Company entitled to vote generally in the
election of directors by any person or by any persons acting in concert
(other than Republic Security Bank or any affiliate thereof), or
approval by the stockholders of the Company of any transaction which
would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or
approval by the stockholders of the Company of a plan for such
liquidation or dissolution, other than a liquidation or dissolution
which results in the business of the Company being run as a division or
department of Republic Security Bank or any affiliate thereof; or
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Company do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Company on the date of this Agreement; or
(B) individuals who first became members of the Board
of the Company after the date of this Agreement either:
(I) upon election to serve as a member of
the Board of directors of the Company by affirmative
vote of three-quarters of the members of such Board,
or of a nominating committee thereof, in office at
the time of such first election; or
(II) upon election by the stockholders of
the Company to serve as a member of the Board of the
Company, but only if nominated for election by
affirmative vote of three-quarters of the
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members of the board of directors of the Company, or
of a nominating committee thereof, in office at the
time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the
Company.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company or a subsidiary
of the Company, by the Company, Republic Security Bank, Republic Security
Financial Corporation or a subsidiary of any of them, or by any employee benefit
plan maintained by any of them. For purposes of this section 10(a), the
acquisition of beneficial ownership of securities or other equity interests
issued by Republic Security Bank, by Republic Security Financial Corporation or
by any other person who is a stockholder of the Company, shall in no event be
considered the acquisition of beneficial ownership of any stock, equity
interests or assets of the Company and the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, the Executive shall be
entitled to the payments and benefits contemplated by section 10(c) in the event
of his termination of employment with the Bank under any of the circumstances
described in section 8(a) of this Agreement or under any of the following
circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following his demotion, loss of
title, office or significant authority or responsibility, or following
any material reduction in any element of his package of compensation
and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following any relocation of his
principal place of employment or any change in working conditions at
such principal place of employment which the Executive, in his
reasonable discretion, determines to be embarrassing, derogatory or
otherwise adverse; or
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Company in the Change of Control to include the
Executive in any compensation or benefit program maintained by it or
covering any of its executive officers, unless the Executive is already
covered by a substantially similar plan of the Company which is at
least as favorable to him.
(c) Upon the termination of the Executive's employment with the Company
under circumstances described in section 10(b) of this Agreement, the Company
shall pay and provide to the Executive (or, in the event of his death following
such termination, to his estate):
(i) his earned but unpaid compensation as of the date of the
termination of his employment with the Company, such payment to be made
at the time and in the manner prescribed by law applicable to the
payment of wages but in no event later than thirty (30) days after
termination of employment;
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(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Company's officers
and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical) and dental insurance benefits, in addition
to that provided pursuant to section 10(c)(ii), and after taking into
account the coverage provided by any subsequent employer, if and to the
extent necessary to provide for the Executive, for a period beginning
on the date his employment terminates and ending on the last day of the
Employment Period (or, if later, the first anniversary of termination
of employment), coverage equivalent to the coverage to which he would
have been entitled under such plans, if he had continued working for
the Company during such period at the highest annual rate of
compensation achieved during that portion of the Employment Period
which is prior to the Executive's termination of employment with the
Company;
(iv) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the salary that the Executive would have earned if he had continued
working for the Company for the remainder of the Employment Period (or,
if longer, for a period of one year following the date termination of
employment) at the highest annual rate of salary achieved during that
portion of the Employment Period which is prior to the Executive's
termination of employment with the Company, such lump sum to be paid in
lieu of all other payments of salary provided for under this Agreement
in respect of the period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the average annual cash incentive compensation or bonus paid to the
Executive with respect to the two complete calendar years immediately
preceding the year in which Executive's employment with the Company
terminates, multiplied by a fraction, the numerator of which is the
lump sum payment described in section 10(c)(iv) and the denominator of
which is the highest annual rate of salary achieved during that portion
of the Employment Period which is prior to the Executive's termination
of employment with the Company . For purposes of this Section 10(c)(v),
incentive compensation paid to the Executive while employed by Deere
Credit, Inc. d/b/a First New England Financial shall be deemed
incentive compensation paid to the Executive by the Company.
