<PAGE> 1
As filed with the Securities and Exchange Commission on July 25, 1997
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
REPUBLIC BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-3347653
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 SECOND AVENUE N.E.
ST. PETERSBURG, FLORIDA 33701
(813) 823-7300
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
CHRISTOPHER M. HUNTER, ESQ.
CORPORATE COUNSEL AND CORPORATE SECRETARY
REPUBLIC BANCSHARES, INC.
111 SECOND AVENUE N.E.
ST. PETERSBURG, FLORIDA 33701
(813) 823-7300
(Name, address, including zip code, and telephone number,
including area code, of registrant's agent for service)
Copies of communications to:
CHESTER E. BACHELLER, ESQ. JOHN BUCHMAN, ESQ.
HOLLAND & KNIGHT LLP HOLLAND & KNIGHT LLP
400 NORTH ASHLEY DRIVE 2100 PENNSYLVANIA AVENUE N.W.
SUITE 2300 WASHINGTON, D.C. 20037-3202
TAMPA, FLORIDA 33602 (202) 955-3000
(813) 227-8500
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [x]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statements for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
==================================================================================================================================
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) PRICE (1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6% Convertible Subordinated Debentures due
December 1, 2011............................ $6,000,000 100.0% $6,000,000 $1,819
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $2.00 per
share, issuable upon conversion of
6% Convertible Subordinated
Debentures.................................. 336,000(2) --- --- None
===================================================================================================================================
</TABLE>
(1) Plus such additional indeterminate number of shares of Common Stock as may
become issuable upon conversion of the Debenture as a result of
adjustments to the conversion price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR AN OFFER TO
BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 25, 1997
PROSPECTUS
[LOGO]
$6,000,000
REPUBLIC BANCSHARES, INC.
6% CONVERTIBLE SUBORDINATED DEBENTURES DUE DECEMBER 1, 2011
This prospectus relates to (i) $6,000,000 aggregate principal amount of
6% Convertible Subordinated Debentures due December 1, 2011 (the
"Debentures") of Republic Bancshares, Inc. (the "Company"), and (ii)
336,000 shares of common stock, par value $2.00 per share (the "Common
Stock"), of the Company which are initially issuable upon conversion of the
Debentures, plus such additional indeterminate number of shares of Common
Stock as may become issuable upon conversion of the Debentures as a result
of adjustments to the conversion price (the "Shares"). The Debentures and
the Shares (collectively, the "Selling Securityholder Securities") that are
being registered hereby are to be offered solely for the account of the
holders thereof (the "Selling Securityholders"). The Debentures were issued
by the Company in December 1996 in connection with a private placement
offering. See "Description of the Debentures."
The Debentures are convertible at any time prior to maturity, unless
previously redeemed or repurchased, into shares of Common Stock at a
conversion rate of 56 shares per each $1,000 principal amount of Debentures
(equivalent to a conversion price of approximately $17.85714 per share),
subject to adjustment in certain circumstances (the "Conversion Price"). On
July 23, 1997, the last reported bid price of the Common Stock, which is
traded under the symbol "REPB" on The Nasdaq Stock Market's ("Nasdaq")
National Market, was $17.25 per share.
Interest on the Debentures is payable semiannually in arrears on June 1
and December 1 of each year, commencing June 1, 1997. The Debentures are
redeemable in whole or in part at the Company's option at any time on or
after December 1, 2001, at the redemption prices set forth herein, plus
accrued interest to the date of redemption. See "Description of the
Debentures - Optional Redemption." The Debentures are not entitled to any
sinking fund. The Debentures will mature on December 1, 2011.
The Debentures are unsecured, general obligations subordinated in right
of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company and effectively subordinated in right of payment to
all indebtedness and other liabilities of the Company's subsidiaries. The
Company does not currently have any Senior Indebtedness outstanding. The
Indenture will not restrict the Company or its subsidiaries from incurring
additional Senior Indebtedness or other indebtedness. See "Description of
the Debentures Subordination."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A
BANK AND ARE NOT INSURED BY THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY ___, 1997.
<PAGE> 3
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY AND THE BANK
Republic Bancshares, Inc. (the "Company") is a registered bank holding
company formed in February 1996 for the primary purpose of becoming the holding
company parent of Republic Bank (the "Bank"), a Florida-chartered commercial
bank organized on December 13, 1973. The Bank provides a broad range of
traditional banking services with a particular emphasis on residential and
commercial real estate lending. Currently, the Bank's branch network consists of
35 branches in Pasco, Pinellas, Orange, Manatee, Hernando and Sarasota Counties.
At March 31, 1997, the Company's consolidated assets totaled $912.1 million,
loans totaled $748.5 million, deposits totaled $829.1 million and stockholders'
equity was $55.6 million. The Company is regulated by the Federal Reserve, and
the Bank is regulated by the Florida Department of Banking and Finance
("Department") and the Federal Deposit Insurance Corporation ("FDIC"). The
Bank's deposits are insured by the FDIC, and the Bank is a member of the Federal
Home Loan Bank of Atlanta ("FHLB").
On May 28, 1993, William R. Hough and John W. Sapanski (together, the
"Controlling Stockholders") acquired from the prior controlling stockholder over
99% of the outstanding common stock of the Bank (the "Change in Control").
Currently, Messrs. Hough and Sapanski (and their respective affiliates and
immediate family members) own shares of the Company's capital stock representing
approximately 50.6% and 9.0%, respectively, of the total voting rights of the
Company. Mr. Hough is a member of the Company's Board of Directors and Mr.
Sapanski serves as the Company's Chairman of the Board, Chief Executive Officer
and President.
After the Change in Control, the Bank began to implement a program of
expanding its branches and lines of business. On December 17, 1993, the Bank
acquired 12 branches from CrossLand Savings FSB, a federal stock savings bank
("CrossLand"), assumed deposits of $327.7 million at the acquired branches and
purchased from CrossLand loans secured by real estate and other real estate
("ORE") amounting to $201.6 million (the "CrossLand Purchase and Assumption").
The CrossLand Purchase and Assumption more than doubled the Bank's size,
increasing total assets to $531.3 million and total deposits to $494.3 million
at December 31, 1993. Additionally, the new branches expanded the Bank's market
area to include Manatee and Sarasota counties and more than doubled the branch
network to a total of 19 branches.
During the latter part of 1994 and throughout 1995, the Bank continued to
pursue a strategy of increasing its retail banking presence on the west coast of
Florida. The Bank opened thirteen de novo branches, increasing market presence
in existing counties and providing entry into Pasco County.
During 1996, the Company focused on increasing its residential lending
capabilities. Through internal growth and the addition of the Bank's new
mortgage banking division, the Company added six loan production offices in
Florida and one loan production office in Boston, Massachusetts. These offices
expanded the Company's product line to include government-insured first mortgage
loans, "Title I" home improvement loans and high loan-to-value debt
consolidation loans. In the fourth quarter of 1996, the Bank also added a
wholesale lending operation that purchases loans from third-party originators
for resale. The Company sells substantially all the loan production from its
mortgage banking division as whole loans or loans posted as securities. See
"Risk Factors--Change in Loan Sales Strategy."
2
<PAGE> 4
In 1997, the Company again pursued external expansion. In January, the
Company expanded into Hernando County by opening a de novo branch. In April, the
Company acquired Firstate Financial, F.A. ("Firstate"), a thrift institution
headquartered in Orlando, Florida, for a cash purchase price of $5.5 million
(the "Firstate Acquisition"). At March 31, 1997, Firstate had total assets of
$72.0 million, total deposits of $68.1 million and operated a branch in each of
Orange and Seminole Counties. The Firstate acquisition increased the Company's
presence in central Florida, where the Company previously operated a loan
production facility but had no branches. See "Pro Forma Financial Data."
Also in April 1997, the Company and F.F.O. Financial Group, Inc. ("FFO"),
St. Cloud, Florida, the holding company parent of First Federal Savings and Loan
Association of Osceola County, entered into an Agreement and Plan of Merger (the
"FFO Agreement") pursuant to which FFO will be merged into the Company in a
stock transaction (the "FFO Merger"). FFO has 11 branches in Osceola, Orange and
Brevard counties and, at March 31, 1997, had total assets of $320.0 million,
total loans of $226.1 million and total deposits of $285.7 million. If
consummated, the FFO Merger would increase the total assets of the Company to
approximately $1.3 billion, expand its network of branches from 35 to 46, and
increase the number of counties served by the Company's branches from seven to
nine. See "Pro Forma Financial Data." William R. Hough, one of the Company's
Controlling Stockholders, also owns a majority interest in FFO. Consummation of
the FFO Merger is subject to shareholder approval. Either party has the right to
terminate the FFO Agreement if the merger does not occur by November 1, 1997.
In May 1997, the Company and RBI Capital Trust I, a statutory business
trust created under the laws of the State of Delaware ("RBI Capital"), filed a
registration statement on Form S-2 (Registration Nos. 333-28213 and 333-28213-01
with the Securities and Exchange Commission (the "Commission") relating to the
offering by RBI Capital (the "Preferred Offering") of 2,500,000 shares of
Cumulative Trust Preferred Securities (the "Preferred Securities"). The proceeds
from the Preferred Offering will be used to purchase an equivalent amount of
Junior Subordinated Debentures of the Company (the "Junior Subordinated
Debentures"). The net proceeds from the sale of the Junior Subordinated
Debentures will be contributed by the Company to the capital of the Bank. The
Preferred Offering is expected to be completed before the end of the Company's
third quarter.
The principal executive offices of the Company are located at 111 Second
Avenue N.E., Suite 300, St. Petersburg, Florida, 33701, and its telephone number
is (813) 823-7300.
BUSINESS STRATEGY
The Company's business strategy entails (i) originating and purchasing
real estate secured loans for portfolio and sale and originating business and
consumer loans for portfolio; (ii) improving market share and expanding its
market area through acquisitions of financial institutions and de novo
branching; (iii) increasing non-interest income through expanded mortgage
banking activities and emphasizing commercial and retail checking relationships;
and (iv) increasing its range of products and services. While pursuing this
strategy, management remains committed to improving asset quality, managing
interest rate risk and enhancing profitability.
The Company's business strategy has resulted in:
- Expanded Branch Network - Since the Change in Control in May 1993,
the Company has expanded its retail banking presence from seven
branches in northern Pinellas County to its current 35 branches in
Hernando, Pasco, Pinellas, Manatee, Sarasota and Orange Counties.
Further market expansion will occur
3
<PAGE> 5
upon consummation of the FFO Merger later this year which will add 11
branches in the central Florida market, including five in Osceola
County, five in Brevard County, and one in Orange County, bringing
the total number of branches to 46.
- Increased Levels and Sources of Noninterest Income - The Company has
expanded its sources and amounts of fee income by emphasizing
mortgage banking activities and new products, including a program
that generates fee income for the Company when the Company's checking
account customers utilize the travel and other services of certain
third-party providers.
- Improved Asset Quality Ratios - The assets acquired in the Change in
Control and from CrossLand included significant levels of
nonperforming assets. As a result, the Company's nonperforming
assets-to-total assets ratio was 4.95% at year-end 1993. This ratio
was reduced to 2.58% at March 31, 1997. This reduction was achieved
primarily through the implementation of consistent loan underwriting
policies and procedures, centralization of all credit decision
functions and growth in the loan portfolio. Nonperforming assets at
March 31, 1997, included $16.5 million of loans and ORE primarily
originated prior to the Change in Control, $1.4 million from assets
acquired in the CrossLand Purchase and Assumption and $5.7 million
from assets originated or purchased after December 31, 1993. However,
the level of the Company's nonperforming assets continues to be
higher than that of peer group institutions. See "Risk
Factors--Nonperforming Assets."
- Management of Interest Rate Risk - One of the Company's primary
objectives is to reduce fluctuations in net interest income caused by
changes in market interest rates. To manage interest rate risk, the
Company generally limits holding loans in its portfolio to those that
have variable interest rates tied to interest-sensitive indices and
management of the maturities within the investment portfolio. The
Company believes, based on its experience, that, as of March 31,
1997, the anticipated dollar amounts of assets and liabilities which
reprice or mature within a one-year time horizon are closely matched.
RECENT DEVELOPMENTS
For the quarter ended June 30, 1997, the Company reported net income of
$629,000 or $.13 per share compared to $1.3 million or $.26 per share for the
same period of 1996. Previously, the Company had announced that net income was
expected to decline from the comparable period due to a change in its strategy
regarding high loan-to-value home equity loans. Since it began originating that
type of loan in the fourth quarter of 1996, the Company had been immediately
selling those loans following origination. The Company changed that strategy
in the second quarter of 1997, retaining a significant portion of those loans
with the intent to securitize or sell these loans in bulk at a future date.
Primarily as a result of this change, net income in the second quarter was
reduced due to recognizing the relatively high costs of originating these loans
and the absence of revenues resulting from loan sales. In the second quarter of
1997, the Company recognized, as part of its noninterest income, $660,000 of
pre-tax income from mortgage banking activities. The Company estimates that,
based on published purchase prices from established firms that participate in
the home equity loan secondary markets, its pre-tax income from mortgage banking
activities in the second quarter of 1997 would have increased by approximately
$2.6 million, if the Company had followed its former policy of immediately
selling these loans. However, there can be no assurances that the Company will
realize income on the sale of these loans in future periods.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
The Selling Securityholder Securities.. $6,000,000 aggregate principal amount of
Offered Hereby 6% Convertible Debentures due December 1, 2011,
together with 336,000 Shares initially
issuable upon conversion of the
Debentures, plus such additional
indeterminate number of Shares as may
become issuable upon conversion of the
Debentures as a result of adjustments to
the Conversion Price.
Selling Securityholders................ The Debentures were originally issued by
the Company and sold to the Selling
Securityholders in transactions exempt
from registration under the Securities
Act. These Selling Securityholders or
their transferees, pledgees, donees or
successors may from time to time offer
and sell the Selling Securityholder
Securities pursuant to this Prospectus.
Maturity Date........................... December 1, 2011.
Interest................................ Interest on the Debentures commenced on
June 1, 1997 and is payable
semi-annually on each June 1 and
December 1.
Optional Redemption..................... The Debentures are redeemable at any
time after December 1, 2001, in whole or
in part, at the option of the Company on
not less than 30 days notice, at a
redemption price of 106%, with the
premium declining 1% each year
thereafter, together with accrued
interest to the date fixed for
redemption. The Debentures may also be
redeemed, in whole or in part, at the
option of the Company on not less than
30 days notice, without the payment of
any premium, at any time after the
closing price of the Common Stock for
not less than 20 consecutive trading
days equals or exceeds 130% of the
Conversion Price then in effect,
together with accrued interest to the
date fixed for redemption.
Subordination.......................... The payment of principal and premium, if
any, and interest on the Debentures is
subordinated to all existing and future
Senior Indebtedness. Senior Indebtedness
is defined as any indebtedness or
liability of the Company (including that
owed to general creditors), whether
existing on or created or incurred after
issuance of the Debentures, that is not
by its terms subordinated to or on a par
with the Debentures.
</TABLE>
5
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<TABLE>
<S> <C>
The Indenture (as defined herein)
does not limit future incurrence
of any indebtedness by the Company or
its subsidiaries.
Certain Covenants....................... The Indenture contains certain customary
covenants found in Indentures under the
Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), including
covenants with respect to the payment of
principal and interest, maintenance of
an office or agency for administering
the Debentures, holding of funds for
payments on the Debentures in trust,
payment by the Company of taxes and
other claims, maintenance by the Company
of its properties and its corporate
existence, and delivery of annual
certifications to the Trustee.
Conversion.............................. The Debentures are Convertible into 56
shares of Common Stock for each $1,000
principal amount of Debentures,
representing a Conversion Price at issue
of $17.85714 per share, subject to
adjustment in certain events.
Trading................................. The Company does not intend to list the
Debentures resold pursuant to this
Prospectus on any securities exchange or
to seek approval for quotation through
any automated quotation system. There
can be no assurance as to the
development or liquidity of any market
for the Debentures resold under this
Prospectus.
Use of Proceeds......................... The Selling Securityholders will receive
all of the proceeds from the sale of the
Selling Securityholder Securities. The
Company will not receive any proceeds
from the sale of the Selling
Securityholder Securities offered
hereby. See "Use of Proceeds."
</TABLE>
RISK FACTORS
Before making an investment decision, prospective investors should
consider all of the information contained in this Prospectus. In particular,
prospective investors should evaluate the factors discussed under "Risk
Factors."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The Summary Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company and, prior to
1996, the Bank and are qualified in their entirety by reference to the more
detailed Consolidated Financial Statements and notes thereto, included elsewhere
within.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
------------------------ --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(unaudited)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income ...................................... $ 18,070 $ 15,862 $ 66,947 $ 57,863 $ 37,115
Interest expense ..................................... 8,969 7,927 32,926 30,001 16,871
---------- ---------- ---------- ---------- ----------
Net interest income .................................. 9,101 7,935 34,021 27,862 20,244
Loan loss provision .................................. 1,138 450 1,800 1,685 1,575
---------- ---------- ---------- ---------- ----------
Net interest income after loan loss provision ........ 7,963 7,485 32,221 26,177 18,669
Other noninterest income ............................. 3,124 678 4,409 2,751 2,612
Gain on sale of ORE held for investment .............. -- -- 1,207 -- --
General and administrative ("G&A") expenses .......... 8,240 5,956 27,352 22,119 14,916
SAIF special assessment(1) ........................... -- -- 2,539 -- --
Provision for losses on ORE .......................... 170 180 1,611 -- 10
Other noninterest expense ............................ 110 124 319 739 1,691
---------- ---------- ---------- ---------- ----------
Net income before income taxes & goodwill accretion .. 2,567 1,903 6,016 6,070 4,664
Accretion of negative goodwill ....................... -- -- -- 1,578 2,705
---------- ---------- ---------- ---------- ----------
Net income before income taxes ....................... 2,567 1,903 6,016 7,648 7,369
Income tax provision ................................. 964 699 2,232 1,875 468
---------- ---------- ---------- ---------- ----------
Net income ........................................... $ 1,603 $ 1,204 $ 3,784 $ 5,773 $ 6,901
========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share ................................... $ .32 $ .24 $ .76 $ 1.26 $ 1.67
========== ========== ========== ========== ==========
$4,980,167 $4,953,119 $4,952,937 $4,562,642 $4,136,790
Weighted average shares outstanding
BALANCE SHEET DATA:
Total assets ......................................... $ 912,093 $ 802,363 $ 907,868 $ 801,995 $ 626,445
Investment & mortgage backed securities .............. 63,198 51,481 94,989 64,801 40,271
Loans, net of unearned income ........................ 748,493 676,658 742,994 669,416 516,335
Allowance for loan losses ............................ 13,508 14,746 13,134 14,910 7,065
Deposits ............................................. 829,060 742,082 827,980 743,105 583,885
Negative goodwill .................................... -- -- -- -- 1,578
Stockholders' equity ................................. 55,579 52,047 54,319 50,903 36,165
SELECTED FINANCIAL RATIOS(2):
Return on average assets ............................. .72% .60% .45% .77% 1.25%
Return on average equity ............................. 12.10 9.57 7.31 13.47 21.34
Net interest spread .................................. 3.83 3.83 3.96 3.67 3.78
Net interest margin .................................. 4.12 4.14 4.28 3.95 3.96
G&A expense to average assets ........................ 3.63 2.96 3.28 2.96 2.74
G&A efficiency ratio ................................. 67.40 69.15 68.98 72.25 65.26
Non-accrual loans to loans ........................... 2.27 2.22 2.15 2.04 2.51
Nonperforming assets to total assets ................. 2.58 3.02 2.51 2.93 3.59
Loan loss allowance to loans(3) ...................... 1.91 2.18 1.86 2.24 1.37
March 1995 purchase CrossLand portfolio .............. 104.82 63.46 126.12 41.77 23.73
Other purchased portfolios ........................... 45.60 40.39 89.80 41.84 82.99
Loan loss allowance to nonperforming loans(3) ........ 82.81 96.47 84.93 90.47 53.36
RATIO OF EARNINGS TO FIXED CHARGES(4):
Including interest on deposits ....................... 1.29 1.25 1.19 1.26 1.45
Excluding interest on deposits ....................... 37.79 206.17 78.41 298.53 235.62
OTHER DATA (AT PERIOD-END):
Number of branches ................................... 33 32 32 32 21
Number of full-time equivalent employees ............. 644 432 637 421 300
</TABLE>
<TABLE>
<CAPTION>
Seven Months Ended
December 31,
------------------------
1994 1993
---------- ----------
(unaudited)
<S> <C> <C>
OPERATING DATA:
Interest income ...................................... $ 23,684 $ 7,331
Interest expense ..................................... 10,711 3,110
---------- ----------
Net interest income .................................. 12,973 4,221
Loan loss provision .................................. 1,263 709
---------- ----------
Net interest income after loan loss provision ........ 11,710 3,512
Other noninterest income ............................. 1,758 1,411
Gain on sale of ORE held for investment .............. -- --
General and administrative ("G&A") expenses .......... 9,308 3,700
SAIF special assessment(1) ........................... -- --
Provision for losses on ORE .......................... 10 20
Other noninterest expense ............................ 1,417 600
---------- ----------
Net income before income taxes & goodwill accretion .. 2,733 603
Accretion of negative goodwill ....................... 1,578 1,579
---------- ----------
Net income before income taxes ....................... 4,311 2,182
Income tax provision ................................. 268 --
---------- ----------
Net income ........................................... $ 4,043 $ 2,182
========== ==========
PER SHARE DATA:
Earnings per share ................................... $ 0.98 $ 1.12
========== ==========
$4,141,322 $1,951,231
Weighted average shares outstanding
BALANCE SHEET DATA:
Total assets ......................................... $ 626,445 $ 531,312
Investment & mortgage backed securities .............. 40,271 37,382
Loans, net of unearned income ........................ 516,335 316,483
Allowance for loan losses ............................ 7,065 6,539
Deposits ............................................. 583,885 494,316
Negative goodwill .................................... 1,578 4,283
Stockholders' equity ................................. 36,165 29,454
SELECTED FINANCIAL RATIOS(2):
Return on average assets ............................. 1.20% 1.99%
Return on average equity ............................. 20.68 39.17
Net interest spread .................................. 4.06 3.45
Net interest margin .................................. 4.25 4.22
G&A expense to average assets ........................ 2.79 3.94
G&A efficiency ratio ................................. 62.02 65.70
Non-accrual loans to loans ........................... 2.51 5.05
Nonperforming assets to total assets ................. 3.59 4.95
Loan loss allowance to loans(3) ...................... 1.37 2.07
March 1995 purchase CrossLand portfolio .............. 23.73 39.88
Other purchased portfolios ........................... 82.99 --
Loan loss allowance to nonperforming loans(3) ........ 53.36 39.12
RATIO OF EARNINGS TO FIXED CHARGES(4):
Including interest on deposits ....................... 1.42 1.70
Excluding interest on deposits ....................... 156.92 756.00
OTHER DATA (AT PERIOD-END):
Number of branches ................................... 21 19
Number of full-time equivalent employees ............. 300 179
</TABLE>
(1) The SAIF special assessment is a one-time charge. See
"Business--Supervision and Regulation--Deposit Insurance."
(2) Annualized.
(3) See "Business--Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the
Bank and "Business--Troubled Debt Restructurings" for a discussion of the
portion of the Bank's troubled debt restructurings that are considered
nonperforming loans.
(4) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed
charges include interest expense (inclusive or exclusive of interest on
deposits as indicated).
7
<PAGE> 9
<TABLE>
<CAPTION>
Five Months Ended Year Ended
May 31, December 31,
-------------------------- ----------
1994 1993 1992
---------- ----------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
OPERATING DATA:
Interest income ................................................ $ 13,431 $ 4,848 $ 11,845
Interest expense ............................................... 6,160 1,970 6,054
---------- ----------- ----------
Net interest income ............................................ 7,271 2,878 5,791
Loan loss provision ............................................ 312 379 520
---------- ----------- ----------
Net interest income after loan loss provision .................. 6,959 2,499 5,271
Other noninterest income ....................................... 854 743 1,679
G&A expenses ................................................... 5,608 2,699 5,748
Provision for losses on ORE .................................... -- 1,214 230
Other noninterest expense ...................................... 274 443 715
---------- ----------- ----------
Net income (loss) before income taxes and goodwill accretion ... 1,931 (1,114) 257
Accretion of negative goodwill ................................. 1,127 -- --
---------- ----------- ----------
Net income (loss) before income taxes .......................... 3,058 (1,114) 257
Income tax provision (benefit) ................................. 200 0 0
---------- ----------- ----------
Net income (loss) .............................................. $ 2,858 $ (1,114) $ 257
========== =========== ==========
PER SHARE DATA:
Earnings (loss) per share ...................................... $ .69 $ (1.00) $ 0.23
========== =========== ==========
Weighted average shares outstanding ............................ 4,134,420 1,117,192 1,106,459
BALANCE SHEET DATA:
Total assets ................................................... $ 508,642 $ 168,741 $ 168,810
Investment securities .......................................... 52,571 27,433 24,276
Loans net of unearned income ................................... 396,144 111,292 110,715
Allowance for loan losses ...................................... 6,828 1,866 1,958
Negative goodwill .............................................. 3,156 5,861 --
Deposits ....................................................... 469,461 153,660 154,984
Stockholder's Equity ........................................... 32,234 8,058 12,215
SELECTED FINANCIAL RATIOS(1):
Return on average assets ....................................... 1.33% (1.61)% 0.15%
Return on average equity ....................................... 22.34 (21.75) 2.12
Net interest spread ............................................ 3.48 4.21 3.51
Net interest margin ............................................ 3.67 4.66 3.95
G&A expense to average assets .................................. 2.40 6.28 4.01
G&A efficiency ratio ........................................... 67.32 74.54 76.95
Non-accrual loans to loans ..................................... 4.36 2.27 3.20
Nonperforming assets to total assets ........................... 5.64 5.89 7.55
Loan loss allowance to loans(2) ................................ 1.72 1.68 1.77
Loan loss allowance to nonperforming loans(2) .................. 23.58 73.03 54.98
Originated portfolio ......................................... N/A N/A 54.98
March 1995 purchase .......................................... N/A N/A --
CrossLand portfolio .......................................... N/A N/A --
Other purchased portfolios ................................... N/A N/A --
---------- ----------- ----------
Total ..................................................... 23.58 73.03 54.98%
RATIO OF EARNINGS TO FIXED CHARGES(3):
Including interest on deposits ................................. 1.51 0.43 1.04
Excluding interest on deposits ................................. 928.40 171.20 332.16
OTHER DATA (AT PERIOD-END):
Number of branches ............................................. 19 7 7
Number of full-time equivalent employees ....................... 223 96 90
</TABLE>
(1) Annualized.
(2) See "Business--Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the
Bank and "Business--Troubled Debt Restructurings" for a discussion of the
portion of the Bank's troubled debt restructurings that are considered
nonperforming loans.
(3) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed
charges include interest expense (inclusive or exclusive of interest on
deposits as indicated).
N/A Data not available.
8
<PAGE> 10
RISK FACTORS
An investment in the Selling Securityholder Securities involves a high
degree of risk. Prospective investors should carefully consider, together with
the other information contained and incorporated by reference in this
Prospectus, the following factors in evaluating the Company before purchasing
the Selling Securityholder Securities offered hereby. Prospective investors
should note, in particular, that this Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that involve substantial risks and
uncertainties. When used in this Prospectus, or in the documents incorporated by
reference herein, the words "anticipate," "believe," "estimate," "may," "intend"
and "expect" and similar expressions identify certain of such forward-looking
statements. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained herein. The considerations listed below represent certain important
factors the Company believes could cause such results to differ. These
considerations are not intended to represent a complete list of the general or
specific risks that may affect the Company. It should be recognized that other
risks, including general economic factors and business strategies, may be
significant, presently or in the future, and the risks set forth below may
affect the Company to a greater extent than indicated.
CHANGE IN LOAN SALES STRATEGY
On June 27, 1997, the Company announced a change in its sales strategy for
high loan-to-value home equity loans from originating and immediately selling
such loans to temporary retention in portfolio for securitization, and/or
secondary market bulk or individual sales, or some combination of the foregoing.
This new strategy was undertaken with the objective of increasing long-term
earnings, as the terms available through securitizations and bulk sales are
generally more attractive than those available in connection with individual
sales. However, the Company's retention of a portion of its originations of high
loan-to-value home equity loans in portfolio had the effect of negatively
impacting the Company's earnings during the second quarter of 1997 due to
recognizing the relatively high costs of originating these loans and the absence
of income resulting from the decision to defer the sale of a portion of the
originated loans.
There is no assurance that the Company will be able to sell and/or
securitize these home equity loans at the times, for the prices and in the
manner(s) that it desires to do so. Should the Company be unable for any reason
to sell these loans on acceptable terms either through individual or bulk sales,
securitizations or a combination thereof, and consequently be forced to retain
these loans in portfolio for a longer-than-anticipated period of time, the
Company would be faced with the prospect of either significantly reducing its
originations of these types of loans or incurring substantial losses in
subsequent periods. Such losses, in turn, could either (i) deplete the amount of
retained earnings of the Bank available for payment of dividends to the Company,
(ii) cause the Bank to become "undercapitalized" for regulatory capital
purposes, or (iii) limit the extent to which the Bank could pay dividends to the
Company without becoming undercapitalized. In any such event, it is possible
that the Company would not have a sufficient amount of funds available to meet
its interest payment obligations on the Debentures.
ABILITY TO MANAGE GROWTH AND INTEGRATE OPERATIONS
Since the Change in Control, the Company has experienced rapid growth
through acquisitions, the opening of loan production offices and de novo
branches, the creation of the Bank's mortgage banking division and asset
purchases. There is no assurance that the Company will not encounter unforeseen
expenses, as well as difficulties and complications in integrating expanded
operations and new employees without disruption to overall operations. In
addition, such rapid growth may adversely affect the Company's operating results
because of many factors, including start-up costs, diversion of management
resources, asset quality and required operating adjustments. There can be no
assurance that the Company will successfully integrate or achieve the
anticipated benefits of its growth or expanded operations.
9
<PAGE> 11
In addition, achieving the anticipated benefits of the FFO Merger will
depend in part upon whether the operations and organizations of the Company and
FFO can be integrated in an efficient, effective, and timely manner. There can
be no assurance that this integration will occur and that cost savings in
operations will be achieved. After the FFO Merger, the Company may also
encounter unanticipated operational or organizational difficulties. The
successful combination of the two companies will require, among other things,
consolidation of certain operations, elimination of duplicative corporate and
administrative expense and elimination of certain positions. The integration of
certain operations following the FFO Merger will require the dedication of
management resources which may temporarily distract attention from the
day-to-day business of the Company. There can be no assurance that integration
will be accomplished smoothly or successfully. Failure to accomplish effectively
the integration of operations could have a material adverse effect on the
Company's results of operations and financial condition following the FFO
Merger.
NONPERFORMING ASSETS
At the time of the Change in Control, the Bank had a relatively high ratio
of nonperforming assets to total assets. In addition, subsequent purchases of
loans, acquired at a discount, included loans that subsequently were placed in
nonperforming status. Although the Company has reduced its nonperforming assets
ratio from 5.95% at year-end 1993 to 2.58% at March 31, 1997, its current level
of nonperforming assets is still significantly above .55%, which is the average
level for all commercial banks with assets between $500.0 million and $1.0
billion at March 31, 1997, according to the Uniform Performance Banking Report
issued by federal bank regulators. The nonperforming assets ratio for the
Company and FFO combined on pro forma basis would have been 2.59% at March 31,
1997. Moreover, there is no assurance that this ratio will continue to decline,
particularly if general economic conditions or Florida real estate values
deteriorate.
ADEQUACY OF LOAN RESERVES
Industry experience indicates that a portion of the Company's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by the Company,
losses may be experienced as a result of various factors beyond the Company's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. The
Company's determination of the adequacy of its allowance for loan losses is
based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the view of the Company's regulators, and geographic and industry
loan concentration. However, if delinquency levels were to increase as a result
of adverse general economic conditions, especially in Florida where the
Company's exposure is greatest, the loan loss reserve so determined by the
Company may not be adequate. A substantial portion of the Company's loan loss
reserves are allocated to specific portfolios of loans purchased by the Company.
Such allocated reserves are not available to cover losses in other portfolios.
To the extent that losses in certain pools or portfolios exceed the loan loss
reserves and unamortized loan discount allocated to such pool or portfolio, or
available as a general reserve, the Company's results of operations would be
adversely affected. There can be no assurance that the Company's allowance for
loan losses will be adequate to cover its loan losses or that the Company will
not experience significant losses in its loan portfolios which may require
significant increases to the allowance for loan losses in the future.
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of the Company's loan portfolio consists of
residential mortgage loans and commercial real estate loans. At March 31, 1997,
55.1% of the Company's loans were secured by one-to-four family residential real
estate, 34.7% were secured by commercial real estate and multifamily
residential, 4.1% were construction loans and the Company had ORE acquired
through foreclosure with a book value of $7.2 million. Further, the properties
securing these loans are concentrated in Florida. Real estate values and real
estate markets generally are affected by, among other things, changes in
national, regional or local economic conditions, fluctuations in interest rates
and
10
<PAGE> 12
the availability of loans to potential purchasers, changes in the tax laws
and other governmental statutes, regulations and policies and acts of nature.
Any decline in real estate prices, particularly in Florida, could significantly
reduce the value of the real estate collateral securing the Company's loans,
increase the level of the Company's nonperforming loans, require write-downs in
the book value of its ORE, and have a material negative impact on the Company's
financial performance.
The Company has increased its level of commercial real estate loans which
are generally considered to involve a higher degree of credit risk than that for
one-to-four family residential lending. Further, the Company's retention of high
loan-to-value home mortgage loans for longer periods will increase its credit
risk and vulnerability to changes in real estate values.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels, which are currently at relatively low
levels, and by other economic factors beyond its control. Interest rate risk
arises from mismatches (i.e., the interest sensitivity gap) between the dollar
amount of repricing or maturing assets and liabilities, and is measured in terms
of the ratio of the interest rate sensitivity gap to total assets. More assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive and is reflected as a positive gap, and more liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. At March 31, 1997, the Company had a one year cumulative
positive gap of .97%. A positive one year gap position may, as noted above, have
a negative impact on earnings in a falling interest rate environment. However,
if the Bank's deposits, including interest checking, money market accounts and
savings accounts were (contrary to management's assumptions) considered to be
fully and immediately repriceable, the Bank would have a one year cumulative
negative gap. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Asset/Liability Management."
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and examination
by the Department as its chartering authority and primary regulator, and by the
FDIC as its federal regulator and administrator of the insurance fund that
insures the Bank's deposits up to applicable limits. The Bank is a member of the
FHLB and is subject to certain limited regulation by the Federal Reserve. As the
holding company of the Bank, the Company is also subject to regulation and
oversight by the Federal Reserve. See "Business - Supervision and Regulation."
Such regulation and supervision governs the activities in which an institution
may engage and is intended primarily for the protection of the FDIC insurance
funds and depositors. Regulatory authorities have been granted extensive
discretion in connection with their supervisory and enforcement activities and
regulations have been implemented which have increased capital requirements,
increased insurance premiums and have resulted in increased administrative,
professional and compensation expenses. Any change in the regulatory structure
or the applicable statutes or regulations could have a material impact on the
Company and the Bank and their operations. Additional legislation and
regulations may be enacted or adopted in the future which could significantly
affect the powers, authority and operations of the Bank and the Bank's
competitors which in turn could have a material adverse affect on the Bank and
its operations. See "Business - Supervision and Regulation."
In the course of a recent review of the Bank's operations by the FDIC,
issues arose as to the software and procedures used by the Bank to record and
calculate the charges and other information for certain types of mortgage
11
<PAGE> 13
loans, and the amounts of interest due on one class of deposit accounts. The
Bank is in the process of taking the necessary actions to address these issues,
including the payment of refunds or additional interest as appropriate, and the
Company does not expect that any costs that it may incur to resolve these issues
will have a material adverse impact on either its operations or financial
condition.
DEPENDENCE ON EXISTING MANAGEMENT
The Company's ability to operate as a profitable enterprise has depended,
and will continue to depend in large part, upon the management and banking
abilities of the Company's senior management, including John W. Sapanski, the
Chairman, Chief Executive Officer and President of the Company and the Bank. If,
for any reason, the services of Mr. Sapanski were to become unavailable to the
Company, such event would likely have an adverse impact upon the future results
of operations of the Company in light of Mr. Sapanski's experience and
reputation in the banking industry, his stature within the Company, his
extensive knowledge of and familiarity with the Company's operations, and the
critical role played by Mr. Sapanski within the Company. Mr. Sapanski is 66
years old. Neither the Company, nor the Bank, maintains a key man life insurance
policy for Mr. Sapanski.
CONTROL BY THE CONTROLLING STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
The Company's Controlling Stockholders, William R. Hough and John W.
Sapanski (and their respective affiliates and immediate family members)
currently own shares of the Company's capital stock representing approximately
50.6% and 9.0%, respectively, of the total voting rights of the Company.
Following consummation of the FFO Merger, it is anticipated that these voting
percentages will be approximately 56.8% and 6.0%, respectively. On the basis of
such ownership, the Controlling Stockholders will be able to elect the Company's
Board of Directors and, through their control of the Company's Board, will be
able to continue to direct the affairs of the Company and the Bank. The Company
and the Bank have engaged in numerous transactions with affiliates of Mr. Hough,
and it is likely that the Company and the Bank will in the future continue to
engage in such transactions. Generally, transactions with affiliates can involve
conflicts of interests. However, the Company believes that its transactions with
its affiliates were on terms as favorable as those that could have been obtained
in arm's-length transactions.
CAPITAL LIMITATIONS ON FUTURE GROWTH
Since the Change in Control, one of the Company's primary business
objectives has been to increase its total asset size, expand into new market
areas, and increase market share in its existing markets. The Company has sought
to accomplish this goal through a combination of internal growth, loan and other
asset purchases, deposit assumptions, the opening of new branches and
acquisitions of other financial institutions. Most recently, in April 1997, the
Company acquired Firstate, an Orlando- based federal savings association having
total assets of $71.1 million. In addition, the Company has pending an
acquisition of FFO, a thrift holding company headquartered in St. Cloud,
Florida, with total assets of $320.0 million as of March 31, 1997. The Company
intends to pursue its current growth strategy for the foreseeable future as a
means of increasing overall profitability. There can be no assurance that the
Company will in the future have sufficient capital to continue to pursue its
growth strategy.
COMPETITION
The Company competes with various types of financial institutions,
including other commercial banks, savings institutions, finance companies,
mortgage banking companies, money market funds and credit unions, many of which
have substantially greater financial resources than the Company and, in some
cases, operate under fewer regulatory constraints. The Company not only competes
with financial institutions headquartered in the State of Florida but also
competes with a number of financial institutions headquartered outside of
Florida who are active in the state. See "Business--Branch Network" and
"Business--Supervision and Regulation."
12
<PAGE> 14
SUBORDINATION OF THE DEBENTURES
The Debentures are unsecured and subordinated in right of payment in full
to all existing and future Senior Indebtedness of the Company. As a result of
such subordination, in the event of bankruptcy, liquidation or reorganization of
the Company or upon acceleration of the Debentures due to an event of default,
the assets of the Company would be available to pay obligations on the
Debentures only after all Senior Indebtedness had been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Debentures then outstanding. The Company may from time to time incur
indebtedness constituting Senior Indebtedness. The Debentures are also
effectively subordinated in right of payment to all indebtedness and other
liabilities, including trade payables, of the Company's subsidiaries. The
Indenture does not prohibit or limit the incurrence of Senior Indebtedness or
other indebtedness and other liabilities by the Company or its subsidiaries. The
incurrence of additional indebtedness and other liabilities by the Company or
its subsidiaries could adversely affect the Company's ability to meet its
interest payment obligations on the Debentures. In addition, the cash flow and
ability of the Company to service debt, including the Debentures, is entirely
dependent upon the earnings from the Bank available for payment of dividends to
the Company. See "Description of the Debentures - Subordination."
ABSENCE OF PUBLIC MARKET FOR THE DEBENTURES
There can be no assurance regarding the future development of a market for
the Debentures or the ability of holders of the Debentures to sell their
Debentures or the price at which such holders may be able to sell their
Debentures. If such a market were to develop, the Debentures could trade at
prices that may be lower than the initial offering price depending on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. Therefore, there can be no assurance as
to the liquidity of any trading market for the Debentures, or that an active
public market for the Debentures will develop.