The Company and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 10(c) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company and the Executive further agree that the Company
may condition the payments and benefits (if any) due under sections 10(c)(iii),
(iv) and (v) on the receipt of the Executive's resignation from any and all
positions which he holds as an officer, director or committee member with
respect to the Company or any parent, subsidiary or affiliate of the Company.
SECTION 11. TAX LIMITATIONS.
(a) Notwithstanding any other provision of this Agreement, in the event
that any payment or benefit received or to be received by the Executive in
connection with a Change of Control of
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the Company or the termination of the Executive's employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or agreement with
the Company, any person whose actions result in a Change of Control of the
Company or any person affiliated with the Company or such person) (all such
payments and benefits, including the payments and benefits provided under this
Agreement (the "Severance Payments"), being hereinafter called "Total Payments")
would not be deductible (in whole or in part) by the Company, Republic Security
Bank, an affiliate or a person making such payment or providing such benefit as
a result of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), then, to the extent necessary to make such portion of the Total
Payments deductible (and after taking into account any reduction in the Total
Payments provided in such other plan, arrangement or agreement), the cash
Severance Payments shall first be reduced (if necessary, to zero); provided,
however, that the Executive may elect (at any time prior to the payment of
amounts payable hereunder) to have the noncash severance payments reduced (or
eliminated) prior to any reduction of the cash Severance Payments.
(b) For purposes of the limitation contained in subsection (a) of this
section 11, (i) no portion of the Total Payments the receipt or enjoyment of
which Executive shall have effectively waived in writing prior to the delivery
of a notice of termination of employment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and
selected by the accounting firm which was, immediately prior to the Change of
Control of the Company, the Company's or Republic Security Bank's independent
auditor (the "Auditor"), does not constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code, including by reason of Section
280G(b)(4)(A) of the Code, (iii) the Severance Payments shall be reduced only to
the extent necessary so that the Total Payments (other than those referred to in
clauses (i) or (ii)) in their entirety constitute reasonable compensation for
services actually rendered within the meaning of Section 280(G)(b)(4)(B) of the
Code or are otherwise not subject to disallowance as deductions by reason of
Section 280G of the Code, in the opinion of Tax Counsel, and (iv) the value of
any noncash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Auditor in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
(c) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good faith
of the Executive and the Company in applying the terms of this section 11, the
aggregate "parachute payments" paid to of for the Executive's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by reason of Section 280G of the Code, then the Executive shall have
an obligation to pay the Company upon demand an amount equal to the sum of (i)
the excess of the aggregate "parachute payments" paid to or for the Executive's
benefit over the aggregate "parachute payments" that could have been paid to or
for the Executive's benefit without any portion of such "parachute payments" not
being deductible by reason of Section 280G of the Code; and (ii) interest on the
amount set forth in clause (i) of this sentence at 120% of the rate provided in
Section 1274(b)(2)(B) of the Code from the date of Executive's receipt of such
excess until the date of such payment. If the Severance Payments shall be
decreased pursuant to section (a) hereof, and the benefits under section
8(b)(iii) which remain payable after the application of this section 11 are
thereafter reduced pursuant thereto because of the receipt by the Executive of
substantially similar benefits, the Bank shall, at the time of such reduction,
pay to the Executive the lowest of (a) the amount of the decrease made in the
Severance Payments pursuant to this section 11, (b) the amount of the subsequent
reduction in such benefits, or (c) the maximum amount which can be paid to the
Executive without being, or causing any other payment to be, nondeductible by
reason of Section 280G of the Code.
9
<PAGE>
SECTION 12. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company, the
Executive shall keep confidential and shall refrain from using for the benefit
of himself, or any person or entity other than the Company or any entity which
is a subsidiary of the Company or of which the Company is a subsidiary, any
material document or information obtained from the Company, or from its parent,
parent's parent, affiliates or subsidiaries, in the course of his employment
with any of them concerning their properties, operations or business (unless
such document or information is readily ascertainable from public or published
information or trade sources or has otherwise been made available to the public
through no fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 12
shall prevent the Executive, with or without the Company's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
SECTION 13. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Company or by the Executive, shall have
no effect on the rights and obligations of the parties hereto under the
Company's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company from time to time.
SECTION 14. NON-COMPETITION AND NON-SOLICITATION.
(a) Non-competition. During the Employment Period, the Executive agrees not to
engage, directly or indirectly, in any aspect of the yacht or marine loan
production or marine loan brokerage business (the "Marine Loan Business"), other
than for the Company, whether as stockholder (except for immaterial interests in
publicly-traded institutions), partner, director, officer, employee, agent,
consultant or otherwise. In the event of termination of the Executive's
employment hereunder with cause as defined in Section 9 hereof, or voluntarily
by the Executive prior to (i) a Change of Control, (ii) Republic Security Bank's
decision to exit the Marine Loan Business or (iii) a material breach of this
Agreement by the Company, the Executive, until twelve (12) months after the date
of such termination, agrees not to engage, directly or indirectly, in the Marine
Loan Business in any capacity in any city, town or county in which the Company
has an office, determined as of the date of such termination.
(b) Non-solicitation. The Executive hereby covenants and agrees that, for a
period of twelve (12) months following his termination of employment with the
Company, he shall not, without the written consent of the Company, either
directly or indirectly:
(i) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Company or any affiliate, as of the date of this Agreement, of
either of them, to terminate his or her employment and accept
employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any company engaged in the
Marine Loan Business doing business in any city, town or county in
which the Company has an office, determined as of the date of such
termination;
10
<PAGE>
(ii) provide any information, advice or recommendation with
respect to any such officer or employee to any company engaged in the
Marine Loan Business doing business in any city, town or county in
which the Company has an office, determined as of the date of such
termination, that is intended, or that a reasonable person acting in
like circumstances would expect, to have the effect of causing any
officer or employee of the Company or any affiliate, as of the date of
this Agreement, of either of them, to terminate his or her employment
and accept employment or become affiliated with, or provide services
for compensation in any capacity whatsoever to, any such company
engaged in the Marine Loan Business; or
(iii) solicit, provide any information, advice or
recommendation or take any other action intended, or that a reasonable
person acting in like circumstances would expect, to have the effect of
causing any customer of the Company to terminate an existing business
or commercial relationship with the Company.
SECTION 15. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Company and its respective successors and assigns, including any successor
by merger or consolidation or a statutory receiver or any other person or firm
or corporation to which all or substantially all of the assets and business of
the Company may be sold or otherwise transferred.
SECTION 16. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or one (1) day after it is sent by reputable overnight delivery
service, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
If to the Company:
RS Maritime Corporation
450 S. Australian Avenue
West Palm Beach, FL 33401
Attention: R. Michael Strickland
SECTION 17. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Company shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees, incurred by him in connection
with or arising out of any action, suit or proceeding in which he may be
involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement.
11
<PAGE>
SECTION 18. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 19. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 21. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida applicable to contracts entered
into and to be performed entirely within the State of Florida.
SECTION 22. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
SECTION 23. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 24. SURVIVAL.
The provisions of sections 6, 8, 9, 10, 11, 12, 13, 14, 17, 19, 21, 25,
26 and 27 shall survive the expiration of the Employment Period or termination
of this Agreement.
12
<PAGE>
SECTION 25. EQUITABLE REMEDIES.
The Company and the Executive hereby stipulate that money damages are
an inadequate remedy for violations of sections 6, 12 or 14 of this Agreement
and agree that equitable remedies, including, without limitations, the remedies
of specific performance and injunctive relief, shall be available with respect
to the enforcement of such provisions.
SECTION 26. GUARANTEE.
Republic Security Financial Corporation hereby irrevocably and unconditionally
guarantees to the Executive the payment of all amounts, and the performance of
all other obligations, due from the Bank in accordance with the terms of this
Agreement as and when due without any requirement of presentment, demand of
payment, protest or notice of dishonor or nonpayment.
SECTION 27. REQUIRED REGULATORY PROVISION.
Notwithstanding anything herein contained to the contrary, any payments to the
Executive by the Company, whether pursuant to this Agreement or otherwise, are
subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and the
Executive has hereunto set his hand, all as of the day and year first above
written.