USE OF PROCEEDS
The Selling Securityholder Securities being offered hereby are for the
account of the Selling Securityholders. Accordingly, the Company will not
receive any of the proceeds from the sale of the Selling Securityholder
Securities.
PLAN OF DISTRIBUTION
The Selling Securityholder Securities may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Selling Securityholder
Securities to or through underwriters, broker/dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Securityholders, as the case may be, or the purchasers of such
Selling Securityholder Securities for whom they may act as agents. The Selling
Securityholders and any underwriters, broker/dealers or agents that participate
in the distribution of the Selling Securityholder Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and may profit on the
sale of such Selling Securityholder Securities and any discounts, commissions,
concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Company has advised the Selling Securityholders that during such time
as they may be engaged in a distribution of the Selling Securityholder
Securities included herein they may be required to comply with Regulation M
promulgated under the Exchange Act. In general, Regulation M precludes any
Selling Securityholder, any affiliated purchasers and any broker-dealer or other
person who participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subject of the
13
<PAGE> 15
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security.
Because it is possible that a significant number of shares of Common Stock
could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the Common Stock.
The Selling Securityholder Securities may be sold from time to time in one
or more transactions at fixed prices, at the prevailing market prices at the
time of sale, at varying prices determined at the time of sale or at negotiated
prices. This sale of the Selling Securityholder Securities may be effectuated in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service which the Selling
Securityholder Securities may be listed or quoted at the time of sale (although
the Company does not plan any such listing at this time), (ii) in
the over-the-counter market, and (iii) in transactions otherwise than on such
exchanges or in the over-the-counter markets. At the time a particular offering
of the Selling Securityholder Securities is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount of the
type of Selling Securityholder Securities being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Securityholders, as the case may be, and any discounts,
commissions or concessions allowed or reallowed to be paid to broker/dealers. To
comply with the securities laws of certain jurisdictions, if applicable, the
Selling Securityholder Securities will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Selling Securityholder Securities may not be offered or sold
unless they have been registered or qualified for sale in such jurisdictions or
an exemption from registration or qualification is available and is complied
with.
The Company has agreed to pay all expenses of registration of the Selling
Securityholder Securities with certain exceptions. The Selling Securityholders
will be indemnified by the Company against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company will be indemnified by such
persons severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently traded on Nasdaq's National Market
under the symbol "REPB." The table below sets forth the high and low closing
sale price for the Common Stock on Nasdaq's National Market for the periods
indicated. All price quotations represent prices between dealers, without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
See "Risk Factors -Absence of a Public Market for the Debentures."
<TABLE>
<CAPTION>
HIGH LOW
------- --------
<S> <C> <C>
1995:
First Quarter................................................................ $ 13.00 $ 11.00
Second Quarter............................................................... 13.75 11.75
Third Quarter................................................................ 15.75 13.1875
Fourth Quarter............................................................... 15.25 13.75
1996:
First Quarter................................................................ 14.25 13.25
Second Quarter............................................................... 15.00 12.25
Third Quarter................................................................ 12.875 11.75
Fourth Quarter............................................................... 15.50 12.625
1997:
First Quarter................................................................ 16.00 14.00
Second Quarter............................................................... 18.50 17.25
Third Quarter (through July 23, 1997)........................................ 17.75 17.25
</TABLE>
14
<PAGE> 16
SELLING SECURITYHOLDERS
The following table sets forth the number of Debentures and underlying
Shares beneficially owned by each of the Selling Securityholders included
herein, and the nature of any relationship which the Selling Securityholders
have had within the past three years with the Company. Because the Selling
Securityholders may offer all or some of the Selling Securityholder Securities
which they own pursuant to the offering contemplated by this Prospectus, and
because there are currently no agreements, arrangements or understandings with
respect to the sale of any of the Selling Securityholder Securities, no estimate
can be given as to the amount of Selling Securityholder Securities that will be
held by the Selling Securityholders after completion of this offering. The
Selling Securityholder Securities offered by this Prospectus may be offered from
time to time by the Selling Securityholders named below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
DEBENTURES SHARES
BENEFICIALLY HELD BENEFICIALLY
SELLING AND MAXIMUM HELD AND MAXIMUM
SECURITYHOLDER AMOUNT TO BE SOLD AMOUNT TO BE SOLD(1)
- -------------- ----------------- --------------------
<S> <C> <C>
Hazel C. Hough $ 100,000 5,600
William R. Hough(2) $ 100,000 5,600
Victoria E. Rahall $ 100,000 5,600
Public Profit Sharing Plan & Trust
Mr. Hoyt Barnett, Trustee $ 500,000 28,000
Royal Palm Centre II, Inc. c/o ACMC $ 100,000 5,600
Julian D. Clarkson $ 100,000 5,600
Anne M. Fassett, Trust
Gloria A. Fassett, Trustee $ 100,000 5,600
Alfred T. May Trust
Alfred T. May Trustee $ 100,000 5,600
Carol Ann Upham $ 100,000 5,600
Dr. Susan L. Hough $ 300,000 16,800
Marilyn H. Adkins and Robert C. Adkins $ 100,000 5,600
David D. Hill, M.D., IRA
William R. Hough & Co., Custodian $ 100,000 5,600
Sharyn R. Jacobson $ 200,000 11,200
Geoffrey W. Hill $ 500,000 28,000
Mary H. Cordrey Revocable Trust
Mary H. Cordrey, Trustee $ 100,000 5,600
John W. Sapanski & Elizabeth Sapanski(3) $ 400,000 22,400
John W. Sapanski, IRA Rollover
William R. Hough & Co., Custodian(3) $ 100,000 5,600
George K. Rahdert ISERP $ 100,000 5,600
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
DEBENTURES SHARES
BENEFICIALLY HELD BENEFICIALLY
SELLING AND MAXIMUM HELD AND MAXIMUM
SECURITYHOLDER AMOUNT TO BE SOLD AMOUNT TO BE SOLD(1)
- -------------- ----------------- --------------------
<S> <C> <C>
Caroline Corp. 100,000 5,600
Frank I. Mendelblatt 100,000 5,600
Cutler Associates, Inc. Profit Sharing Plan 100,000 5,600
Cutler Associates Investment, Inc. 100,000 5,600
Melvin S. Cutler 100,000 5,600
Helen Hough Feinberg 100,000 5,600
Edward Hang & Patty Hang JTWROS 100,000 5,600
M.A. Schapiro & Co., Inc. 250,000 14,000
S.D. Securities, Inc. 250,000 14,000
Vincent Santamaria 200,000 11,200
Gale J. Apple 100,000 5,600
Timothy L. Landt, Trust
Timothy L. Landt Trustee 100,000 5,600
Charles W. Haines, Sr. and Charles W.
Haines Jr. JTWROS 100,000 5,600
Bankers Insurance Co. 400,000 22,400
John A. Ruvane, IRA
William R. Hough & Co., Custodian 100,000 5,600
Spring Haven II, Inc. 100,000 5,600
Virginia S. Morrison 200,000 11,200
Morrison & Company, P.A. Profit Sharing
Trust 200,000 11,200
Neil W. Savage 100,000 5,600
</TABLE>
(1) Represents Shares to be issued upon conversion of the Debentures.
(2) Mr. William R. Hough, a director and a Controlling Stockholder of the
Company, is the President and controlling stockholder of William R. Hough
& Co., an NASD-member investment banking firm that has been involved in
several transactions with the Company. For a description of certain
relationships between the Company and Mr. Hough and certain affiliates,
see Note 16 to the Company's Consolidated Financial Statements included
herein.
(3) Mr. John W. Sapanski is Chairman of the Board, Chief Executive Officer
and President of the Company and the Bank and is a Controlling
Stockholder of the Company.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the actual and pro forma, as adjusted,
consolidated capitalization of the Company at March 31, 1997. Pro forma
capitalization gives effect to (i) the Firstate Acquisition, (ii) the FFO
Merger, and (iii) the proceeds from the Preferred Offering. The information set
forth below should be read in conjunction with the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus. See "Pro Forma
Financial Data."
<TABLE>
<CAPTION>
March 31, 1997
-----------------------
Pro Forma
Company As
Actual Adjusted
-------- --------
(dollars in thousands)
<S> <C> <C>
Subordinated debentures .................................... $ 6,000 $ 6,000
Guaranteed preferred beneficial interests in Company's
junior subordinated debentures(1) ...................... 0 25,000
Stockholders' Equity:
Perpetual Preferred Convertible Stock, 100,000 shares
authorized, 75,000 shares issued and outstanding ....... 1,500 1,500
Common Stock, 20,000,000 shares authorized,
4,183,507 shares issued and outstanding ................ 8,367 13,266
Capital surplus .......................................... 26,699 45,801
Retained earnings ........................................ 19,386 21,066
Net unrealized losses on debt securities available for
sale-net of deferred income taxes ...................... (373) (522)
-------- --------
Total stockholders' equity ............................... $ 55,579 $ 81,111
======== ========
Company Capital Ratios(2):
Equity to total assets ................................... 6.09% 6.21%
Tier 1 risk-based capital ratio .......................... 8.87 10.83
Total risk-based capital ratio ........................... 11.12 13.14
Leverage ratio(3) ........................................ 5.83 7.19
</TABLE>
(1) Preferred Securities representing beneficial interests in an aggregate
amount of $25 million of the Junior Subordinated Debentures of the
Company.
(2) The pro forma capital ratios, as adjusted, are computed including
proceeds from the sale of the Preferred Securities, in a manner
consistent with Federal Reserve guidelines and policies. Under the
Federal Reserve's guidelines, the amount of cumulative preferred stock
that can be included in Tier 1 capital is limited to 25% of total Tier 1
capital. In view of this limitation on a pro forma basis, $23.7 million
of the proceeds is included in the Company's Tier 1 Capital and all $25.0
million is included in the Company's total risk-based capital.
(3) The leverage ratio is Tier 1 capital divided by the average total assets
less intangibles.
17
<PAGE> 19
PRO FORMA FINANCIAL DATA
The pro forma balance sheet as of March 31, 1997 and statement of
operations and other data for the year ended December 31, 1996 and for the three
months ended March 31, 1997 give effect to, among other things, the Firstate
Acquisition and the FFO Merger, as if they had occurred at the beginning of the
respective periods. See "Business--Recent and Pending Acquisitions" for a
description of the Firstate Acquisition and FFO Merger.
The Firstate Acquisition was accounted for using the purchase accounting
method. The FFO Merger will be accounted for as a corporate reorganization in
which the majority stockholders' interest in FFO will be combined at historical
cost in a manner similar to a pooling of interests, while the minority interests
in FFO will be combined using purchase accounting rules.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances. The pro forma and projected financial data should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto appearing elsewhere in this Prospectus. The pro forma and projected
financial data are not necessarily indicative of the results that would have
occurred had the Firstate Acquisition and the FFO Merger actually occurred on
the dates indicated, nor are they indicative of the Company's future results of
operations.
The pro forma adjustments to the Combined Condensed Statements of
Operations are limited to amortization of goodwill from the transaction and do
not include the effect of operating cost swings or revenue enhancements that may
be realized after the Firstate Acquisition and FFO Merger are completed.
18
<PAGE> 20
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
COMBINED
COMPANY COMPANY
FIRSTATE WITH FFO WITH
COMPANY FIRSTATE ADJUSTMENTS(A) FIRSTATE FFO ADJUSTMENTS(B) FIRSTATE
-------- -------- -------------- -------- -------- -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks.................. $ 23,803 $ 513 $ 5,173 $ 29,489 $ 6,491 $ -- $ 35,980
Interest bearing
deposits............... -- 950 -- 950 7,688 -- 8,638
Investment securities and
mortgage-backed
securities............. 63,198 27,493 (247) 90,444 71,584 19 162,047
FHLB stock............... 5,081 -- -- 5,081 2,378 -- 7,459
Federal funds sold....... 41,000 380 -- 41,380 764 -- 42,144
Loans held for sale...... 40,201 -- -- 40,201 4,573 -- 44,774
Loans receivable, net.... 694,784 37,931 (6,689) 726,026 215,926 (530) 941,422
Premises and equipment... 20,015 655 -- 20,670 5,268 251 26,189
Real estate owned........ 7,250 2,526 (2,453) 7,323 1,425 -- 8,748
Goodwill................. -- -- 130 130 -- 5,862 5,992
Other assets............. 16,761 1,531 2,469 20,761 3,934 -- 24,695
-------- -------- -------- -------- -------- ------ ----------
Total assets.... $912,093 $ 71,979 $ (1,617) $982,455 $320,031 $5,602 $1,308,088
======== ======== ======== ======== ======== ====== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits --
Noninterest-bearing
checking........... $ 49,066 $ 1,416 $ -- $ 50,482 $ 16,589 $ -- $ 67,071
Interest-bearing
checking........... 89,895 1,453 -- 91,348 22,676 -- 114,024
Savings and money
market............. 283,362 3,848 -- 287,210 35,392 -- 322,602
Time deposits........ 406,737 61,349 490 468,576 211,015 149 679,740
-------- -------- -------- -------- -------- ------ ----------
Total
deposits...... 829,060 68,066 490 897,616 285,672 149 1,183,437
Securities sold under
agreement to
repurchase............. 16,160 -- -- 16,160 -- -- 16,160
Other borrowings......... 6,000 -- -- 6,000 9,000 -- 15,000
Other liabilities........ 5,294 1,027 779 7,100 4,599 (2) 11,697
-------- -------- -------- -------- -------- ------ ----------
Total
liabilities... 856,514 69,093 1,269 926,876 299,271 147 1,226,294
-------- -------- -------- -------- -------- ------ ----------
Stockholders' equity
Perpetual preferred
convertible
stock.............. 1,500 -- -- 1,500 -- -- 1,500
Common stock......... 8,367 1,500 (1,500) 8,367 845 4,054 13,266
Capital surplus...... 26,699 13,002 (13,002) 26,699 17,633 1,469 45,801
Retained earnings.... 19,386 (11,616) 11,616 19,386 2,431 (68) 21,749
Net unrealizable loss
on AFS
securities......... (373) -- -- (373) (149) -- (522)
-------- -------- -------- -------- -------- ------ ----------
Total
stockholders'
equity........ 55,579 2,886 (2,886) 55,579 20,760 5,455 81,794
-------- -------- -------- -------- -------- ------ ----------
Total
liabilities
and
stockholders'
equity........ $912,093 $ 71,979 $ (1,617) $982,455 $320,031 $5,602 $1,308,088
======== ======== ======== ======== ======== ====== ==========
</TABLE>
19
<PAGE> 21
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
COMBINED
COMPANY COMPANY
FIRSTATE WITH FFO WITH
COMPANY FIRSTATE ADJUSTMENTS(C) FIRSTATE FFO ADJUSTMENTS(D) FIRSTATE
---------- -------- -------------- ---------- ------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
MARCH 31, 1997
Interest income........... $ 18,070 $1,141 $-- $ 19,211 $5,807 $ -- $ 25,018
Interest expense.......... 8,969 879 -- 9,848 3,173 -- 13,021
--------- ------ --- --------- ------ ----- ---------
Net interest income....... 9,101 262 -- 9,363 2,634 -- 11,997
Loan loss provision....... 1,138 7 -- 1,145 -- -- 1,145
--------- ------ --- --------- ------ ----- ---------
Net interest income after
loan loss provision..... 7,963 255 -- 8,218 2,634 -- 10,852
Noninterest income........ 3,124 138 -- 3,262 601 -- 3,863
General & administrative
(G&A expenses).......... 8,240 663 -- 8,903 2,263 -- 11,166
Other noninterest
expenses................ 280 37 -- 317 34 -- 351
--------- ------ --- --------- ------ ----- ---------
Net income before taxes
and goodwill............ 2,567 (307) -- 2,260 938 -- 3,198
Income tax expense........ 964 -- -- 964 351 -- 1,315
--------- ------ --- --------- ------ ----- ---------
Net income before goodwill
amortization............ 1,603 (307) -- 1,296 587 -- 1,883
Goodwill amortization from
the FFO merger &
Firstate
acquisition(a).......... -- -- 3 3 -- 147 150
--------- ------ --- --------- ------ ----- ---------
Net income....... $ 1,603 $ (307) $(3) $ 1,293 $ 587 $(147) $ 1,733
========= ====== === ========= ====== ===== =========
Earnings per share(e)..... $ .32 $ .26 $ .23
========= ========= =========
Weighted average shares
outstanding(e).......... 4,980,167 4,980,167 7,429,584
</TABLE>
<TABLE>
<CAPTION>
COMBINED
COMPANY COMPANY
FIRSTATE WITH FFO WITH
COMPANY FIRSTATE ADJUSTMENTS(C) FIRSTATE FFO ADJUSTMENTS(D) FIRSTATE
---------- -------- -------------- ---------- ------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED
DECEMBER 31, 1996
Interest income........... $ 66,947 $ 5,409 $ -- $ 72,356 $21,997 $ -- $ 94,353
Interest expense.......... 32,926 4,015 -- 36,941 12,023 -- 48,964
--------- ------- ---- --------- ------- ----- ---------
Net interest income....... 34,021 1,394 -- 35,415 9,974 -- 45,389
Loan loss provision....... 1,800 (289) -- 1,511 782 -- 2,293
--------- ------- ---- --------- ------- ----- ---------
Net interest income after
loan loss provision..... 32,221 1,683 -- 33,904 9,192 -- 43,096
Noninterest income........ 5,616 390 -- 6,006 2,387 -- 8,393
General & administrative
(G&A expenses).......... 27,352 2,747 -- 30,099 9,528 -- 39,627
Other noninterest
expenses................ 4,469 849 -- 5,318 (352) -- 4,966
--------- ------- ---- --------- ------- ----- ---------
Net income before taxes
and goodwill............ 6,016 (1,523) -- 4,493 2,403 -- 6,896
Income tax expense........ 2,232 -- -- 2,232 803 -- 3,035
--------- ------- ---- --------- ------- ----- ---------
Net income before goodwill
amortization............ 3,784 (1,523) -- 2,261 1,600 -- 3,861
Goodwill amortization from
the FFO merger &
Firstate
acquisition(a).......... -- -- 13 13 -- 586 599
--------- ------- ---- --------- ------- ----- ---------
Net income....... $ 3,784 $(1,523) $(13) $ 2,248 $ 1,600 $(586) $ 3,262
========= ======= ==== ========= ======= ===== =========
Earnings per share(e)..... $ .76 $ .45 $ .44
========= ========= =========
Weighted average shares
outstanding(e).......... 4,952,937 4,952,937 7,402,354
</TABLE>
20
<PAGE> 22
REPUBLIC BANCSHARES, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
ADJUSTMENTS COMBINED
COMPANY FFO INC/(DEC) COMPANY
---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
TWELVE MONTHS ENDED
DECEMBER 31, 1995
Interest income................................. $ 57,863 $ 19,730 $ -- $ 77,593
Interest expense................................ 30,001 10,111 -- 40,112
--------- --------- ----- ---------
Net interest income............................. 27,862 9,619 -- 37,481
Loan loss provision............................. 1,685 477 -- 2,162
--------- --------- ----- ---------
Net interest income after loan loss provision... 26,177 9,142 -- 35,319
Noninterest income.............................. 2,751 2,602 -- 5,353
General & administrative (G&A) expenses......... 22,119 8,844 -- 30,963
Other noninterest expenses...................... 739 613 -- 1,352
--------- --------- ----- ---------
Net income before taxes and goodwill............ 6,070 2,287 -- 8,357
Income tax expense.............................. 1,875 641 -- 2,516
--------- --------- ----- ---------
Net income before goodwill amortization......... 4,195 1,646 -- 5,841
Goodwill amortization from the FFO merger &
Firstate acquisition(a)....................... (1,578) -- 586 (992)
--------- --------- ----- ---------
Net income............................ $ 5,773 $ 1,646 $(586) $ 6,833
========= ========= ===== =========
Earnings per share(e)........................... $ 1.27 $ 0.23 $ 0.98
Weighted average shares outstanding(e).......... 4,562,642 7,007,342 7,007,342
TWELVE MONTHS ENDED
DECEMBER 31, 1994
Interest income................................. $ 37,115 $ 16,882 $ -- $ 53,997
Interest expense................................ 16,871 7,553 -- 24,424
--------- --------- ----- ---------
Net interest income............................. 20,244 9,329 -- 29,573
Loan loss provision............................. 1,575 (1,403) -- 172
--------- --------- ----- ---------
Net interest income after loan loss provision... 18,669 10,732 -- 29,401
Noninterest income.............................. 2,612 2,487 -- 5,099
General & administrative (G&A) expenses......... 14,916 8,761 -- 23,677
Other noninterest expenses...................... 1,701 3,784 -- 5,485
--------- --------- ----- ---------
Net income before taxes and goodwill............ 4,664 674 -- 5,338
Income tax expense.............................. 468 234 -- 702
--------- --------- ----- ---------
Net income before goodwill amortization......... 4,196 440 -- 4,636
Goodwill amortization from the FFO merger &
Firstate acquisition(a)....................... (2,705) -- 586 (2,119)
--------- --------- ----- ---------
Net income............................ $ 6,901 $ 440 $(586) $ 6,755
========= ========= ===== =========
Earnings per share(e)........................... $ 1.67 $ 0.06 $ 0.95
Weighted average shares outstanding(e).......... 4,136,790 7,085,788 7,085,788
</TABLE>
21
<PAGE> 23
NOTES TO PRO FORMA DATA
(a) To reflect the purchase by Firstate's former controlling stockholder of
certain loans and ORE to reflect the excess purchase price over the
estimated fair value of the net assets acquired from Firstate and to
eliminate Firstate's historical equity accounts.
(b) The FFO Merger will be accounted for as a corporate reorganization in
which the majority stockholder's interest in FFO will be combined at
historical cost in a manner similar to a pooling of interests while the
minority interest in FFO will be combined using purchase accounting rules.
The excess of the purchase price of the minority interest are the market
value as first assigned to individual assets and liabilities with the
remainder considered unidentifiable goodwill. The pro forma valuation of
the minority interest, book value and estimated amount of goodwill and
market value adjustments is as follows:
<TABLE>
<S> <C>
Exchange ratio: 0.29 shares of the Company's stock for
each share of FFO's stock
Number of shares to be issued - total..................... 2,449,417
Minority interest in FFO.................................. 30.9%
Number of shares to be issued to minority interest........ 756,870
Fair value per share of the Company's common stock........ $ 15.50 (1)
Fair value of minority interest of FFO common stock....... $ 11,731 (2)
Fair value of FFO common stock options over the
exercise price.......................................... 139 (3)
----------
Fair value of minority interest........................... 11,870
----------
Book value of minority interest........................... 6,415 (4)
----------
Goodwill and market value adjustments..................... $ 5,455
==========
Amount allocated to goodwill........................... 5,862
Amount allocated to market value adjustments........... (407)
</TABLE>
(1) The fair value of the Company's common stock is based on the average
of the closing bid price on The Nasdaq National Market two days
before, two days after, and on March 31, 1997, the date the Company
and FFO announced that they had signed a letter of intent to combine
the two companies.
(2) The fair value per share of the Company's common stock multiplied by
the number of shares to be issued to the minority interest.
(3) The number of FFO options outstanding multiplied by the fair value of
the Company's common stock adjusted for the Exchange Ratio of 0.29,
less the aggregate exercise price of the FFO's common stock options,
all multiplied by the 30.9% minority interest.
(4) FFO's book value times the 30.3% minority interest.
(c) Amortization of goodwill on the Firstate Acquisition is as follows:
<TABLE>
<S> <C>
Goodwill recorded............................................. 130
Annual amortization based on 10-year period................... 13
Amortization for 3 months..................................... 3
</TABLE>
(d) Amortization of goodwill on the FFO Merger is as follows:
<TABLE>
<S> <C>
Goodwill recorded......................................... $5,862
Annual amortization based on 10-year period............... 586
Amortization for 3 months................................. 147
</TABLE>
(e) The difference between earnings per common and common equivalent shares
outstanding on a primary and fully diluted basis is not material. The
number of shares of FFO common stock used in the earnings per share
22
<PAGE> 24
calculation assumes that all shares of FFO were exchanged at the beginning
of the period presented and that all FFO common stock options outstanding
were converted into shares of FFO common stock. The following table
reflects the calculation used in determining the weighted average shares
outstanding.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Number of FFO shares outstanding 8,446,266 8,446,266
Exchange ratio .................. 0.29 0.29
FFO pro forma shares outstanding 2,449,417 2,449,417
Company weighted average shares . 4,980,167 4,952,937
--------- ---------
Pro forma weighted average shares 7,429,584 7,402,354
</TABLE>
(f) The goodwill from the Firstate Acquisition and FFO Merger is not expected
to be tax deductible and therefore, no tax effect is included. The
Company's statutory tax rate in effect for the periods presented was
37.6%.
23
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company and, prior to
1996, the Bank and are qualified in their entirety by reference to the more
detailed Consolidated Financial Statements and notes thereto, included elsewhere
herein. Financial data for interim periods include all adjustments, consisting
of normal accruals, that management considers necessary for a fair presentation
of the financial conditions and results of operations for such interim periods.
In light of the significant mark-to market adjustments and other adjusting
entries to its financial statements that were made following the Change in
Control on May 28, 1993, management believes that the usefulness of comparisons
between (i) the financial statements and the financial data derived therefrom as
of the dates and for the period prior to June 1, 1993, and (ii) the financial
statements and the financial data derived therefrom as of the dates and for the
periods since June 1, 1993, may be limited. In addition, subsequent to
consummation of the initial public offering in December 1993 and the CrossLand
Purchase and Assumption in that month, the Company has operated in a
significantly different manner from that which it had previously operated.
Accordingly, the financial results for periods prior to the CrossLand Purchase
and Assumption differ significantly from periods since then.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
--------------------- ------------------------------
1997 1996 1996 1995 1994
---------- ---------- -------- -------- --------
(unaudited)
(Dollars in thousands, except per share data
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income .................................... $ 18,070 $ 15,862 $ 66,947 $ 57,863 $ 37,115
Interest expense ................................... 8,969 7,927 32,926 30,001 16,871
---------- ---------- ---------- ---------- ----------
Net interest income ................................ 9,101 7,935 34,021 27,862 20,244
Loan loss provision ................................ 1,138 450 1,800 1,685 1,575
---------- ---------- ---------- ---------- ----------
Net interest income after loan loss
provision .......................................... 7,963 7,485 32,221 26,177 18,669
Other noninterest income ........................... 3,124 678 4,409 2,751 2,612
Gain on sale of ORE held for investment ............ -- -- 1,207 -- --
General and administrative ("G&A") expenses ........ 8,240 5,956 27,352 22,119 14,916
SAIF special assessment(1) ......................... -- -- 2,539 -- --
Provision for losses on ORE ........................ 170 180 1,611 -- 10
Other noninterest expense .......................... 110 124 319 739 1,691
---------- ---------- ---------- ---------- ----------
Net income before income taxes & goodwill accretion 2,567 1,903 6,016 6,070 4,664
Accretion of negative goodwill ..................... -- -- -- 1,578 2,705
---------- ---------- ---------- ---------- ----------
Net income before income taxes ..................... 2,567 1,903 6,016 7,648 7,369
Income tax provision ............................... 964 699 2,232 1,875 468
---------- ---------- ---------- ---------- ----------
Net income ......................................... $ 1,603 $ 1,204 $ 3,784 $ 5,773 $ 6,901
========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share ................................. $ .32 $ .24 $ .76 $ 1.26 $ 1.67
========== ========== ========== ========== ==========
Weighted average shares outstanding ................ $4,980,167 $4,953,119 $4,952,937 $4,562,642 $4,136,790
BALANCE SHEET DATA:
Total assets ....................................... $ 912,093 $ 802,363 $ 907,868 $ 801,995 $ 626,445
Investment & mortgage backed securities ............ 62,198 51,481 94,989 64,801 40,271
Loans, net of unearned income ...................... 748,493 676,658 742,994 669,416 516,335
Allowance for loan losses .......................... 13,508 14,746 13,134 14,910 7,065
Deposits ........................................... 829,060 742,082 827,980 743,105 583,885
Negative goodwill .................................. -- -- -- -- 1,578
Stockholders' equity ............................... 55,579 52,047 54,319 50,903 36,165
SELECTED FINANCIAL RATIOS(2):
Return on average assets ........................... .72 .60% .45% .77% 1.25%
Return on average equity ........................... 12.10 9.57 7.31 13.47 21.34
Net interest spread ................................ 3.83 3.83 3.96 3.67 3.78
Net interest margin ................................ 4.12 4.14 4.28 3.95 3.96
G&A expense to average assets ...................... 3.63 2.96 3.28 2.96 2.74
G&A efficiency ratio ............................... 67.40 69.15 68.98 72.25 65.26
Non-accrual loans to loans(5) ...................... 2.27 2.22 2.15 2.04 2.51
Nonperforming assets to total assets(5) ............ 2.58 3.02 2.51 2.93 3.59
Loan loss allowance to loans(3)(5) ................. 1.91 2.18 1.86 2.24 1.37
Loan loss allowance to nonperforming loans(3)(5):
Originated portfolio ............................. 63.76 68.05 50.73 71.43 110.61
March 1995 purchase .............................. 120.47 135.04 488.78 236.85 --
CrossLand portfolio .............................. 104.82 63.46 126.12 41.77 23.73
Other purchased portfolios ....................... 45.60 40.39 89.80 41.84 82.99
---------- ---------- ---------- ---------- ----------
Total ......................................... 82.81 96.47% 84.93% 90.47% 53.36%
</TABLE>
<TABLE>
<CAPTION>
Seven Months Ended
December 31,
-----------------------
1994 1993
-------- ----------
(unaudited)
<S> <C> <C>
OPERATING DATA:
Interest income .................................... $ 23,684 $ 7,331
Interest expense ................................... 10,711 3,110
---------- ----------
Net interest income ................................ 12,973 4,221
Loan loss provision ................................ 1,263 709
---------- ----------
Net interest income after loan loss
provision .......................................... 11,710 3,512
Other noninterest income ........................... 1,758 1,411
Gain on sale of ORE held for investment ............ -- --
General and administrative ("G&A") expenses ........ 9,308 3,700
SAIF special assessment(1) ......................... -- --
Provision for losses on ORE ........................ 10 20
Other noninterest expense .......................... 1,417 600
---------- ----------
Net income before income taxes & goodwill accretion 2,733 603
Accretion of negative goodwill ..................... 1,578 1,579
---------- ----------
Net income before income taxes ..................... 4,311 2,182
Income tax provision ............................... 268 --
---------- ----------
Net income ......................................... $ 4,043 $ 2,182
========== ==========
PER SHARE DATA:
Earnings per share ................................. $ 0.98 $ 1.12
========== ===========
Weighted average shares outstanding ................ $4,141,322 $ 1,951,231
BALANCE SHEET DATA:
Total assets ....................................... $ 626,445 $ 531,312
Investment & mortgage backed securities ............ 40,271 37,382
Loans, net of unearned income ...................... 516,335 316,483
Allowance for loan losses .......................... 7,065 6,539
Deposits ........................................... 583,885 494,316
Negative goodwill .................................. 1,578 4,283
Stockholders' equity ............................... 36,165 29,454
SELECTED FINANCIAL RATIOS(2):
Return on average assets ........................... 1.20% 1.99%
Return on average equity ........................... 20.68 39.17
Net interest spread ................................ 4.06 3.45
Net interest margin ................................ 4.25 4.22
G&A expense to average assets ...................... 2.79 3.94
G&A efficiency ratio ............................... 62.02 65.70
Non-accrual loans to loans(5) ...................... 2.51 5.05
Nonperforming assets to total assets(5) ............ 3.59 4.95
Loan loss allowance to loans(3)(5) ................. 1.37 2.07
Loan loss allowance to nonperforming loans(3)(5):
Originated portfolio ............................. 110.61 37.95
March 1995 purchase .............................. -- --
CrossLand portfolio .............................. 23.73 39.88
Other purchased portfolios ....................... 82.99 --
---------- -----------
Total ......................................... 53.36% 39.12%
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
Three Months Ended Seven Months Ended
March 31, Years Ended December 31, December 31,
----------------- ----------------------------- ------------------
1997 1996 1996 1995 1994 1994 1993
----- ------ ----- ------ ------ ------ ------
(unaudited) (unaudited)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES(4):
Including interest on deposits ........ 1.29 1.25 1.19 1.26 1.45 1.42 1.70
Excluding interest on deposits ........ 37.79 206.17 78.41 298.53 235.62 156.91 756.00
OTHER DATA (5):
Number of branches .................... 33 32 32 32 21 21 19
Number of full-time equivalent
employees ............................. 644 436 637 421 300 300 179
</TABLE>
(1) The SAIF special assessment is a one-time charge. See "Business--
Supervision and Regulation--Deposit Insurance."
(2) Annualized.
(3) See "Business--Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the
Bank.
(4) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed charges
include interest expense (inclusive or exclusive of interest on deposits as
indicated).
(5) At period-end.
25
<PAGE> 27
<TABLE>
<CAPTION>
Five Months Ended Year Ended
May 31, December 31,
-------------------------- ----------
1994 1993 1992
---------- ----------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
OPERATING DATA:
Interest income ............................................... $ 13,431 $ 4,848 $ 11,845
Interest expense .............................................. 6,160 1,970 6,054
---------- ----------- ----------
Net interest income ........................................... 7,271 2,878 5,791
Loan loss provision ........................................... 312 379 520
---------- ----------- ----------
Net interest income after loan loss provision ................. 6,959 2,499 5,271
Other noninterest income ...................................... 854 743 1,679
G&A expenses .................................................. 5,608 2,699 5,748
Provision for losses on ORE ................................... -- 1,214 230
Other noninterest expense ..................................... 274 443 715
---------- ----------- ----------
Net income (loss) before income taxes and goodwill accretion .. 1,931 (1,114) 257
Accretion of negative goodwill ................................ 1,127 -- --
---------- ----------- ----------
Net income (loss) before income taxes ......................... 3,058 (1,114) 257
Income tax provision (benefit) ................................ 200 -- --
---------- ----------- ----------
Net income (loss) ............................................. $ 2,858 $ (1,114) $ 257
========== =========== ==========
PER SHARE DATA:
Earnings (loss) per share ..................................... $ 1.67 $ (1.00) $ 0.23
========== =========== ==========
Weighted average shares outstanding ........................... 4,134,420 1,117,192 1,106,459
BALANCE SHEET DATA:
Total assets .................................................. $ 508,642 $ 168,741 $ 168,810
Investment securities ......................................... 52,571 27,433 24,276
Loans net of unearned income .................................. 396,144 111,292 110,715
Allowance for loan losses ..................................... 6,828 1,866 1,958
Negative goodwill ............................................. 3,156 5,861 --
Deposits ...................................................... 469,461 153,660 154,984
Stockholder's Equity .......................................... 32,234 8,058 12,215
SELECTED FINANCIAL RATIOS(1):
Return on average assets ...................................... 1.33% (1.61)% 0.15%
Return on average equity ...................................... 22.34 (21.75) 2.12
Net interest spread ........................................... 3.48 4.21 3.51
Net interest margin ........................................... 3.67 4.66 3.95
G&A expense to average assets ................................. 2.40 6.28 4.01
G&A efficiency ratio .......................................... 67.32 74.54 76.95
Non-accrual loans to loans(4) ................................. 4.36 2.27 3.20
Nonperforming assets to total assets(4) ....................... 5.64 5.89 7.55
Loan loss allowance to loans(2)(4) ............................ 1.72 1.68 1.77
Loan loss allowance to nonperforming loans(2)(4) .............. 23.58 73.03 54.98
RATIO OF EARNINGS TO FIXED CHARGES(3):
Including interest on deposits ................................ 1.51 0.43 1.04
Excluding interest on deposits ................................ 928.40 171.20 332.16
OTHER DATA(4):
Number of branches ............................................ 19 7 7
Number of full-time equivalent employees ...................... 223 96 90
</TABLE>
(1) Annualized.
(2) See "Business--Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the
Bank.
(3) Represents earnings before fixed charges, income taxes and extraordinary
items and non-cumulative preferred dividends and redemption. Fixed charges
include interest expense (inclusive or exclusive of interest on deposits as
indicated).
(4) At period-end.
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's balance sheets and
statements of operations should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements and the
related notes included therein.
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Comparison of Balance Sheets at March 31, 1997 and December 31, 1996
Overview
Total assets of the Company were $912.1 million at March 31, 1997 and
$907.9 million at December 31, 1996, an increase of $4.2 million. Total loans
increased by $5.5 million from $743.0 million at the end of the prior year to
$748.5 million at the end of the first quarter. Total deposits increased by $1.1
million from $828.0 million at year-end 1996 to $829.1 million.
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities, consisting primarily of U.S.
Treasury and federal agency securities, were $63.2 million at March 31, 1997
compared to $95.0 million at December 31, 1996, a decrease of $31.8 million.
During the first three months of 1997, management permitted the amount in this
category to decline by allowing maturities and sales to exceed purchases.
Concurrently, federal funds sold, all on an overnight basis, increased by $33.0
million from $8.0 million at the prior year-end to $41.0 million at March 31,
1997. At March 31, 1997, the Company had recorded all its investment and
mortgage-backed securities as "available for sale," carrying them at their
market value.
Loans and Loans Held for Sale
Total loans increased $5.5 million from $743.0 million at year-end to
$748.5 million at March 31, 1997. This increase was the result of $108.4 million
of new loan production during the first quarter, which exceeded loan repayments
of $16.9 million and $86.0 million in residential loan sales. Residential loans,
including $40.2 million in mortgage loans held for sale, declined $7.7 million
to $398.1 million, while other real estate-secured loans increased $5.2 million.
Consumer loans also increased $1.7 million while commercial (business) loans
declined $1.3 million.
Allowance for Loan Losses
The allowance for loan losses amounted to $13.5 million at March 31, 1997,
compared to $13.1 million at December 31, 1996. The loan portfolio includes
purchased loans amounting to $271.2 million (36.23% of total loans) and the
Company has allocated a portion of the discount on those purchases to the
allowance for loan losses in amounts consistent with the Company's loan loss
allowance policy guidelines. At March 31, 1997, the allowance for loan losses
included $3.7 million allocated to the Company's largest purchase made in March
1995 (the "March 1995 Purchase"), $1.0 million allocated to loans purchased from
CrossLand, $1.7 million allocated to other loan purchases, and $7.1 million
allocated to loans originated by the Bank. Activity to the allowance for loan
losses during the first quarter of 1997 included a $1.1 million provision for
loan losses and loan charge-offs (net of recoveries) of $122,000. During the
first quarter, the Company sold $6.0 million of loans from the March 1995
Purchase and subsequently reallocated $642,000 from the allowance allocated for
the March 1995 Purchase to the allowance allocated for originated loans. This
transfer was accomplished by recording a gain on sale of loans and an increase
in the loan loss provision of equivalent amounts. Discounts on loan purchases
not allocated to the
27
<PAGE> 29
allowance for loan losses, recorded as unearned discount, amounted to $4.1
million at March 31, 1997. Such discounts are available to absorb losses on
pools of purchased loans should amounts allocated to the allowance prove
insufficient.
Nonperforming Assets
Nonperforming assets amounted to $23.6 million or 2.58% of total assets at
March 31, 1997, compared to $22.8 million or 2.51% of total assets at December
31, 1996. Nonperforming assets at March 31, 1997, included a $1.1 million loan
which had matured prior to March 31, 1997, which the borrower subsequently
agreed to repay prior to June 30, 1997. Nonperforming loans totaled $16.3
million at the end of the first quarter, an increase of $1.1 million from the
year-end total of $15.4 million. This was the result of increases of $904,000 in
nonperforming residential loans, and $718,000 in nonperforming commercial
(business) loans, partially offset by decreases of $468,000 in nonperforming
commercial real estate loans and $123,000 in nonperforming consumer loans.
Nonperforming loans at March 31, 1997 and December 31, 1996 included troubled
debt restructurings of $1.1 million and $1.0 million, respectively. ORE acquired
through foreclosure declined from $7.4 million at the end of 1996 to $7.2
million at the end of the first quarter of 1997.
Deposits
Total deposits were $829.0 million at March 31, 1997, compared to $828.0
million at December 31, 1996, an increase of $1.0 million. Passbook savings
accounts offered to higher balance customers at a premium rate increased by $4.2
million and other savings accounts increased by $1.2 million. Interest bearing
and non-interest bearing checking account balances remained relatively unchanged
from the prior year-end, increasing by only $168,000, while certificates of
deposit declined by $4.9 million.
Stockholders' Equity
Stockholders' equity was $55.6 million at March 31, 1997, or 6.1% of total
assets, compared to $54.3 million or 6.0% of total assets at December 31, 1996.
At March 31, 1997, the Company's Tier 1 Capital ratio was 5.83%, its Tier 1
Risk-Based Capital ratio was 8.87%, and the Total Risk-Based Capital ratio was
11.12%, all in excess of minimum regulatory guidelines for an institution to be
considered "well-capitalized." At March 31, 1997, the Bank's regulatory capital
levels were 6.47% for its Tier 1 ratio, 9.85% for its Tier 1 Risk-Based Capital
ratio, and 11.09% for its Total Risk-Based Capital ratio.
Comparison of Results of Operations for the Three Months Ended March 31,
1997 and 1996
Overview
Net income for the first quarter of 1997 was $1.6 million or $.32 per
share, compared to $1.2 million or $.24 per share for the same period of 1996,
an improvement of $399,000 for the three month period. The Company's return on
average assets and return on average equity also improved to .72% and 12.10%,
respectively, for the first quarter of 1997, compared to .60% and 9.57%,
respectively, for the first quarter of 1996.
Analysis of Net Interest Income
Net interest income for the first quarter of 1997 was $9.1 million,
compared to $7.9 million for 1996. This $1.2 million or 14.7% increase was
primarily the result of additional income from balance sheet growth as total
interest-earning assets increased by approximately $101.9 million. Interest
income was $18.1 million for the three months ended March 31, 1997, an increase
of $2.2 million over 1996, while interest expense increased by $1.0 million. The
average asset yield and the average cost of interest-bearing liabilities
remained level at 8.36% and 4.53%, respectively. As a result, net interest
spread for the first quarter of 1997 and 1996 was unchanged at 3.83%
28
<PAGE> 30
and net interest margin, which includes the benefit of noninterest bearing
funds, decreased from 4.14% for 1996 to 4.12% for 1997.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------------------
1997 1996
---------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- ------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net ............................... $745,893 $16,506 8.77% $ 67 $14,778 $ 8.68%
Investment securities .................... 33,749 486 5.83 32,275 428 5.34
Mortgage backed securities ............... 19,962 306 6.12 20,403 291 5.71
Interest bearing deposits in banks ....... 118 -- 5.49 43 -- 3.67
FHLB stock ............................... 4,869 87 7.25 3,695 68 7.28
Federal funds sold ....................... 52,950 685 5.17 21,743 297 5.40
-------- ------- -------- ------- -----------
Total interest-earning assets ............ 857,541 18,070 8.36 755,598 15,862 8.36
Non interest-earning assets .............. 49,507 46,291
-------- --------
Total assets ............................. $907,048 $801,889
======== ========
Interest-bearing liabilities:
Interest checking ........................ $ 88,679 240 1.10 $ 77,55 254 1.32
Savings .................................. 27,082 137 2.05 29,322 159 2.17
Passbook gold ............................ 221,023 2,649 4.86 70,735 766 4.36
Money market ............................. 33,007 165 2.03 39,709 219 2.22
Time deposits ............................ 410,499 5,471 5.40 482,125 6,481 5.41
Subordinated debt ........................ 6,000 108 7.17 -- -- --
Other borrowings ......................... 16,137 199 5.01 4,357 48 4.40
-------- ------- -------- -------
Total interest-bearing liabilities ....... 802,427 8,969 4.53 703,800 7,927 4.53
Non interest-bearing liabilities ......... 50,910 47,658
Stockholders' equity ..................... 53,711 50,431
-------- --------
Total liabilities and equity ............. $907,048 $801,889
======== ========
Net interest income & net interest spread. $ 9,101 3.83% $ 7,935 3.83%
======= ==== ======= ===========
Net interest margin ...................... 4.12% 4.14%
==== ===========
</TABLE>
<TABLE>
<CAPTION>
Increase
(Decrease) due to (1)
----------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ ------- ------- -------
<S> <C> <C> <C>
Interest earning assets:
Loans, net ............................... $ 1,428 $ 300 $ 1,728
Investment securities .................... 28 30 58
Mortgage backed securities ............... (6) 21 15
Interest bearing deposits in banks ....... -- -- --
FHLB stock ............................... 21 (2) 19
Federal funds sold ....................... 401 (13) 388
------- ------- -------
Total change in interest income ....... 1,872 336 2,208
Interest-bearing liabilities:
Interest checking ..................... 31 (45) (14)
Savings ............................... (14) (8) (22)
Passbook gold ......................... 1,786 97 1,883
Money market .......................... (37) (17) (54)
Time deposits ......................... (845) (165) (1,010)
Subordinated debt ..................... 108 -- 108
Other borrowings ...................... 138 13 151
------- ------- -------
Total change in interest expense ...... 1,167 (125) 1,042
------- ------- -------
Increase (decrease) in net interest income $ 705 $ 461 $ 1,166
======= ======= =======
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are
based on absolute value.
29
<PAGE> 31
Noninterest Income
Noninterest income for the first quarter of 1997 was $3.1 million,
compared to $678,000 for the same period in 1996, an increase of $2.4 million.
Of the increase, $898,000 was the result of increased income from mortgage
banking operations, principally gains on sale of loans, net of certain
capitalized costs of production. In addition, the Company elected to sell
certain portfolio loans and recorded gains on sale of loans amounting to $1.2
million for the first quarter of 1997. Other improvements included $93,000 from
a third-party fee-based checking account program under the name "Generations
Gold" and an increase of $62,000 in other sources of fee income on deposit
accounts.
The following table reflects the components of noninterest income for the
three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
Increase
1997 1996 (Decrease)
---- ---- ---------
<S> <C> <C> <C>
Service charges on deposit accounts ... $ 438 $ 376 $ 62
Loan fee income ....................... 125 125 --
Income from mortgage banking activities 898 -- 898
Gains on sales of portfolio loans ..... 1,188 (11) 1,199
Gain on sale of investments ........... 42 4 39
Generations Gold fee income ........... 100 7 93
Merchant charge card processing fees .. 48 23 25
Other income .......................... 285 154 130
------ ------ ------
Total noninterest income .............. $3,124 $ 678 $2,446
====== ====== ======
</TABLE>
Noninterest Expense
General and administrative ("G&A") expenses for the first quarter of 1997
were $8.2 million compared to $6.0 million for the same period in 1996, an
increase of $2.3 million. The major factor responsible for the expense increase
was the expansion of the Company's mortgage banking activities which accounted
for substantially all of the increase in employees from 436 at March 31, 1996 to
644 at March 31, 1997. Total noninterest expenses, which include G&A expense,
provisions for losses on ORE properties, ORE income and expense, and
amortization of premiums paid on deposits, were $8.5 million for the first
quarter of 1997 compared to $6.2 million for the same period last year.
30
<PAGE> 32
The following table reflects the components of noninterest expense for the
three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------------------
Increase
1997 1996 (Decrease)
------- ------- -------
<S> <C> <C> <C>
Salaries and benefits ............. $ 4,366 $ 3,253 $ 1,113
Net occupancy expense ............. 1,284 1,025 259
Advertising ....................... 209 80 129
Data processing fees .............. 391 317 74
FDIC and state assessments ........ 127 270 (143)
Telephone expense ................. 251 125 126
Legal and professional ............ 248 106 142
Postage and supplies .............. 336 229 107
Other operating expense ........... 1,028 551 477
------- ------- -------
G & A expenses .................... 8,240 5,956 2,284
Provision for losses on ORE ....... 170 180 (10)
ORE expense, net of ORE income .... (13) 1 (14)
Amortization of premium on deposits 123 123 --
------- ------- -------
Total noninterest expense ......... $ 8,520 $ 6,260 $ 2,260
======= ======= =======
</TABLE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Comparison of Balance Sheets at December 31, 1996 and 1995
Overview
Total assets of the Company were $907.9 million at December 31, 1996 and
$802.0 million at December 31, 1995, an increase of $105.9 million. This growth
was primarily the result of the expansion of the Company's residential loan
production capabilities. Total loans increased by $73.6 million from $669.4
million at the end of 1995 to $743.0 million at the end of 1996. Total deposits
increased by $84.9 million from $743.1 million at year-end 1995 to $828.0
million at year-end 1996.
Investment and Mortgage-Backed Securities
The Company's investment securities consisted of U.S. Treasury Bills and
Notes and a $1.5 million revenue bond with the Northern Palm Beach County
Improvement District (the "Revenue Bond"). The Revenue Bond is not an obligation
of Palm Beach County, the State of Florida, or any political subdivision,
municipality or agency thereof. The principal and interest are payable solely
from and are secured equally and ratably by a lien upon and pledge of the
proceeds of special assessments levied by the district. This investment is
taxable for United States federal income tax purposes.
Loans and Loans Held for Sale
Total loans at December 31, 1996 included $706.4 million of loans held for
portfolio and $36.6 million held for sale, a total of $743.0 million. At
December 31, 1995, these amounts were $664.7 million and $4.7 million,
respectively. The $73.6 million increase in total loans was primarily comprised
of a $25.5 million increase in residential loans to $405.9 million (54.6% of
total loans), and a $41.3 million increase in other real estate-secured
31
<PAGE> 33
loans. At December 31, 1996, loans secured by first liens on real estate
constituted 92.0% of the total loan portfolio. Commercial (business) loans not
secured by real estate increased $4.7 million while consumer loans increased
$3.1 million. Residential loan sales for 1996 amounted to $106.1 million and
totalled $41.5 million for 1995.
Allowance for Loan Losses
The allowance for loan losses amounted to $13.1 million at December 31,
1996, compared to $14.9 million at December 31, 1995. The total amount of loans
for determining the adequacy of the allowance includes $467.5 million of loans
originated by the Company and purchased loans amounting to $275.5 million.
The Company made various loan purchases totaling $157.4 million during
1994, $102.3 million during 1995 and $8.2 million in 1996. The Company allocated
a portion of the discount on its purchased loans to the allowance in amounts
consistent with loan loss allowance policy guidelines and recorded the remainder
as an unearned discount to be accredited to income as a yield adjustment. In
1995 such allocation included $7.2 million related solely to the March 1995
Purchase. Subsequently, the principal balance of the March 1995 Purchase had
declined to $39.9 million and losses on certain nonperforming loans in this pool
had reduced the allowance allocated to this purchase to $5.9 million. The
Company's history of administering this loan purchase indicates that the
expected loss rate on the remaining loans in this portfolio will be less than
the amount remaining in the allowance. Consequently, the Company reallocated
$1.5 million from the allowance to unearned discount in the fourth quarter of
1996, reducing the December 31, 1996 allowance allocated to the March 1995
Purchase to $4.4 million. The overall allowance at year-end 1996 of $13.1
million also included $1.0 million allocated to loans purchased from CrossLand,
$1.8 million allocated to other loan purchases and $6.0 million allocated to
originated loans.
Activity to the allowance during 1996 included a $1.8 million provision
for loan losses, loan charge-offs (net of recoveries) of $1.8 million, and $1.7
million allocated from the allowance to unearned discount. The net charge-off
amount for 1996 included $1.0 million assessed against the allowance for loans
acquired in the March 1995 Purchase as properties securing certain nonperforming
loans which were purchased at a substantial discount, were acquired through
foreclosure and recorded at their fair value. At December 31, 1996 the amount of
unearned discount on purchased loans not allocated to allowance totaled $4.7
million.
Nonperforming Assets
Nonperforming assets amounted to $22.8 million or 2.51% of total assets at
December 31, 1996, as compared to $23.5 million or 2.93% of total assets at
December 31, 1995. Nonperforming loans totaled $15.4 million at the end of 1996,
an increase of $34,000 from the prior year-end total of $15.4 million. The ratio
of nonperforming loans to total loans declined from 2.3% at the end of 1995 to
2.19% at year-end 1996. Nonperforming loans at December 31, 1996 and 1995
included troubled debt restructurings of $1.0 million and $.4 million,
respectively. ORE acquired through foreclosure decreased by $701,000 from $8.1
million at the end of 1995 to $7.4 million at year-end 1996.
Deposits
Total deposits were $828.0 million at December 31, 1996, compared to
$743.1 million at the prior year-end, an increase of $84.9 million. Passbook
savings accounts offered to higher-balance customers at a premium rate of 5.00%
increased by $156.5 million and retail checking and noninterest-bearing account
balances increased $20.5 million or 19.18%. The Company reduced its reliance on
time deposits through a less aggressive pricing strategy which resulted in an
$83.7 million decline in certificates of deposits and a decline in other
interest-bearing balances of $9.9 million. At December 31, 1996, jumbo ($100,000
and over) deposits totaled $49.3 million or 5.96% of total deposits. There were
no brokered deposits.
32
<PAGE> 34
Convertible Subordinated Debt
In December 1996, the Company completed a private offering of $6.0 million
in the Debentures. The proceeds were used to increase the capital of the Bank.
The Debentures are convertible by the holder at any time prior to maturity into
the Shares at a conversion price of $17.85714 per share (equivalent to a
conversion rate of 56 shares per $1,000 principal amount of Debentures). See
"Description of the Debentures - Conversion of Debentures." The Debentures were
sold at par and the Company incurred $213,000 in expenses associated with the
offering. The Company has the right to redeem the Debentures beginning in 2001
at 106% of face value, with the premium declining 1% per year thereafter and
without any premium if the price of the Company Common Stock equals or exceed
130% of the conversion price for not less than 20 consecutive trading days. See
"Description of the Debentures - Optional Redemption."
Stockholders' Equity
Stockholders' equity of the Company was $54.3 million at December 31,
1996, or 6.0% of total assets compared to $50.9 million or 6.3% of total assets
at December 31, 1995. At December 31, 1996, the Company's and the Bank's capital
ratios were all in excess of minimum regulatory guidelines for an institution to
be considered "well-capitalized."
Comparison of Results of Operations for the Year Ended December 31, 1996
and 1995
Overview
Consolidated net income for 1996 was $3.8 million or $.76 per share,
compared to $5.8 million or $1.26 per share for 1995. Consolidated net income
excluding the SAIF special assessment would have been $5.3 million or $1.08 per
share for 1996 as compared to $4.2 million or $.92 per share for 1995, excluding
negative goodwill accretion.
Analysis of Net Interest Income
Net interest income for 1996 was $34.0 million compared to $27.9 million
for 1995. This $6.2 million or 22.1% increase was primarily the result of $3.9
million in additional income from balance sheet growth and a more favorable mix
of earning assets. An increase in net interest spread also improved net interest
income by $2.2 million. Interest income was $66.9 million for 1996, an increase
of $9.1 million over 1995. During the same period, interest expense increased by
$2.9 million from $30.0 million for 1995 to $32.9 million for 1996. Asset yield
increased 25 basis points from 8.21% for 1995 to 8.46% for 1996 and average
earning assets increased $83.6 million. The average cost of interest-bearing
liabilities decreased 5 basis points from 4.55% to 4.50%. Net interest spread
increased 30 basis points from 3.66% for 1995 to 3.96% for 1996 and net interest
margin, which includes the benefit of noninterest bearing funds, increased from
3.94% for 1995 to 4.28% for 1996.
33
<PAGE> 35
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1996 1995
-----------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- ------- ---- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net ......................... $704,919 $62,244 8.78% $604,535 $52,389 8.65%
Investment securities .............. 25,905 1,413 5.46 31,042 1,431 4.60
Mortgage backed securities ......... 20,494 1,325 6.46 13,515 827 6.12
Interest bearing deposits in banks . 79 2 2.91 290 17 5.82
FHLB stock ......................... 4,548 330 7.26 3,126 231 7.40
Federal funds sold ................. 30,188 1,633 5.32 49,978 2,968 5.86
-------- ------- -------- -------
Total interest-earning assets ...... 786,133 66,947 8.46 702,486 57,863 8.21
Non interest-earning assets ........ 46,343 45,556
-------- --------
Total assets ....................... $832,476 $748,042
======== ========
Interest-bearing liabilities:
Interest checking .................. 80,442 944 1.17 $ 67,005 1,081 1.61
Savings ............................ 170,100 7,281 4.28 90,904 3,281 5.57
Money market ....................... 37,778 809 2.14 58,862 1,735 2.94
Time deposits ...................... 433,860 23,392 5.39 439,824 23,777 5.41
FHLB advances ...................... 956 52 5.21
Other borrowings ................... 8,884 448 4.95 3,304 127 3.85
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities . 732,020 32,926 4.50 659,899 30,001 4.55
Non interest-bearing liabilities ... 48,821 45,285
Stockholders' equity ............... 51,635 42,858
-------- --------
Total liabilities and equity ....... $832,476 $748,042
======== ========
Net interest income/net interest ...
spread ........................... $34,021 3.96% $27,862 3.66%
======= ==== ======= ====
Net interest margin ................ 4.28% 3.94%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Increase
(Decrease) Due to (1)
----------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ ------- ------- -------
<S> <C> <C> <C>
Interest earning assets:
Loans, net ....................... $ 8,108 $ 1,747 $ 9,855
Investment securities ............ (91) 73 (18)
Mortgage backed securities ....... 449 49 498
Interest bearing deposits in banks (9) (6) (15)
FHLB stock ....................... 103 (4) 99
Federal funds sold ............... (1,091) (244) (1,335)
------- ------- -------
Total change in interest income .. 7,469 1,615 9,084
Interest-bearing liabilities:
Interest checking ................ 191 (328) (137)
Savings .......................... 3,738 262 4,000
Money market ..................... (530) (396) (926)
Time deposits .................... (173) (212) (385)
FHLB advances .................... 52 -- 52
Other borrowings ................. 248 73 321
------- ------- -------
Total change in interest expense . 3,526 (601) 2,925
------- ------- -------
Increase (decrease) in net
interest income ................ $ 3,943 $ 2,216 6,159
======= ======= =====
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are
based on absolute values.
34
<PAGE> 36
Noninterest Income
Noninterest income for 1996 was $5.6 million compared to $2.8 million for
1995, an increase of $2.9 million. The gain on sale of the former headquarters
building accounted for $1.2 million of the increase. Income from the Company's
expanded mortgage banking activities increased $878,000, service fees on deposit
accounts increased $211,000, loan service and other ancillary fees increased
$327,000, and net gains on sale of investments increased $343,000. Other sources
of income increased $148,000 and merchant charge card processing fees, a program
which has been discontinued, declined $249,000.
The following table reflects the components of noninterest income for the
years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------
1996 1995 Increase (Decrease)
--------------------------------------------
<S> <C> <C> <C>
Service charges on deposit accounts ...... $1,606 $1,395 $ 211
Loan fee income .......................... 604 277 327
Income from mortgage banking activities .. 1,002 124 878
Gain on sale of ORE held for investment .. 1,207 -- 1,207
Net gains on sale of investments ......... 370 27 343
Merchant charge card processing fees ..... 1 250 (249)
Other income ............................. 826 678 148
------ ------ -------
Total noninterest income ................. $5,616 $2,751 $ 2,865
====== ====== =======
</TABLE>
Noninterest Expense
Total noninterest expenses for 1996 were $31.8 million compared to $22.9
million for the same period in 1995, an increase of $9.0 million. Noninterest
expenses for 1996 include a $2.5 million charge for the one-time SAIF Special
Assessment (See "Business--Supervision and Regulation--Deposit Insurance") and a
$1.6 million provision for losses on ORE, primarily related to two ORE
properties. See "Other Real Estate Acquired Through Foreclosure." G&A expenses
for 1996, included in the noninterest expense total, were $27.4 million compared
to $22.1 million, an increase of $5.2 million. The increase was primarily the
result of expanding the Company's mortgage banking activities and related
administrative support units.
The following table reflects the components of noninterest expense for the
years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1996 1995 Increase (Decrease)
-------- ------- -------------------
<S> <C> <C> <C>
Salaries and benefits .............. $ 14,309 $11,251 $ 3,058
Net occupancy expense .............. 4,507 3,211 1,296
Advertising ........................ 519 439 80
Data processing fees and services .. 1,451 1,152 299
FDIC and state assessments ......... 949 1,566 (617)
Other operating expense ............ 5,617 4,500 1,117
-------- ------- -------
G & A expenses ..................... 27,352 22,119 5,233
SAIF Special Assessment ............ 2,539 -- 2,539
Provision for losses on ORE ........ 1,611 -- 1,611
Other ORE expense (income) ......... (172) 289 (461)
Amortization of premium on deposits. 491 450 41
-------- ------- -------
Total noninterest expense .......... $ 31,821 $22,858 $ 8,963
======== ======= =======
</TABLE>
35
<PAGE> 37
YEARS ENDED DECEMBER 31, 1995 AND 1994
Comparison of Balance Sheets at December 31, 1995 and 1994
Overview
Total assets were $802.0 million at December 31, 1995 compared to $626.4
million at year-end 1994, an increase of $175.6 million or 28.0%. The source of
funds for this growth included $126.6 million in deposits from the thirteen
branches opened in the latter part of 1994 and throughout 1995. These additional
funds were primarily invested in residential and commercial real estate-secured
loans. Total stockholders' equity increased by $14.7 million to $50.9 million at
year-end 1995 as a result of the 1995 stock offerings and earnings retention.
Investment and Mortgage-Backed Securities
Investment securities, consisting of U.S. Treasury and federal agency
securities, were $64.8 million at December 31, 1995 compared to $40.2 million at
December 31, 1994, an increase of $24.5 million. This increase included $19.7
million from securitizing a portion of the Company's residential loan
originations into mortgage backed securities to improve liquidity and risk based
capital ratios.
Loans and Loans Held for Sale
Total loans were $669.4 million at December 31, 1995, an increase of
$153.1 million or 29.6% over the $516.3 million total at year-end 1994.
One-to-four family residential mortgages amounted to $388.2 million at year-end
1995 compared to $293.1 million at year-end 1994, an increase of $95.1 million.
Fundings of residential loans through direct lending activities and a
correspondent/broker network amounted to $119.7 million and there were $100.3
million in residential loan purchases. The next largest loan category,
commercial real estate, amounted to $153.2 million at December 31, 1995 compared
to $112.1 million at year-end 1994, an increase of $41.1 million. Multi-family
residential loans amounted to $75.1 million at year-end 1995 compared to $60.8
million at December 31, 1994. Substantially all fundings of commercial real
estate and multi-family residential loans were through direct lending
activities.
Commercial (business) loans amounted to $29.7 million at December 31, 1995
compared to $24.6 million at year-end 1994, an increase of $5.1 million.
Consumer loans, consisting primarily of loans secured by second liens on
residential real estate, amounted to $6.8 million at year-end 1995 compared to
$6.4 million at end of the prior year, an increase of $421,000.
Allowance for Loan Losses
The allowance for loan losses amounted to $14.9 million at December 31,
1995, an increase of $7.8 million from the $7.1 million allowance at December
31, 1994. This increase primarily resulted from the transfer of $7.7 million of
discounts from purchases of various loan pools into an allowance established for
those loans. During March 1995 the Company made the March 1995 Purchase for a
cash payment of $39.9 million with a resulting discount of $8.2 million. The
March 1995 Purchase included 941 loans amounting to $46.3 million, which were
current as to their scheduled principal and interest payments, and 34 loans
amounting to $1.8 million which were delinquent 90 days or more. Of this
discount, $7.2 million was allocated to the allowance for those loans, based
primarily on management's evaluation of collateral values, with the $982,000
remainder recorded as unearned income. At December 31, 1995, the amount included
in the allowance allocated to the March 1995 Purchase was $6.9 million and such
portion allocated to the allowance is available only to absorb losses in such
portfolio. For a discussion of the use of allocated loan loss reserves, see
"Business -- Asset Quality". Management continually monitors the status of its
purchased loans and may, at a later date, adjust the amounts allocated between
loan discount and the loan loss reserve. Other activity to the allowance
included provisions for loan losses of $1.7 million (based generally on the
growth in the loan portfolio), loan charge-offs (net of recoveries) of $1.5
million, and $503,000 in discounts allocated to allowance from other loan
purchases.
36
<PAGE> 38
Nonperforming Assets
Nonperforming assets amounted to $23.5 million or 2.93% of total assets at
December 31, 1995, as compared to $22.5 million or 3.58% of total assets at
December 31, 1994. Nonperforming assets consisted of $15.4 million of
nonperforming loans and $8.1 million of ORE. Nonperforming loans at December 31,
1995 included troubled debt restructurings of $.4 million. The $1.0 million
increase in nonperforming assets during 1995 consisted primarily of the addition
of nonperforming commercial (business) and commercial real estate loans totaling
$4.0 million, partially offset by the removal from nonperforming status, through
repayment and/or return to performing status, of commercial (business) loans and
commercial real estate loans totaling $2.3 million. Other reductions to
nonperforming assets were in commercial (business) loans ($115,000), consumer
loans ($300,000) and ORE ($1.2 million).
Deposits
Total deposits were $743.1 million at December 31, 1995, compared to
$583.9 million at December 31, 1994, an increase of $159.2 million or 27.3%.
Time deposits increased $186.0 million which was partially offset by reductions
of $21.2 million in savings accounts and $8.1 million in money market accounts.
Of the total increase in deposits, $126.6 million is attributable to deposit
growth at 13 new branch locations opened in 1994 and 1995.
Stockholders' Equity
Stockholders' equity was $50.9 million at December 31, 1995, or 6.3% of
total assets compared to $36.2 million or 5.8% of total assets at December 31,
1994. At December 31, 1995, the Tier 1 Capital ratio was 6.00%, the Tier 1 Risk-
Based Capital ratio was 9.17%, and the Total Risk-Based Capital ratio was
10.30%, all in excess of minimum regulatory guidelines for an institution to be
considered "well-capitalized". On June 27, 1995, an offering of 800,000 shares
of common stock by the Bank was completed to the public and the stockholders.
The shares of common stock were offered through a combined subscription rights
offering and an underwritten public offering resulting in net proceeds of $9.1
million.
Comparison of Results of Operations for Years Ended December 31, 1995 and
1994
Overview
Net income for the year ended December 31, 1995 was $5.8 million compared
to $6.9 million for the previous year which included the non-recurring benefit
from certain income tax items and a full year's accretion of negative goodwill.
Income tax expense was $1.9 million for 1995 compared to $468,000 in 1994, an
increase of $1.4 million. This was primarily due to a $1.3 million decrease in
the deferred income tax valuation allowance in 1994 which reduced income tax
expense by that amount. Earnings per share were $1.26 for 1995 compared to $1.67
for 1994. Return on average assets for 1995 was .77% compared to 1.25% in 1994,
while return on average equity was 13.47% compared to 21.34% in 1994.
Analysis of Net Interest Income
Net interest income for 1995 was $27.9 million compared to $20.2 million
for 1994. This $7.6 million or 37.6% increase was primarily the result of
additional income from balance sheet growth throughout 1994 and 1995 and a more
favorable asset mix as liquid assets were redeployed into higher-yielding loans.
Interest income was $57.9 million for 1995, an increase of $20.7 million over
1994. Interest expense increased by $13.1 million from $16.9 million for 1994 to
$30.0 million for 1995. Average asset yield increased 95 basis points and
average earning assets increased $192.7 million, while the average cost of
interest-bearing liabilities increased 106 basis points as a result of a more
competitive market for customer deposits during 1995. Net interest spread
decreased 11 basis points from 3.77% for 1994 to 3.66% for 1995 while net
interest margin, which includes the benefit of noninterest bearing funds, was
generally unchanged at 3.94% for 1995 compared to 3.96% for 1994.
37
<PAGE> 39
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1995 1994
-----------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net ......................... $604,535 $ 52,389 8.65% $396,238 $ 32,699 8.24%
Investment securities .............. 31,042 1,431 4.60 47,631 1,939 4.06
Mortgage backed securities ......... 13,515 827 6.12 -- -- --
Interest bearing deposits in banks . 290 17 5.82 549 16 2.98
FHLB stock ......................... 3,126 231 7.40 255 13 5.00
Federal funds sold ................. 49,978 2,968 5.86 65,080 2,448 3.71
-------- -------- ---- -------- -------- ----
Total interest-earning assets ...... 702,486 57,863 8.21 509,753 37,115 7.26
Non interest-earning assets ........ 45,556 40,499
-------- --------
Total assets ....................... $748,042 $550,252
======== ========
Interest--bearing liabilities:
Interest checking .................. $ 67,005 1,081 1.61 $ 63,390 1,086 1.71
Savings ............................ 90,904 3,281 5.57 66,049 2,136 3.24
Money market ....................... 58,862 1,735 2.94 72,211 1,587 2.20
Time deposits ...................... 439,824 23,777 5.41 279,058 11,958 3.49
FHLB advances ...................... -- -- -- 658 36 5.52
Other borrowings ................... 3,304 127 3.85 2,259 68 2.97
-------- -------- ---- -------- -------- ----
Total interest-bearing liabilities . 659,899 30,001 4.55 483,625 16,871 3.49
Non interest-bearing liabilities ... 45,285 34,411
Stockholders' equity ............... 42,858 32,216
-------- --------
Total liabilities and equity ....... $748,042 $550,252
======== ========
Net interest income/net interest
spread ........................ $ 27,862 3.66% $ 20,244 3.77%
======== ==== ======== ====
Net interest margin ................ 3.94% 3.96%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Increase
(Decrease) Due to (1)
---------------------
Changes in Net Interest Income Volume Rate Total
- ------------------------------ ------ ---- -----
<S> <C> <C> <C>
Interest earning assets:
Loans, net ......................... $ 18,651 $ 1,038 $ 19,689
Investment securities .............. (741) 233 (508)
Mortgage backed securities ......... 827 -- 827
Interest bearing deposits in banks . (10) 11 1
FHLB stock ......................... 210 9 219
Federal funds sold ................. (662) 1,182 520
-------- -------- --------
Total change in interest income .... 18,275 2,473 20,748
Interest-bearing liabilities:
Interest checking .................. 60 (65) (5)
Savings ............................ 1,451 (306) 1,145
Money market ....................... (329) 477 148
Time deposits ...................... 9,533 2,286 11,819
FHLB advances ...................... (18) (18) (36)
Other borrowings ................... 64 (5) 59
-------- -------- --------
Total change in interest expense ... 10,761 2,369 13,130
-------- -------- --------
Increase (decrease) in net interest
income ............................. $ 7,514 $ 104 $ 7,618
======== ======== ========
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are
based on absolute values.
38
<PAGE> 40
Noninterest Income
Noninterest income for 1995 was $2.8 million compared to $2.6 million for
1994, an increase of $139,000. The prior year had included $315,000 from
settlement of a claim against a borrower released from bankruptcy. Included in
1995 was a $57,000 lease termination settlement from a lessee who had sublet
space in a building leased by the Company. Other improvements were due to a
$148,000 increase in service charge and fee income from higher deposit levels
and gains on sale of loans of $124,000. Income from processing charge card
deposits for merchants was $250,000 in 1995 compared to $204,000 in 1994. This
program was discontinued in August 1995.
The following table reflects the components of noninterest income for the
years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
-------------------------------------
Increase
1995 1994 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Service charges on deposit accounts $1,395 $1,247 $ 148
Loan fee income .................... 277 368 (91)
Merchant charge card processing fees 250 204 46
Gains on sales of loans ............ 124 -- 124
Other income ....................... 705 793 (88)
------ ------ ------
Total noninterest income ........... $2,751 $2,612 $ 139
====== ====== ======
</TABLE>
Noninterest Expense
Total noninterest expenses for 1995 were $22.9 million compared to $16.6
million for 1994, an increase of $6.3 million. G & A expenses for 1995 were
$22.1 million compared to $14.9 million, an increase of $7.2 million. The
primary reasons for these increases were the additional personnel and other
operating costs related to the thirteen new branches which accounted for $2.9
million of the increase in G & A expense, an overall expansion of the lending
and administrative functions, and a $252,000 expense to record a loss on
reimbursing credit cardholders for chargebacks.
39
<PAGE> 41
The following table reflects the components of noninterest expense for the
years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
-------------------------------------
Increase
1995 1994 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Salaries and benefits .................. $11,251 $ 7,339 $ 3,912
Net occupancy expense .................. 3,211 1,308 1,903
Advertising ............................ 439 349 90
Data processing fees ................... 1,152 1,472 (320)
FDIC and state assessments ............. 1,566 1,188 378
Loan collection and repossession expense 128 206 (78)
Other operating expense ................ 4,372 3,054 1,318
------- ------- -------
G & A expenses ......................... 22,119 14,916 7,203
ORE expense (net) ...................... 289 432 (143)
Amortization of premium on deposits .... 450 1,269 (819)
------- ------- -------
Total noninterest expense .............. $22,858 $16,617 $ 6,241
======= ======= =======
</TABLE>
Income Taxes
Income tax expense for 1995 was $1.9 million, which was net of a $177,000
reduction in the estimated amount of the valuation allowance for the deferred
tax asset and a $122,000 tax credit related to the prior year's income tax
return. The income tax provision for the same period in 1994 was $468,000 which
was net of a $1.3 million decrease in the valuation allowance.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity
The Asset/Liability Management Committee ("ALCO") reviews the Company's
liquidity, which is its ability to generate sufficient cash to meet the funding
needs of current loan demand, deposit withdrawals, and other cash demands. The
primary sources of funds consist of deposits, amortization and prepayments of
loans, sales of investments, other funds from operations and the Company's
capital. The Bank is a member of the FHLB and has the ability to borrow to
supplement its liquidity needs.
When the Company's primary sources of funds are not sufficient to meet
deposit outflows, loan originations and purchases and other cash requirements,
the Company may supplementally borrow funds from the FHLB and from other
sources. The FHLB system acts as an additional source of funding for banks and
thrift institutions that make residential mortgage loans.
FHLB borrowings, known as "advances," are secured by the Bank's mortgage
loan portfolio, and the terms and rates charged for FHLB advances vary in loan
portfolio, and the terms and rates charged for FHLB advances vary in response to
general economic conditions. As a shareholder of the FHLB, the Bank is
authorized to apply for advances from this bank. A wide variety of borrowing
plans are offered by the FHLB, each with its own maturity and interest rate. The
FHLB will consider various factors, including an institution's regulatory
capital position, net income, quality and composition of assets, lending
policies and practices, and level of current borrowings from all sources, in
determining the amount of credit to extend to an institution. As of March 31,
1997, the Bank had no outstanding advances from the FHLB. However, the Bank has
recently obtained advances in an
40
<PAGE> 42
amount sufficient to satisfy the Bank's funding needs as well as to maintain the
Bank's currently liquidity levels. In addition, the Bank expects to obtain
additional advances from the FHLB to fund all or a portion of the purchase price
for a pool of residential mortgage loans with an aggregate principal amount
outstanding of approximately $76.5 million (the "1997 Loan Purchase"). The loans
will be purchased at a nominal discount. See "Business -- Supervision and
Regulation--Federal Home Loan Bank System" and "--Liquidity."
At March 31, 1997, the liquidity ratio, consisting of net cash and
investments of $109.5 million divided by net deposits and short-term liabilities
of $82.8 million, was 13.22% as compared to 13.42% at December 31, 1996. Net
liquid assets were $33.6 million, in excess of the amount required by Florida
banking regulations.
Asset/Liability Management
One of the primary objectives of the Company is to reduce fluctuations in
net interest income caused by changes in interest rates. To manage interest rate
risk, the Board of Directors has established interest-rate risk policies and
procedures which delegate to ALCO the responsibility to monitor and report on
interest-rate risk, devise strategies to manage interest-rate risk, monitor loan
originations and deposit activity, and approve all pricing strategies.
The management of interest rate risk is one of the most significant
factors affecting the ability to achieve future earnings. The measure of the
mismatch of assets maturing or repricing within certain periods, and liabilities
maturing or repricing within the same period, is commonly referred to as the
"gap" for such period. Controlling the maturity or repricing of an institution's
assets and liabilities in order to minimize interest rate risk is commonly
referred to as gap management. "Negative gap" occurs when, during a specific
time period, an institution's liabilities are scheduled to reprice more rapidly
than its assets, so that, barring other factors affecting interest income and
expense, in periods of rising interest rates the institution's interest expense
would increase more rapidly than its interest income, and in periods of falling
interest rates the institution's interest expense would decrease more rapidly
than its interest income. "Positive gap" occurs when an institution's assets are
scheduled to reprice more rapidly than its liabilities, so that, barring other
factors affecting interest income and expense, in periods of falling interest
rates the institution's interest income would decrease more rapidly than its
interest expense, and in periods of rising interest rates the institution's
interest income would increase more rapidly than its interest expense. It is
common to focus on the one-year gap, which is the difference between the dollar
amount of assets and the dollar amount of liabilities maturing or repricing
within the next twelve months.
ALCO uses an industry standard computer modeling system to analyze the
impact of financial strategies prior to their implementation. The system
attempts to simulate the asset and liability base and project future operating
results under a variety of interest rate and spread assumptions. Through this
management tool, management can also, among other things, project the effects of
changing its asset and liability mix and modifying its balance sheet, and
identify appropriate investment opportunities. The results of these simulations
are evaluated within the context of the interest-rate risk policy, which sets
out target levels for the appropriate level of interest-rate risk.
The policy is to maintain a cumulative one-year gap of no more than 15% of
total assets. Management attempts to conform to this policy primarily by
managing the maturity distribution of the investment portfolio and emphasizing
loan originations and loan purchases carrying variable interest rates tied to
interest-sensitive indices. Additionally, the Bank has joined the FHLB to
enhance its liquidity position and to provide it with the ability to utilize
long-term fixed-rate advances to improve the match between interest-earning
assets and interest-bearing liabilities in certain periods. Currently,
off-balance-sheet hedging instruments are not used to manage overall interest
rate risk but such instruments are used to limit the exposure to changes in the
value of residential loans held for resale and estimated loan commitments to
originate and close fixed rate residential and mortgage loans. However, there
continues to be a risk that such loan commitments do not close or are
renegotiated in a declining interest rate environment. Management may expand its
use of off-balance sheet hedging instruments to manage exposure to overall
interest rate risk in the future, subject to Board approval.
41
<PAGE> 43
The cumulative one year gap at March 31, 1997 was $8.9 million or a
positive .97% (expressed as a percentage of total assets). Management will
attempt to moderate any lengthening of the repricing structure of earning assets
by emphasizing variable-rate assets and, where appropriate, match-funding
longer-term fixed rate loans with FHLB advances. See "Business -- Sources of
Funds".
The following table presents the maturities or repricing of
interest-earning assets and interest-bearing liabilities at March 31, 1997. The
balances shown have been derived based on the financial characteristics of the
various assets and liabilities. Adjustable and floating-rate assets are included
in the period in which interest rates are next scheduled to adjust rather than
their scheduled maturity dates. Fixed rate loans are shown in the periods in
which they are scheduled to be repaid according to contractual amortization and,
where appropriate, prepayment assumptions based on the coupon rates in the
portfolio have been used to adjust the repayment amounts. Repricing of time
deposits is based on their scheduled maturities. Based on management's
experience in the markets in which the Company operates, statement savings
deposits are assumed to reprice at 8.3% of the total balance in the first three
months, 25.0% in the four-to-twelve months category and the remaining 66.7% from
one to five years. Passbook savings deposits are assumed to reprice equally over
a 24 month period. Repricing of interest checking and money market accounts is
assumed to occur at 10% of the total balance for every three month interval.
42
<PAGE> 44
INTEREST SENSITIVITY ANALYSIS
MARCH 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
0-3 Months 4-12 Months 1-5 Years Over 5 Years
---------- ----------- --------- ------------
Yield/ Yield/ Yield/ Yield/
Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
U.S. Treasury securities
and government agencies ... $ 7,715 5.24% $ 1,978 5.34% $ 31,471 5.91% $ -- --%
Revenue bonds ............... -- -- -- -- 1,545 8.60 -- --
Mortgage backed securities .. -- -- 19,661 5.53 -- -- -- --
Federal funds sold .......... 41,000 5.37 -- -- -- -- -- --
Interest bearing deposits in
banks ..................... -- -- -- -- -- -- -- --
FHLB stock .................. -- -- -- -- -- -- 5,081 7.25
Loans ....................... 163,252 9.13 218,238 8.32 245,912 8.68 121,091 8.18
--------- --------- --------- ---------
Total interest-earning
assets .................... $ 211,967 8.26 $ 239,877 8.07 $ 278,928 8.37 $ 126,172 8.14
Interest-bearing
liabilities:
Deposits
Interest checking ......... $ 8.991 1.09 $ 26,973 1.09 $ 53,931 1.09 $ --
Money market .............. 2,667 2.08 8,001 2.08 21,349 2.08 -- --
Savings ................... 2,298 1.98 6,894 1.98 18,377 1.98 -- --
Passbook Gold ............. 27,972 4.88 83,916 4.88 111,888 4.88 -- --
Time deposits ............. 106,146 5.14 152,762 5.20 147,797 5.86 32 5.92
Subordinated debt ......... -- -- -- -- -- -- 6,000 6.00
Obligations under capital
leases .................. 45 7.49 135 7.49 263 7.49 -- --
Repurchase agreements ..... 16,160 4.99 -- -- -- -- -- --
--------- --------- --------- ---------
Total interest-bearing
liabilities ............... $ 164,279 4.76 $ 278,681 4.54 $ 353,605 4.39 $ 6,032 6.00
--------- --------- --------- ---------
Excess (deficiency) of
interest-earning assets
over interest-bearing
liabilities ............... $ 47,688 3.50% $ (38,804) 3.53% $ (74,677) 3.98% $ 120,140 2.14%
========= ==== ========= ==== ========= ==== ========= ====
Cumulative excess
(deficiency) of interest-
earning assets over
interest-bearing
liabilities ............... $ 47,688 3.50% $ 8,884 3.54% $ (65,793) 3.72% $ 54,347 3.69%
========= ==== ========= ==== ========= ==== ========= ====
Cumulative excess
(deficiency) of interest-
earning assets over
interest-bearing
liabilities as a percent of
total assets .............. 5.23% .97% (7.21)% 5.96%
==== ==== ===== ====
</TABLE>
EFFECTS OF INFLATION
As a financial institution, the majority of the Company's assets are
monetary in nature and, therefore, differ greatly from those of most industrial
or commercial companies that have significant investments in fixed assets. The
effects of inflation on the financial condition and results of operations,
therefore, are less significant than the effects of changes in interest rates.