RS MARITIME CORPORATION
By:
------------------------------------------------
NAME: R. Michael Strickland
TITLE: President
- ---------------------------------------------------
As to the guarantee set forth in Section 26, above:
REPUBLIC SECURITY FINANCIAL CORPORATION
By:
------------------------------------------
Name: Rudy E. Schupp
Title: Chairman, President & CEO
13
EXHIBIT 10.24
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer: Canada Life Assurance Company
Policy Number: US2650238
Bank: Northside Bank of Tampa
Insured: Johnny R. Adcock
Relationship of Insured to Bank: Director
The respective rights and duties of the Bank and the Insured in the subject
policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this Agreement.
POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use of the
Insured all in accordance with this Agreement. - The Bank alone may, to the
extent of its interest, exercise the right to borrow or withdraw on the Policy
cash values. Where the Bank and the Insured (or assignee, with the consent of
the Insured) mutually agree to exercise the right to increase the coverage under
the subject split dollar Policy, then, in such event, the rights, duties and
benefits of the parties to such increased coverage shall continue to be subject
to the terms of this Agreement.
BENEFICLARY DESIGINATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds payable upon
the death of the Insured, and to elect and change a payment option for such
beneficiary, subject to any right or interest the Bank may have in such
proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other Premium
payments that might become necessary to keep the policy in force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed cost of
insurance as required by the Internal Revenue Service. The Bank (or its
administrator) will report to the Employee the amount of imputed income received
each year on Form W-2 or its equivalent.
<PAGE>
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with Paragraph III
shall be entitled to an amount equal to eighty percent (80%) of the net at risk
insurance portion of the proceeds. The net at risk insurance portion is the
total proceeds less the cash value of the policy.
B. The Bank shall be entitled to the remainder of such proceeds.
C. The Bank and the Insured (or assignees) shall share in any interest due on
the death proceeds on a pro rata basis as the proceeds due each respectively
bears to the total proceeds, excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the policy's cash
value, as that term is defined in the policy contract, less any policy loans and
unpaid interest or cash withdrawals previously incurred by the Bank and any
applicable surrender charges. Such cash value shall be determined as of the date
of surrender or death as the case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts shall be
considered for all purposes of this Agreement as having been paid by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the Bank's
right and interest in any endowment proceeds or annuity benefits, or expiration
of the deferment period, shall be determined under the provisions of this
Agreement by regarding such endowment proceeds or the commuted value of such
annuity benefits as the policy's cash value. Such endowment proceeds or annuity
benefits shall be considered to be like death proceeds for the purposes of
division under this Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following thirty (30)
days written notice to the Insured upon the happening of any one of the
following:
1. The Insured shall be in violation of the terms and conditions of that
certain Director Indexed Fee Continuation Plan Agreement dated the
first day of January, 1996, or
2. The Insured shall leave the service of the Bank (voluntarily or
involuntarily) prior to attaining ten years of service on the board or
age 65, or
3. The Insured shall be discharged from service with the Bank for cause.
The term "for cause" shall mean gross negligence or gross neglect or
the commission of a felony or gross-misdemeanor involving moral
turpitude, fraud, dishonesty or willful violation of any law that
results in any adverse effect on the bank.
Upon such termination, the Insured (assignee) shall have a ninety (90) day
option to receive from the Bank an absolute assignment of the policy in
consideration of a cash payment to the Bank, whereupon this Agreement shall
terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date of such
assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within the
prescribed ninety (90) day period, the Insured (or assignee) agrees that all of
his rights, interest and claims in the policy shall terminate as of the date of
the termination of this Agreement.
2
<PAGE>
Except as provided above, this Agreement shall terminate upon distribution of
the death benefit proceeds in accordance with Paragraph VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to any
individual trust or other organization, any right, title or interest in the
subject policy nor any rights, options, privileges or duties created under this
Agreement.