The most significant effect of inflation is on noninterest expense, which tends
to rise during periods of general inflation.
43
<PAGE> 45
BUSINESS
The Company is a bank holding company organized in March 1996 under the
laws of the State of Florida and is the parent of the Bank, a Florida-chartered,
federally-insured commercial bank. At March 31, 1997, the Company's total assets
were $912.1 million, total loans were $748.5 million, total deposits were $829.1
million and total stockholders' equity was $55.6 million. The Company is
regulated by the Federal Reserve and the Bank is regulated by the Department and
the FDIC. The Bank's deposits are insured by the FDIC up to applicable limits.
The Bank is a member of the FHLB. See "--Supervision and Regulation."
BACKGROUND AND PRIOR OPERATING HISTORY
In May 1993, the Controlling Stockholders, William R. Hough and John W.
Sapanski, acquired from the prior controlling stockholder over 99% of the Bank's
outstanding common stock for $4.5 million and made an additional capital
infusion of $3.5 million to meet regulatory capital requirements. The
transaction was accounted for using purchase or push-down accounting treatment,
which established a new accounting basis. The assets and liabilities were
restated from historical cost to their fair market values as of May 28, 1993,
premises and equipment totaling $1.4 million were written off, and the
historical equity capital balances were not carried forward. The excess of fair
market value of assets acquired and liabilities assumed exceeded the cost of
acquisition by $5.9 million which resulted in the creation of "negative
goodwill" in that amount. That negative goodwill was accredited to income over a
26 month period from May 28, 1993 through July 31, 1995, the weighted average
life of the earning assets at the Change in Control.
Pursuant to the CrossLand Purchase and Assumption, the Bank purchased 12
branches in Pinellas, Manatee and Sarasota counties from CrossLand, a federal
stock savings bank, and assumed deposit liabilities of $327.7 million. The Bank
paid CrossLand $11.5 million for the branches and related furniture, fixtures,
equipment and other assets, plus a $1.9 million (sixty basis points) premium on
the dollar amount of the deposits assumed. Concurrently, the Bank purchased
performing and non-performing loans secured by real estate and ORE amounting to
$201.6 million from CrossLand. The CrossLand Purchase and Assumption increased
total assets to $531.3 million and total deposits to $494.3 million at December
31, 1993.
In December 1993, the Bank sold 1,398,200 shares of its common stock in an
initial public offering at a price of $8.00 per share. The net proceeds of the
offering totaled $10.3 million. In addition, the Bank sold 75,000 shares of
Series A non-cumulative convertible perpetual preferred stock for a purchase
price of $6.6 million (or $88.00 per share). In June 1995, the Bank sold 800,000
shares of its common stock in a combined subscription rights and public offering
at $12.50 per share, with net proceeds totaling $9.1 million.
In February 1996, the Bank's shareholders approved a reorganization under
which the Bank became a wholly-owned subsidiary of the Company. All holders of
shares of the Bank's common and preferred stock received one share of the
Company's Common Stock for each share of the Bank's common stock held of record
and one share of the Company's $20.00 par value noncumulative convertible
perpetual preferred stock for each share of the Bank's preferred stock held of
record. Holders of outstanding options to purchase or acquire the Bank's common
stock received options to purchase an equal number of shares of Company Common
Stock.
In December 1996, the Company completed a private offering of $6.0 million
of the Debentures.
In May 1997, the Company and RBI Capital filed a registration statement
with the Commission relating to the Preferred Offering by RBI Capital of
2,500,000 shares of the Preferred Securities. The proceeds from the Preferred
Offering will be used to purchase an equivalent amount of Junior Subordinated
Debentures. The net proceeds from the sale of the Junior Subordinated Debentures
will be contributed by the Company to the capital of the Bank. The Preferred
Offering is expected to be completed before the end of the Company's second
quarter.
44
<PAGE> 46
BUSINESS STRATEGY
The Company's business strategy entails (i) originating and purchasing
real estate secured loans for portfolio and sale and originating business and
consumer loans for portfolio; (ii) improving market share and expanding its
market area through acquisitions of financial institutions and de novo
branching; (iii) increasing non-interest income through expanded mortgage
banking activities and emphasizing commercial and retail checking relationships;
and (iv) increasing its range of products and services. While pursuing this
strategy, management remains committed to improving asset quality, managing
interest rate risk and enhancing profitability.
The Company's business strategy has resulted in:
- Expanded Branch Network - Since the Change in Control in May 1993,
the Company has expanded its branch network from seven branches in
northern Pinellas County to its current 35 branches in Hernando,
Pasco, Pinellas, Manatee, Sarasota and Orange Counties. Further
market expansion will occur upon consummation of the FFO Merger later
this year which will add eleven branches in the central Florida
market, including five in Osceola County, five in Brevard County, and
one in Orange County, bringing the total number of branches to 46.
- Increased Levels and Sources of Noninterest Income - The Company has
expanded its sources and amounts of fee income by emphasizing
mortgage banking activities and new products, including a program
that generates fee income for the Company when the Company's checking
account customers utilize the travel and other services of certain
third-party providers.
- Improved Asset Quality Ratios - The assets acquired in the Change in
Control and the CrossLand Purchase and Assumption included
significant levels of nonperforming assets. As a result, the
Company's nonperforming assets-to-total assets ratio was 4.95% at
year-end 1993. This ratio had been reduced to 2.58% at March 31,
1997. This reduction was achieved primarily through the
implementation of consistent loan underwriting policies and
procedures, centralization of all credit decision functions and
growth in the loan portfolio. Nonperforming assets at March 31, 1997,
included $16.5 million of loans and ORE, primarily originated prior
to the Change in Control, $1.4 million from assets acquired in the
CrossLand Purchase and Assumption and $5.7 million from assets
originated or purchased after December 31, 1993.
- Management of Interest Rate Risk - One of the Company's primary
objectives is to reduce fluctuations in net interest income caused by
changes in market interest rates. To manage interest rate risk, the
Company generally limits holding loans in its portfolio to those that
have variable interest rates tied to interest-sensitive indices and
actively manages the maturities within the investment portfolio. The
Company believes, based on its experience, that, as of March 31,
1997, the anticipated dollar amounts of assets and liabilities which
reprice or mature within a one-year time horizon are closely matched.
RECENT AND PENDING ACQUISITIONS
Management believes that acquisitions of financial institutions provide
the Company with an opportunity to enhance its market presence and size in a
manner which is generally quicker and more cost effective than de novo
branching. Management believes that its banking products and customer services
will enable it to preserve its relationships with the customers of acquired
financial institutions.
On April 18, 1997, the Company acquired Firstate, a thrift institution
headquartered in Orlando, Florida, with branches in downtown Orlando and Winter
Park, for a cash purchase price of $5.5 million. Firstate was not publicly
traded. At April 18, 1997, Firstate had total assets of $71.1 million and total
deposits of $67.9 million. The acquisition was accounted for as a purchase, and
the amount of goodwill recorded was $130,000. Because it
45
<PAGE> 47
qualified as a "weak institution" under the SAIF recapitalization legislation
enacted in September 1996, Firstate was not required to pay a $519,063 special
assessment to the SAIF that otherwise would have been due and payable. The
Company recorded an accrual for the special assessment at acquisition and has
elected to pay a pro rata portion of the special assessment ($346,734 from July
1 to December 31, 1997) and pay quarterly assessments on the deposits assumed
from Firstate at the Company's SAIF assessment rate currently in effect. See
"Pro Forma Financial Data" and "Business--Supervision and Regulation."
On April 14, 1997, the Company and FFO entered into the FFO Agreement
providing for the acquisition of FFO by the Company, pursuant to the FFO Merger.
FFO has 11 branches in Osceola, Orange and Brevard counties. At March 31, 1997,
FFO had total assets of $320.0 million and total deposits of $285.7 million. Mr.
Hough, one of the Company's Controlling Stockholders, also owns a majority
interest in FFO. Under the terms of the FFO Agreement, the Company will exchange
0.29 of a share of the Company's Common Stock for each of the 8.4 million
outstanding shares of FFO Common Stock. If the product of (i) the exchange ratio
and (ii) the average market price of the Company's Common Stock for a period
ending shortly prior to closing is below $4.10, the exchange ratio will be
adjusted for decreases in the price of Company Common Stock; however, in no
event will the exchange ratio exceed 0.30. Outstanding options for FFO Common
Stock will be converted into options for Company Common Stock on the same basis.
FFO has the right not to consummate the FFO Agreement if the above average
market price of Company Common Stock is less than $13.50. Either party has the
right to terminate the agreement if the FFO Merger does not occur by November 1,
1997. The FFO Merger will be accounted for as a corporate reorganization under
which Mr. Hough's interest in FFO will be carried forward at its historical cost
in a manner similar to that of a pooling of interest accounting, while the
minority interest in FFO will be recorded using purchase accounting rules. The
transaction is subject to approval by a majority vote of the stockholders of the
Company and FFO, approval by various regulatory authorities and receipt of
opinion that the transaction qualifies as a tax-free reorganization.
Management of the Company believes that the composition of FFO's assets
and liabilities is substantially similar to that of the Company. At December 31,
1996, the Company's loan portfolio included 56.4% in one-to-four family first
residential mortgages; 9.2% in other residential first mortgage loans (primarily
secured by multi-family properties); 32.9% in commercial real estate,
construction/land development, and other business loans; and 3.3% in consumer
loans, consisting of home equity loans as well as extensions of credit for other
household purposes such as automobile loans and secured personal loans. The
corresponding percentages for FFO were 60.8%, 8.8%, 20.6% and 9.8%,
respectively. In addition, both residential mortgage portfolios consist
primarily of adjustable-rate loans. The Company's ratio of nonperforming assets
to assets at March 31, 1997, was 2.6%, compared to 3.2% for FFO. On a pro forma
basis, the ratio for the Company and FFO combined would have been 2.6%. For the
Company, real estate-secured loans and ORE comprised 90.0% of total
nonperforming assets and FFO's nonperforming assets were virtually all real
estate-secured. Also at December 31, 1996, the Company's deposit base included
6.1% in demand deposits, 44.2% in savings and interest-bearing transactions
accounts, and 49.7% in time deposits. The corresponding percentages for FFO were
5.0%, 20.2%, and 74.8%, respectively.
BRANCH NETWORK
Currently, the Company has 35 branches, including three branches in Pasco
County, 20 branches in Pinellas County, seven branches in Manatee County, two
branches in Sarasota County, and one branch in each of Hernando, Orange and
Seminole Counties. As a multi-branch institution, the Company's market area
encompasses all of the counties in which it operates. The Company also operates
ten loan production offices in Pinellas, Lee, Orange, Palm Beach and Polk
Counties in Florida and an office in Boston, Massachusetts.
Most of the Company's branches are in Metropolitan Statistical Areas
("MSA"). An MSA is defined by the U.S. Census Bureau as a geographic area with a
significant population nucleus, along with any adjacent communities that have a
high degree of economic and social integration with that nucleus. Of the
Company's branches, 33 are in the MSAs which anchor the west coast of Florida:
Tampa-St. Petersburg-Clearwater, which includes Hillsborough, Hernando, Pasco
and Pinellas counties, and Sarasota-Bradenton, comprised of Manatee and Sarasota
46
<PAGE> 48
counties. As of January 1, 1996, the latest estimates available, the Tampa-St.
Petersburg MSA had a population of 2.2 million, ranking it 23rd in the nation.
Sarasota-Bradenton had a population of 539,000, ranking it 95th. Together the
two MSAs had a combined population of 2.75 million residents which would rank
approximately 12th in the United States. The other two branches are in the
Orlando MSA. The economic base of the three MSAs in which the Company has
branches are supported by a large and growing segment of retirees, tourism,
which contributes to the economic base throughout the year, and light industry.
The west coast of Florida is highly competitive with 279 branches of banks
and savings and loan institutions operating in Pinellas County, 90 in Pasco
County, 81 in Manatee County, and 132 in Sarasota County, as of September 30,
1996, the most recent date that comparative data was available. The largest
commercial banking institutions in Florida operate in each of the three
counties. As in most market areas, competition for deposits also exists from
money market funds and credit unions. Competition for mortgage loans is
extremely strong from specialized lenders, other mortgage bankers and
independent brokers capable of selling qualified mortgage loans to the highest
bidder. Similarly, consumers can choose from a wide range of suppliers of
personal credit, including credit card companies, consumer finance companies and
credit unions.
The Company ranked 13th among banks and 24th among all depository
institutions in the state of Florida in terms of deposits held as of September
30, 1996, the latest date for which data is available. Ranked by deposits, the
Company was the 15th largest in Pasco County, the 7th largest in Pinellas
County, the 5th largest in Manatee County and the 14th largest in Sarasota
County. As the table below indicates, market share ranges from six percent in
Manatee County to one percent in Pasco.
Branch Deposits by County
September 30, 1996
<TABLE>
<CAPTION>
Company Total Market
Deposits Deposits Share
-------- -------- -----
(In millions)
<S> <C> <C> <C>
Pasco ........................................ $ 42 $ 3,899 1.1%
Pinellas ..................................... 502 12,787 3.9
Manatee ...................................... 167 2,770 6.0
Sarasota ..................................... 72 5,860 1.2
------- ------- ---
Total $ 783 $25,316 3.1%
======= ======= ===
</TABLE>
SOURCES OF FUNDS
Deposit accounts are the primary source of funds for lending, investment,
and other general business purposes. In addition to deposits, funds are derived
from loan repayments and loan sales. Scheduled loan payments on the residential
loan portfolio are a relatively stable source of funds, while residential loan
prepayments, deposit in-flows and out-flows are significantly influenced by
general interest rate and money market conditions. Funding needs may be
supplemented through borrowings from the FHLB which are secured by a blanket
lien on the portfolio of residential loans. Management believes that current
funding requirements can be met through retail deposits, without reliance on
brokered deposits. To the extent there are requirements for short-term financing
beyond liquid assets, the Company intends to rely on repurchase agreements, FHLB
advances, and other traditional money market sources of funding. For additional
discussion of asset/liability management policies and strategies, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Asset/Liability Management".
47
<PAGE> 49
A full range of deposit services is offered, including checking and other
transaction accounts, savings accounts, and time deposits. At March 31, 1997,
the Company had no brokered deposits, and time deposits in amounts of $100,000
or more constituted 6.0% of total deposits.
The following table sets forth the principal types of deposit accounts
offered and the aggregate amounts of such accounts at March 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
Weighted
Average Percent of
Interest Rate Amount Total Deposits
------------- ------ --------------
<S> <C> <C> <C>
Noninterest bearing..................................... 0.00% $ 49,066 5.9%
Interest checking....................................... 1.09 89,895 10.8
Passbook savings........................................ 4.88 223,776 27.0
Statement savings....................................... 1.98 27,569 3.3
Money market............................................ 2.08 32,017 3.9
Time deposits with original maturities of:
One year or less...................................... 5.07 112,509 13.6
Over 1 year through 5 years........................... 5.22 197,481 23.8
Over 5 years.......................................... 6.20 96,747 11.7
-------- -----
Total time deposits (1)............................... 5.41 406,737 49.1
-------- -----
Total deposits.......................................... 4.24% $829,060 100.0%
======== =====
</TABLE>
(1) Includes time deposits in amounts of $100,000 or more of $50.0 million.
At March 31, 1997, scheduled maturities of total time deposits were as
follows:
<TABLE>
<CAPTION>
Period ended Percent of
March 31, Amount Time Deposits
----------- ------ -------------
(In thousands)
<S> <C> <C>
1997 $258,908 63.7%
1998 51,622 12.7
1999 46,898 11.5
2000 18,256 4.5
2001 31,021 7.6
Thereafter 32 0.0
-------- -----
TOTAL $406,737 100.0%
======== =====
</TABLE>
LENDING AND LOAN PORTFOLIO PURCHASE ACTIVITIES
The Company originates a full range of lending products for its portfolio
and real estate-secured loans for sale in the secondary market. Portfolio
lending efforts are focused on customers located along the west coast and in
central Florida. During 1995, the Company opened commercial loan production
offices in central and southwest Florida. The portfolio objective is to maintain
a one-to-four family, primarily adjustable rate, residential loan portfolio of
at least 50% of its total loans and to achieve, over time, a level of
approximately 10% of its total loan portfolio in consumer loans, consisting of
home equity loans as well as extensions of credit for other household purposes
such as automobile loans and secured personal loans. The approximate 40%
remainder of the loan portfolio will consist of commercial real estate loans,
multifamily residential loans and commercial (business) loans.
48
<PAGE> 50
In April 1996, the Company started a mortgage banking division of the
Bank, which currently has eight loan production offices in Florida and one
office in Boston, Massachusetts, as well as a wholesale lending operation. The
wholesale lending operation is engaged in acquiring whole loans from third-party
originators. Substantially all of the loans generated by the mortgage banking
division are intended for sale into the secondary market on either a whole loan
basis or by delivery into marketable securities, depending upon individual loan
characteristics. The Company's mortgage banking division has also begun to
originate home improvement and debt consolidation loans secured by junior liens
on real estate and has begun selling these loans to investors in 1997. In the
future, the Bank intends to securitize those types of loans, sell such loans on
an individual or bulk loan basis or engage in a combination thereof.
For 1996, originations of residential mortgage loans totaled $203.3
million, including $141.0 million in fixed rate loans and $62.3 million of
adjustable rate loans. Contributing to this increase in residential mortgage
loan originations was the employment of a commissioned sales force experienced
in loan originations and a support staff whose compensation is also
significantly incentive-based. Sales of residential loans totaled $106.1 million
for 1996. For the first quarter of 1997, originations of residential mortgage
loans totaled $67.4 million, including $50.2 million of fixed rate loans and
$17.2 million of adjustable loans. Sales of residential loans totaled $86.0
million for the first quarter of 1997.
Originations of commercial real estate and commercial (business) loans
totaled $207.4 million for 1996 and $37.8 million for the first quarter of 1997.
To date, such loan originations have been for portfolio but the Company intends
to originate and sell into the secondary market a portion of its commercial real
estate loans originated during 1997, collecting fee income on the sale and
retaining the servicing of these loans.
The Company purchased loans totaling approximately $193.5 million in
connection with the CrossLand Purchase and Assumption. Loan purchases were
$157.5 million in 1994, $102.3 million in 1995 and $8.2 million in 1996. No loan
purchases were made in the first quarter of 1997. In June 1997, the Bank entered
into an agreement with the FDIC for the 1997 Loan Purchase, with an aggregate
principal amount outstanding of approximately $76.5 million. The loans will be
purchased at a nominal discount. The transaction is expected to close in the
third quarter of 1997. Additional real estate loan purchases may be considered
if loan pools with acceptable yield, satisfactory creditworthiness and other
characteristics become available for bid. However, during 1996 and the first
quarter of 1997, loan originations were the predominate source of growth in the
loan portfolio, and this is expected to continue for the foreseeable future.
49
<PAGE> 51
The following tables set forth information concerning the loan portfolio,
based on total dollars and percent of portfolio, by collateral type as of the
dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
----------- ----------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family residential $412,700 $419,605 $388,221 $293,146 $153,587 $ 7,797
Multifamily residential 67,531 68,337 75,127 60,795 36,735 4,461
Commercial real estate 192,509 182,298 153,193 112,050 86,457 65,072
Construction/land development 29,812 27,050 13,974 16,095 9,561 5,256
-------- -------- -------- -------- -------- --------
Total real estate mortgage loans 702,552 697,290 630,515 482,086 286,340 82,586
Commercial (business) loans 33,125 34,427 29,687 24,579 18,581 17,546
Consumer loans 11,747 9,983 6,847 6,426 7,509 8,374
Other loans 1,069 1,294 2,367 3,244 4,053 2,209
-------- -------- -------- -------- -------- --------
Total loans(1) 748,493 742,994 669,416 516,335 316,483 110,715
Less:
Allowance for loan losses 13,508 13,134 14,910 7,065 6,539 1,958
-------- -------- -------- -------- -------- --------
Loans, net of allowance $734,985 $729,860 $654,506 $509,270 $309,944 $108,757
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes discounts, premiums, and unearned fees.
At March 31, 1997 and December 31, 1996, the balance of loans purchased
included in the portfolio amounted to $271.2 million and $286.5 million,
respectively. The balance of loans held for sale included in the portfolio at
March 31, 1997, and December 31, 1996 and 1995 were $40.2 million, $36.6
million, and $4.7 million, respectively.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ --------------------------------------------------------
Based on percent of portfolio: 1997 1996 1995 1994 1993 1992
- ------------------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family residential 55.1% 56.5% 58.0% 56.8% 48.5% 7.0%
Multifamily residential 9.0 9.2 11.2 11.8 11.6 4.0
Commercial real estate 25.7 24.6 22.9 21.7 27.3 58.8
Construction/land development 4.0 3.6 2.1 3.1 3.0 4.7
----- ----- ----- ----- ----- -----
Total real estate mortgage loans 93.8 93.9 94.2 93.4 90.4 74.5
Commercial (business) loans 4.4 4.6 4.4 4.8 5.9 15.8
Consumer loans 1.6 1.3 1.0 1.2 2.4 7.6
Other loans .2 .2 .4 .6 1.3 2.1
----- ----- ----- ----- ----- -----
Total loans 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
50
<PAGE> 52
The following table sets forth the contractual amortization of real estate
and commercial loans at March 31, 1997 and December 31, 1996. Loans having no
stated schedule of repayments and no stated maturity are reported as due in
one-year or less. The table also sets forth the dollar amount of loans scheduled
to mature after one year, according to their interest rate characteristics:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
----------------------- ------------------------
Real Estate Commercial Real Estate Commercial
----------- ---------- ----------- ----------
Type of loan: (In thousands)
<S> <C> <C> <C> <C>
Amounts due:
One year or less $ 46,120 $ 16,144 $ 60,246 $ 15,740
After one through five years 161,661 15,579 151,492 16,580
More than five years 494,771 1,402 485,552 2,107
-------- -------- -------- --------
Total $702,552 $ 33,125 $697,290 $ 34,427
======== ======== ======== ========
Interest rate terms on amounts due after one year:
Adjustable $443,489 $ 11,182 $446,710 $ 12,053
Fixed 212,453 5,799 190,334 6,634
-------- -------- -------- --------
Total $655,942 $ 16,981 $637,044 $ 18,687
======== ======== ======== ========
</TABLE>
CREDIT ADMINISTRATION
The loan approval process provides for various levels of lending authority
to loan officers, the Officers' Loan Committee, and the Chairman and Chief
Executive Officer. In addition, loans in excess of $1.5 million require the
approval of the Board of Directors' Loan Committee or a majority of the full
Board prior to funding. Loan purchases are generally made subject to the same
underwriting standards as loan originations. All loan purchases must be approved
in advance of funding by the Chief Executive Officer and are reported to the
full Board following purchase. In an attempt to achieve consistency in
underwriting policies and procedures, the supervision of all credit decision
functions is centralized.
Real estate lending is defined as extensions of credit 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, regardless of whether a lien
has been taken on the property. Applicable regulations require that
comprehensive written real estate lending policies be adopted and maintained
that are consistent with safe and sound banking practices. These lending
policies must reflect consideration of the Interagency Guidelines for Real
Estate Lending Policies adopted by the federal banking agencies in December 1992
(the "Guidelines"). Pursuant to the mandates of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the Guidelines set forth
regulations prescribing standards for real estate lending, which the Company has
incorporated into its lending policy.
The Company's lending policy addresses certain lending considerations set
forth in the Guidelines, including loan-to-value ("LTV") limits, loan
administration procedures, underwriting standards, portfolio diversification
standards and documentation, approval and reporting requirements. The LTV ratio
framework, with an LTV ratio being the total amount of credit to be extended
divided by the appraised value or purchase price of the property at the time the
credit is originated, has been established for each category of real estate
loans. The Company's policy, subject to certain approval exceptions,
establishes, among other things, the following LTV limits: raw land (65%); land
development (75%); construction (commercial, multifamily and non-residential)
(80%); and improved property (85%). For portfolio purposes, loans on one-to-four
family residential (owner occupied) mortgages where the LTV exceeds 95% are not
made, and any LTV ratio in excess of 80% generally requires appropriate
insurance or additional security from readily marketable collateral. Loans with
an LTV higher than 95% may be made if saleable
51
<PAGE> 53
to investors at an acceptable premium. The policy is reviewed and approved by
the Board of Directors at least annually.
The Company's commercial (business) lending is based on a strategy of
extending credit to the local business community, and the Company's policy has
been to make corporate and commercial loans to borrowers with satisfactory cash
flows.
The loan portfolio is managed on an ongoing basis pursuant to written
portfolio management strategies, guidelines for underwriting standards and risk
assessment, and procedures for ongoing identification and management of credit
deterioration. Regular portfolio reviews are undertaken to estimate loss
exposure and ascertain compliance with policies. See "-- Asset Quality."
ASSET QUALITY
Allowance/Provision for Loan Losses
The allowance for loan losses represents management's estimate of an
amount adequate to provide for potential losses inherent in the loan portfolio.
However, it is likely that there are additional risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because those risks include general economic trends, as well as
conditions affecting individual borrowers, management's judgment of the reserve
is necessarily approximate and imprecise. The allowance is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance and the
size of the allowance in comparison to peers identified by the regulatory
agencies.
The Company believes that its loan loss allowance policy that is both
consistent with policies established by the FDIC and commensurate with
historical loss experience. Provisions for loan losses charged to expense during
each period will be the result of management's assessment of the adequacy of the
allowance when compared to the inherent risk of the portfolio. As part of the
risk assessment for loans purchased in the CrossLand Purchase and Assumption and
for loans purchased during 1994, 1995 and 1996, management allocated a portion
of the discount on such loan purchases to the allowance in amounts which are
consistent with loan loss allowance policy guidelines. Amounts resulting from
discount allocation to the allowance are available to absorb potential losses
only on those purchased loans and are not available for losses from other loans.
To the extent that losses in certain pools or portfolios of loans exceed the
loan loss allowance and any remaining unearned loan discount, or available as a
general allowance, the Company's results of operations would be adversely
effected.
Management conducts an ongoing evaluation and grading of its loan
portfolio according to an eight point rating system. The loan ratings serve as a
guideline in assessing the risk level of a particular loan and provide a basis
for the establishment of the overall allowance. The Loan Review Department
independently rates loans and, on a quarterly basis, meets with senior
management and the loan officers to discuss all loans which have been identified
for potential credit quality problems. The Loan Review Department also reports
its findings to the Directors' Audit Committee to ensure independence of the
loan grading function.
Various loan purchases were made totaling $157.4 million during 1994,
$102.3 million during 1995 and $8.2 million in 1996. No loan purchases were made
in the first quarter of 1997. A portion of the discount on those purchased loans
was allocated to the allowance in amounts consistent with the Company's loan
loss allowance policy guidelines. The remainder of the discount arising from the
purchase price is recorded as unearned discount and subsequently accredited to
income as a yield adjustment over the life of the loans. In 1995 such allocation
included $7.2 million related solely to one particular portfolio purchase, in
the aggregate principal amount of $48.1 million. Subsequently, the principal
balance of the March 1995 Purchase had declined to $39.9 million and the
allowance allocated to this purchase was reduced to $5.9 million. This was
principally the result of charges to the reserve for loans which were
nonperforming when acquired and subsequently taken into foreclosure and recorded
at their fair value. The Company's history of administering this loan purchase
indicates that the expected loss rate on the
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remaining loans in this portfolio will be less than the amount remaining in the
allowance. Consequently, the Company reallocated $1.5 million from the allowance
to unearned discount in the fourth quarter of 1996, reducing the December 31,
1996 allowance allocated to the March 1995 Purchase to $4.4 million. In the
first quarter of 1997, $6.0 million of loans from the March 1995 purchase were
sold and $642,000 previously allocated to the allowance for those loans was
recognized as income and concurrently transferred to the allowance for
originated loans. At March 31, 1997, the allowance allocated to the March 1995
Purchase was $3.7 million, $1.0 million was allocated to loans purchased from
CrossLand, $1.7 million was allocated to other loan purchases, and $7.1 million
was allocated to originated loans. At March 31, 1997, the amount of unearned
discount on purchased loans which had not been allocated to the allowance
totaled $4.1 million.
Activity to the allowance during the first quarter of 1997 included a $1.1
million provision for loan losses, loan charge-offs (net of recoveries) of
$122,000 and the $642,000 transferred to unearned discount as previously
discussed. Activity to the allowance during 1996 included a $1.8 million
provision for loan losses, loan charge-offs (net of recoveries) of $1.8 million,
and $1.7 million transferred to unearned discount. The net charge-off amount for
1996 included $1.0 million assessed against the allowance for loans acquired in
the March 1995 Purchase as properties securing certain nonperforming loans,
which were purchased at a substantial discount, were acquired through
foreclosure and recorded at their fair value.
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The following table sets forth information concerning the activity in the
allowance for loan losses during the periods indicated (in thousands):
<TABLE>
<CAPTION>
Three Five
Months Seven Months Months
Ended Years Ended December 31, Ended Ended Year Ended
March 31, ----------------------------- December 31, May 31, December 31,
1997 1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 13,134 $ 14,910 $ 7,065 $ 6,539 $ 1,866 $ 1,958 $ 2,180
Loan discount (net) allocated to/(from)
the allowance for loans acquired in the:
CrossLand Purchase and Assumption -- -- -- (757) 4,046 N/A N/A
Loans purchased in 1994 -- (202) -- 1,400 -- -- --
Loans purchased in 1995 (642) (1,541) 7,658 -- -- -- --
Loans purchased in 1996 -- 11 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total loan discount allocated to/(from)
the allowance (642) (1,732) 7,658 643 4,046 -- --
Charge-offs:
Residential loans (1-4 family) 91 1,700 275 94 -- -- 96
Commercial real estate/multi-family -- 51 907 1,472 115 43 356
Commercial (business) 38 249 558 304 28 439 375
Consumer and other loans 59 110 207 -- 65 50 64
-------- -------- -------- -------- -------- -------- --------
Total charge-offs 188 2,110 1,947 1,870 208 532 891
Recoveries:
Residential loans (1-4 family) 2 1 7 -- 1 1 2
Commercial real estate/multi-family 3 35 379 113 19 1 1
Commercial loans (business) 60 168 53 64 91 44 95
Consumer and other loans 1 62 10 1 15 15 51
-------- -------- -------- -------- -------- -------- --------
Total recoveries 66 266 449 178 126 61 149
Net charge-offs 122 1,844 1,498 1,692 82 471 742
Provisions for loan losses 1,138 1,800 1,685 1,575 709 379 520
-------- -------- -------- -------- -------- -------- --------
Allowance at end of period $ 13,508 $ 13,134 $ 14,910 $ 7,065 $ 6,539 $ 1,866 $ 1,958
======== ======== ======== ======== ======== ======== ========
Charges to the allowance
representing shares allocated from
loan discount .02% .21% .13% .32% .00% .00% .00%
Other net charge-offs .00 .06 .12 .11 .12 .43 .69
-------- -------- -------- -------- -------- -------- --------
Total net charge-offs to average
loans .02% .27% .25% .43% .12% .43% .69%
======== ======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE> 56
The following table sets forth the allocation of the allowance based on
management's subjective estimates and the percent of the loan portfolio for each
category presented. The amount allocated to a particular segment should not be
construed as the only amount available for future charge-offs that might occur
within that segment. In addition, the amounts allocated by segment may not be
indicative of future charge-offs. The allocation of the allowance may change
from year to year should management determine that the risk characteristics of
the loan portfolio and off-balance sheet commitments have changed.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------------------ --------------------
Percent
Percent of
Amount of Portfolio Amount Portfolio
------ ------------ ------ ---------
(In thousands)
<S> <C> <C> <C> <C>
Allowance Allocation
Performing/not classified:
Residential loans:
March 1995 Purchase $ 3,599 5.1% $ 4,171 5.3%
All other residential 603 48.1 1,788 48.3
Commercial (business) 319 4.3 340 4.6
Commercial real estate 2,423 36.0 2,622 35.5
Consumer & other 501 3.4 488 3.2
------- ----- ------- -----
Subtotal $ 7,445 96.9 $ 9,409 96.9
Non-performing/classified:
Special mention 152 1.0 124 .8
Substandard & nonperforming 2,130 1.9 2,476 2.2
Doubtful 578 .2 601 0.1
Loss -- -- -- --
------- ----- ------- -----
Subtotal 2,860 3.1 3,201 3.1
Off balance sheet risk 439 -- 434 --
Unallocated 2,764 -- 90 --
------- ----- ------- -----
Total $13,069 100.0% $13,134 100.0%
======= ===== ======= =====
</TABLE>
Nonperforming Assets
Nonperforming assets include (i) loans which are 90 days or more past due
and have been placed into non-accrual status, (ii) restructured loans that have
not yet demonstrated a sufficient payment history to warrant return to
performing status and therefore, are not accruing interest, (iii) accruing loans
that are 90 days or more delinquent that are deemed by management to be
adequately secured and in the process of collection, and (iv) ORE (i.e., real
estate acquired through foreclosure or deed in lieu of foreclosure). All
delinquent loans are reviewed on a regular basis and are placed on non-accrual
status when, in the opinion of management, the possibility of collecting
additional interest is deemed insufficient to warrant further accrual. As a
matter of policy, interest is not accrued on loans past due 90 days or more
unless the loan is both well secured and in process of collection. When a loan
is placed in non-accrual status, interest accruals cease and uncollected accrued
interest is reversed and charged against current income. Additional interest
income on such loans is recognized only when received.
Loans classified as non-accrual totaled $15.4 million at December 31, 1996
compared to $16.2 million at March 31, 1997, an increase of $840,000. The
primary reason for the increase was a $745,000 loan to a single borrower which
become more than 90 days past due and was placed in non-accrual status pending
completion of renewal negotiations with the borrower. At March 31, 1997 and
December 31, 1996, the Company had nonperforming assets (including loans
classified as non-accrual) of $23.6 million or 2.58% of total assets and
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<PAGE> 57
$22.8 million or 2.51% of total assets, respectively. The ratio of
non-performing assets to total assets was 2.93% at year-end 1995 and 3.59% at
year-end 1994. Accruing loans which were 90 days past due amounted to $121,000
at March 31, 1997 and $113,000 at December 31, 1996, and primarily consisted of
loans in process of renewal. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Comparison of Balance Sheets at
March 31, 1997 and December 31, 1996."
The following table sets forth information regarding the components of
nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ ------------------------------------------
Non-Performing Assets: 1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
1-4 family residential(1) $ 8,098(1) $ 7,366(1) $ 9,540(1) $ 9,062 $ 3,707 $ 35
Multi-family residential -- 55 129 1,160 10,200 0
Commercial real estate 5,740 6,162 3,082 1,515 1,464 2,965
Commercial (business) 2,256 1,604 308 591 620 529
Home equity and consumer 98 164 495 620 0 10
------- ------- ------- ------- ------- -------
Total non-accrual loans 16,191 15,351 13,554 12,948 15,991 3,539
ORE acquired through
foreclosure 7,250 7,363 8,064 9,278 9,569 9,190
Accruing loans 90 days past
due 121 113 1,876 293 725 22
------- ------- ------- ------- ------- -------
Nonperforming assets $23,563 $22,827 $23,494 $22,519 $26,285 $12,751
======= ======= ======= ======= ======= =======
Nonperforming loans to total
loans 2.18% 2.19% 2.32% 2.56% 5.28% 3.22%
======= ======= ======= ======= ======= =======
Nonperforming assets to total
assets 2.58% 2.51% 2.93% 3.59% 4.95% 7.55%
======= ======= ======= ======= ======= =======
</TABLE>
(1) Net of $114,000, $184,000 and $950,000 of loan loss allowances at March
31, 1997 and at December 31, 1996 and 1995, respectively, allocated to
nonaccrual loans acquired in the March 1995 Purchase.
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<PAGE> 58
Other Real Estate Acquired Through Foreclosure
All ORE assets are recorded at the lower of cost or estimated fair value
based on appraisal information that is updated when a property is taken into ORE
and thereafter when determined appropriate by management. As of March 31, 1997,
in no case did the book value of any ORE property exceed 90% of the most recent
appraisal. The following table sets forth information regarding the Company's
ORE balances, net of allowances, as of the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ -------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Vacant undeveloped residential land $1,107 $1,277 $1,717 $2,358 $2,450 $2,454
Vacant developed residential lots 254 254 265 434 600 1,644
Residential houses 2,517 2,541 860 1,313 795 800
Vacant commercial undeveloped land 79 79 79 248 155 155
Commercial land developed for sale 3,200 3,200 4,308 4,516 1,746 2,991
Income-producing commercial buildings 12 12 150 0 3,534 324
Vacant commercial buildings 81 -- 685 409 289 822
------ ------ ------ ------ ------ ------
Total ORE $7,250 $7,363 $8,064 $9,278 $9,569 $9,190
====== ====== ====== ====== ====== ======
ORE to total assets .79% .81% 1.01% 1.48% 1.80% 5.44%
====== ====== ====== ====== ====== ======
</TABLE>
At March 31, 1997, ORE properties with book values in excess of $1.0
million were as follows:
- - A tract of land in Holiday, Florida, currently carried at $3.2 million,
that has been developed as a shopping enter site. This tract was obtained
in 1988 through foreclosure in connection with a $1.8 million loan. The
tract contains wetlands, some of which were required to be filled, and the
resultant permitting process took approximately five years to complete.
During that time, over $2.0 million was spent in engineering,
environmental, and legal costs (which costs were capitalized) and
approximately $500,000 for the purchase of several additional parcels of
land required for environmental mitigation purposes pursuant to the permit
requirements. The Company is offering for sale the completed shopping
center sites and other commercial pad sites. One shopping center site was
sold to a developer who constructed the retail space for the anchor
tenants, Publix and Walgreens. The Company presently operates a branch
banking facility on the tract. Federal regulations had required the Bank
to dispose of the tract no later than December 31, 1996, but the FDIC has
approved an extension of the holding period to December 19, 1997. While
the current appraisal indicates that the fair market value of the
tract exceeds book value, a sale to a party other than an end-user could
result in proceeds below the current book value.
- - A 41.7% undivided interest in a 973-acre parcel of undeveloped residential
land in Pasco County, Florida. This interest was acquired through
foreclosure in 1990 and is carried on the Company's books at $1.1 million.
The entire parcel (which includes both the Company's undivided interest
and that of the other owners) was appraised at $4.7 million in January
1997.
Troubled Debt Restructurings
A troubled debt restructuring ("TDR") is a situation in which the creditor
allows the debtor certain concessions that would not normally be allowed, such
as modifying the terms of the debt to a basis more favorable than those offered
to other creditors or accepting third-party receivables to reduce the debt. At
March 31, 1997 and December 31, 1996 and 1995, total TDRs were $2.5 million,
$2.5 million and $2.8 million, respectively, and restructured, performing loans
were $1.4 million, $1.4 million, and $2.4 million, respectively. Restructured,
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<PAGE> 59
nonperforming loans (all in non-accrual status) for those same periods were $1.1
million, $1.1 million, and $.4 million, respectively.