XII. AGREEMENT BINDING UPON THE PARTI:ES
This Agreement shall bind the Insured and the Bank, their heirs, successors,
personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Northside Bank of Tampa is hereby designated the "Named Fiduciary" until
resignation or removal by the board of directors. As Named Fiduciary, the bank
shall be responsible for the management, control, and administration of this
Split Dollar Plan as established herein. The Named Fiduciary may allocate to
others certain aspects of the management and operation responsibilities of the
plan, including the employment of advisors and the delegation of any ministerial
duties to qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Split DOIW Plan shall be to maintain the subject
policy in force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be obtained by
contacting The Benefit Marketing Group, Inc. (770-952-1529). When the Named
fiduciary has a claim which may be covered under the provisions described in the
insurance policy, he should contact the office named above, and they will either
complete a claim form and for-ward it to an authorized representative of the
Insurer or advise the named Fiduciary what further requirements are necessary.
The Insurer will evaluate and make a decision as to payments If the claim is
payable, a benefit check will be issued to the Named Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer will
notify the Named Fiduciary of the denial pursuant to the requirements under the
terms of the policy. If the Named Fiduciary is dissatisfied with the denial of
the claim and wishes to contest such claim denial, he should contact the office
named above and they will assist in making inquiry to the Insurer. All
objections to the Insurer's actions should be in writing and submitted to the
office named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter gender,
they shall be read and construe as in the masculine, feminine or neuter gender,
whenever they should so apply.
XVII. INSURANCE COWANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a parry to this Agreement, but will respect the
rights of the parties as herein developed upon receiving an executed copy of
this Agreement. Payment or other performance in accordance with the policy
provisions shall fully discharge the Insurer for any and all liability.
Executed at Tampa, Florida this first day of January, 1996.
3
<PAGE>
NORTHSIDE BANK OF TAMPA
/s/ Elizabeth D. Cos By: Jose Vivero, President & CEO
- ---------------------------------- --------------------------------
Witness
/s/ Elizabeth D. Cos By: /s/ Johnny R. Adcock
- ----------------------------------- --------------------------------
Witness Johnny R. Adcock
4
<PAGE>
BENEFICIARY DESIGNATION FORM
BENEFICIARY DESIGNATION:
NAME RELATIONSHIP
- ----------------------------------- -----------------------------------
CONTINGENT DESIGNATION.
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
CONTINGENT DESIGNATION:
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
Johnny R. Adcock Date
5
EXHIBIT 10.25
DIRECTOR INDEXED FEE CONTINUATION PLAN
AGREEMENT
This Agreement, made and entered into this first day of January, 1996,
by and between Northside Bank of Tampa a Bank organized and existing under the
laws of the State of Florida, hereinafter referred to as "the Bank", and Johnny
R. Adcock a Director of the Bank and the Director of the Bank, hereinafter
referred to as "the Director'".
The Director is on the Board of the Bank and is faithfully serving the
Bank. It is the consensus of the Board of Directors of the Bank (The Board) that
the Director's services have been of exceptional merit in excess of the
compensation paid, and an invaluable contribution to the profits and position of
the Bank in its field of activity. 'Me Board further believes that the
Director's experience, knowledge of corporate affairs, reputation and industry
contacts are of such value and his continued services are so essential to the
Bank's future growth and profits that it would suffer severe financial loss
should the Director terminate his services on the Board.
Accordingly, it is the desire of the Bank and the Director to enter
into this Agreement under which the Bank will agree to make certain payments to
the Director upon his retirement and, alternatively, to his beneficiary(ies) in
the event of his premature death while serving on the Board.
It is the intent of the parties hereto that this Agreement be
considered an arrangement maintained primarily to provide supplemental
retirement benefits for the Director for purposes of the Employee Retirement
Security Act of 1974 (ERISA). The Director is fully advised of the Banks
financial status and has had substantial input in the design and operation of
this benefit plan.
Therefore, in consideration of the Director's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Director, agree as follows:
I. DEFINITIONS
A. EFFECTIVE DATE:
The Effective Date of this Agreement shall be January 1, 1996.
<PAGE>
B. PLAN YEAR:
Any reference to "Plan Year' shall mean a calendar year from January I
to December 31). In the year of implementation, the term 'Plan Year"
shall mean the period from the effective date to December 31 of the
year of the effective date.
C. RETIREMENT DATE.
Retirement Date shall mean retirement from service with the Bank which
becomes effective on the first day of the calendar month following the
month in which the Director reaches his sixty-fifth (65th) birthday or
such date as the Director may actually retire.
D. TERMINATION OF SERVICE:
Termination of Service shall mean voluntary resignation of service by
the Director or the Bank's discharge of the Director without cause (as
defined in subparagraph IH (D) hereinafter], prior to the Normal
Retirement Age [described in subparagraph I (J) hereinafter].
E. PRE-RETIREMENT ACCOUNT:
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Bank for the benefit of the Director. Prior
to termination of service or the Director's retirement, such liability
reserve account shall be increased or decreased each Plan You
(including the Plan Year in watch the Director ceases to be employed by
the Bank) by an amount equal to the annual earnings or loss for that
Plan Year determined by the Index [described in subparagraph I (G)
hereinafter], less the Cost of Funds Expense for that Plan Year.
[described in subparagraph I (H) hereinafter].
F. INDEX RETIREMENT BENEFIT:
The Index Retirement Benefit for the Director for any year shall be
equal to the excess of the annual earnings (if any) determined by the
Index [subparagraph I (G)] for that Plan Year over the Cost of Funds
Expense [subparagraph I (H] for that Plan Year.
G. INDEX:
The Index for any Plan Year shall be the aggregate annual after-tax
income from the life insurance contracts described hereinafter as
defined by FASB
2
<PAGE>
Technical Bulletin 85-4, This Index shall be applied as if such
insurance contracts were purchased on the effective date hereof
Insurance Company: Canada Life Assurance Company
Policy Form: Participating Whole Life
Policy Name: CL/I
Insured's Age and Sex: 51, Male
Riders: Paid Up Additions Rider
Custom Term Rider
Ratings: None
Face Amount: $219,402
Premiums Paid -. $15,000.00
Number of Premium Payments: Seven
Assumed Purchase Date- May 1, 1996
If such contracts of the insurance are actually purchased by the Bank
then the actual policies as of the dates they were purchased shall be
used in calculations under this Agreement. If such contracts of the
insurance are not purchased or are subsequently surrendered or lapsed,
then the Bank shall receive annual policy illustrations that assume the
above described policies were purchased from the above named insurance
company(ies) on the Effective Date from which the increase in policy
value will be used to calculate the amount of the Index.
In either case, references to the life insurance contract are merely
for purposes of calculating a benefit. The Bank has no obligation to
purchase such life 'Insurance and, if purchased, the Director and his
beneficiary(ies) shall have no ownership interest in such policy and
shall always have no greater interest in the benefits under this
Agreement than that of an unsecured general creditor of the Bank,
H. COST OF FUNDS EXPENSE
The Cost of Funds Expense for any Plan Year shall be calculated by
taking the sum of the amount of premiums set forth in the Indexed
policies described above plus the amount of any after-tax benefits paid
to the Director pursuant to this Agreement (Paragraph III hereinafter)
plus the amount of all previous years after-tax Costs of Funds Expense,
and multiplying that sum by the average after-tax cost of funds of the
Bank's third quarter Call Report for the Plan Year as filed with the
Federal Deposit Insurance Corporation.
3
<PAGE>
I. CHANGE OF CONTROL-.
Change of control shall be deemed to be the cumulative transfer of more
than fifty percent (50%) of the voting stock of the Bank or the Bank's
holding company from the Effective Date of this Agreement. For the
purposes of this Agreement, transfers on account of deaths or gifts,
transfers between family members or transfers to a qualified retirement
plan maintained by the Bank shall not be considered in determining
whether there has been a change in control.
J. NORMAL RETIREMENT AGE .
Normal Retirement Age shall mean the date on which the Director attains
age sixty-five (65).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any existing
employment agreement by and between the Bank and the Director, nor shall any
conditions herein create specific employment rights to the Director nor limit
the right of the Employer to discharge the Director with or without cause. In a
similar fashion, no provision shall limit the Directors rights to voluntarily
sever his employment at any time,
III. INDEX BENEFITS
The following benefits provided by the Bank to the Director are in the nature of
a fringe benefit and shall in no event be construed to effect nor limit the
Director's current or prospective fee increases, cash bonuses or profit-sharing
distributions or credits.