INVESTMENT ACTIVITIES
State law requires that a specified minimum amount of liquid assets be
maintained, based on the level of deposits, which are subject to certain
restrictions. At all times during 1996, the amount of liquid assets maintained
exceeded the regulatory minimum.
EMPLOYEES
At March 31, 1997, there were 644 full-time equivalent employees, none of
whom were represented by a union or other collective bargaining agreement. The
Company makes use of part-time and flex-time employees in connection with its
branch operations. One of the Company's primary operating principles is to
nurture its staff through, among other things, fair compensation, a good working
environment and career development and enhancement opportunities. Management
considers its relations with its employees to be good.
SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under both federal and
state law. The following is a brief summary of certain statutes, rules, and
regulations affecting the Company and the Bank. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Company's business. Supervision,
regulation, and examination of the Company and the Bank by the bank regulatory
agencies are intended primarily for the protection of depositors rather than
stockholders.
Regulation of the Company. The Company is a bank holding company,
registered with the Federal Reserve under the Bank Holding Company Act of 1956,
as amended ("BHC Act"). As such, the Company and its subsidiaries are subject to
the supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than five percent (5%) of the voting shares of the bank; (ii) it or any of
its subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA").
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely
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<PAGE> 60
related to banking or managing or controlling banks as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity
reasonably can be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices. For
example, 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 in
selling credit life insurance and certain other types of insurance in connection
with credit transactions, and performing certain insurance underwriting
activities all have been determined by the Federal Reserve to be permissible
activities of bank holding companies. The BHC Act does not place territorial
limitations on permissible nonbanking activities of bank holding companies.
Despite prior approval, the Federal Reserve has the power to order a bank
holding company or its subsidiaries to terminate any activity or to terminate
its ownership or control of any subsidiary when it has reasonable cause to
believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
Under Federal Reserve policy, bank holding companies are expected to act
as a source of financial strength and support to their subsidiary banks. This
support may be required at times when, absent such Federal Reserve policy, the
holding company may not be inclined to provide it. In addition, any capital
loans by a bank holding company to any bank subsidiary are subordinate in right
of payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
Regulation of the Bank. The Bank is organized as a Florida-chartered
commercial bank and is regulated and supervised by the Department. In addition,
the Bank is regulated and supervised by the FDIC, which serves as its primary
federal regulator. Accordingly, the Department and the FDIC conduct regular
examinations of the Bank, reviewing the adequacy of the loan loss reserves,
quality of loans and investments, propriety of management practices, compliance
with laws and regulations, and other aspects of the Bank's operations. In
addition to these regular examinations, the Bank must furnish to the FDIC
quarterly reports containing detailed financial statements and schedules.
In the course of a recent review of the Bank's operations by the FDIC,
issues arose as to the software and procedures used by the Bank to record and
calculate the charges and other information for certain types of loans, and the
amount of interest due on one class of deposit accounts. The Bank is in the
process of taking the necessary actions to address these issues, including the
payment of refunds or additional interests, as appropriate and the Company does
not expect that any costs that it may incur to resolve these issues will be a
material adverse impact on either its operations or financial condition.
Federal and Florida banking laws and regulations govern all areas of the
operations of the Bank, including reserves, loans, mortgages, capital, issuances
of securities, payment of dividends, and establishment of branches. As its
primary federal regulator, the FDIC has authority to impose penalties, initiate
civil and administrative actions, and take other steps intended to prevent the
Bank from engaging in unsafe or unsound practices. The Bank is a member of the
Bank Insurance Fund and, as such, deposits in the Bank are insured by the FDIC
to the maximum extent permissible by law.
The Bank also is subject to the provisions of the CRA. Under the CRA, the
Bank has a continuing and affirmative obligation consistent with its safe and
sound operation to help meet the credit needs of its entire communities,
including low- and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit the Bank's discretion to develop the types of products and services
that it believes are best suited to its particular communities, consistent with
the CRA. The CRA requires the appropriate federal bank regulatory agency (in the
case of the Bank, the FDIC), in connection
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<PAGE> 61
with its regular examination of a bank, to assess the Bank's record in meeting
the credit needs of the community serviced by the bank, including low- and
moderate-income neighborhoods. The FDIC's assessment of the Bank's record is
made available to the public. Further, such assessment is required whenever the
Bank applies to, among other things, establish a new branch that will accept
deposits, relocate an existing office or merge or consolidate with, or acquire
the assets of or assume the liabilities of, a federally-regulated financial
institution. In the case where Republic applies for approval to acquire a bank
or other bank holding company, the Federal Reserve will also assess the CRA
records of the Bank. The Bank received a "Satisfactory" CRA rating in its most
recent examination.
In April 1995, the federal banking agencies adopted amendments revising
their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, implemented on July
1, 1997, substitute for the prior process-based assessment factors a new
evaluation system that will rate an institution based on its actual performance
in meeting community needs. In particular, the system will focus on three tests:
(i) a lending test, to evaluate the institution's record of making loans in its
service areas; (ii) an investment test, to evaluate the institution's record of
investing in community development projects; and (iii) a service test, to
evaluate the institution's delivery of services through its branches and other
offices. The amended CRA regulations also clarify how an institution's CRA
performance will be considered in the application process. The Company does not
anticipate that the revised CRA regulations will have any material impact on the
Bank's operations or that they will have any impact on the Bank's CRA rating.
The Bank is subject to FDIC deposit insurance assessments. In 1994, the
Bank became subject to a new risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The new system assigns
an institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. An institution is also
assigned, by the FDIC, to one of three supervisory subgroups within each capital
group. 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 which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based 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.
Assessment rates on deposits for an institution in the highest category (i.e.,
"well capitalized" and "healthy") are less than assessment rates on deposits for
an institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern").
The Bank, as a state-chartered commercial bank, is a member of the Bank
Insurance Fund (the "BIF"). However, as part of the CrossLand Purchase and
Acquisition, the Bank acquired $327.7 million in deposits insured by the SAIF
and thereby became a so-called Oakar bank. Based on the CrossLand Purchase and
Assumption and the Firstate Acquisition, the Bank is required to pay insurance
premiums to the FDIC on a substantial portion of its deposits at the SAIF
assessment rate notwithstanding its status as a BIF member. As of December 31,
1996, the most recent measurement date for assessment purposes, approximately
72.5% of the Bank's deposits were treated as SAIF-insured deposits, with the
remaining 27.5% of deposits being assessed at the BIF rate. The Bank's ratio of
SAIF- and BIF-assessed deposits will increase somewhat following the FFO Merger.
FFO's deposits at March 31, 1997 were $285.7 million.
Until recently, the FDIC had established separate risk-based assessment
schedules for the BIF and the SAIF. In November 1995, the FDIC established the
current assessment schedule for BIF-assessed deposits, with assessment rates
ranging from zero percent to 0.27 percent (or 27 basis points) of deposits. The
SAIF-based deposits had much higher assessment rates. In December 1996,
following enactment of federal legislation to recapitalize the SAIF (described
below), the FDIC adopted the same zero percent to 0.27 percent assessment
schedule, effective October 1, 1996 for SAIF-assessed deposits. During 1996,
the Bank paid $8,800 in insurance assessments to the BIF and
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<PAGE> 62
$796,800 to the SAIF. The Bank realized savings of approximately $194,000 in
insurance premiums costs during the fourth quarter of 1996 resulting from the
new SAIF assessment schedule.
As part of the omnibus budget legislation passed last fall, Congress
enacted the Deposit Insurance Funds Act of 1996 (the "Funds Act"). With certain
exceptions, the Funds Act imposed a one-time special assessment on
SAIF-assessable deposits held by all depository institutions in an aggregate
amount that would cause the SAIF to meet its designated reserves-to-deposits
ratio of 1.25 percent. Pursuant to the Funds Act, the Bank on November 27, 1996
paid a special assessment to the SAIF of $2.5 million. This assessment was
determined by taking the Bank's SAIF-assessable deposits as of March 31, 1995
and multiplying that amount by a 0.657 percent (or 65.7 basis point) assessment
rate that the FDIC had calculated would be necessary to capitalize fully the
SAIF. (A lower assessment rate was imposed on certain Oakar banks, but the Bank
did not qualify for the reduction.)
Prior to enactment of the Funds Act, the SAIF assessments were used to pay
interest on bonds issued by the Financing Corporation (the "FICO") in the late
1980s to fund the resolution of troubled thrifts, and only insurance payments by
SAIF-member institutions were available to satisfy FICO's interest payment
obligations. A second provision of the Funds Act severs the linkage that had
existed between the SAIF and the FICO funding requirements, authorizing the FICO
to impose its own assessments separate and apart from any insurance fund
assessment. The Funds Act also shifts a portion of the FICO funding obligations
to BIF-member institutions beginning in 1997. Through the end of 1999, the FICO
assessment rate on BIF-assessable deposits is required by the statute to be
one-fifth of the SAIF rate. Thereafter, FICO assessment rates for members of
both insurance funds will presumably be equalized.
Currently, the FICO assessment rate for BIF assessable deposits is 0.013
percent (or 1.3 basis points) and the FICO assessment rate for SAIF assessable
deposits is 0.0648 percent (or 6.48 basis points). For the first half of 1997,
the Bank has been assessed a semiannual FICO payment obligation of $192,480,
$176,449 of which was attributable to the Bank's SAIF-assessable deposits, and
the balance of which was attributable to its BIF-assessable deposits.
Capital Requirements
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve (for the Company) and the FDIC (for
the Bank). There are three basic measures of capital adequacy for banks that
have been promulgated by the Federal Reserve; two risk-based measures and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guidelines for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8%. At least half of Total Capital (i.e., 4% of risk-
weighted assets) must comprise common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves ("Tier 2 Capital"). In addition, the Federal Reserve has established
minimum leverage ratio guidelines for bank holding companies. These guidelines
provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for banks that meet certain specified
criteria, including having the highest regulatory rating. All other bank holding
companies generally are required to maintain a Leverage Ratio of at least 3.0%,
plus an additional cushion of 100 to 200 basis
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points. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the Federal Reserve has
indicated that it will consider a "tangible Tier 1 Capital leverage ratio"
(deducting all intangibles) and other indicators of capital strength in
evaluating proposals for expansion or new activities.
The Bank had previously undertaken in writing to the FDIC to achieve a
Leverage Ratio of at least 5.5% by September 30, 1995, which it did, and the
Company will consider raising additional capital or reducing internal growth in
order to maintain the Bank's Leverage Ratio at or above that level, should the
ratio fall below that level in the future. Other than the foregoing commitment,
the Bank has not been advised by the FDIC of any specific minimum capital ratio
requirement applicable to it.
Dividends
As a Florida-chartered commercial bank, the Bank is subject to the laws of
Florida as to the payment of dividends. Under the Florida Financial Institutions
Code, the prior approval of the Department is required if the total of all
dividends declared by a bank in any calendar year will exceed the sum of the
bank's net profits for that year and its retained net profits for the preceding
two years.
Under Federal law, if, in the opinion of the federal banking regulator, a
bank or thrift under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such regulation
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Prompt
Corrective Action regulations adopted by the federal banking agencies in
December 1992, a depository institution may not pay any dividend to its holding
company if payment would cause it to become undercapitalized or if it already is
undercapitalized.
Due to the Bank's anticipated continued growth and management's intent to
maintain certain regulatory capital levels, dividend payments on the Company's
common stock are not expected in the foreseeable future.
Federal Reserve System
The Federal Reserve regulations require banks to maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The new Federal Reserve regulations effective
April 1, 1997, generally require that reserves be maintained against aggregate
transaction accounts as follows: (i) for accounts aggregating $49.3 million or
less (subject to adjustment by the Federal Reserve) the reserve requirement is
3.0%; and (ii) for accounts greater than $49.3 million, the reserve requirement
is $1,479,000 plus 10.0% (subject to adjustment by the Federal Reserve between
8.0% and 14.0%) against that portion of total transaction accounts in excess of
$49.3 million. The first $4.4 million of otherwise reservable balances (subject
to adjustments by the Federal Reserve) are exempted from the reserve
requirements. The Bank anticipates that it will be in compliance with the
foregoing requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve may be used to satisfy liquidity requirements
imposed by the Department. Because required reserves must be maintained in the
form of either vault cash, a noninterest-bearing account at a Federal Reserve
Bank or a pass-through account as defined by the Federal Reserve, the effect of
this reserve requirement is to reduce the Bank's interest-earning assets. FHLB
System members also are authorized to borrow from the Federal Reserve "discount
window", but Federal Reserve regulations require institutions to exhaust all
Federal Home Loan Bank sources before borrowing from a Federal Reserve Bank.
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<PAGE> 64
Federal Home Loan Bank System
The Bank is a member of the FHLB system, which consists of 12 regional
Federal Home Loan Banks governed and regulated by the Federal Housing Finance
Board. The Federal Home Loan Banks provide a central credit facility for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to the greater
of 1% of the aggregate principal amount of its unpaid residential mortgage
loans, home purchase contracts and similar obligations as of the close of each
calendar year, or 5% of its borrowings from the FHLB (including advances and
letters of credit issued by the FHLB on the Bank's behalf).
The FHLB makes advances to members in accordance with policies and
procedures periodically established by the Federal Housing Finance Board and the
Board of Directors of the FHLB. Currently outstanding advances from the FHLB are
required to be secured by a member's shares of stock in the FHLB and by certain
types of mortgages and other assets. Interest rates charged for advances vary
depending on maturity, the cost of funds to the FHLB and the purpose of the
borrowing. As of March 31, 1997, the Bank had no outstanding advances from the
FHLB. However, the Company has recently obtained advances in an amount
sufficient to satisfy the Bank's funding needs as well as to maintain the Ban's
current liquidity levels. In addition, the Bank expects to obtain additional
advances from the FHLB to fund all or a portion of the purchase price for the
1997 Loan Purchase.
Liquidity
Under Florida banking regulations, the Bank is required to maintain a
daily liquidity position equal to at least 15 percent of its total transaction
accounts and eight percent of its total nontransaction accounts, less those
deposits of public funds for which security has been pledged as provided by law.
The Bank may satisfy its liquidity requirements with cash on hand (including
cash items in process of collection), deposits held with the Federal Reserve,
demand deposits due from correspondent banks, Federal funds sold,
interest-bearing deposits maturing in 31 days or less and the market value of
certain unencumbered, rated, investment-grade securities and securities issued
by Florida or any county, municipality or other political subdivision within the
State. The FDIC also reviews the Bank's liquidity position as part of its
examination and imposes similar requirements on the Bank. Any Florida-chartered
commercial bank that fails to comply with its liquidity requirements generally
may not further diminish liquidity either by making any new loans (other than by
discounting or purchasing bills of exchange payable at sight) or by paying
dividends. At March 31, 1997, the Bank's net liquid assets exceeded the minimum
amount required under the applicable Florida regulations.
Monetary Policy and Economic Controls
The banking business is affected not only by general economic conditions,
but also by the monetary policies of the Federal Reserve. 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 bank deposits 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 Federal Reserve. The
monetary policies have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The
monetary policies of the Federal Reserve are influenced by various factors,
including inflation, unemployment and short- and long-term changes in the
international trade balance and in the fiscal policies of the United States
Government. Future monetary policies and the effect of such policies on the
future business and earnings of the Bank cannot be predicted.
CHANGES IN ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") recently adopted or
issued proposals and guidelines that may have a significant impact on the
accounting practices of commercial enterprises in general and financial
institutions in particular.
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In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires that a mortgage banking enterprise recognize
as a separate asset the right to service mortgage loans for others, regardless
of the manner in which such servicing rights are acquired. Moreover, this
statement requires that the total cost of acquiring mortgage loans be allocated
to the servicing rights and the loans based on their relative fair values, if
practicable. This standard is effective for fiscal years beginning after
December 15, 1995 but earlier implementation is encouraged. Management
implemented SFAS No. 122 beginning July 1, 1995. The impact upon the results of
operations of the Bank was not material.
During 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which is
effective for the Company's fiscal year beginning January 1, 1997. SFAS 125
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The impact of the adoption of
SFAS 125 upon the results of operations of the Company was not material.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
which is effective for the Company's fourth quarter and year ended December 31,
1997. Early application is not permitted and after the effective date, prior
period earnings per share presented must be restated. SFAS No. 128 establishes
new standards for computing and presenting EPS. Specifically, SFAS No. 128
replaces the presentation of primary earnings per share with basic earnings per
share, requires dual presentation for companies with complex capital structures
of basic and diluted earnings per share and requires a conciliation of the
numerator and denominator of the basic earnings per share computation to those
of the diluted earnings per share computation. Management has not determined the
effect of the adoption of SFAS No. 128 on the Company's financial statements,
but does not expect it to be material.
LEGAL PROCEEDINGS
The Company is party to various legal proceedings in the ordinary course
of its business. Based on information presently available, management does not
believe that the ultimate outcome of such proceedings, in the aggregate, would
have a material adverse effect on the Company's financial position or results of
operations.
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MANAGEMENT
The table below sets forth the names and ages of the directors and
executive officers of the Company and the Bank as well as the positions and
offices held by such persons. All of the Company's directors also serve on the
Bank's Board of Directors. The Company's and the Bank's directors are elected
for a one-year term.
<TABLE>
<CAPTION>
Name Age Position Year First
- ---- --- -------- Became a
Director
--------
<S> <C> <C> <C>
John W. Sapanski................ 66 Chairman of the Board, Chief Executive Officer and 1993
President of the Company and the Bank
Fred Hemmer..................... 42 Director of the Bank, Senior Executive Vice 1986
President of the Bank
William R. Falzone.............. 49 Treasurer of the Company and Executive Vice
President and Chief Financial Officer of the Bank
John W. Fischer, Jr............. 48 Executive Vice President of the Bank
Richard G. Gleitsman............ 43 Executive Vice President and Chief Administrative
Officer of the Bank
Kathleen A. Reinagel............ 45 Executive Vice President of the Bank
Steve McWhorter................. 35 Head of Mortgage Banking Division
William R. Hough................ 70 Director 1993
Marla Hough..................... 39 Director 1997
Alfred T. May................... 58 Director 1993
William J. Morrison............. 64 Director 1980
</TABLE>
John W. Sapanski. Mr. Sapanski has been Chairman of the Board, Chief
Executive Officer and President of the Bank since June 1993 and Chairman of the
Board, Chief Executive Officer and President of the Company since March 1996. He
has 45 years of banking experience, including service with the Dime Savings Bank
in New York, New York from 1949 to 1987, where he served as President and Chief
Operating Officer from 1981 to 1987 and with Florida Federal Savings Bank in St.
Petersburg, Florida ("Florida Federal") from 1988 to 1991 where he acted as
President and Chief Executive Officer from 1988 to 1991. Mr. Sapanski was
President and Chief Executive Officer of Florida Federal at the time the Office
of Thrift Supervision placed Florida Federal in conservatorship. Mr. Sapanski
was retained by the Resolution Trust Corporation (the "RTC"), the conservator
for Florida Federal, to assist in managing the institution in conservatorship
until it was sold by the RTC to First Union Corporation in August 1991.
Fred Hemmer. Mr. Hemmer has served as Executive Vice President of the Bank
in charge of Corporate Banking and Special Assets since joining the Bank in
1991. He previously served as Executive Vice President of Rutenberg Corporation,
a real estate development company based in Clearwater, Florida, from 1980 to
1991. Mr. Hemmer is a certified public accountant and was employed by Arthur
Andersen & Co. from 1976 to 1980. Mr. Hemmer is also a licensed real estate
broker and certified general contractor.
William R. Falzone. Mr. Falzone has served as Treasurer of the Company
since March 1996 and Executive Vice President and Chief Financial Officer of the
Bank since February 1994. He was employed at Florida Federal from 1983 through
1991 where he served as Senior Vice President and Controller and as Director of
Financial Services. Most recently, he was a Senior Consultant for Stogniew and
Associates, a nationwide consulting firm. He has over 20 years of banking
experience and is also a certified public accountant.
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John W. Fischer, Jr. Mr. Fischer has served as Executive Vice President of
the Bank in charge of Consumer Banking since December 1993. He has over 20 years
of banking experience in retail branch management and consumer and residential
lending. Mr. Fischer formerly served as Regional Marketing Director for Western
Reserve Life in Clearwater, Florida, Regional Vice President of Great Western
Bank in Miami and Executive Vice President/Consumer Financial Services for
Florida Federal. Mr. Fischer holds life, health, annuity and Series 7 securities
licenses.
Richard C. Gleitsman. Mr. Gleitsman has served as Executive Vice President
and Chief Administrative Officer of the Bank since December 1993. He previously
served as Executive Vice President and Regional Manager of CrossLand since 1986.
He has over 25 years of banking experience in retail branch management, loan
servicing, human resources, data processing, and executive administration.
Kathleen A. Reinagel. Ms. Reinagel has served as Executive Vice President
of the Bank in charge of Credit and Loan Administration since August 1993. She
has over 20 years of experience in the lending field with a concentration in
credit and underwriting, loan documentation, due diligence and loan review. Ms.
Reinagel formerly served as Vice President of WRH Mortgage, Inc. ("WRH
Mortgage"), St. Petersburg, Florida, a mortgage banking company affiliated with
William R. Hough & Co., and Vice President, Department Manager of Commercial
Real Estate of Florida Federal.
Steve McWhorter. Mr. McWhorter has served as Division Director in charge
of the Company's mortgage banking division since April 1996, having previously
served as Regional Manager of FT Mortgage Company since 1992. He has over 14
years of experience in the mortgage banking industry.
William R. Hough. Mr. Hough has served as Chairman of William R. Hough &
Co., St. Petersburg, Florida, an investment banking firm specializing in state,
county, and municipal bonds, since 1962, President of WRH Mortgage, Inc., St.
Petersburg, Florida, since May 1993, Director of FFO since 1993 and President of
Royal Palm Center, II, Inc., Port Charlotte, Florida, a privately-held
retirement center, since September 1991.
Marla Hough. Mrs. Hough has served as President of Hough Engineering,
Inc., an engineering consulting firm, Bradenton, Florida, since March 1997 and
Vice President of Bishop & Associates, Bradenton, Florida, an engineering,
planning and surveying firm, since 1992. From 1984 to 1992, Mrs. Hough served as
Project Manager at Zoller, Najjar and Shroyer, Inc., an engineering, planning,
surveying and landscape architecture firm, Bradenton, Florida. Mrs. Hough is
married to a cousin of William R. Hough.
Alfred T. May. Mr. May has served as Director and Chairman of the Board of
FFO and its subsidiary, First Federal, since September 1993. From 1989 to 1992,
Mr. May served as President of Mid-State Federal Savings Bank, Ocala, Florida.
William J. Morrison. Mr. Morrison has served as Senior Partner of Morrison
& Company, P.A., Tampa, Florida, a certified public accounting firm, since 1995,
as General Partner of Best-Morrison Properties, Tampa, Florida, a real estate
investment firm since 1975 and as Managing Partner of Morrison Investments, Ltd.
Tampa, Florida, a real estate and securities investment firm, since 1991.
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DESCRIPTION OF THE DEBENTURES
The Debentures are a series of debt securities issued under an Indenture,
dated as of December 18, 1996 (the "Indenture"), between the Company and
SouthTrust Bank of Florida, National Association, as trustee (the "Trustee"), a
copy of which is filed as an exhibit to the Registration Statement (as
defined). Wherever particular defined terms of the Indenture (including the
Debentures) are referred to, such defined terms are incorporated herein by
reference. References in this section to the "Company" are solely to Republic
Bancshares, Inc. and not to its subsidiaries. The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the detailed
provisions of the Debentures and the Indenture, including the definitions
therein of certain terms. Section references below are references to sections
of the Indenture.
GENERAL
The Debentures are general unsecured obligations of the Company, limited
to $6,000,000 in aggregate principal amount. The Debentures will mature on
December 1, 2011, unless redeemed earlier at the option of the Company. The
Debentures bear interest at 6% per annum commencing on December 28, 1996 (the
day after the original date of delivery to the Selling Securityholders) or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on June 1 and December 1 of each year,
commencing June 1, 1997, to the person in whose name the Debenture (or any
predecessor Debenture) is registered at the close of business on the preceding
November 15 or May 15, as the case may be. Interest on the Debentures is
computed on the basis of a 360-day year, or twelve 30-day months.
The Company's primary source of funds for the payment of principal and
interest on the Debentures is dividends from the Bank. From time to time while
the Debentures are outstanding, the Bank may be subject to regulatory or
contractual constraints that restrict its ability to pay dividends to the
Company. See "Risk Factors -- Changes in Loan Sales Strategy." No such present
regulatory or contractual constraints preclude the payment of dividends by the
Bank.
OPTIONAL REDEMPTION
The Debentures are redeemable at the option of the Company, in whole or in
part, on not less than 30 days notice, but not more than 60 days prior to the
redemption date, principally under two different circumstances. Under either of
these circumstances, amounts required to be paid on redemption include accrued
interest, if any, to the redemption date.
First, the Debentures are redeemable at any time after December 1, 2001,
at the following redemption prices (expressed as percentages of principal
amount), when redeemed during the twelve month periods indicated below:
<TABLE>
<CAPTION>
December 1 through November 30
- ---------- ------- -----------
<S> <C> <C> <C>
2001 2002........................... 106%
2002 2003........................... 105%
2003 2004........................... 104%
2004 2005........................... 103%
2005 2006........................... 102%
2006 2007........................... 101%
2007 and thereafter ..................................... 100%
</TABLE>
Second, the Debentures may also be redeemed without any payment of premium
at any time after the Closing Price of the Common Stock for not less 20
consecutive trading days equals or exceeds 130% of the Conversion Price then in
effect. "Closing Price" means the closing price per share of Common Stock on the
Nasdaq National Market or, if then traded on a national securities exchange, the
closing price on that exchange or the highest bid quotation on an automated
quotation system, or if the Common Stock shall not then be listed on the Nasdaq
National
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<PAGE> 69
Market or on an exchange or included on an automated quotation system, as
reported by the National Quotation Bureau, Inc. or similar reporting service.
No sinking fund is provided for the Debentures.
CONVERSION OF DEBENTURES
The holder of any Debenture has the right, at its option, to convert each
$1,000 principal amount of a Debenture that is an integral multiple of $1,000
into 56 shares of the Company's Common Stock (a Conversion Price of $17.85714
per share), subject to adjustment as described below, at any time prior to
maturity, unless previously redeemed, or in case a Debenture has been called for
redemption, then with respect to such called Debenture, until and including the
close of business on the third business day preceding the redemption date.
Debentures converted in the absence of a call for the redemption of such
Debentures shall not be entitled to payment of accrued interest. Debentures
converted following a call for redemption of such Debentures shall be entitled
to the payment of accrued interest. If a Debenture that has not been called for
redemption is surrendered by a Holder for conversion between the record date for
the payment of an installment of interest and the next Interest Payment Date (as
defined in the Indenture), the Debenture, when surrendered for conversion, must
be accompanied by payment of an amount equal to the interest thereon which the
Holder on such record date is entitled to receive on the next Interest Payment
Date since the Holder is not entitled to the payment of accrued interest in
connection with the conversion of a Debenture that has not been called for
redemption. No fractional shares will be issued upon conversion, and in lieu
thereof an appropriate amount based upon market prices of the Common Shares will
be paid in cash by the Company.
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Company, each Debenture then outstanding
will, without the consent of the Holder of any Debenture, become convertible
only into the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer by a holder of the number of
shares of Common Stock into which such Debenture was convertible immediately
prior thereto (assuming such holder of Common Stock failed to exercise any
rights of election and that such Debenture was then convertible).
ANTI-DILUTION PROVISIONS
The conversion price of the Debentures is subject to adjustment upon the
occurrence of certain events, including (i) the payment of a dividend in shares
of Common Stock to holders of Common Stock or a dividend to holders of Common
Stock payable in shares of some class of the Company's capital stock other than
Common Stock; (ii) the subdivision, combination or reclassification of
outstanding Common Stock; (iii) the distribution to all holders of Common Stock
of evidences of indebtedness or assets (excluding cash dividends or cash
distributions payable out of retained earnings, or stock dividends) or
subscription rights or warrants (other than those referred to above); or (iv)
the issuance of rights or warrants entitling anyone to subscribe for or to
purchase Common Stock or securities or instruments convertible into Common
Stock, in each case at less than current market price (as defined in the
Indenture) for the Common Stock. The Company will not be required to make any
adjustments in the Conversion Price of less than one percent of the conversion
price, but the same will be carried forward and taken into account in the
computation of any subsequent adjustment.
In case of any reclassification or change of outstanding Common Stock
(with certain exceptions), or in case of any consolidation or merger of the
Company with or into another person (with certain exceptions), or in case of any
transfer or conveyance of the property of the Company substantially as an
entirety, then the surviving entity will be required to execute and deliver a
supplemental indenture providing that the Holder of each Debenture then
outstanding would have the right thereafter to convert that Debenture into the
kind and amount of securities or
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<PAGE> 70
property receivable upon the reclassification, change, consolidation, merger,
transfer or conveyance by the holder of the number of Common Stock into which
the Debenture could have been converted immediately prior thereto.
SUBORDINATION
The principal and premium, if any, and interest on the Debentures will be
subordinated and junior in right of payment to the prior payment in full of all
Senior Indebtedness of the Company. The Debentures will rank on a par with any
subsequently issued subordinated indebtedness of the Company. The Indenture does
not limit the amount of Senior Indebtedness or other indebtedness, secured or
unsecured, that the Company or any of its subsidiaries may incur. If payments on
any Senior Indebtedness have been accelerated, the Company shall be prohibited
from making any payment of principal, premium, if any, or interest on the
Debentures until payments of the Senior Indebtedness are made or provided for.
Upon any distribution of assets of the Company in connection with any
dissolution, winding up, liquidation or reorganization of the Company, payment
of principal, premium, if any, or interest in the Debentures will be
subordinated, to the extent and in the manner set forth in the Indenture, to the
prior payment in full of Senior Indebtedness. By reason of such subordination,
in the event of a distribution of assets in any such proceeding, certain general
creditors of the Company may recover more, ratably, than holders of the
Debentures.
"Senior Indebtedness" means all indebtedness, including obligations to
general creditors, of the Company, except any particular indebtedness, the
instrument creating or evidencing which, or pursuant to which the same is
outstanding, expressly provides that such indebtedness shall be subordinate or
shall rank pari passu in right of payment to the Debentures.
COVENANTS
The Indenture contains certain customary covenants found in Indentures
under the Trust Indenture Act of 1939, as amended, including covenants with
respect to the payment of principal and interest, maintenance of an office or
agency for administering the Debentures, holding of funds for payments on the
Debentures in trust, payment by the Company of taxes and other claims,
maintenance by the Company of its properties and its corporate existence, and
delivery of annual certifications to the Trustee.
RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER DISTRIBUTIONS
The Indenture provides that the Company cannot declare or pay dividends
on, or purchase, redeem or acquire for value its capital stock, return any
capital to holders of capital stock as such, or make any distribution of assets
to holders of capital stock as such, unless, from and after the date of any such
dividend declaration (a "Declaration Date") or the date of any such purchase,
redemption, payment or distribution specified above (a "Redemption Date"), the
Company retains cash, cash equivalents (as determined in accordance with
generally accepted accounting principles) or marketable securities (with a
market value as measured on the applicable Declaration Date or Redemption Date)
in an amount sufficient to cover the two consecutive semi-annual interest
payments that will be due and payable on the Debentures following such
Declaration Date or Redemption Date, as the case may be. The Indenture further
provides that the amount of any interest payment made by the Company with
respect to the Debentures after any applicable Declaration Date or Redemption
Date shall be deducted from the aggregate amount of cash or cash equivalents
which the Company shall be required to retain pursuant to the foregoing
provision.
The Indenture does not restrict the Company's sale of additional shares of
capital stock or other debt securities, or its pledge of the capital stock of
the Bank. Further, the Bank is not restricted by the Indenture from issuing any
shares of capital stock or debt securities of the Bank.
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<PAGE> 71
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (i) the failure
by the Company to pay principal of or premium, if any, on the Debentures at
maturity or upon redemption (whether or not such payment is prohibited by the
subordination provisions); (ii) the failure by the Company to pay interest on
any of the Debentures on any Interest Payment Date and such failure continues
for a period of 30 days (whether or not such payment is prohibited by the
subordination provisions); (iii) the failure by the Company to comply with any
of its other agreements or covenants in, or provisions of, the Indenture and
such default continues for the period and after the notice specified below; and
(iv) certain events of bankruptcy of the Company.
A default under clause (iii) above is not an Event of Default until the
Trustee notifies the Company in writing, or the Holders of at least 25% in
principal amount of the Debentures then outstanding notify the Company and the
Trustee in writing, of the default, and the Company does not cure the default
within 60 days after receipt of the notice. The notice must specify the default,
demand that it be remedied and state that the notice is a "Notice of Default."
Such notice shall be given by the Trustee if so requested in writing by the
Holders of at least 25% in principal amount of the Debentures then outstanding.
Any notice required to be delivered by the Trustee to the Company shall be given
promptly after the Trustee becomes aware of such default or is requested by such
Holders to deliver such notice.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of any default known to it, mail to the Holders notice of such
default, provided that, except in the case of default in the payment of
principal of or interest on any of the Debentures, the Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Holders.
The Indenture only permits acceleration of payment of principal of the
Debentures upon an Event of Default resulting from certain events of bankruptcy
(liquidation or reorganization). If an Event of Default resulting from certain
events of bankruptcy shall have occurred and be continuing, the Trustee or the
Holders of not less than 30% in aggregate principal amount of the Debentures
then outstanding, by notice in writing to the Company (and to the Trustee if
given by the Holders), may declare to be immediately due and payable all unpaid
principal of all the Debentures. An acceleration and its consequences may be
rescinded and past defaults waived by Holders of a majority in principal amount
of the Debentures then outstanding upon conditions provided in the Indenture. If
other Events of Default under the Indenture, including any resulting from the
failure of the Company to pay principal or interest on the Debentures, shall
have occurred and be continuing, the Trustee may, in its discretion, proceed to
protect and enforce its rights and the rights of the Holders by such appropriate
judicial proceedings as the Trustee shall deem most effectual under the
circumstances.
No Holder may pursue any remedy under the Indenture unless such Holder has
previously given to the Company and the Trustee written notice of a continuing
Event of Default and unless the Holders of at least 30% in principal amount of
the Debentures then outstanding have requested the Trustee in writing to pursue
the remedy and offered the Trustee indemnity satisfactory to the Trustee against
loss, liability and expense to be thereby incurred and the Trustee has failed so
to act within 60 days after receipt of the same.
The Indenture requires the Company to file periodic reports no less than
annually with the Trustee as to the absence of defaults.
SATISFACTION, DISCHARGE AND DEFEASANCE OF DEBENTURES
The Indenture provides that the Company will at its option either (a) be
deemed to have paid and discharged the entire indebtedness represented by and
its obligations under the Debentures (except for the obligation to pay the
principal of, premium, if any, and interest on, the Debentures and certain
obligations to register the transfer or exchange of the Debentures, to replace
temporary or mutilated, destroyed, lost or stolen Debentures, to maintain an
office or agency in respect to the Debentures and to hold moneys for payment in
trust ("legal defeasance")), or
70
<PAGE> 72
(b) cease to be under any obligation to comply with certain terms, provisions or
conditions of the Indenture (those terms, provisions or conditions described in
the Indenture under "Consolidation, Merger or Sale") or the terms, provisions or
conditions of the Debentures ("covenant defeasance"), in either case, on the
91st day after: (i) the Company has paid to caused to be paid all other sums
payable with respect to the outstanding Debentures and the Company has delivered
to the Trustee a certificate from an authorized officer and an opinion of legal
counsel, each stating that all conditions precedent relating to the satisfaction
and discharge of the entire indebtedness on all of the outstanding Debentures
have been complied with; (ii) the Company has deposited or cause to be deposited
irrevocably with the Trustee as a trust fund specifically pledged as security
for the benefit of the holders of the Debentures, (x) dollars in an amount, or
(y) U.S. Government Obligations (as defined in the Indenture) (which through the
payment of interest and principal in respect thereof in accordance with their
terms will provide, not later than the due date of any payment of principal,
premium, if any, and interest on the outstanding Debentures) in an amount, or
(z) a combination of (x) and (y), sufficient to pay and discharge each
installment of principal of an interest or premium, if any, on the outstanding
Debentures on the dates such installments of interest or principal or premium,
if any, are due; and (iii) no Event of Default has occurred and is continuing on
the date of such deposit. Among the conditions of the Company's exercising any
such option, the Company is required to deliver to the Trustee an opinion of
independent counsel of recognized standing to the effect that the deposit and
related defeasance would not cause the Holders of the Debentures to recognize
income, gain or loss for federal income tax purposes and that the Holders will
be subject to federal income tax in the same amounts, in the same manner and at
the same times as would have been the case if such deposit and related
defeasance had not occurred.
CONSOLIDATION, MERGER OR SALE OF ASSETS
The Indenture provides that the Company will not merger or consolidate
with or sell all or substantially all of its assets to, any entity unless it is
the surviving or successor entity in such transaction and, immediately
thereafter, is not in default under the Indenture or, if it is not the surviving
or successor entity, the successor entity expressly assumes the Company's
obligations under the Indenture and, immediately after such transaction, the
successor entity is not in default under the Indenture. Any successor entity
shall assume by supplemental indenture all of the obligations of the Company
under the Debentures and the Indenture and the entity formed by such
consolidation or into which the Company is merged shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture, and thereafter the predecessor entity shall be relieved of all
obligations and covenants under the Indenture and the Debentures issued
thereunder and may thereafter be liquidated and dissolved.
SUPPLEMENTAL INDENTURE WITHOUT CONSENT OF DEBENTUREHOLDERS
The Indenture provides that the Company and the Trustee may, without the
consent of any holders of Debentures, enter into supplemental indentures for
purposes, among other things, of: (a) evidencing the succession of another
entity to the Company and the assumption by any such successor of the covenants
of the Company; (b) making any change that does not adversely affect the rights
of any Holders; or (c) curing any ambiguity, defect or inconsistency; provided,
however, that such action shall not adversely affect the interest of the Holders
in any material respect.
Most of the terms of the Indenture and the Debentures may be modified with
the consent of the Holders of not less than two-thirds of the principal amount
of Debentures then outstanding. However, each Holder must agree to: (i) an
extension of maturity; (ii) a reduction in principal amount of or the rate of
interest on the Debentures; (iii) an increase in the Conversion Price of the
Debentures; (iv) a reduction in the premium, if any, payable upon redemption; or
(v) a reduction in the aforesaid percentages required for modification.
The Company may omit in any particular instance to comply with any
covenant or condition as set forth in the Indenture if before the time for such
compliance the Holders of not less than two-thirds of the principal amount of
Debentures then outstanding shall either waive such compliance in such instance
or generally waive compliance with such covenant or condition. No such waiver,
however, may extend to or affect such covenant or condition except to the extent
so expressly waived, and until such waiver has become effective, the obligation
of the Company
71
<PAGE> 73
and the duties of the Trustee in respect of any such covenant will remain in
full force and effect. No supplemental indenture will affect the seniority
rights of the holders of Senior Indebtedness without the consent of such
holders.
REGARDING THE TRUSTEE
The Company and its subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee in the ordinary course of their
businesses.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 20,000,000 shares of Common Stock
and 100,000 shares of Series A Preferred Stock, $20,000 par value (the
"Preferred Stock") of which 4,183,507 and 75,000 shares, respectively, were
issued and outstanding as of March 31, 1997. Each share of Preferred Stock is
convertible at any time into ten shares of Common Stock and is redeemable at any
time by the Company upon 30 days prior written notice at a price of $96.80 per
share.
Unless otherwise required by law or the Company's Articles of
Incorporation (the "Articles"), holders of Common and Preferred Stock vote
together as a single class on all matters presented to the Company's
stockholders. Each share of Preferred Stock is entitled to 10 votes for all
purposes, and each share of Common Stock is entitled to one vote. No cash
dividend may be declared or paid on shares of Common Stock unless,
simultaneously therewith or prior thereto, there is or has been declared or paid
the quarterly dividend payable on Preferred Stock.
In any liquidation or dissolution of the corporation, the holders of
Preferred Stock will be entitled to receive, out of the assets available for
distribution to stockholders, an amount equal to $88.00 per share before any
amount is paid to holders of Common Stock. After the above preference amount has
been paid to the holders of Preferred Stock, such holders will not be entitled
to any further distributions. The holders of Common Stock will then be entitled
to participate, pro rata in accordance with the number of shares owned by them,
in the distribution of the Company's remaining assets.