A. RETIREMENT BENEFITS:
The Director shall be entitled to receive the balance in his
Pre-Retirement Account (as defined in subparagraph I (E)] in ten (10)
equal annual installments commencing thirty (30) days following the
Director's Normal Retirement Date, In addition to these payments,
commencing with the Plan Year in which the Director attains his
Retirement Date, the Index Retirement Benefit [as defined in
subparagraph I (F) above] for each year shall be paid to the, Director
until his death.
B. TERMINATION OF SERVICE:
Subject to subparagraph III (D) hereinafter, should the Director-
suffer a termination of service after the earlier of attaining age
sixty-five (65) or ten years of service on the Board [defined in
subparagraph I (D)], he shall be entitled to receive one hundred
percent (100%), times the balance in the
4
<PAGE>
Pre-Retirement Account paid over ten (10) years in equal installments
commencing at the Retirement Date (subparagraph I (C)]. In addition to
these payments, one hundred percent (100%) times full years of service
with the Bank, times the Index Retirement Benefit for each year shall
be paid to the Director until his death.
Should the Director suffer a termination of service prior to the
earlier of attaining age sixty-five (65) or ten years of service on the
Board, no benefit shall be due under this Agreement and this Agreement
shall terminate.
C. DEATH
Should the Director die prior to having received the full balance of
the Pre- Retirement Account, the unpaid balance of the Pre-Retirement
Account shall be paid in a lump sum to the beneficiary selected by the
Director and filed with the Bank. In the absence of or a failure to
designate a beneficiary, the unpaid balance shall be paid in a lump sum
to the personal representative of the Director's estate. No other death
benefit shall be payable under this Agreement.
D. DISCHARGE FOR CAUSE:
Should the Director be discharged for cause at any time prior to his
Retirement Date, all Index Benefits under this Agreement [subparagraphs
III (A), (B) or (C)] shall be forfeited. The term "for cause" shall
mean gross negligence or gross neglect or the commission of a felony or
gross-misdemeanor involving moral turpitude, fraud, dishonesty or
willful violation of any law that results in any adverse effect on the
Bank. If a dispute arises as to discharge "for cause", such dispute
shall be resolved by arbitration as set forth in this Agreement.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund or
money with which to pay its obligations under this Agreement. The Director, his
beneficiary(ies) or any successor in interest to him shall be and remain simply
a general creditor of the Bank in the same manner as any other creditor having a
general claim for matured and unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either fund the
obligations undertaken by this Agreement or to refrain from funding the same and
to determine the exact nature and method of such funding. Should the Bank elect
to fund this Agreement, in whole or in part, through the purchase of life
insurance, mutual funds, disability policies or annuities, the Bank reserves the
absolute right, in its sole discretion, to terminate such funding at any time,
in whole or in part. At no time shall the Director be
5
<PAGE>
deemed to have any lien or right, title or interest in or to any specific
funding investment or to any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity policy
upon the life of the Director, then the Director shall assist the Bank by freely
submitting to a physical exam and supplying such additional information
necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL
Upon a Change of Control (as defined in subparagraph I (1) herein], the Director
shall receive the benefits promised in this Agreement upon attaining Normal
Retirement Age, as if he had continuously served on the Board of the Bank until
his Normal Retirement Age. The Director will also remain eligible for all
promised death benefits in this Agreement. In addition, no sale, merger or
consolidation of the Bank shall take place unless the new or surviving entity
expressly acknowledges the obligations under this Agreement and agrees to abide
by its terms.
VI MISCELLANEOUS
A. ALIENABILITV AND ASSIGNMENT PROHIBITION:
Neither the Director, his/her surviving spouse nor any other
beneficiary under this Agreement shall have any power or tight to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable hereunder nor
shall any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Director
or his beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise, In the event the Director
or any beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Bank's liabilities
shall forthwith cease and terminate.
B. BINDING OBLIGATION OF BANK AND ANY SUCCESSOR IN INTEREST:
The Bank expressly agrees that it shall not merge or consolidate into
or with another bank or sell substantially all of its assets to another
bank, firm or person until such bank, firm or person expressly agrees,
in writing, TO assume and discharge the duties and obligations of the
Bank under this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiary(ies), heirs and personal
representatives.