The Company's Board of Directors may authorize the issuance of additional
authorized but unissued shares of the Company's Common and Preferred Stock
without further action by the Company's stockholders, unless such action is
required in a particular case by applicable laws or regulations or by any stock
exchange upon which the Company's capital stock may be listed. The Company's
Articles do not provide any preemptive rights to the Company's stockholders.
The authority to issue additional shares of the Company's Common Stock
provides the Company with the flexibility necessary to meet its future needs
without the delay resulting from seeking stockholder approval. The authorized
but unissued shares of Common and Preferred Stock will be issuable from time to
time for any corporate purpose, including, without limitation, stock splits,
stock dividends, employee benefit and compensation plans, acquisitions, and
public or private sales for cash as a means of raising capital.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the
Selling Securityholder Securities, but does not purport to be a complete
analysis of all the potential tax considerations relating thereto. This summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing, temporary and proposed Treasury Regulations, laws, rulings and
decisions now in effect, all of which are subject to change. This summary deals
only with Holders that will hold the Selling Securityholder Securities as
"capital assets" (within the meaning of Section 1221 of the Code) and that are
(i) citizens or residents of the United States, (ii) domestic corporations, or
(iii) otherwise subject to United States
72
<PAGE> 74
Federal income taxation on a net income basis in respect of any Selling
Securityholder Securities. This summary does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, or persons that will hold Debentures as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes. This
summary discusses the tax considerations applicable to the initial purchasers of
the Debentures who purchase the Debentures at their "issue price" as defined in
Section 1273 of the Code and does not discuss the tax considerations applicable
to subsequent purchasers of the Debentures. The Company has not sought any
ruling from the Internal Revenue Services ("IRS") with respect to the statements
made and the conclusions reached in the following summary, and there can be no
assurance that the IRS will agree with such statements and conclusions.
INVESTORS CONSIDERING THE PURCHASE OF DEBENTURES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
PAYMENT OF INTEREST
Interest on a Debenture generally will be includable in the income of a
Holder as ordinary income at the time such interest is received or accrued, in
accordance with such Holder's method of accounting for United States federal
income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE DEBENTURES
Upon the sale, exchange or redemption of a Debenture, a Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property received on
the sale, exchange or redemption (except to the extent such amount is
attributable to accrued interest income not previously included in income which
is taxable as ordinary income) and (ii) such Holder's adjusted tax basis in the
Debenture. A Holder's adjusted tax basis in a Debenture generally will equal the
cost of the Debenture to such Holder. Such capital gain or loss will be
long-term capital gain or loss if the Holder's holding period in the Debenture
is more than one year at the time of sale, exchange or redemption.
CONSTRUCTIVE DISTRIBUTION
If at any time (i) the Company makes a distribution of cash or property to
its shareholders or purchases the Common Stock and such distribution or purchase
would be a taxable distribution to such shareholders for United States federal
income tax purposes (e.g., distributions of evidences of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for the
Common Stock) and, pursuant to the anti-dilution provision of the Indenture, the
conversion rate of the Debentures is increased, or (ii), the conversion rate of
the Debentures is increased at the discretion of the Company, such increase in
conversion rate may be deemed to be a taxable distribution to Holders of
Debentures (pursuant to Section 305 of the Code). Such a deemed distribution
will be taxable as a dividend, return of capital or capital gain in accordance
with the earnings and profits rules discussed under "-- Dividends." Holders of
Debentures could therefore have taxable income as a result of an event pursuant
to which they received no cash or property.
CONVERSION OF THE DEBENTURES
A Holder of a Debenture generally will not recognize any income, gain or
loss upon conversion of a Debenture into Shares except with respect to cash
received either in lieu of a fractional Share or attributable to accrued
interest on the converted Debentures. A Holder's tax basis in the Shares
received on conversion of a Debenture will be the same as such Holder's adjusted
tax basis in the Debenture at the time of conversion (reduced by any basis
73
<PAGE> 75
allocable to a fractional share interest). The holding period for the Shares
received on conversion will generally include the holding period of the
Debenture converted.
Cash received in lieu of a fractional Share upon conversion will be
treated as a payment in exchange for the fractional Share. Accordingly, the
receipt of cash in lieu of a fractional Share generally will result in capital
gain or loss (measured by the difference between the cash received for the
fractional Share and the Holder's adjusted tax basis in the fractional Share).
DIVIDENDS
Distributions paid the Shares will constitute dividends for United States
Federal income tax purposes to the extent of the Company's current or
accumulated earnings and profits and will be includable in the income of a
Holder as ordinary income. Dividends paid to Holders that are United States
corporations may qualify for a dividends-received deduction.
To the extent, if any, that a Holder receives a distribution on the Shares
that would otherwise constitute a dividend for United States Federal income tax
purposes but that exceeds current and accumulated earnings and profits of the
Company, such distribution will be treated first as a non-taxable return of
capital reducing the Holder's basis in the Shares. Any such distribution in
excess of the Holder's basis in the Shares will be treated as capital gain.
SALE OF THE SHARES
Upon the sale or exchange of the Shares, a Holder generally will recognize
capital gain or loss equal to the difference between (i) the amount of cash and
the fair market value of any property received upon the sale or exchange and
(ii) such Holder's adjusted tax basis in the Shares. Such capital gain or loss
will be long-term if the Holder's holding period in the Shares is more than one
year at the time of the sale or exchange. A Holder's basis and holding period in
the Shares received upon conversion of a Debenture are determined as discussed
above under "-- Conversion of the Debentures."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Debenture, payments of dividends
on the Shares, payments of the proceeds of the sale of a Debenture and payments
of the proceeds of the sale of the Shares to certain noncorporate Holders, and a
31% backup withholding tax may apply to such payments if the Holder (i) fails to
furnish or certify his correct taxpayer identification number to the payor in
the manner required, (ii) is notified by the IRS that he has failed to report
payments of interest and dividends properly, or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that he
is subject to backup withholding for failure to report interest and dividend
payments. Any amounts withheld under the backup withholding rules from a payment
to a Holder will be allowed as a credit against such Holder's United States
federal income tax and may entitle the Holder to a refund, provided that the
required minimum information is furnished to the IRS.
LEGAL MATTERS
The validity of the Selling Securityholder Securities offered hereby will
be passed upon for the Company by Holland & Knight LLP.
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<PAGE> 76
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, included herein and in the Registration Statement have been audited by
Arthur Andersen, LLP, independent certified public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of F.F.O. Financial Group, Inc. as
of December 31, 1996 and 1995, and for each of the years in the three-year
period ended December 31, 1996, included herein and in the Registration
Statement have been audited by Hacker, Johnson, Cohen & Grieb, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance and upon the authority of said firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and
at the Commission's regional offices at Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers who file electronically with the Commission. The address of that site is
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-2 (together with all amendments thereto, (the "Registration Statement"), of
which this Prospectus is a part, under the Securities Act, with respect to the
Selling Securityholder Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
In addition, certain documents filed by the Company with the Commission have
been incorporated in this Prospectus by reference. See "Incorporation of Certain
Documents by Reference." For further information with respect to the Company,
reference is made to the Registration Statement, including the exhibits thereto
and the documents incorporated herein by reference. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission or incorporated by
reference herein are not necessarily complete, and, in each instance, reference
is made to the copy of such document so filed for a more complete description of
the matter involved. Each such statement is qualified in its entirety by such
reference. The Registration Statement may be inspected without charge at the
principal office of the Commission in Washington, D.C., and copies of all or
part of it may be obtained from the Commission upon payment of the prescribed
fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated in this Prospectus by reference and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1996, filed with the Commission on March 31, 1997.
75
<PAGE> 77
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, filed with the Commission on April 15, 1997.
Any statement contained in a document incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference, other than
certain exhibits to such documents. Written requests should be directed to
Republic Bancshares, Inc., 111 Second Avenue N.E., St. Petersburg, Florida
33701, Attention: Secretary, telephone: (813) 823-7300.
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<PAGE> 78
REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPUBLIC BANCSHARES, INC.
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets at December 31, 1996 and
1995................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1996, 1995 and 1994................. F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1994, 1995 and 1996..... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-6
Notes to Consolidated Financial Statements................ F-7
REPUBLIC BANCSHARES, INC.
Consolidated Balance sheets at March 31, 1997 (unaudited)
and December 31, 1996.................................. F-30
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 (unaudited).............. F-31
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1997 (unaudited) and the
year ended December 31, 1996........................... F-32
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited).............. F-33
Notes to Consolidated Financial Statements................ F-34
F.F.O. FINANCIAL GROUP, INC.
Independent Auditors' Report.............................. F-37
Consolidated Balance Sheets at December 31, 1996 and
1995................................................... F-38
Consolidated Statements of Income for the three years
ended December 31, 1996, 1995 and 1994................. F-39
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1996, 1995 and 1994..... F-40
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, 1995 and 1994................. F-41
Notes to Consolidated Financial Statements................ F-42
F.F.O. FINANCIAL GROUP, INC.
Condensed Consolidated Balance Sheets at March 31, 1997
(unaudited) and December 31, 1996...................... F-60
Condensed Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 (unaudited)....... F-61
Condensed Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1997
(unaudited)............................................ F-62
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996
(unaudited)............................................ F-63
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-64
Review by Independent Certified Public Accountants........ F-66
Report on Review by Independent Certified Public
Accountants............................................ F-67
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Republic Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Bancshares, Inc. (a Florida corporation) and subsidiary as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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 conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Republic Bancshares, Inc.
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
February 7, 1997 (except with
respect to the matter discussed
in Note 18, as to which the
date is March 10, 1997)
F-2
<PAGE> 80
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 27,810 $ 19,806
Interest bearing deposits in banks.......................... 118 2
Investment securities:
Held to maturity (Note 2)................................. -- 7,015
Available for sale........................................ 74,397 38,147
Mortgage backed securities (Note 3):
Held to maturity.......................................... -- 17,112
Available for sale........................................ 20,004 2,527
FHLB stock.................................................. 4,830 3,540
Federal funds sold.......................................... 8,000 14,621
Loans held for sale (Note 4)................................ 36,590 4,711
Loans, net (Notes 4 and 5).................................. 693,270 649,795
Premises and equipment, net (Note 6)........................ 19,715 18,991
Other real estate owned (Note 7):
Acquired through foreclosure, net......................... 7,363 8,064
Held for investment....................................... -- 2,498
Other assets (Note 8)....................................... 15,771 15,166
-------- --------
Total assets...................................... $907,868 $801,995
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing checking........................... $ 50,060 $ 45,641
Interest checking...................................... 87,639 71,592
Money market........................................... 32,665 38,535
Savings................................................ 245,951 91,935
Time deposits (includes $49,323 and $57,213,
respectively of time deposits of $100,000 or more).... 411,665 495,402
-------- --------
Total deposits.................................... 827,980 743,105
Securities sold under agreements to repurchase............ 15,372 3,072
Subordinated debt, 6% rate, matures December 1, 2011,
(Note 9)............................................... 6,000 --
Other liabilities......................................... 4,197 4,915
-------- --------
Total liabilities................................. 853,549 751,092
-------- --------
Off-balance-sheet risk, commitments and contingencies (Note
10)
Stockholders' equity (Note 13):
Perpetual preferred convertible stock ($20.00 par, 100,000
shares authorized, 75,000 shares issued and
outstanding. Liquidation preference $6,600 at December
31, 1996 and 1995.).................................... 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized and
4,183,507 shares issued and outstanding at December 31,
1996 and 1995)......................................... 8,367 8,367
Capital surplus........................................... 26,699 26,699
Retained earnings......................................... 17,849 14,329
Net unrealized gains (losses) on available-for-sale
securities, net of tax effect.......................... (96) 8
-------- --------
Total stockholders' equity........................ 54,319 50,903
-------- --------
Total liabilities and stockholders' equity........ $907,868 $801,995
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 81
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................... $ 62,244 $ 52,389 $ 32,699
Interest on investment securities........................ 1,413 1,431 1,939
Interest on mortgage-backed securities................... 1,325 827 --
Interest on federal funds sold........................... 1,633 2,968 2,448
Interest on other investments............................ 332 248 29
---------- ---------- ----------
Total interest income............................ 66,947 57,863 37,115
---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits..................................... 32,426 29,874 16,767
Interest on FHLB advances................................ 52 -- 36
Interest on other borrowings............................. 448 127 68
---------- ---------- ----------
Total interest expense........................... 32,926 30,001 16,871
---------- ---------- ----------
Net interest income.............................. 34,021 27,862 20,244
PROVISION FOR LOAN LOSSES (Note 5)......................... 1,800 1,685 1,575
---------- ---------- ----------
Net interest income after provision for possible
loan losses.................................... 32,221 26,177 18,669
---------- ---------- ----------
NONINTEREST INCOME:
Service charges and fees on deposits..................... 1,606 1,395 1,247
Income from mortgage banking activities.................. 1,002 124 --
Gain on sale of ORE -- held for investment............... 1,207 -- --
Securities gains, net.................................... 370 27 1
Other operating income................................... 1,431 1,205 1,364
---------- ---------- ----------
Total noninterest income......................... 5,616 2,751 2,612
NONINTEREST EXPENSES:
Salaries and employee benefits........................... 14,309 11,251 7,339
Net occupancy expense.................................... 4,507 3,211 1,308
Data processing fees..................................... 1,451 1,152 1,472
FDIC and state assessments............................... 949 1,566 1,187
Other operating expense.................................. 6,136 4,939 3,610
---------- ---------- ----------
Total general and administrative expenses........ 27,352 22,119 14,916
SAIF special assessment.................................. 2,539 -- --
Provisions for losses on ORE............................. 1,611 -- 10
ORE expense, net of ORE income........................... (172) 289 422
Amortization of premium on deposits...................... 491 450 1,269
---------- ---------- ----------
Total noninterest expenses....................... 31,821 22,858 16,617
---------- ---------- ----------
Income before negative goodwill accretion and income
taxes.................................................... 6,016 6,070 4,664
Negative goodwill accretion (Note 1)....................... -- 1,578 2,705
---------- ---------- ----------
Income before income taxes................................. 6,016 7,648 7,369
Income tax provision (Note 8).............................. 2,232 1,875 468
---------- ---------- ----------
NET INCOME....................................... $ 3,784 $ 5,773 $ 6,901
========== ========== ==========
PER SHARE DATA:
Net income per common and common equivalent share
(Note 14)........................................... $ .76 $ 1.26 $ 1.67
========== ========== ==========
Weighted average common and common equivalent shares
outstanding (Note 14)............................... 4,952,937 4,562,642 4,136,790
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 82
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERPETUAL NET UNREALIZED
PREFERRED GAINS
CONVERTED STOCK COMMON STOCK (LOSSES)
--------------- ------------------ ON AVAILABLE
SHARES SHARES CAPITAL RETAINED FOR SALE
ISSUED AMOUNT ISSUED AMOUNT SURPLUS EARNINGS SECURITIES TOTAL
------ ------ --------- ------ ------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993....... 75,000 $1,500 3,365,387 $6,731 $19,041 $ 2,182 $ -- $29,454
Net income..................... -- -- -- -- -- 6,901 -- 6,901
Net unrealized losses on
available-for-sale
securities, net of tax
effect....................... -- -- -- -- -- -- (54) (54)
Proceeds from exercise of stock
options...................... -- -- 14,950 30 98 -- -- 128
Dividends on preferred stock... -- -- -- -- -- (264) -- (264)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, DECEMBER 31, 1994....... 75,000 1,500 3,380,337 6,761 19,139 8,819 (54) 36,165
Net income..................... -- -- -- -- -- 5,773 -- 5,773
Net unrealized gains on
available-for-sale
securities, net of tax
effect....................... -- -- -- -- -- -- 62 62
Issuance of common stock....... -- -- 800,000 1,600 7,537 -- -- 9,137
Proceeds from exercise of stock
options...................... -- -- 3,170 6 23 -- -- 29
Dividends on preferred stock... -- -- -- -- -- (263) -- (263)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, DECEMBER 31, 1995....... 75,000 1,500 4,183,507 8,367 26,699 14,329 8 50,903
Net income..................... -- -- -- -- -- 3,784 -- 3,784
Net unrealized loss on
available-for-sale
securities, net of tax
effect....................... -- -- -- -- -- -- (104) (104)
Dividends on preferred stock... -- -- -- -- -- (264) -- (264)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, DECEMBER 31, 1996....... 75,000 $1,500 4,183,507 $8,367 $26,699 $17,849 $ (96) $54,319
====== ====== ========= ====== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 83
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................. $ 3,784 $ 5,773 $ 6,901
Reconciliation of net income to net cash provided:
Provision for loan and ORE losses.................... 3,411 1,685 1,585
Depreciation and amortization, net................... (1,539) (26) 129
Amortization of premium and (accretion) of fair
value, net......................................... 553 (901) (1,162)
Gain on sale of loans................................ (1,002) (124) --
Gain on sale of investment securities................ (370) (27) --
Gain on sale of other real estate owned.............. (1,442) (4) (89)
Capitalization of mortgage servicing................. (1,741) -- --
Gain on disposal of premises and equipment........... (2) -- 75
Net increase in deferred tax benefit................. (1,574) (1,024) --
Net (increase) decrease in other assets.............. 2,222 (3,455) (1,887)
Net increase (decrease) in other liabilities......... (719) 2,179 (339)
--------- --------- ---------
Net cash provided by operating activities....... 1,581 4,076 5,213
--------- --------- ---------
INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits in
banks................................................ (116) 148 550
Proceeds from sale of premises and equipment............ -- -- 13
Proceeds from sales and maturities of:
Investment securities held to maturity............... 7,000 24,000 18,900
Investment securities available for sale............. 72,545 3,972 6,991
Mortgage backed securities held to maturity.......... 15,455 -- --
Mortgage backed securities available for sale........ 6,393 9,732 --
Purchase of investment securities held to maturity...... -- -- (19,669)
Purchase of investment securities available for sale.... (108,636) (33,083) (10,989)
Purchase of mortgage backed securities.................. (20,105) -- --
Principal repayment on mortgage backed securities....... 4,431 714 --
Purchase of FHLB stock.................................. (1,291) (2,248) (1,292)
Net increase in loans................................... (85,087) (178,001) (197,859)
Purchase of premises and equipment...................... (2,201) (6,282) (3,088)
Proceeds from sale of other real estate owned........... 8,270 3,234 5,260
Investments in other real estate owned (net)............ 232 358 (7,246)
--------- --------- ---------
Net cash used in investing activities........... (103,110) (177,456) (208,429)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase in deposits................................ 84,875 159,212 89,551
Net increase in repurchase agreements................... 12,301 991 916
Proceeds from issuance of subordinated debt............. 6,000 -- --
Proceeds from issuance of common stock.................. -- 9,166 128
Dividends on perpetual preferred stock.................. (264) (263) (264)
--------- --------- ---------
Net cash provided by financing activities....... 102,912 169,106 90,331
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 1,383 (4,274) (112,885)
CASH AND CASH EQUIVALENTS, beginning of period............ 34,427 38,701 151,586
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................. $ 35,810 $ 34,427 $ 38,701
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest............................................. $ 33,031 $ 29,419 $ 16,448
Income taxes......................................... 4,144 1,516 2,222
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 84
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND ORGANIZATION
The consolidated financial statements of Republic Bancshares, Inc. (the
Company) include the accounts of the Company, and Republic Bank (the "Bank") and
the Bank's wholly-owned subsidiaries, RBREO, Inc., Tampa Bay Equities, Inc., VQH
Development, Inc., and Republic Insurance Agency, Inc. All significant
intercompany accounts and transactions have been eliminated. On November 21,
1995, the Bank's Board of Directors approved for shareholder consideration an
Amended and Restated Plan of Share Exchange and Reorganization (the
"Reorganization") under which the Bank became a wholly-owned subsidiary of
Company. On the effective date and time of the Reorganization, all holders of
shares of the Bank's Common and Preferred Stock at the November 30, 1995 record
date received one share of Company Common Stock for each share of the Bank's
Common Stock held of record and one share of Company Preferred Stock for each
share of the Bank's Preferred Stock held of record. Holders of outstanding
options to purchase or acquire the Bank's Common Stock received options to
purchase an equal number of shares of Company Common Stock. All necessary
governmental and shareholder approvals for the Reorganization were received. The
Company's primary source of income is from its banking subsidiary which operates
32 branches throughout west central Florida. The Bank's primary source of
revenue is derived from net interest income on loans and investments and income
from mortgage banking activities.
NEGATIVE GOODWILL
On May 28, 1993 (the "Purchase Date") over 99 percent of the Company's
outstanding common stock was acquired for $4,450,000 (the "Purchase Price").
Also, on May 28, 1993, 583,334 additional shares of common stock were issued for
$3,500,000. The acquisition was accounted for by the purchase method of
accounting. Assets and liabilities were restated based upon their fair value as
of the Purchase Date. The excess of the restated net book value over the
Purchase Price was recorded as a reduction of the non current assets, to the
extent available. The remaining difference was recorded as excess of fair value
over purchase price ("negative goodwill"), as follows (in thousands):
<TABLE>
<S> <C>
Adjustments to fair market value:
Loans..................................................... $ 596
Investment securities..................................... 161
Time deposits............................................. 36
Write-off of noncurrent assets:
Premises and equipment.................................... (1,432)
Other assets.............................................. (43)
Adjustments to equity accounts:
Retained earnings......................................... 1,320
Capital surplus........................................... 5,224
-------
Excess of fair value over purchase price.................... $ 5,862
=======
</TABLE>
The negative goodwill was accreted into income on a straight-line basis
over 26 months beginning May 28, 1993 and ending July 31, 1995, which was based
on the estimated life of the loans, investments and deposits acquired. The
premiums on loans and investment securities and the discount on demand and other
time deposits were amortized into income on a straight-line basis over periods
based on the estimated life of the related loans, securities or deposits ranging
from 12 to 30 months.
F-7
<PAGE> 85
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEPENDENCE ON ESTIMATES, APPRAISALS AND EVALUATIONS
The financial statements, in conformity with generally accepted accounting
principles, are dependent upon estimates, appraisals and evaluations of loans,
other real estate owned and other assets and liabilities, and disclosure of
contingent assets and liabilities. Changes in such estimates, appraisals and
evaluations might be required because of rapidly changing economic conditions,
changing economic prospects of borrowers and other factors. Actual results may
differ from those estimates.
INVESTMENT SECURITIES
Securities that the Company has both the positive intent and ability to
hold to maturity are classified as Held to Maturity and are carried at
historical cost, adjusted for amortization of premiums and accretion of
discounts. Securities Available for Sale, which are those securities that may be
sold prior to maturity as part of asset/liability management or in response to
other factors, are carried at fair value with any valuation adjustment reported
in a separate component of stockholders' equity, net of tax effect.
Interest and dividends on investment securities and amortization of
premiums and accretion of discounts are reported in interest on investment
securities. Gains (losses) realized on sales of investment securities are
generally determined on the specific identification method and are reported
under non-interest income.
LOANS
Interest on commercial and real estate loans and substantially all
installment loans is recognized monthly on the loan balance outstanding. The
Company's policy is to discontinue accruing interest on loans 90 days or more
delinquent and restructured loans that have not yet demonstrated a sufficient
payment history, which, in the opinion of management, may be doubtful as to the
collection of interest or principal. These loans are designated as "non-accrual"
and any accrued but unpaid interest previously recorded is reversed against
current period interest revenue.
Loan origination and commitment fees net of certain costs are deferred, and
the amount is amortized as an adjustment to the related loan's yield, generally
over the contractual life of the loan. Unearned discounts and premiums on loans
purchased are deferred and amortized as an adjustment to interest income on a
basis that approximates level rates of return over the terms of the loan.
HEDGING CONTRACTS AND LOANS HELD FOR SALE
The Company manages its interest rate market risk on the loans held for
sale and its estimated future commitments to originate and close mortgage loans
for borrowers at fixed prices ("Locked Loans") through hedging techniques which
include derivative contracts and fixed price forward delivery commitments
("Forward Commitments") to sell mortgage- backed securities or specific whole
loans to investors on a mandatory or best efforts basis. The Company records the
inventory of loans held for sale at the lower of cost or market on an aggregate
basis after considering any market value changes in the loans held for sale,
Locked Loans, and Forward Commitments.
MORTGAGE SERVICING RIGHTS
On July 1, 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an amendment of FASB Statement No. 65", was adopted. SFAS No. 122 permits an
allocation of a portion of the cost of loan origination to the rights to service
mortgage loans. Approximately $1,188,000 and $117,000 was capitalized relating
to originated mortgage servicing rights ("OMSRs") during 1996 and 1995,
respectively. As of December 31, 1996 and 1995, the unamortized portion of these
OMSRs were $1,271,000 and $113,000, respectively. For purposes of measuring
impairment, OMSRs are stratified based on the loan type, interest rate and
maturity of the underlying loans.
F-8
<PAGE> 86
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES
The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities", which is effective for
the Company's fiscal year beginning January 1, 1997. SFAS 125 provides standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The impact of the adoption of SFAS 125 upon the
results of operations of the Company is not expected to be material.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses provides for risks of losses inherent in the
credit extension process. Losses and recoveries are either charged or credited
to the allowance. The Company's allowance is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. The evaluations are periodically
reviewed and adjustments are recorded in the period in which changes become
known.
ACCOUNTING FOR IMPAIRMENT OF LOANS
The Company's measurement of impaired loans includes those loans which are
nonperforming and have been placed on non-accrual status and those loans which
are performing according to all contractual terms of the loan agreement but may
have substantive indication of potential credit weakness. As of December 31,
1996, $19.3 million of loans were considered impaired by the Company. Of this
amount, $15.4 million were carried on a non-accrual basis. Approximately 17.68%
of these loans were measured for impairment using the fair value of collateral,
while the remaining 82.32% were measured using the present value of the expected
future cash flows discounted at the loan's effective rate. As a result of these
measurements, approximately $17.0 million of these loans required valuation
allowances, totaling $2.2 million, which are included within the overall
allowance for loan losses at December 31, 1996. Residential mortgages and
consumer loans and leases outside the scope of SFAS 114 are collectively
evaluated for impairment. Average impaired loans during 1996 were approximately
$19.8 million and the amount of cash basis interest income recognized on these
loans was $.7 million.
As of December 31, 1995, $20.2 million of loans were considered impaired by
the Company. Of this amount, $14.8 million were carried on a non-accrual basis.
Approximately 7.84% of these loans were measured for impairment using the fair
value of collateral, while the remaining 92.16% were measured using the present
value of the expected future cash flows discounted at the loan's effective rate.
As a result of these measurements, approximately $18.7 million of these loans
required valuation allowances, totaling $2.1 million, which were included within
the overall allowance for loan losses at December 31, 1995. Average impaired
loans during 1995 were approximately $20.7 million, and the amount of cash basis
interest income recognized on these loans was $.6 million.
F-9
<PAGE> 87
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets,
except for leasehold improvements for which the lesser of the estimated useful
life of the asset or the term of the lease is used. The useful lives used in
computing depreciation and amortization are as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings and improvements.................................. 39
Furniture and equipment..................................... 7
Leasehold improvements...................................... 5 - 15
</TABLE>
Gains and losses on routine dispositions are reflected in current
operations. Maintenance, repairs and minor improvements are charged to operating
expenses, and major replacements and improvements are capitalized.
OTHER REAL ESTATE
Other real estate owned ("ORE") represents property acquired through
foreclosure proceedings held for sale and real estate held for investment. ORE
is carried at its fair value, net of a valuation allowance established to reduce
cost to fair value. Losses are charged to the valuation allowance and recoveries
are credited to the allowance. Declines in market value and gains and losses on
disposal are reflected in current operations in ORE expense. Recoverable costs
relating to the development and improvement of ORE are capitalized whereas
routine holding costs are charged to expense. The sales of these properties are
dependent upon various market conditions. Management is of the opinion that such
sales will result in net proceeds at least equal to present carrying values.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of," which was effective for the
Company's fiscal year beginning January 1, 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used be
reviewed for impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. If the sum of the expected
future cash flows from the use of the asset and its eventual disposition is less
than the carrying amount of the asset, an impairment loss is recognized. SFAS
No. 121 also requires that certain assets to be disposed of be measured at the
lower of carrying amount or the net realizable value. The impact of adopting
SFAS 121 upon the results of operations of the Company was not material.
INCOME TAXES
The Company follows the liability method which establishes deferred tax
assets and liabilities for the temporary differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. Net deferred tax assets, whose realization is dependent on taxable
earnings of future years, are recognized when a more-likely-than-not criterion
is met, that is, unless a greater than 50% probability exists that the tax
benefits will not actually be realized sometime in the future.
Effective April 1, 1995, federal regulations restricted the amount of
deferred tax assets that can be used to meet regulatory capital requirements to
an amount that the institution expects to realize within one year, or 10% of
Tier 1 capital, whichever is less.
F-10
<PAGE> 88
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company and its subsidiary file consolidated tax returns with the
federal and state taxing authorities. A tax sharing agreement exists between the
Company and the Bank whereby taxes for the Bank are computed as if the Bank were
a separate entity. Amounts to be paid or credited with respect to current taxes
are paid to or received from the Company.
PREMIUM ON DEPOSITS
A premium on deposits is recorded for the difference between cash received
and the carrying value of deposits acquired in purchase transactions. This
premium is being amortized on a straight-line basis over 3 to 4 years.
Approximately $527,000 and $1,017,000 was included in other assets in the
accompanying financial statements, as of December 31, 1996 and 1995.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Effective in 1996, the Company adopted the disclosure
option of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
which requires that companies not electing to account for stock-based
compensation as prescribed by the statement, disclose the pro forma effects on
earnings and earnings per share as if SFAS 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock compensation and
the assumptions used are to determine the pro forma effects of SFAS 123.
CASH EQUIVALENTS
For purposes of preparing the Consolidated Statements of Cash Flows, cash
equivalents are defined to include cash and due from banks and federal funds
sold.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period financial
statements to conform with the 1996 financial statement presentation.
2. INVESTMENT SECURITIES:
The Company's investment securities consisted primarily of U.S. Treasury
Bills and Notes. The investment securities of the Company at December 31, 1996
and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
Securities available-for-sale:
U.S. Government Treasuries................ $72,905 $-- $ (53) $72,852
Revenue bond.............................. 1,545 -- -- 1,545
------- --- ------- -------
Securities available-for-sale........ $74,450 $-- $ (53) $74,397
======= === ======= =======
AT DECEMBER 31, 1995:
U.S. Government Treasuries held to
maturity.................................. $ 7,015 $-- $ (6) $ 7,009
U.S. Government Treasuries available for
sale...................................... 38,121 27 (1) 38,147
------- --- ------- -------
Total U.S. Treasuries & Federal
Agency Notes....................... $45,136 $27 $ (7) $45,156
======= === ======= =======
</TABLE>
F-11
<PAGE> 89
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C> <C> <C>
BOOK VALUE AT DECEMBER 31:
Securities held to maturity.................. $ -- $ 7,015
Securities available-for-sale................ 74,397 38,147
------- -------
Total U.S. Treasuries................ $74,397 $45,162
======= =======
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1996, by contractual maturity are shown below (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
--------------------------------
ESTIMATED WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- --------- --------
<S> <C> <C> <C>
Due in 1 year or less.................................... $61,367 $61,358 4.84%
Due after 1 year through 5 years......................... 13,083 13,039 6.02
------- -------
Total.................................................... $74,450 $74,397 5.05
======= =======
</TABLE>
Proceeds from sales of U.S. Treasury and Federal Agency Notes during the
years ended 1996, 1995 and 1994, were $7,545,000, $2,972,000, and $6,991,000,
respectively. Gross losses of $0, $27,891 and $0 were realized for the years
ended December 31, 1996, 1995 and 1994. Gross gains of $45,404, $0, and $1,094,
were realized during the years ended December 31, 1996, 1995 and 1994,
respectively. U.S. Treasuries and Federal Agency Notes with a par value of
$19,000,000 and $8,000,000 at December 31, 1996 and 1995, respectively, were
pledged to secure public deposits and for other purposes.
3. MORTGAGE BACKED SECURITIES:
Mortgage-backed securities ("MBS"), sometimes referred to as pass-through
certificates, represent an interest in a pool of loans. The securities are
issued by three government agencies or corporations: (i) the Government National
Mortgage Association ("GNMA"), (ii) the Federal Home Loan Mortgage Corporation
("FHLMC") and (iii) the Federal National Mortgage Association ("FNMA"). During
1996 and 1995 the Company securitized loans with a carrying value of $6,282,000
and $30,048,000, respectively, through FHLMC. The Company's MBS portfolio at
December 31, 1996 consisted solely of variable rate securities issued by GNMA,
and payments on those securities are backed by that government agency. MBS
securities held to maturity are recorded at amortized cost, while securities
available-for-sale are recorded at estimated market value. Mortgage backed
securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
GNMA held to maturity........................ $ -- $ -- $ -- $ --
GNMA available for sale...................... 20,105 -- (101) 20,004
------- ---- ----- -------
Total mortgage backed securities..... $20,105 $ -- $(101) $20,004
======= ==== ===== =======
AT DECEMBER 31, 1995:
FHLMC held to maturity....................... $17,112 $114 $ (20) $17,206
FHLMC available for sale..................... 2,540 -- (13) 2,527
------- ---- ----- -------
Total mortgage backed securities..... $19,652 $114 $ (33) $19,733
======= ==== ===== =======
</TABLE>
F-12
<PAGE> 90
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
BOOK VALUE AT DECEMBER 31:
Securities held to maturity............................... $ -- $17,112
Securities available-for-sale............................. 20,004 2,527
------- -------
Total MBS......................................... $20,004 $19,639
======= =======
</TABLE>
At December 31, 1996 all MBS securities available for sale were scheduled
to reprice in one year or less.
The amortized cost and estimated market value of the MBS portfolio at
December 31, 1996, by contractual maturity are shown below (in thousands).
Actual maturities may differ from contractual maturities as a result of
prepayments of the underlying mortgages:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
--------------------------------
ESTIMATED WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- --------- --------
<S> <C> <C> <C>
Due after 10 years....................................... $20,105 $20,004 5.53%
------- -------
Total.......................................... $20,105 $20,004 5.53%
======= =======
</TABLE>
During 1996, the Company sold FHLMC securities, with an amortized cost of
$15,455,000, which had previously been classified as "Held-to-Maturity",
recording net gains of $300,201, and purchased GNMA securities. The purpose of
this transaction was to reduce the Company's capital requirements. As a result,
and in compliance with SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities", all investment securities are classified as
"available-for-sale" as of December 31, 1996.
Proceeds from sales of MBS securities during the years ended December 31,
1996 and 1995 were $21,077,000 and $9,732,000, respectively. Gross gains of
$354,837 and $55,038 and gross losses of $31,845 and $0, respectively, were
realized on these sales. None of the MBS securities were pledged to secure
public deposits or for other purposes at December 31, 1996.
4. LOANS AND LOANS HELD FOR SALE:
Loans at December 31, 1996 and 1995, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential............................ $385,701 $386,524
Multi-family residential.................................. 70,967 77,802
Commercial real estate.................................... 182,298 153,193
Construction/land development............................. 27,050 13,974
Commercial loans............................................ 34,617 29,898
Consumer loans.............................................. 9,860 6,798
Other loans................................................. 1,294 2,367
-------- --------
Total gross portfolio loans....................... 711,787 670,556
Less-allowance for loan losses (Note 5)..................... (13,134) (14,910)
Less-premiums and unearned discounts on loans purchased..... (4,731) (4,561)
Less-unamortized loan fees.................................. (652) (1,290)
-------- --------
Total loans held for portfolio.................... 693,270 649,795
Residential loans held for sale............................. 36,590 4,711
-------- --------
Total loans....................................... $729,860 $654,506
======== ========
</TABLE>
F-13
<PAGE> 91
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1996, the Company had $36,590,000 of 1-4 residential
mortgage loans available for sale with a weighted average interest rate of
8.72%. As of December 31, 1995 loans available for sale were approximately
$4,711,000, which approximated market value, with a weighted average interest
rate of 7.47%. Mortgage loans serviced for others as of December 31, 1996 and
1995 were $120,711,000 and $39,951,000, respectively.
Loans on which interest was not being accrued totaled approximately
$15,351,000, $14,813,000, and $12,948,000 at December 31, 1996, 1995 and 1994,
respectively. Had interest been accrued on these loans at their originally
contracted rates, interest income would have been increased by approximately
$1,138,000, $1,329,000, and $647,000 in the years ended December 31, 1996, 1995
and 1994, respectively. Loans past due 90 days or more and still accruing
interest at December 31, 1996 and 1995, totaled approximately $113,000 and
$1,876,000, respectively. The Company restructured loans totaling $2,516,000 and
$145,000 during 1996 and 1995, respectively.
5. ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance,
beginning of period..................................... $14,910 $ 7,065 $ 6,539
Provision for possible loan losses...................... 1,800 1,685 1,575
Discount on purchased loans allocated to (from) loan
loss reserve......................................... (1,732) 7,658 643
Loans charged off....................................... (2,110) (1,947) (1,870)
Recoveries of loans charged off......................... 266 449 178
------- ------- -------
Balance,
end of period........................................... $13,134 $14,910 $ 7,065
======= ======= =======
</TABLE>
While management believes that the allowance for loan losses is adequate at
December 31, 1996, based on currently available information, future additions to
the allowance may be necessary due to changes in economic conditions,
deterioration of creditworthiness of the borrower, the value of underlying
collateral or other factors. Additionally, the Florida Department of Banking and
Finance, the FDIC, and the Federal Reserve, as an integral part of their regular
examination process, periodically review the allowance for loan losses. These
agencies may require additions to the allowance based on their judgments about
information available to them at the time of examination.
The portion of the allowance for loan losses which arose due to the
allocation of discounts on purchased loans may only be used to absorb losses on
the related acquired loans. As of December 31, 1996 and 1995, approximately
$7,150,000 and $10,249,000 of the reserve had arisen through an allocation of
discounts on purchased loans.
F-14
<PAGE> 92
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1996 and 1995, included (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land........................................................ $ 4,951 $ 4,951
Buildings and improvements.................................. 9,216 8,671
Furniture and equipment..................................... 7,371 6,120
Leasehold improvements...................................... 1,051 903
Construction in progress.................................... 268 11
------- -------
Total premises and equipment...................... 22,857 20,656
Less-accumulated depreciation and amortization.............. (3,142) (1,665)
------- -------
Premises and equipment, net............................... $19,715 $18,991
======= =======
</TABLE>
7. OTHER REAL ESTATE (ORE):
State banking regulations require the Company to dispose of all ORE
acquired through foreclosure within five years of acquisition, with a
possibility for additional extensions, each of up to five years. Failure to
receive additional extensions could result in losses on ORE. There were two ORE
properties totaling $4,477,000 at December 31, 1996, which were required to be
disposed of by year-end. The Company has been granted an extension on these
properties by the State. As of December 31, 1996, a third property, in the
amount of approximately $254,000, is required to be disposed of no later than
December 31, 1997. Management expects an extension will also be granted by the
State on this property if not sold. In addition, federal banking regulations had
required the Bank to dispose of one of these properties amounting to $3,200,000
by December 31, 1996 but the FDIC has granted an extension of the holding period
to December 19, 1997. While the current appraisal on this property indicates
that the market value of the tract exceeds its book value, a sale to a party
other than an end-user could result in proceeds below the current book value.
During 1995, the former headquarter building was vacated and that space was
leased to a third party. Since that building was no longer used for banking
purposes, approximately $2,498,000 was transferred from premises and equipment
to ORE held for investment. During 1996, this building was sold and a gain of
$1,207,000 was recorded.
Loans converted to ORE through foreclosure proceedings totaled $6,910,000,
and $2,639,000, for the years ended December 31, 1996 and 1995, respectively.
Sales of ORE that were financed by the Company totaled $3,676,000 and $1,358,000
for the years ended December 31, 1996 and 1995, respectively.
Changes in the valuation allowance for ORE were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
BALANCE, beginning of period............................. $ 966 $1,170 $1,718
Provision.............................................. 1,611 -- 10
Charge-offs............................................ (63) (204) (558)
------ ------ ------
BALANCE, end of period................................... $2,514 $ 966 $1,170
====== ====== ======
</TABLE>
F-15
<PAGE> 93
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
Income taxes are comprised of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current provision........................................ $3,744 $2,899 $2,612
Deferred benefit......................................... (1,512) (1,024) (2,144)
------ ------ ------
$2,232 $1,875 $ 468
====== ====== ======
</TABLE>
At December 31, 1996, the Company had approximately $670,000 of remaining
federal and $2,393,000 of state net operating loss carryforwards. These
carryforwards expire in the years 2006 through 2008.