C. REVOCATION-
It is agreed by and between the parties hereto that, during the
lifetime of the Director, this Agreement may be amended or revoked at
any time or
6
<PAGE>
times, in whole or in part by the mutual written assent of the Director
and the Bank.
D. GENDER:
Whenever in this Agreement words are used in the masculine or neuter
gender, they shalI be read and construed as in the masculine, &
feminine or neuter gender, whenever they should so apply.
E. EFFECT ON OTHER BANK BENEFIT PLANS:
Nothing contained in this Agreement shall affect the right of the
Director to participate in or be covered by any qualified or
non-qualified pension, profit-sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part of
the Bank's existing or future compensation structure.
F. HEADINGS:
Headings and subheadings in this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this Agreement.
G. APPLICABLE LAW:
The validity and interpretation of this Agreement shall be governed by
the laws of the State of Florida.
VII. ERISA PROVISION
A. NAMED FIDUCIARY AND PLAN ADMINISTRATOR:
The "Named Fiduciary and Plan Administrator" of this plan shall be
Northside Bank of Tampa until its removal by the Board. As Named
Fiduciary and Administrator, the Bank shall be responsible for the
management, control and administration of the Fee Continuation
Agreement as established herein. The Named Fiduciary may delegate to
others certain aspects of the management and operation responsibilities
of the plan including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
B. CLAIMS PROCEDURE AND ARBITRATION:
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Director (or to his beneficiary in the
case of the Director's death) and such claimants feel they are entitled
to receive such benefits, then a written claim must be made to the Plan
7
<PAGE>
Administrator named above within ninety (90) days from the date
payments are refused. The Plan Administrator shall review the written
claim and if the claim is denied, in whole or in part, they shall
provide in writing within ninety (90) days of receipt of such claim
their specific reasons for such denial, reference to the provisions of
this Agreement upon which the denial is based and any additional
material or information necessary to perfect the claim. Such written
notice shall further indicate the additional steps to be taken by
claimants if a further review of the claim denial is desired. A claim
shall be deemed denied if the Plan Administrator fails to take any
action within the aforesaid ninety-day period,
If claimants desire a second review they shall notify the Plan
Administrator in writing within ninety (90) days of the first claim
denial. Claimants may review this Agreement or any documents relating
thereto and submit any written issues and comments they may feet
appropriate. In its sole discretion, the Plan Administrator shall then
review the second claim and provide a written decision within ninety
(90) days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning, and effect of
the terms and conditions thereof, then claimants may submit the dispute
to a Board of Arbitration for final arbitration. Said Board shall
consist of one member selected by the claimant, one member selected by
the Bank, and the third member selected by the first two members. The
Board shall operate under any generally recognized set of arbitration
rules. The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision
of such Board with respect to any controversy properly submitted to it
for determination.
Where a dispute arises as to the Bank's discharge of the Director "for
cause", such dispute shall likewise be submitted to arbitration as
above described and the parties hereto agree to be bound by the
decision thereunder.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the first day
of January, 1996 and that, upon execution, each has received a conforming copy.
NORTHSIDE BANK OF TAMPA
/s/ Elizabeth D. Cos By: /s/ Jose Vivero, President & CEO
- ----------------------------------- ---------------------------------
Witness Title
/s/ Elizabeth D. Cos By: /s/ Johnny R. Adcock
- ----------------------------------- ---------------------------------
Witness Johnny R. Adcock
9
EXHIBIT 11
Statement re: Computation of per share earnings as shown in Item 8, page 84.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
1. Republic Security Bank, a State Chartered Commercial Bank.
2. Republic Brokerage Corporation, a Florida corporation.
3. Republic Security Insurance Agency.
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-02307) pertaining to the Employees' Stock Purchase Plan, the
Registration Statement (Form S-8 No. 333-33213) pertaining to the 1997
Performance Incentive Plan, the Registration Statement (Form S-8 No. 333-33161)
pertaining to the Director and Officer Purchase Rights Plans and the
Registration Statement (Form S-3 No. 333-02303) of Republic Security Financial
Corporation and subsidiaries of our report dated February 11, 2000, with
respect to the consolidated financial statements of Republic Security Financial
Corporation included in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
Ernst & Young LLP
West Palm Beach, Florida
March 21, 2000
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