Following the change of ownership in 1993, recognition of net operating
loss carryforwards were limited to approximately $259,000 each year. If the full
amount of the limitation is not used in any years, the amount not used increases
the allowable limit in the subsequent year.
Deferred tax assets and liabilities were comprised of the following at
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Gross deferred tax assets:
Tax bases over financial bases for loans (loan loss
reserve & discounts)................................... $2,329 $1,230
Financial amortization of premium over tax amortization... 646 533
Interest on non-accrual loans............................. 315 250
Tax bases over financial bases for ORE.................... 1,286 634
Net operating losses and tax credit carryforward.......... 314 411
Mark-to-market-loans held for sale........................ 232 --
Other..................................................... 145 160
------ ------
Gross deferred tax asset.......................... 5,267 3,218
Gross deferred tax liabilities.................... 567 93
------ ------
Net deferred tax asset............................ $4,700 $3,125
====== ======
</TABLE>
The valuation allowance for the deferred tax asset was $1,604,000 at
December 31, 1993. The valuation allowance was subsequently eliminated during
the years ended December 31, 1995 and 1994 by decreases to tax expense of
$177,000 and $1,427,000, respectively. There were no valuation allowances
against the deferred tax asset for the years ended December 31, 1996 and 1995 as
management has determined that it is more likely than not that all of the
deferred tax asset recorded will be realized. The net deferred tax asset
increased during 1996 and 1995 by approximately $63,000 and $38,000,
respectively, relating to the unrealized gain on available for sale securities
which is recorded directly to stockholders' equity.
F-16
<PAGE> 94
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective tax rate varies from the statutory rate of 34
percent. The reasons for this difference are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Computed "expected" tax provision........................... $2,045 $2,600 $ 2,505
Increase (reduction) of taxes:
Tax-exempt interest income................................ (22) (27) (29)
Valuation allowance....................................... -- (177) (1,427)
Amortization of excess of fair value over purchase
price.................................................. -- (536) (1,017)
State taxes............................................... 217 216 265
Other..................................................... (8) (201) 171
------ ------ -------
Total............................................. $2,232 $1,875 $ 468
====== ====== =======
</TABLE>
9. SUBORDINATED DEBT:
On December 27, 1996, the Company issued $6,000,000 in convertible
subordinated debentures at a fixed interest rate of 6.00%, interest payable
semi-annually, with a maturity of December 1, 2011. The Company has the right to
redeem the debentures beginning in 2001 at 106% of face value, with the premium
declining 1% per year thereafter and without any premium if the price of the
Company's common stock equals or exceeds 130% of the conversion price for not
less than 20 consecutive trading days. The debentures are convertible by the
holder at any time prior to maturity into the Company's $2.00 par value common
stock at a conversion price of $17.85714 per share (equivalent to a conversion
rate of 56 common shares per $1,000 principal amount of debentures). The Company
incurred $213,000 in issuance costs which will be amortized over 36 months.
10. OFF-BALANCE-SHEET RISK, COMMITMENTS AND CONTINGENCIES:
CONCENTRATION OF CREDIT RISK
The Company's core customer loan origination base is located along the west
coast and in central Florida. The majority of the Company's purchased loan
portfolio is concentrated in the states of Florida, California, Texas, and in
the northeastern United States. At December 31, 1996 and 1995, approximately 94
percent of the Company's loan portfolio was secured by real estate. Mortgage
loans secured by 1-4 family properties comprised approximately 60 and 61
percent, respectively, of total mortgage loans at December 31, 1996 and 1995.
OFF-BALANCE-SHEET ITEMS
The Company enters into financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and to limit exposure to changes in the value of loans held for sale. These
financial instruments include commitments to extend credit, commercial and
standby letters of credit, and forward contracts for the delivery of loans.
These instruments involve, to varying degrees, elements of credit and
interest-rate risk that are not recognized in the accompanying consolidated
balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments discussed above is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
F-17
<PAGE> 95
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of financial instruments with off-balance-sheet risk at December
31, 1996, is as follows (in thousands):
<TABLE>
<CAPTION>
CONTRACTUAL
AMOUNT
-----------
<S> <C>
Commitments to extend credit................................ $ 51,754
Unfunded lines of credit.................................... 64,604
Commercial and standby letters of credit.................... 7,415
--------
Total............................................. $123,773
========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies but may include premises
and equipment, inventory and accounts receivable. Unfunded lines of credit
represent the undisbursed portion of lines of credit which have been extended to
customers.
Commercial and standby letters of credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a third party which
typically do not extend beyond one year. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Company typically holds certificates of deposit as
collateral supporting those commitments, depending on the strength of the
borrower. Outstanding unsecured standby letters of credit at December 31, 1996,
totaled approximately $1,376,000.
At December 31, 1996, in connection with managing the interest rate market
risk on its loans held for sale and Locked Loans totaling $37,416,000, the
Company had outstanding $15,000,000 (estimated fair value of $15,165,000) of
Forward Commitments which expire over the next two months, the period when the
loans are expected to be sold and Locked Loans are expected to close.
The Company reduces its risk of nonperformance under the hedging contracts
by entering into those contracts with reputable security dealers and investors
and evaluating their financial condition. However, there is a risk that certain
of the Locked Loans do not close or are renegotiated in a declining interest
rate market and close at lower prices. The Company reduces this risk by
collecting nonrefundable commitment fees on certain of the Locked Loans and
enters into Forward Commitments to deliver loans to investors primarily on a
best efforts basis.
F-18
<PAGE> 96
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMITMENTS
The Company has entered into a number of noncancelable operating leases
primarily for branch banking locations. At December 31, 1996, minimum rental
commitments based on the remaining noncancelable lease terms were as follows (in
thousands):
<TABLE>
<S> <C>
1997........................................................ $ 2,008
1998........................................................ 1,809
1999........................................................ 1,432
2000........................................................ 1,186
2001........................................................ 1,123
Thereafter.................................................. 3,839
-------
11,397
Less-sublease rentals....................................... (1,063)
-------
$10,334
=======
</TABLE>
Total rent expense for the years ended December 31, 1996, 1995 and 1994 was
$1,653,000, $1,009,000, and $435,000, respectively. Total rental income from
subleases for the years ended December 31, 1996, 1995 and 1994 was $971,000,
$1,113,000, and $1,132,000, respectively.
During 1994 a capital lease obligation of approximately $981,000 was
incurred related to the leasing of data processing equipment with an implicit
rate of 7.49%. Minimum lease payments under this capital lease are approximately
$214,000 in each of the years 1997, 1998 and $107,000 in 1999. In addition, the
Company is obligated to make processing payments in relation to its computer
facilities of approximately $966,000 in each of the years 1997 and 1998,
$1,073,000 in 1999, $1,181,000 in 2000, and $197,000 in 2001.
CONTINGENCIES
The Company is subject to various other legal proceedings and claims which
arise in the normal course of business. In the opinion of management, the amount
of liability with respect to these other proceedings would not have a material
effect on the financial statements.
11. EMPLOYEE BENEFIT PLANS
On January 1, 1987, a retirement plan was adopted, covering substantially
all employees, which includes a 401(k) arrangement. Each employee of the Company
automatically becomes eligible to participate in the savings plan on the January
1 immediately following the date on which such employee attains the age of 18
and completes six months of service. An employee must complete 1,000 hours of
service during each subsequent plan year, and failure to complete 1,000 hours of
service in a subsequent plan year will constitute a "one year break in service"
and a forfeiture of eligibility to participate in the plan.
Employees' before-tax contributions are limited based on restrictions
established by the Internal Revenue Service. Employees also may elect to make
after-tax contributions to their account. In each plan year, the Company will
make matching contributions to each account equal to 25% of the employees
elective contributions, but only up to the amount that does not exceed 6% of
compensation. Beginning January 1, 1997, if the Company attains a return on
equity in excess of 10.0% for a quarterly period, the matching contribution will
be increased to 50% for that period, concurrently. Employees are 100% vested at
all times in their contributions and regular matching contributions. In
addition, the 401(k) arrangement plan permits the Company to contribute a
discretionary amount to all of the participants for any plan year, and that
contribution will be allocated among the participants based upon their
respective shares of the total compensation paid during the plan year to all
participants eligible. The Company's contributions were $108,900, $58,200, and
$38,500 in the years ended December 31, 1996, 1995 and 1994, respectively.
F-19
<PAGE> 97
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally, the Company's practice and intent is to hold its financial
instruments to maturity, unless otherwise designated. Where available, quoted
market prices are used to determine fair value. However, many of the Company's
financial instruments lack quoted market prices. Although the Company has
incorporated what it considers to be appropriate estimation methodologies for
those financial instruments which lack quoted market prices, a significant
number of assumptions must be used in determining such estimated fair values.
Such assumptions include subjective assessments of current market conditions,
perceived risks associated with these financial instruments and other factors.
Different assumptions might be considered by the user of the financial
statements to be more appropriate, and the use of alternative assumptions or
estimation methodologies could have a significant effect on the resulting
estimated fair values. The estimated fair values presented neither include nor
give effect to the values associated with the Company's business, existing
customer relationships, and branch banking network, amount other things.
The following estimates of the fair value of certain financial instruments
held by the Company include only instruments that could reasonably be evaluated.
The investment securities portfolio was evaluated using market quotes as of
December 31, 1996 and 1995. The fair value of the loan portfolio was evaluated
using market quotes for similar financial instruments, where available.
Otherwise, discounted cash flows, after adjusting for credit deterioration, were
used based upon current rates the Company would use in extending credit with
similar characteristics. These rates may not necessarily be the same as those
which might be used by other financial institutions for similar loans. Cash and
due from banks and federal funds sold were valued at cost. The fair values
disclosed for checking accounts, savings accounts, securities sold under
agreements to repurchase, and certain money market accounts are, by definition,
equal to the amount payable on demand at the reporting date, i.e., their
carrying amounts. Fair values for time deposits are estimated using a discounted
cash flow calculation that applies current interest rates to aggregated expected
maturities. Standby letters of credit and commitments to extend credit were
valued at book value as the majority of these instruments are based on variable
rates.
These evaluations may incorporate specific value to the Company in
accordance with its asset/liability strategies, interest rate projections and
business plans at a specific point in time and therefore, should not necessarily
be viewed as liquidation value. They should also not be used in determining
overall value of the Company due to undisclosed and intangible aspects such as
business and franchise value, and due to changes to assumptions of interest
rates and expected cash flows which might need to be made to reflect
expectations of returns to be earned on instruments with higher credit risks.
F-20
<PAGE> 98
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below illustrates the estimated fair value of the Company's
financial instruments as of December 31 using the assumptions described above
(in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash and due from banks..................................... $ 27,810 $ 19,806
======== ========
Interest bearing deposits in banks.......................... $ 118 $ 2
======== ========
Investment securities....................................... $ 94,401 $ 68,429
======== ========
Federal funds sold.......................................... $ 8,000 $ 14,621
======== ========
Loans....................................................... $754,445 $681,163
======== ========
Mortgage servicing rights................................... $ 1,690 $ 113
======== ========
Deposits.................................................... $830,562 $746,904
======== ========
Securities sold under agreements to repurchase.............. $ 15,372 $ 3,072
======== ========
Subordinated debt........................................... $ 6,000 $ --
========
Standby letters of credit................................... $ 7,415 $ 6,178
======== ========
Commitments to extend credit and unfunded lines of credit... $116,358 $103,076
======== ========
</TABLE>
13. STOCKHOLDERS' EQUITY:
PERPETUAL PREFERRED CONVERTIBLE STOCK
The Company has 75,000 outstanding shares of perpetual preferred
convertible stock. The preferred stock has a liquidation preference of $88 per
share and carries a noncumulative dividend of $3.52 per year, payable quarterly.
Dividends on the preferred stock must be paid before any dividends on common
stock can be paid. Beginning December 16, 1994 and thereafter, the preferred
stock can be converted by the holders into 10 shares of common stock for each
share of preferred stock. The preferred stock was redeemable at the option of
the Company through December 16, 1996, at a price of $96.80 per share. The
holders of the preferred stock vote with the holders of the common stock and are
entitled to 10 votes per share of preferred stock.
DIVIDENDS
Florida Statutes limit the amount of dividends the Bank can pay in any
given year to that year's net income plus retained net income from the two
preceding years. Additionally, the Bank and the Company cannot pay dividends
which would cause either to be undercapitalized as defined by federal
regulations.
1995 RIGHTS AND PUBLIC STOCK OFFERINGS
On June 27, 1995, an offering was completed to the public and to the
stockholders of 800,000 shares of the $2.00 par value Common Stock. The Common
Stock was offered through a combined subscription Rights Offering and an
underwritten Public Offering (the "Offerings"). The number of shares subscribed
for in the Rights Offering totaled 287,049 with 512,951 shares sold in the
Public Offering. The price per share was $12.50 for the Offerings and net
proceeds amounted to $9,137,000.
1993 NON-QUALIFIED STOCK OPTION PLAN
On May 28, 1993, the Company adopted a non-qualified stock option plan (the
Option Plan) which reserved 80,000 shares of common stock for future issuance
under the Option Plan to eligible employees of the Company. As of December 31,
1996, 60,000 options were granted under the Option Plan and 35,000 were
F-21
<PAGE> 99
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding. The per share exercise price of each stock option is determined by
the Board of Directors at the date of grant. The plan terminates in 2003 or at
the discretion of the Board of Directors.
1995 INCENTIVE STOCK OPTION PLAN
On April 29, 1994, the shareholders approved a qualified incentive stock
option plan to certain key employees. In connection with the Company's holding
company reorganization and share exchange in which all of the Company's
stockholders became stockholders of the Company, the Company adopted the
Republic Bancshares, Inc. 1995 Stock Option Plan (the "Plan") as a replacement
for the Company's 1994 Stock Option Plan. The Plan was approved by the
stockholders of the Bank at the Bank's Special Meeting held on February 27,
1996. On April 23, 1996, the shareholders approved certain amendments to the
Plan (the "Amendment"). Under the Amendment, the total number of shares that may
be purchased pursuant to the plan cannot exceed 525,000 over the life of the
plan and provides that the maximum number of options granted to any one
individual in any fiscal year under the plan cannot exceed 62,000. There is no
limitation on the annual aggregate number of options to be granted in any fiscal
year. Each option granted under the plan will be exercisable by the grantee
during a term, not to exceed ten years, fixed by the compensation committee of
the Board of Directors ("the Committee"). However, no more than 20% of the
shares subject to such options shall vest annually beginning at date of grant.
However, in the event of a change in control, or termination of employment
without cause, all options granted become exercisable immediately. Options under
the plan, which have been granted to the employees of the Flagship/Capital
mortgage banking division of the Company, vest at the rate of 20% at the end of
each 12 month period over five years, contingent upon that division meeting
specified net income performance goals as set by the Board of Directors. If the
performance goal for each year is not met, then the options that would have
become exercisable at the end of the 12 month period shall expire and be null
and void. In addition, options granted to employees of this division shall not
vest and become exercisable if there is a change in control or a termination of
employment without cause, until the performance goal for at least one year has
been met.
Upon the grant of an option to a key employee, the Committee will fix the
number of shares of common stock that the grantee may purchase upon exercise of
the option, and the price at which the shares may be purchased. The exercise
price for all options shall not be less than the fair market value. During 1996,
1995 and 1994, options to purchase 270,900, 59,700 and 46,450 shares,
respectively, under the incentive stock option plan were granted. Of the options
previously granted, 12,460 shares have expired through the termination of key
employees without having exercised their options, thereby making these options
available for future grants. As of December 31, 1996, 361,470 options remained
outstanding.
F-22
<PAGE> 100
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AGGREGATE STOCK OPTION ACTIVITY
The Company adopted SFAS 123 for disclosure purposes in 1996. For SFAS 123
purposes, the fair value of each option grant has been estimated as of the date
of grant using the Black-Scholes option pricing model with the following
assumptions (weighted averages): risk-free interest rate of 6.42 percent,
expected life of 7 years, dividend rate of zero percent, and expected volatility
of 23 percent. Using these assumptions, the fair value of the stock options
granted in 1996 and 1995 is $1,583,000 and $346,900, respectively, which would
be amortized as compensation expense over the vesting period of the options.
Options vest equally over five years. Had compensation cost been determined
consistent with SFAS 123, utilizing the assumptions detailed above, the
Company's net income and earnings per share as reported would have been the
following pro forma amounts (in thousands except share data):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Net Income
As reported............................................... $3,784 $5,773
Pro forma................................................. 3,588 5,730
Earnings per share
As reported............................................... 0.76 1.26
Pro forma................................................. 0.72 1.26
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that expected in future years. A summary of the status
of the Company's stock option plans at December 31, 1996, 1995 and 1994 and for
the years then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
WTD. WTD. WTD.
AVG. AVG. AVG.
SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
FIXED OPTIONS
Outstanding -- beginning of
year........................... 50,000 $ 6.44 81,500 $ 8.75 131,810 $11.00
Granted.......................... 46,450 10.50 59,700 14.00 70,900 13.63
Exercised........................ (14,950) 6.46 (3,170) 9.58 -- --
Forfeited........................ -- -- (6,220) 11.06 (6,240) 13.42
Expired.......................... -- -- -- -- -- --
------- ------- -------
Outstanding -- end of year....... 81,500 8.75 131,810 11.00 196,470 11.87
======= ======= =======
Exercisable -- end of year....... 14,340 9.41 45,112 9.07 92,530 10.29
Weighted average fair value of
options granted................ 5.81 5.84
PERFORMANCE OPTIONS
Outstanding -- beg. of year...... -- -- -- -- --
Granted.......................... -- -- -- -- 200,000 13.63
Exercised........................ -- -- -- -- -- --
Forfeited........................ -- -- -- -- -- --
Expired.......................... -- -- -- -- -- --
------- ------- -------
Outstanding -- end of year....... -- -- -- 200,000 13.63
======= ======= =======
Exercisable -- end of year....... -- -- -- -- -- --
Weighted average fair value of
options granted................ 5.84
</TABLE>
F-23
<PAGE> 101
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------- -------------------------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE NUMBER
EXERCISE OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
5.40-10.50 72,370 6.89 years... $ 8.57 56,630 $ 8.04
13.63-14.00 324,100 9.21 years... 13.69 35,900 13.86
</TABLE>
14. EARNINGS PER SHARE:
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share has been computed by
dividing net income by the weighted average common and common equivalent shares
outstanding during the periods. The weighted average common and common
equivalent shares outstanding has been adjusted to include the number of shares
that would have been outstanding if the stock options granted had been
exercised, with the proceeds being used to buy shares from the market (i.e., the
treasury stock method) and the perpetual preferred convertible stock had been
converted to common stock at the earlier of the beginning of the year or the
issue date (i.e., the if-converted method). Net income per common and common
equivalent shares represents both primary and fully diluted per share
information.
15. REGULATORY CAPITAL REQUIREMENTS:
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve (for the Company) and the FDIC (for
the Bank). There are three basic measures of capital adequacy for banks that
have been promulgated by the Federal Reserve; two risk-based measures and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The minimum guidelines for the ratio ("Risk-Based Capital Ratio") of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of Total Capital (i.e., 4.0% of risk-weighted assets) must comprise common
stock, minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets
("Tier 1 Capital"). The remainder may consist of subordinated debt, other
preferred stock, and a limited amount of loan loss reserves ("Tier 2 Capital").
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a Leverage Ratio of at
least 3.0%, plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier I Capital leverage ratio" (deducting all
intangibles) and other indicators of capital strength in evaluating proposals
for expansion or new activities.
The Bank had previously undertaken in writing to the FDIC to achieve a
Leverage Ratio of at least 5.50% by September 30, 1995, which it did, and will
consider raising additional capital or reducing internal growth should the ratio
fall below that level in the future. The Company's leverage ratio requirement
remains at 5.00%. Other than the foregoing commitment, the Bank has not been
advised by the FDIC of any specific minimum capital ratio requirement applicable
to it.
Failure to meet capital guidelines could subject a bank or a bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the
F-24
<PAGE> 102
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FDIC, a prohibition on the taking of brokered deposits, and certain other
restrictions on its business. Substantial additional restrictions can be imposed
upon FDIC-insured depository institutions that fail to meet applicable capital
requirements under the federal prompt corrective action regulations.
As of December 31, 1996 and 1995, the Company and the Bank were considered
"well capitalized" under the federal banking agencies for prompt corrective
action regulations. The table which follows sets forth the amounts of capital
and capital ratios of the Company and the Bank as of December 31, 1996 and 1995,
and the applicable regulatory minimums (in thousands):
<TABLE>
<CAPTION>
COMPANY BANK
--------------- ---------------
AMOUNT RATIO AMOUNT RATIO
------- ----- ------- -----
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual................................................. $51,325 8.82% $57,113 9.82%
Minimum required to be "Adequately Capitalized"........ 23,268 4.00 23,260 4.00
Excess over minimum to be "Adequately Capitalized"..... 28,057 4.82 33,853 5.82
To be "Well Capitalized"............................... 34,902 6.00 34,890 6.00
Excess over "Well Capitalized" requirements............ 16,423 2.82 22,223 3.82
Total Capital.....................................
Actual................................................. 64,630 11.11 64,418 11.08
Minimum required to be "Adequately Capitalized"........ 46,536 8.00 46,519 8.00
Excess over minimum to be "Adequately Capitalized"..... 18,094 3.11 17,899 3.08
To be "Well Capitalized"............................... 58,170 10.00 58,149 10.00
Excess over "Well Capitalized" requirements............ 6,460 1.11 6,269 1.08
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual.................................................... 51,325 5.90 57,113 6.57
Minimum required to be "Adequately Capitalized"........... 34,807 4.00 34,798 4.00
Excess over minimum to be "Adequately Capitalized"........ 16,518 1.90 22,315 2.57
To be "Well Capitalized".................................. 43,509 5.00 47,848 5.50
Excess over "Well Capitalized" requirements............... 7,816 0.90% 9,265 1.07
AS OF DECEMBER 31, 1995:
RISK-BASED CAPITAL:
Tier 1 Capital
Actual................................................. N/A N/A 47,940 9.17
Minimum required to be "Adequately Capitalized"........ N/A N/A 20,904 4.00
Excess over minimum to be "Adequately Capitalized"..... N/A N/A 27,036 5.17
To be "Well Capitalized"............................... N/A N/A 31,356 6.00
Excess over "Well Capitalized" requirements............ N/A N/A 16,584 3.17
Total Capital Actual.............................. N/A N/A 53,833 10.30
Minimum required to be "Adequately Capitalized"........ N/A N/A 41,809 8.00
Excess over minimum to be "Adequately Capitalized"..... N/A N/A 12,024 2.30
To be "Well Capitalized"............................... N/A N/A 52,260 10.00
Excess over "Well Capitalized" requirements............ N/A N/A 1,573 0.30
TIER 1 CAPITAL TO TOTAL ASSETS (LEVERAGE):
Actual.................................................... N/A N/A 47,940 6.00
Minimum required to be "Adequately Capitalized"........... N/A N/A 31,962 4.00
Excess over minimum to be "Adequately Capitalized"........ N/A N/A 15,978 2.00
To be "Well Capitalized".................................. N/A N/A 43,948 5.50
Excess over "Well Capitalized" requirements............... N/A N/A 3,992 0.50
</TABLE>
F-25
<PAGE> 103
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. RELATED PARTY TRANSACTIONS:
William R. Hough, a director and one of the two controlling shareholders,
is President and the controlling shareholder of William R. Hough & Co., an
NASD-member investment banking firm. In December 1996, the Company offered
$6,000,000 of convertible subordinated debentures through a private placement on
a "best efforts" basis exclusively through William R. Hough & Co. as "Sales
Agent" for the Company. The sales agent agreement provided for the payment to
William R. Hough & Co. of a fee of 1.50% for each $1,000 principal amount of
debentures sold to directors of the Company or their spouses and 3% for each
$1,000 of debentures sold to all others. The total amount of fees paid to
William R. Hough & Company for the sale of the debentures was $162,000. In
addition, the Company agreed to indemnify the sales agent against and contribute
toward certain liabilities, including liabilities under the Securities Act, and
to reimburse William R. Hough & Co. for certain expenses and legal fees related
to the sale of the debentures of approximately $51,000.
In July 1996, William R. Hough & Co. began offering sales of insurance and
mutual fund products and investment advisory services on the premises of the
Company. The Company was paid a monthly fee of $300 for each banking office
participating in the program plus a fee of 15% of the gross commissions earned
from sales of non-insurance products. On January 1, 1997, this agreement was
terminated and replaced with a new agreement where the Company will be paid 50%
of the net profits earned from sales of investment products on the Company's
premises.
In June 1995, in connection with a rights offering of the Company Common
Stock conducted by the Company, William R. Hough & Co. participated as a
soliciting dealer, and as such was entitled to receive solicitation fees in an
amount equal to approximately $11,900. William R. Hough & Co. also participated
in the selling group for the public offering of the Company Common Stock that
took place in conjunction with the rights offering. In connection with the
public offering, William R. Hough & Co. received approximately $18,000 in
discounts and other fees.
In addition, WRH Mortgage, Inc., a related interest of William R. Hough,
acted as the Company's agent in the purchase of two loan pools from the
Resolution Trust Corporation on May 23, 1995 and was paid due diligence fees
totaling $39,997. The Company also entered into an agreement with William R.
Hough & Co. on August 15, 1995 to periodically purchase securities under
agreement to repurchase at a rate based on the prevailing federal funds rate
plus 1/8 of 1%.
Certain directors and executive officers of the Company and Bank, members
of their immediate families, and entities with which such persons are associated
are customers of the Bank. As such, they had transactions in the ordinary course
of business with the Bank during 1996 and will have additional transactions in
the future. All loans and commitments to lend included in those transactions
were made in the ordinary course of business, upon substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and, in the opinion of management,
have not involved more than the normal risk of collectibility or presented other
unfavorable features.
F-26
<PAGE> 104
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BANK HOLDING COMPANY FINANCIAL STATEMENTS:
Condensed financial statements of the Company (Republic Bancshares, Inc.)
are presented below. Amounts shown as investment in the wholly-owned subsidiary
and equity in earnings of the subsidiary are eliminated in consolidation.
REPUBLIC BANCSHARES, INC.
PARENT-ONLY CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996
-------
<S> <C>
ASSETS
Cash...................................................... $ 0
Investment in wholly-owned subsidiary..................... 60,111
Prepaid issuance costs -- subordinated debt............... 212
-------
Total............................................. $60,323
=======
LIABILITIES
Subordinated debt......................................... $ 6,000
Accrued interest on subordinated debt..................... 4
-------
Total liabilities................................. 6,004
-------
STOCKHOLDERS' EQUITY
Perpetual preferred convertible stock..................... 1,500
Common stock.............................................. 8,367
Capital surplus........................................... 26,699
Retained earnings......................................... 17,849
Unrealized losses on available-for-sale securities........ (96)
-------
Total stockholders' equity........................ 54,319
-------
Total............................................. $60,323
=======
</TABLE>
PARENT-ONLY CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996
------
<S> <C>
INCOME
Dividends from bank....................................... $ 264
Interest expense on subordinated debt..................... (5)
Equity in undistributed net income of subsidiary.......... 3,525
------
Net Income........................................ $3,784
======
</TABLE>
F-27
<PAGE> 105
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT-ONLY CONDENSED CASH FLOW STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
OPERATING ACTIVITIES:
Net Income.................................................. $ $3,784
Reconciliation of net income to net cash provided:
Interest expense on subordinated debt..................... 5
Equity in undistributed net income of subsidiary.......... (3,525)
--------
Net cash provided by operating activities......... 264
--------
INVESTMENT ACTIVITIES:
Equity investment in banking subsidiary..................... (56,648)
--------
Net cash used in investing activities............. (56,648)
--------
FINANCING ACTIVITIES:
Issuance of stock and reorganization........................ 50,860
Proceeds from issuance of subordinated debt................. 5,788
Dividend Payments on perpetual preferred stock.............. (264)
--------
Net cash provided by investing activities......... 56,384
--------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ $ --
--------
Cash Balance Beginning...................................... $ --
--------
Cash Balance Ending......................................... $ --
========
</TABLE>
18. MERGERS AND ACQUISITIONS
On December 19, 1996, the Company announced that an agreement had been
reached for the acquisition of Firstate Financial, F.A. ("Firstate"), a thrift
institution headquartered in Orlando, Florida, for a cash purchase price of
$5,501,000. Firstate is not publicly traded. The agreement is subject to final
approval by the Department, FDIC and FRB. At December 31, 1996, Firstate had
total assets of $103,624,000 (unaudited) and total deposits of $84,842,000
(unaudited). Firstate currently maintains a branch office in downtown Orlando
and an office in Winter Park, Florida. The acquisition will be accounted for
using purchase accounting rules.
On March 10, 1997, the Company and F.F.O. Financial Group, Inc., St. Cloud,
Florida ("FFO") announced their board of directors had executed a letter of
intent for the combination of the two companies. FFO has 11 branch offices in
Osceola, Orange and Brevard counties with total assets of $316,949,000 and total
deposits of $286,927,000. Mr. William R. Hough, president of an investment
banking firm in St. Petersburg, Florida, owns a controlling interest in both
companies. Under the terms of the letter of intent, the Company will exchange
shares of Company Common Stock for all of the 8,430,000 outstanding shares of
FFO common stock at a ratio of 0.29 share of the Company for each share of FFO.
In the event that the product of the exchange ratio and the average closing
price of the Company Common Stock on each of the twenty consecutive trading days
ending on the third business day preceding the effective date of the transaction
is below $4.10, the exchange ratio will be adjusted for decreases in the price
of the Company Common Stock price; however, in no event will the exchange ratio
exceed 0.30. FFO has the right to terminate the agreement if the average of the
Company's stock price is less than $13.50. Either party has the right to
terminate the agreement if the merger does not occur by November 1, 1997.
Outstanding options for FFO common stock will be converted into options for
Company Common Stock on the same basis. The transaction will be
F-28
<PAGE> 106
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for as a corporate reorganization under which the controlling
shareholder's interest in FFO will be carried forward at its historical cost
while the minority interest in FFO will be recorded at fair value. The
transaction is subject to completion of a definitive agreement, shareholder
approval by the parties, approval by various regulatory authorities, receipt of
opinion that the transaction qualifies as a tax-free reorganization, and receipt
of fairness opinions by each companies' financial advisor.
The above financial information regarding Firstate and FFO was derived from
unaudited financial statements at December 31, 1996.
F-29
<PAGE> 107
REPUBLIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS -- MARCH 31, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 23,803 $ 27,810
Interest bearing deposits in banks.......................... -- 118
Investment securities:
Held to maturity.......................................... -- --
Available for sale........................................ 42,709 74,397
Mortgage-backed securities:
Held to maturity.......................................... -- --
Available for sale........................................ 20,489 20,592
FHLB stock.................................................. 5,081 4,830
Federal funds sold.......................................... 41,000 8,000
Loans held for sale......................................... 40,201 36,590
Loans, net of allowance for loan losses (Notes 2 and 3)..... 694,784 693,270
Premises and equipment, net................................. 20,015 19,715
Other real estate owned, acquired through foreclosure,
net....................................................... 7,250 7,363
Other assets................................................ 16,761 15,183
-------- --------
Total assets...................................... $912,093 $907,868
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing checking........................... $ 49,066 $ 50,060
Interest checking...................................... 89,895 87,639
Money market........................................... 32,017 32,665
Savings................................................ 251,345 245,951
Time deposits.......................................... 406,737 411,665
-------- --------
Total deposits.................................... 829,060 827,980
Securities sold under agreements to repurchase............ 16,160 15,372
Subordinated debt (6% rate, matures December 1, 2011)..... 6,000 6,000
Other liabilities......................................... 5,294 4,197
-------- --------
Total liabilities................................. $856,514 $853,549
-------- --------
Stockholders' equity:
Noncumulative perpetual preferred convertible stock
($20.00 par, 100,000 shares authorized, 75,000 shares
issued and outstanding. Liquidation preference $6,600
at March 31, 1997 and December 31, 1996.).............. 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized and
4,183,507 shares issued and outstanding at March 31,
1997 and December 31, 1996)............................ 8,367 8,367
Capital surplus........................................... 26,699 26,699
Retained earnings......................................... 19,386 17,849
Net unrealized gains (losses) on available-for-sale
securities, net of tax effect.......................... (373) (96)
-------- --------
Total stockholders' equity........................ 55,579 54,319
-------- --------
Total liabilities and stockholders' equity........ $912,093 $907,868
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-30
<PAGE> 108
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans................................ $ 16,506 $ 14,778
Interest on investment securities......................... 486 428
Interest on mortgage-backed securities.................... 306 291
Interest on federal funds sold............................ 685 297
Interest on other investments............................. 87 68
---------- ----------
Total interest income............................. 18,070 15,862
---------- ----------
INTEREST EXPENSE:
Interest on deposits...................................... 8,662 7,879
Interest on subordinated debt............................. 108 --
Interest on other borrowings.............................. 199 48
---------- ----------
Total interest expense............................ 8,969 7,927
---------- ----------
Net interest income............................... 9,101 7,935
PROVISION FOR LOAN LOSSES................................... 1,138 450
---------- ----------
Net interest income after provision for possible
loan losses..................................... 7,963 7,485
---------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts....................... 438 376
Loan fee income........................................... 125 125
Income from mortgage banking activities................... 898 --
Gain (loss) on sale of loans, net......................... 1,188 (11)
Gain on sale of securities, net........................... 42 4
Other operating income.................................... 433 184
---------- ----------
Total noninterest income.......................... 3,124 678
NONINTEREST EXPENSES:
General and administrative ("G&A") expenses............... 8,240 5,956
Provision for losses on ORE............................... 170 180
Other ORE (income) expense................................ (13) 1
Amortization of premium on deposits....................... 123 123
---------- ----------
Total noninterest expenses........................ $ 8,520 $ 6,260
---------- ----------
Income (loss) before income taxes........................... 2,567 1,903
Income tax provision........................................ 964 699
---------- ----------
NET INCOME.................................................. $ 1,603 $ 1,204
========== ==========
PER SHARE DATA:
Net income per common and common equivalent share......... $ .32 $ .24
========== ==========
Weighted average common and common equivalent shares
outstanding............................................ $4,980,167 $4,953,119
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-31
<PAGE> 109
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERPETUAL
PREFERRED NET UNREALIZED
CONVERTIBLE GAINS
STOCK COMMON STOCK (LOSSES)
--------------- ------------------ ON AVAILABLE
SHARES SHARES CAPITAL RETAINED FOR SALE
ISSUED AMOUNT ISSUED AMOUNT SURPLUS EARNINGS SECURITIES TOTAL
------ ------ --------- ------ ------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995............ 75,000 $1,500 4,183,507 $8,367 $26,699 $14,329 $ 8 $50,903
Net income for the twelve months ended
December 31, 1996................... -- -- -- -- -- 3,784 -- 3,784
Net unrealized losses on
available-for-sale securities....... -- -- -- -- -- -- (104) (104)
Dividends on preferred stock.......... -- -- -- -- -- (264) -- (264)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, DECEMBER 31, 1996............ 75,000 1,500 4,183,507 8,367 26,699 17,849 (96) 54,319
Net income for the three months
ended March 31, 1997
(unaudited)....................... -- -- -- -- -- 1,603 -- 1,603
Net unrealized losses on
available-for-sale securities
(unaudited)....................... -- -- -- -- -- -- (277) (277)
Dividends on preferred stock
(unaudited)....................... -- -- -- -- -- (66) -- (66)
------ ------ --------- ------ ------- ------- ----- -------
BALANCE, MARCH 31, 1997 (unaudited)... 75,000 $1,500 4,183,507 $8,367 $26,699 $19,386 $(373) $55,579
------ ------ --------- ------ ------- ------- ----- -------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-32
<PAGE> 110
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31,
-------------------------
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 1,603 $ 1,204
Reconciliation of net income to net cash provided by (used
in):
Provision for losses on loans and ORE..................... 1,308 450
Depreciation and amortization, net........................ (259) (66)
Amortization of premium and accretion of fair value....... 289 131
(Gain) loss on sale of loans.............................. (2,086) 11
(Gain) on sale of investment securities................... (42) (4)
(Gain) loss on sale of ORE................................ (108) 10
Capitalization of mortgage servicing...................... (839) 15
Net increase in deferred tax benefit...................... (897) (114)
Gain on disposal of premises and equipment................ (1) --
Net (increase) decrease in other assets................... (205) (4,963)
Net increase (decrease) in other liabilities.............. 1,098 (649)
-------- --------
Net cash provided by (used in) operating
activities...................................... (139) (3,975)
-------- --------
INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits in
banks.................................................. 118 (9)
Proceeds from sales and maturities of:
Investment securities held to maturity................. -- 7,000
Investment securities available for sale............... 68,447 25,006
Purchase of securities available for sale................. (36,815) (18,030)
Principal repayment on mortgage backed securities......... 93 749
Purchase of FHLB stock.................................... (251) (1,290)
Net increase in loans..................................... (4,431) (10,160)
Purchase of premises and equipment........................ (696) (206)
Proceeds from sale of ORE................................. 844 439
(Investments) disposals in other real estate owned
(net).................................................. 21 --
-------- --------
Net cash provided by (used in) investing activities.... 27,330 3,499
-------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits....................... 1,081 (1,022)
Net increase (decrease) in repurchase agreements.......... 787 1,344
Dividends on perpetual preferred stock.................... (66) (66)
-------- --------
Net cash provided by (used in) financing
activities...................................... 1,802 256
-------- --------
Net increase (decrease) in cash and cash equivalents........ 28,993 (220)
Cash and cash equivalents, beginning of period.............. 35,810 34,427
-------- --------
Cash and cash equivalents, end of period.................... $ 64,803 $ 34,207
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for --
Interest............................................... $ 8,607 $ 6,868
Income taxes........................................... 531 865
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-33
<PAGE> 111
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND ORGANIZATION
Republic Bancshares, Inc. (the "Company") is a bank holding company
organized in February 1996 under the laws of the State of Florida and is the
holding company for Republic Bank (the "Bank"). In connection with the
reorganization which resulted in the Company becoming the holding company for
the Bank, the Company became the owner of all of the outstanding capital stock
of the Bank. The Company does not currently conduct any activities other than
its ownership and operation of the Bank.
The Bank is a state-chartered, federally-insured commercial bank organized
in 1972 and providing a full range of retail and commercial banking products and
related financial services. The Bank's headquarters are in St. Petersburg,
Florida. Its principal business is attracting checking, savings and time
deposits from the public and general business customers and using these deposits
to originate residential mortgages, commercial real estate mortgages, business
loans, and consumer loans. The Bank opened an office in Spring Hill, Florida, in
January 1997 bringing the total to 33 branch banking offices located in
Hernando, Pasco, Pinellas, Manatee and Sarasota counties. There are also eight
residential and two commercial loan production offices in Florida and one
residential loan production office in Boston, Massachusetts. The Bank is the
largest independent financial institution headquartered on the west coast of
Florida.
The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities", which is effective for
the Bank's fiscal year beginning January 1, 1997. SFAS 125 provides standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The impact of the adoption of SFAS 125 upon the
results of operations of the Company was not material.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share", which
is effective for the Company's fourth quarter and year ended December 31, 1997.
Early application is not permitted and after the effective date, prior period
earnings per share presented must be restated. SFAS No. 128 establishes new
standards for computing and presenting EPS. Specifically, SFAS No. 128 replaces
the presentation of primary earnings per share with basic earnings per share,
requires dual presentation for companies with complex capital structures of
basic and diluted earnings per share and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to those
of the diluted earnings per share computation. Management has not determined the
effect of the adoption of SFAS No. 128 on the Company's financial statements,
but does not expect it to be material.
These consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's Annual
Report for the year ended December 31, 1996, filed with the Securities and
Exchange Commission ("SEC") on Form 10-K. The results of the three months ended
March 31, 1997 are not necessarily indicative of the results to be expected for
the fiscal year ending December 31, 1997.
F-34
<PAGE> 112
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. LOANS AND LOANS HELD FOR SALE:
Loans at March 31, 1997 and December 31, 1996, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential............................ $372,498 $383,015
Multifamily residential................................... 67,531 68,337
Commercial real estate.................................... 192,509 182,298
Construction/land development............................. 29,812 27,050
Commercial loans............................................ 33,126 34,427
Consumer loans.............................................. 11,747 9,983
Other loans................................................. 1,069 1,294
-------- --------
Total gross portfolio loans....................... 708,292 706,404
Less -- allowance for loan losses........................... 13,508 13,134
-------- --------
Total loans held for portfolio.................... 694,784 693,270
Loans held for sale......................................... 40,201 36,590
-------- --------
Total loans....................................... $734,985 $729,860
======== ========
</TABLE>
As of March 31, 1997 and December 31, 1996 loans available for sale,
primarily one-to-four family residential mortgages, had weighted average
interest rates of 9.05% and 8.72%, respectively. Mortgage loans serviced for
others as of March 31, 1997 and December 31, 1996 were $141,980,000 and
$120,711,000, respectively.
3. ALLOWANCES FOR LOSSES:
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses provides for risks of losses inherent in the
credit extension process. Losses are charged to the allowance for loan losses
and recoveries are credited to the allowance. The Company's allowance is an
amount that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay. The
evaluations are periodically reviewed and adjustments are recorded in the period
in which changes become known.
As part of the risk assessment for purchased loans, management has
allocated a portion of the discount on such loan purchases to the allowance for
loan losses in amounts consistent with the Company's loan loss policy
guidelines. Amounts added to the allowance for loan losses resulting from
discount allocation are available to absorb potential losses only for those
purchased loans and are not available for losses from other loan portfolios. To
the extent that losses in certain pools or portfolios of loans exceed the
allowance for loan losses and any remaining unamortized loan discount allocated
to such pool or portfolio, or available as a general allowance, the Company
would have to recognize a loss to the extent of such shortfall in the then
current period. During the first quarter of 1997, management sold $6,005,000 of
loans purchased and transferred $642,000 of the amount originally allocated to
the allowance for purchased loans into the allocation for originated loans.
After this transfer was completed and taking into consideration loan loss
provisions, charge-offs and recoveries for the first quarter of 1997 the
allowance for loan losses was comprised of $7,089,000 allocated to originated
loans and $6,419,000 allocated to the various pools of purchased loans.
Additionally, as of March 31, 1997, the balance of loan discounts available to
absorb losses on pools or portfolios of purchased
F-35
<PAGE> 113
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loans exceeding amounts transferred to the allowance amounted to $4,119,000.
Loans on which interest was not being accrued totaled $16,191,000 and
$15,351,000 at March 31, 1997 and December 31, 1996, respectively. Loans past
due 90 days or more and still accruing interest at March 31, 1997 and December
31, 1996, totaled $122,000 and $113,000, respectively.
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1997
--------------------
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of period................................ $13,134 $14,910
Provision for loan losses................................. 1,138 450
Allowance for loan losses on purchased loans transferred
to discount (includes amounts taken to income on loans
sold).................................................. (642) (30)
Loans charged off......................................... (188) (649)
Recoveries of loans charged off........................... 66 65
------- -------
Balance, end of period...................................... $13,508 $14,746
======= =======
</TABLE>
ALLOWANCE FOR LOSSES ON OTHER REAL ESTATE ("ORE"):
The Company recognizes any estimated potential decline in the value of ORE
between appraisal dates through periodic additions to the allowance for losses
on ORE. Writedowns charged against this allowance are taken if the related real
estate is sold at a loss. For the three months ended March 31, 1997, the Company
had recorded a provision expense for losses on ORE of $170,000. Included in the
ORE balance is a tract of land carried at $3,200,000 acquired through
foreclosure in 1988 that has partially been developed as a shopping center site.
Federal law and regulations require the Company to dispose of this tract by
December 31, 1997.
4. SUBSEQUENT EVENT
Effective April 21, 1997, the Company acquired all of the outstanding
common stock of EHL Holdings, Inc., the privately-held parent company of
Firstate Financial, F.A., a thrift headquartered in Orlando, Florida with total
assets at acquisition of $71,147,000. The thrift subsidiary of EHL Holdings,
Inc. was simultaneously merged into the Bank. The purchase price paid was a cash
amount of $5,501,000 and goodwill of $130,000 was recorded. That goodwill will
be amortized over a period of 120 months.
F-36
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
The Board of Directors
F.F.O. Financial Group, Inc.
St. Cloud, Florida:
We have audited the accompanying consolidated balance sheets of F.F.O.
Financial Group, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
February 11, 1997, except for Note 21,
as to which the date is March 11, 1997
F-37
<PAGE> 115
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,300 $ 6,989
Interest-bearing deposits with banks........................ 11,665 2,768
Federal funds sold.......................................... -- 669
-------- --------
Cash and cash equivalents.............................. 17,965 10,426
Trading securities.......................................... 9,580 23,076
Securities available for sale............................... 41,445 49,832
Securities held to maturity, at cost........................ 15,343 17,636
Loans held for sale, net of unrealized losses of $150 in
1996...................................................... 10,462 22,765
Loans receivable, net of allowances for loan losses of
$5,613 in 1996 and $5,138 in 1995......................... 209,005 161,190
Accrued interest receivable................................. 1,710 1,821
Premises and equipment...................................... 5,324 5,700
Restricted securities -- Federal Home Loan Bank stock, at
cost...................................................... 2,378 2,514
Foreclosed real estate, net of allowances of $158 in 1996
and $1,124 in 1995........................................ 799 3,358
Deferred tax asset.......................................... 1,490 2,249
Other assets................................................ 1,448 918
-------- --------
Total assets...................................... $316,949 $301,485
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits........................................... 14,303 13,107
Savings and NOW deposits.................................. 57,981 63,682
Time deposits............................................. 214,643 172,147
-------- --------
Total deposits.................................... 286,927 248,936
Accrued interest on deposits................................ 256 282
Due to bank................................................. 424 1,120
Advances from Federal Home Loan Bank........................ 7,000 30,000
Advance payments by borrowers for taxes and insurance....... 608 819
Other liabilities........................................... 1,454 1,548
-------- --------
Total liabilities................................. 296,669 282,705
-------- --------
Commitments and Contingencies (Notes 6, 12, 13, 15 and 21)
Stockholders' Equity:
Preferred stock, $.10 par value, 2,500,000 shares
authorized, none outstanding........................... -- --
Common stock, $.10 par value, 20,000,000 shares
authorized, 8,430,000 shares issued and outstanding.... 843 843
Additional paid-in capital................................ 17,599 17,599
Retained earnings......................................... 1,844 244
Net unrealized (depreciation) appreciation on securities
available for sale, net of tax of $4 in 1996 and $(56)
in 1995................................................ (6) 94
-------- --------
Total stockholders' equity........................ 20,280 18,780
-------- --------
Total liabilities and stockholders' equity........ $316,949 $301,485
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-38
<PAGE> 116
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income:
Loans receivable.......................................... $ 16,712 $ 15,357 $ 13,752
Securities available for sale............................. 2,524 1,218 1,963
Securities held to maturity............................... 1,179 1,297 684
Trading securities........................................ 1,214 1,267 --
Federal funds sold........................................ 80 150 125
Deposits with banks....................................... 288 441 358
--------- --------- ---------
Total interest income............................. 21,997 19,730 16,882
--------- --------- ---------
Interest expense:
Deposits.................................................. 11,710 9,948 7,142
Other borrowed funds...................................... 313 163 411
--------- --------- ---------
Total interest expense............................ 12,023 10,111 7,553
--------- --------- ---------
Net interest income......................................... 9,974 9,619 9,329
Provision (credit) for loan losses.......................... 782 477 (1,403)
--------- --------- ---------
Net interest income after provision (credit) for
loan losses..................................... 9,192 9,142 10,732
--------- --------- ---------
Noninterest income:
Service charges on deposits............................... 1,306 1,269 1,297
Loan related fees and service charges..................... 443 375 246
Loan servicing fees....................................... 279 367 409
Net trading account (losses) profit....................... (196) 229 (76)
Net realized gain on sales of available-for-sale
securities............................................. 87 66 --
Net gain on sale of loans................................. 144 86 131
Unrealized loss on loans held for sale.................... (150) -- --
Net gain on sale of premises and equipment................ -- -- 277
Other income.............................................. 474 210 203
--------- --------- ---------
Total noninterest income.......................... 2,387 2,602 2,487
--------- --------- ---------
Noninterest expenses:
Salaries and employee benefits............................ 4,192 4,043 3,802
Occupancy expense......................................... 1,925 1,814 1,755
(Gain) loss on foreclosed real estate..................... (1,818) 613 3,784
Deposit insurance premium................................. 657 646 645
SAIF recapitalization assessment.......................... 1,466 -- --
Marketing and advertising................................. 381 299 298
Data processing........................................... 668 564 563
Printing and office supplies.............................. 280 284 279
Telephone expense......................................... 255 271 272
Other expense............................................. 1,170 923 1,147
--------- --------- ---------
Total noninterest expenses........................ 9,176 9,457 12,545
--------- --------- ---------
Income before income taxes.................................. 2,403 2,287 674
Income tax expense.......................................... 803 641 234
--------- --------- ---------
Net income.................................................. $ 1,600 $ 1,646 $ 440
========= ========= =========
Net income per share of common stock........................ $ .19 $ .20 $ .06
========= ========= =========
Weighted average number of shares outstanding............... 8,430,000 8,430,000 7,354,658
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-39
<PAGE> 117
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
(DEPRECIATION)
APPRECIATION
RETAINED ON
ADDITIONAL EARNINGS SECURITIES TOTAL
COMMON PAID-IN (ACCUMULATED AVAILABLE STOCKHOLDERS'
STOCK CAPITAL DEFICIT) FOR SALE EQUITY
------ ---------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993........... $718 15,324 (1,842) 327 14,527
Proceeds from issuance of 1,250,000
shares of common stock............... 125 2,275 -- -- 2,400
Net income for 1994.................... -- -- 440 -- 440
Net change in unrealized (depreciation)
appreciation on securities available
for sale............................. -- -- -- (822) (822)
---- ------ ------ ---- ------
Balance at December 31, 1994........... 843 17,599 (1,402) (495) 16,545
Net income for 1995.................... -- -- 1,646 -- 1,646
Net change in unrealized (depreciation)
appreciation on securities available
for sale............................. -- -- -- 589 589
---- ------ ------ ---- ------
Balance at December 31, 1995........... 843 17,599 244 94 18,780
Net income for 1996.................... -- -- 1,600 -- 1,600
Net change in unrealized (depreciation)
appreciation on securities available
for sale............................. -- -- -- (100) (100)
---- ------ ------ ---- ------
Balance at December 31, 1996........... $843 17,599 1,844 (6) 20,280
==== ====== ====== ==== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-40
<PAGE> 118
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,600 $ 1,646 $ 440
Adjustments to reconcile net income to net cash provided
by (used in) operations:
Provision (credit) for loan losses...................... 782 477 (1,403)
(Credit) provision for losses on foreclosed real
estate................................................. (1,500) 240 3,410
Net amortization of premiums and discounts.............. 159 (210) (115)
Net gain on sale of premises and equipment.............. -- -- (277)
Net amortization of deferred loan fees.................. (180) 52 (168)
Depreciation of premises and equipment.................. 554 566 597
Net gain on sale of foreclosed real estate.............. (368) (35) (175)
Net realized gain on sales of available-for-sale
securities............................................. (87) (66) --
Net decrease (increase) in trading account securities... 13,496 (16,106) (6,970)
Provision (benefit) for deferred income taxes........... 819 1,012 (276)
Proceeds from sales of loans held for sale.............. 25,745 8,924 9,858
Originations of loans held for sale..................... (13,448) (23,673) (6,311)
Decrease (increase) in accrued interest receivable...... 111 (356) (143)
Increase in other assets................................ (530) (216) (157)
Gain on sale of loans................................... (144) (86) (131)
Unrealized loss on loans held for sale.................. 150 -- --
(Decrease) increase in accrued interest payable......... (26) 123 9
(Decrease) increase in other liabilities and due to
bank................................................... (790) (1,131) 997
-------- -------- --------
Net cash provided by (used in) operating
activities....................................... 26,343 (28,839) (815)
-------- -------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities................. (47,400) (35,104) (19,868)
Purchase of held-to-maturity securities................... -- -- (47,504)
Proceeds from maturities of held-to-maturity securities... -- 12,526 47,129
Proceeds from sale of available-for-sale securities....... 26,673 7,755 --
Proceeds from maturities of available-for-sale
securities.............................................. 10,000 -- --
Principal repayments on available-for-sale securities..... 18,832 746 1,916
Principal repayments on held-to-maturity securities....... 2,343 1,613 --
Net (increase) decrease in loans receivable............... (45,860) (10,512) 1,110
Proceeds from sale of premises and equipment.............. -- -- 524
Net purchases of premises and equipment................... (178) (501) (365)
Proceeds from sale of foreclosed real estate.............. 2,001 7,389 4,123
Payments capitalized to foreclosed real estate............ (131) (43) (7)
Redemption (purchase) of Federal Home Loan Bank stock..... 136 -- (31)
-------- -------- --------
Net cash used in investing activities.............. (33,584) (16,131) (12,973)
-------- -------- --------
Cash flows from financing activities:
Net decrease in demand, savings and NOW deposits.......... (4,505) (6,180) (5,979)
Net increase in time deposits............................. 42,496 44,284 5,693
(Repayments of) proceeds from Federal Home Loan Bank
advances................................................ (23,000) 8,600 1,400
Net proceeds from issuance of common stock................ -- -- 2,400
Net (decrease) increase in advances by borrowers for taxes
and insurance........................................... (211) 126 (109)
-------- -------- --------
Net cash provided by financing activities.......... 14,780 46,830 3,405
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 7,539 1,860 (10,383)
Cash and cash equivalents at beginning of year.............. 10,426 8,566 18,949
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 17,965 $ 10,426 $ 8,566
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
(Refunds received) income tax paid...................... $ (134) $ 550 $ 311
======== ======== ========
Interest................................................ $ 12,049 $ 9,957 $ 7,544
======== ======== ========
Noncash investing and financing activities:
Transfers of loans to foreclosed real estate............ $ 339 $ 6,382 $ 1,447
======== ======== ========
Loans originated for the sale of foreclosed real
estate................................................. $ 2,896 $ 1,527 $ 1,346
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-41
<PAGE> 119
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
F.F.O. Financial Group, Inc. (the "Holding Company" or "F.F.O.") is the
holding company for First Federal Savings and Loan Association of Osceola County
(the "Association"). The Holding Company's operations are limited to ownership
of the Association. The Association is a federally chartered savings and loan
association which conducts business from its headquarters and main office in
Kissimmee, Florida and ten branch offices located in Central Florida. The
Association's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits through the Savings Association Insurance Fund
("SAIF").
Principles of Consolidation. The consolidated financial statements include
the accounts of the Holding Company and its wholly-owned subsidiary, First
Federal Savings and Loan Association of Osceola County, and the Association's
wholly-owned subsidiary, Gulf American Financial Corporation. Gulf American
Financial Corporation is currently inactive. All significant intercompany
transactions and balances have been eliminated in consolidation.
General. The accounting and reporting policies of F.F.O. Financial Group,
Inc. and Subsidiaries (together, the "Company") conform to generally accepted
accounting principles and to general practices within the thrift industry. The
following summarizes the significant accounting policies of the Company:
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Trading Securities. Securities held principally for resale in the near
term are classified as trading account securities and recorded at their fair
values. Unrealized gains and losses on trading account securities are included
immediately in noninterest income.
Securities Held to Maturity. Securities for which the Company has the
positive intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income using the
interest method over the period to maturity.
Securities Available for Sale. Available-for-sale securities consist of
securities not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses, net of tax, on available-for-
sale securities are reported as a separate component of stockholders' equity
until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans Held For Sale. Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balance adjusted for any charge-offs,
the allowance for loan losses, and any deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans.
F-42
<PAGE> 120
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Discounts and premiums on purchased real estate loans are amortized to
income using the interest method over the remaining period to contractual
maturity, adjusted for anticipated prepayments.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). 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, the estimated value of any
underlying collateral and current economic conditions.
Foreclosed Real Estate. Real estate properties acquired through, or in
lieu of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value less costs to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in the consolidated statements of income.
Income Taxes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Premises and Equipment. Land is carried at cost. The Company's premises,
furniture and equipment and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed principally by the
straight-line method.
Off-Balance Sheet Instruments. In the ordinary course of business the
Company has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.
Fair Values of Financial Instruments. The following methods and
assumptions were used by the Company in estimating fair values of financial
instruments:
Cash and Cash Equivalents. The carrying amounts of cash and
short-term instruments approximate their fair value.
Trading Securities. Fair values for trading account securities, which
also are the amounts recognized in the consolidated balance sheets, 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.
Available-for-Sale and Held-to-Maturity Securities. Fair values for
available-for-sale and held-to-maturity securities, excluding restricted
equity securities, are based on quoted market prices.
Loans Receivable. For variable rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain fixed-rate mortgage (e.g. one-
to-four family residential), commercial real estate and commercial loans
are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
F-43
<PAGE> 121
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal Home Loan Bank Stock. Fair value of the Company's investment
in FHLB stock is based on its redemption value, which is its cost of $100
per share.
Deposits. The fair values disclosed for demand, NOW, money market and
savings deposits are, by definition, equal to the amount payable on demand
at the reporting date (that is, their carrying amounts). 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 expected monthly maturities on
time deposits.
Short-Term Borrowings. The carrying amounts of borrowings maturing
within 90 days approximate their fair values. Fair values of other
borrowings are estimated using discounted cash flow analysis based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Accrued Interest Receivable. The carrying amounts of accrued interest
receivable approximate their fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Net Income Per Share. Net income per share of common stock has been
computed on the basis of the weighted average number of shares of common
stock outstanding.
Reclassifications. Certain reclassifications have been made to the
financial statements for 1994 and 1995 to conform to the presentations used
in the financial statements for 1996.
Future Accounting Requirements. The Financial Accounting Standards
Board (the "FASB") has issued Statement of Financial Accounting Standards
No. 125 ("SFAS 125"). This Statement provides accounting and reporting
standards for transfers and servicing of financial assets as well as
extinguishments of liabilities. This Statement also provides consistent
standards for distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. SFAS 125 is effective for
transfers and servicing of financial assets as well as extinguishments of
liabilities occurring after December 31, 1996. Management does not
anticipate SFAS 125 will have a material impact on the Company.
F-44
<PAGE> 122
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SECURITIES
Securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amounts of securities and their
approximate fair values at December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
TRADING SECURITIES:
December 31, 1996:
Agency notes and debentures.................... $ 4,000 $ 32 $ -- $ 4,032
Collateralized mortgage-backed obligations..... 5,554 -- (6) 5,548
------- ---- ----- -------
$ 9,554 $ 32 $ (6) $ 9,580
======= ==== ===== =======
December 31, 1995:
Agency notes and debentures.................... $ 9,359 $ 42 $ -- $ 9,401
Collateralized mortgage-backed obligations..... 13,616 59 -- 13,675
------- ---- ----- -------
$22,975 $101 $ -- $23,076
======= ==== ===== =======
SECURITIES AVAILABLE FOR SALE:
December 31, 1996:
Mortgage-backed securities..................... $41,455 $108 $(118) $41,445
------- ---- ----- -------
December 31, 1995:
U.S. Treasury notes............................ 9,996 23 -- 10,019
Mortgage-backed securities..................... 39,686 127 -- 39,813
------- ---- ----- -------
$49,682 $150 $ -- $49,832
======= ==== ===== =======
SECURITIES HELD TO MATURITY:
December 31, 1996:
Mortgage-backed securities..................... $15,343 $218 $ (47) $15,514
======= ==== ===== =======
December 31, 1995:
Mortgage-backed securities..................... $17,636 $204 $ -- $17,840
======= ==== ===== =======
</TABLE>
Gross realized gains and gross realized losses on sales of
available-for-sale securities were $141,000 and $54,000, respectively in 1996
and $75,000 and $9,000, respectively in 1995. There were no sales of available-
for-sale securities during the year ended December 31, 1994.
Net unrealized holding gains on trading securities of $26,000, $101,000 and
$76,000 were included in income during 1996, 1995 and 1994, respectively.
The Board of Directors has authorized the Company to purchase and sell,
from time to time, securities through third parties including through William R.
Hough & Co. ("WRHC"), an investment banking firm headquartered in St.
Petersburg, Florida. Mr. Hough (a director and principal shareholder of the
Company) is Chairman and principal shareholder of WRHC. During the years ended
December 31, 1996, 1995 and 1994, the Company purchased approximately $53.3
million, $69.5 million and $30.5 million of securities through WRHC,
respectively. During the years ended December 31, 1996 and 1995, the Company
sold approximately $46.0 million and $19.7 million of securities through WRHC,
respectively. No securities were sold through WRHC in 1994. In connection with
such transactions, the Company paid WRHC an aggregate of $118,000, $92,000 and
$20,000 in commissions during the years ended December 31, 1996, 1995 and 1994,
respectively.
F-45
<PAGE> 123
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LOANS RECEIVABLE
The components of loans in the consolidated balance sheets were as follows
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Mortgage Loans:
Conventional 1-4 family residential....................... $112,827 78,680
FHA and VA single family residential...................... 10,131 11,529
Multifamily residential................................... 19,778 18,576
Land...................................................... 8,279 6,476
Other nonresidential real estate.......................... 34,138 26,927
Construction residential.................................. 14,166 10,288
Construction nonresidential............................... 990 --
-------- --------
Total mortgage loans.............................. 200,309 152,476
-------- --------
Other Loans:
Deposit account loans..................................... 957 868
Credit card loans......................................... 594 2,637
Consumer loans............................................ 20,537 13,717
SBA loans................................................. 3,009 3,633
Home improvement loans.................................... 55 76
-------- --------
Total other loans................................. 25,152 20,931
-------- --------
Total loans....................................... 225,461 173,407
-------- --------
Deduct:
Undisbursed portion of loans in process................... (10,824) (6,880)
Deferred net loan origination fees and discounts.......... (19) (199)
Allowance for loan losses................................. (5,613) (5,138)
-------- --------
Total deductions.................................. (16,456) (12,217)
-------- --------
Loans receivable, net............................. $209,005 161,190
======== ========
</TABLE>
An analysis of the change in the allowance for loan losses was as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Balance at January 1..................................... $5,138 $ 8,207 $ 9,333
Loans charged-off, net of recoveries..................... (307) (3,546) (260)
Provision (credit) for loan losses....................... 782 477 (1,403)
Reclassification due to adoption of SFAS 114 and 118..... -- -- 537
------ ------- -------
Balance at December 31................................... $5,613 $ 5,138 $ 8,207
====== ======= =======
</TABLE>
The amounts of impaired loans, all of which were collateral-dependent, were
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Loans identified as impaired:
Gross loans with related allowances for losses recorded... $ 8,256 $ 6,380
Less: Allowances on these loans........................... (1,766) (1,537)
------- -------
Net investment in impaired loans............................ $ 6,490 $ 4,843
======= =======
</TABLE>
F-46
<PAGE> 124
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The average net investment in impaired loans and interest income recognized
and received on impaired loans were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Average investment in impaired loans..................... $6,175 $5,037 $7,259
====== ====== ======
Interest income recognized on impaired loans............. $ 521 $ 337 $ 307
====== ====== ======
Interest income received on impaired loans............... $ 521 $ 337 $ 307
====== ====== ======
</TABLE>
Nonaccrual and renegotiated loans for which interest has been reduced
totalled approximately $8.9 million, $7.6 million and $13.8 million at December
31, 1996, 1995 and 1994, respectively. Interest income that would have been
recorded under the original terms of such loans and the interest income actually
recognized are summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Interest income that would have been recorded............... $863 742 971
Interest income recognized.................................. (340) (342) (383)
---- ---- ----
Interest income foregone.................................... $523 400 588
==== ==== ====
</TABLE>
The Company is not committed to lend additional funds to debtors whose
loans have been modified.
(4) LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $103.6 million, $89.6 million and $101.2 million at
December 31, 1996, 1995 and 1994, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing are included in advance payments by borrowers for taxes and insurance,
and were approximately $494,000 and $498,000 at December 31, 1996 and 1995,
respectively.
(5) FORECLOSED REAL ESTATE
Activity in the allowance for losses on foreclosed real estate was as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Balance at January 1..................................... $1,124 2,873 62
(Credit) provision charged to operations................. (1,500) 240 3,410
Recoveries (charge-offs), net............................ 534 (1,989) (62)
------ ------ -----
158 1,124 3,410
Reclassification due to adoption of SFAS 114 and 118..... -- -- (537)
------ ------ ------
Balance at December 31................................... $ 158 1,124 2,873
====== ====== ======
</TABLE>
Gain or loss on foreclosed real estate for the years ended December 31,
1996, 1995 and 1994 includes net expense of $50,000, $408,000 and $549,000,
respectively, from operation of foreclosed real estate.
F-47
<PAGE> 125
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) PREMISES AND EQUIPMENT
Components of premises and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Cost:
Land...................................................... $ 1,298 $ 1,298
Premises and leasehold improvements....................... 5,154 5,207
Furniture and equipment................................... 5,263 5,772
------- -------
Total cost........................................ 11,715 12,277
Less accumulated depreciation............................. (6,391) (6,577)
------- -------
Total............................................. $ 5,324 $ 5,700
======= =======
</TABLE>
At December 31, 1996, the Company was obligated under noncancelable
operating leases for office space. Certain leases contain escalation clauses
providing for increased rentals based primarily on increases in real estate
taxes or in the average consumer price index. Net rent expense under operating
leases, included in occupancy expense, was approximately $378,000, $363,000 and
$341,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, future minimum rental commitments under
noncancellable leases were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ ------
<S> <C>
1997...................................................... $ 364
1998...................................................... 309
1999...................................................... 229
2000...................................................... 54
2001...................................................... 54
Thereafter................................................ 126
------
Total............................................. $1,136
======
</TABLE>
(7) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Loans....................................................... $1,279 $1,164
Securities.................................................. 431 657
------ ------
Total............................................. $1,710 $1,821
====== ======
</TABLE>
(8) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, was approximately $13.2 million and $14.2
million at December 31, 1996 and 1995, respectively.
F-48
<PAGE> 126
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the scheduled maturities of certificates of deposit
were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ --------
<S> <C>
1997...................................................... $132,990
1998...................................................... 53,346
1999...................................................... 13,834
2000...................................................... 11,962
2001 and thereafter....................................... 2,511
--------
Total............................................. $214,643
========
</TABLE>
(9) ADVANCES FROM FEDERAL HOME LOAN BANK
Maturities and interest rates of advances from the Federal Home Loan Bank
of Atlanta ("FHLB") were as follows (dollars in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
YEAR ENDING INTEREST ----------------
DECEMBER 31, RATE 1996 1995
- ------------ -------- ------ -------
<S> <C> <C> <C>
1996...................................................... 5.85% $ -- $30,000
1997...................................................... 6.95 7,000 --
---- ------ -------
Total............................................. % $7,000 $30,000
==== ====== =======
</TABLE>
At December 31, 1996, the Association was required by its collateral
agreement with the FHLB to maintain qualifying first mortgage loans in an amount
equal to at least 150% of the FHLB advances outstanding at December 31, 1996 as
collateral. The Association's FHLB stock is also pledged as collateral for such
advances. The FHLB advances outstanding at December 31, 1995 were collateralized
by certain securities with a book value of $32.2 million and a market value of
$32.6 million as allowed by the Association's collateral agreement with the
FHLB. The Association's FHLB stock was also pledged as collateral for those
advances while outstanding.
(10) INCOME TAXES
The provision (credit) for income taxes is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year Ended December 31, 1996:
Federal................................................... $ (16) $ 695 $679
State..................................................... -- 124 124
----- ------ ----
Total............................................. $ (16) $ 819 $803
===== ====== ====
Year Ended December 31, 1995:
Federal................................................... $(371) $ 864 $493
State..................................................... -- 148 148
----- ------ ----
Total............................................. $(371) $1,012 $641
===== ====== ====
Year Ended December 31, 1994:
Federal................................................... $ 435 $ (236) $199
State..................................................... 75 (40) 35
----- ------ ----
Total............................................. $ 510 $ (276) $234
===== ====== ====
</TABLE>
F-49
<PAGE> 127
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rate on income before income taxes differs from the U.S.
statutory rate of 34%. The following summary reconciles taxes at the U.S.
statutory rate with the effective rates (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Taxes on income at U.S. statutory rate....... $ 817 34.0% $ 777 34.0% $229 34.0%
State income taxes, net of federal tax
benefit.................................... 87 3.6 82 3.6 24 3.6
Recomputed bad-debt reserve.................. -- -- (178) (7.8) -- --
Other -- net................................. (101) (4.2) (40) (1.8) (19) (2.8)
----- ---- ----- ---- ---- ----
Taxes on income at effective rates........... $ 803 33.4% $ 641 28.0% $234 34.7%
===== ==== ===== ==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities related to the following (in
thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $1,454 $1,516
Allowance for losses on foreclosed real estate............ 59 423
Accrued pension expense................................... -- 141
Charitable contributions.................................. 4 --
Net operating loss carryforwards.......................... 1,601 2,149
Alternative minimum tax credit carryforwards.............. 121 122
Unrealized depreciation on securities available for
sale................................................... 4 --
------ ------
Total gross deferred tax assets................... 3,243 4,351
------ ------
Deferred tax liabilities:
Deferred loan fees........................................ 1,504 1,711
Federal Home Loan Bank stock.............................. 226 239
Accumulated depreciation on premises and equipment........ 23 66
Unrealized appreciation on securities available for
sale................................................... -- 56
Other..................................................... -- 30
------ ------
Total gross deferred tax liabilities.............. 1,753 2,102
------ ------
Deferred tax asset........................................ $1,490 $2,249
====== ======
</TABLE>
With respect to the net deferred tax asset of $1.5 million at December 31,
1996, management believes that it is more likely than not that the Company will
have sufficient future taxable income to recover this asset. However, for
purposes of calculating regulatory capital, Office of Thrift Supervision ("OTS")
regulations limit the amount of deferred tax assets that can be included in
regulatory capital to the lesser of (i) 10% of Tier 1 capital or (ii) the amount
the Association expects to realize within the subsequent twelve-month period.
OTS guidelines require the Association to recalculate this capital component on
a quarterly basis.
F-50
<PAGE> 128
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the Company's net operating loss carryforwards for
federal income tax purposes which are available to offset future federal taxable
income were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION AMOUNT
- ---------- ------
<S> <C>
2007...................................................... $1,324
2008...................................................... 1,826
2010...................................................... 980
------
Total............................................. $4,130
======
</TABLE>
Net operating loss carryforwards of $3,150,000 included above are subject
to an annual limitation of $268,000 due to section 382 of the Internal Revenue
Code. In addition, the Company has alternative minimum tax credit carryforwards
of approximately $121,000 which are available to reduce future federal regular
income taxes over an indefinite period.
(11) PENSION AND PROFIT SHARING PLANS
Prior to 1996, the Company had a noncontributory defined benefit pension
plan ("Plan") covering all employees who meet certain eligibility requirements.
It was the Company's policy to fund the maximum amount that could be deducted
for federal income tax purposes. Prior to 1992, the Company periodically made
contributions to a profit sharing plan covering all full-time employees in
amounts determined by the Board of Directors. No contributions were made to the
Plan during any of the years in the three-year period ended December 31, 1995.
During 1994, the Company decided to terminate the pension and profit sharing
plans effective December 31, 1994 and ceased accrual of benefits as of that
date. The Company submitted plan termination documents, which were subsequently
approved, to the Internal Revenue Service ("IRS") and the Pension Benefit
Guarantee Corporation for the Plan, and to the IRS for the profit sharing plan.
Distributions from the plans were made during January and February of 1996.
The following table sets forth the Plan's status as of December 31, 1995
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995
---------------
<S> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $1,626....................... $ 1,626
=======
Accrued pension liability:
Projected benefit obligation for service rendered to
date................................................... $(1,626)
Plan assets at fair value................................. $ 1,264
=======
Plan assets less than projected benefit obligation........ $ (362)
Unrecognized net loss..................................... 450
Unrecognized net asset being amortized over 15 years...... (388)
-------
Accrued pension liability included in other liabilities..... $ (300)
=======
</TABLE>
F-51
<PAGE> 129
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension costs under the Plan prior to 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1995 1994
----- ----
<S> <C> <C>
Service cost-benefits earned during the year................ $ -- $150
Interest cost of projected benefit obligation............... 75 79
Actual return on plan assets................................ 173 (82)
Net amortization and deferral adjustments................... (324) (96)
----- ----
Net periodic pension costs.................................. $ (76) $ 51
===== ====
</TABLE>
Disclosure assumptions used in accounting for the Plan as of December 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Weighted average discount rate.............................. 4.5% 5.0%
Rate of increase in compensation levels..................... N/A 6.0
Expected long-term rate of return on assets................. 6.0 6.0
</TABLE>
In connection with the plan terminations, the Company adopted a new defined
contribution profit sharing 401(k) plan (the "401(k) Plan") effective January 1,
1995. All employees who meet certain eligibility requirements are covered under
the 401(k) Plan. Under the 401(k) Plan, an employee may elect to contribute up
to 15% of their annual compensation. Employer contributions to the 401(k) Plan
are made at the discretion of the Board of Directors. Contributions to the
401(k) Plan for the years ended December 31, 1996 and 1995 were $78,000 and
$49,000, respectively.
(12) FINANCIAL INSTRUMENTS
The Company 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
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments are commitments to extend credit and may involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract amounts of
these instruments reflect the extent of involvement the Company has in these
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company 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 payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained by the
Company upon extension of credit is based on management's credit evaluation of
the counterparty.
F-52
<PAGE> 130
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents................. $ 17,965 17,965 10,426 10,426
Trading securities........................ 9,580 9,580 23,076 23,076
Securities available for sale............. 41,445 41,445 49,832 49,832
Securities held to maturity............... 15,343 15,514 17,636 17,840
Loans receivable.......................... 209,005 209,354 161,190 163,660
Loans held for sale....................... 10,462 10,462 22,765 22,765
Accrued interest receivable............... 1,710 1,710 1,821 1,821
Federal Home Loan Bank stock.............. 2,378 2,378 2,514 2,514
Financial Liabilities:
Deposits.................................. 286,927 289,326 248,936 251,116
Advances from Federal Home Loan Bank...... 7,000 7,000 30,000 30,000
</TABLE>
The notional amount, which approximates fair value, of the Company's
financial instruments with off-balance-sheet risk at December 31, 1996, was as
follows (in thousands):
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT
--------
<S> <C>
Commitments to extend credit................................ $5,062
</TABLE>
(13) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company grants real estate, commercial and consumer loans to customers
primarily in the State of Florida with the majority of such loans in the Central
Florida area. Therefore, the Company's exposure to credit risk is significantly
affected by changes in the economy of the Central Florida area.
The contractual amounts of credit related financial instruments such as
commitments to extend credit represent the amounts of potential accounting loss
should the contract be fully drawn upon, the customer default and the value of
any existing collateral become worthless.
(14) RELATED PARTIES
Loans to directors and officers of the Company, which were made at market
rates, were made in the ordinary course of business and did not involve more
than normal risk of collectibility or present other unfavorable features.
Activity in loans to directors and officers were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 1995
----- -----
<S> <C> <C>
Beginning balance........................................... $793 867
Amounts related to new officers and directors............... 15 7
Loans originated............................................ -- 7
Principal repayments........................................ (35) (88)
---- ----
Ending balance.................................... $773 793
==== ====
</TABLE>
F-53
<PAGE> 131
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated balance sheets of the Company.
(16) RESTRICTIONS ON RETAINED EARNINGS
The Association is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval. At December 31,
1996, the Association was a Tier 2 institution for purposes of the regulations
relating to capital distributions; as such, the Association may make capital
distributions of up to 75% of its net income over the most recent four-quarter
period (depending on its risk-based capital level) without prior regulatory
approval.
(17) REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory-and possibly additional
discretionary-actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts (set forth in the following
table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of December 31, 1996,
that the Association meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the OTS
categorized the Association as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized the
Association must maintain minimum Tier I (core), Tier I (risk-based) and total
risk-based capital ratios as set forth below. There are no conditions or events
since that notification that management believes have changed the Association's
category.
F-54
<PAGE> 132
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Association's actual capital amounts and ratios at December 31, 1996
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM FOR CAPITALIZED
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
---------------- ---------------- ------------------
RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT
----- -------- ----- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, and ratio
to total assets................ 6.4% $ 20,167
Less -- nonincludable portion of
deferred tax asset and mortgage
servicing rights............... (1,401)
Add back -- unrealized
depreciation on
available-for-sale
securities..................... 6
--------
Tangible capital, and ratio to
adjusted total assets.......... 5.9 $ 18,772 1.5% $ 4,734
======== ========
Tier 1 (core) capital, and ratio
to adjusted total assets....... 5.9 $ 18,772 3.0 $ 9,469 5.0% $ 15,782
======== ======== ========
Tier 1 capital, and ratio to
risk-weighted assets........... 11.1 $ 18,772 4.0 $ 6,786 6.0 $ 10,179
======== ======== ========
Tier 2 capital (excess allowance
for loan losses)............... $ 2,154
--------
Total risk-based
capital, and ratio to
risk-weighted
assets............... 12.3 $ 20,926 8.0 $ 13,572 10.0 $ 16,965
======== ======== ========
Total assets........... $317,024
========
Adjusted total assets............ $315,630
========
Risk-weighted assets............. $169,647
========
</TABLE>
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF member institutions, including the
Association, to recapitalize the SAIF and spread the obligations for payments of
Financing Corporation ("FICO") bonds across all SAIF and Bank Insurance Fund
("BIF") members. That legislation eliminated the substantial disparity between
the amount that BIF and SAIF members had been paying for deposit insurance
premiums. The FDIC special assessment levied amounted to 65.7 basis points on
SAIF assessable deposits held as of March 31, 1995. The special assessment was
recognized in the third quarter and is tax deductible. The Association recorded
a charge of $1.5 million before taxes as a result of the FDIC special
assessment.
Beginning on January 1, 1997, BIF members will pay a portion of the FICO
payment equal to 1.3 basis points on BIF-insured deposits, compared to 6.48
basis points payable by SAIF members on SAIF-insured deposits, and will pay a
pro rata share of the FICO payment on the earlier of January 1, 2000 or the date
upon which the last savings association, such as the Association, ceases to
exist. The legislation also requires BIF and SAIF to be merged by January 1,
1999 provided that subsequent legislation is adopted to eliminate the savings
association charter and no savings associations remain as of that time.
The FDIC recently lowered SAIF assessments to a range comparable to those
of BIF members, however, SAIF members will continue to pay the higher FICO
payments described above. Management cannot predict
F-55
<PAGE> 133
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the level of FDIC insurance assessments on an ongoing basis or whether the BIF
and SAIF will eventually be merged.
(18) STOCK OPTION PLAN
In 1988, the Company adopted a stock option program (the "Program") for the
benefit of its directors, officers and other selected key employees of the
Company. Four kinds of rights are contained in the program and are available for
grant: incentive stock options (options to purchase common stock, granted to
officers and key employees), compensatory stock options (options to purchase
common stock, granted to directors), stock appreciation rights and performance
share awards. A total of 241,500 shares of common stock were reserved for
issuance pursuant to the exercise of stock options under the Program. As of
December 31, 1996, the Company had granted incentive stock options and
compensatory stock options as discussed in more detail below. No stock
appreciation rights or performance share awards have been issued to date. The
Program provides that incentive stock options and compensatory stock options are
granted to purchase stock at the market value of the stock at the date of the
grant; such grants are exercisable immediately for compensatory stock options,
and ratably over a three-year period for incentive stock options. All stock
options expire at the earlier of ten years from the date of the grant, or three
months after the director, officer or employee ceases employment with the
Company.
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 applies to stock-based compensation under the Company's Program.
As allowed by SFAS 123, the Company elected to continue to measure compensation
cost for the options or shares granted under the Program using the intrinsic
value method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Under that accounting method, the Company recorded
no compensation expense related to the Program during the years ended December
31, 1996, 1995 and 1994.
During the years ended December 31, 1996 and 1995, 47,000 and 52,100
options were granted under the Program. If compensation cost for the Program had
been determined based on the fair value of the awards at the grant date, using
the fair value method defined in SFAS 123, the Company's net income and net
income per share for 1996 and 1995 would not have been materially reduced.
The stock option transactions were as follows:
<TABLE>
<CAPTION>
INCENTIVE COMPENSATORY
STOCK OPTIONS STOCK OPTIONS
----------------------- ---------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
------- ------------- ------ ------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993............ 133,125 $2.13 15,813 $2.13
Granted................................... 10,000 2.13 -- --
------- ------
Outstanding, December 31, 1994............ 143,125 2.13 15,813 2.13
Granted................................... 52,100 2.25 -- --
Cancelled or expired...................... (10,000) 2.13 (2,875) 2.13
------- ------
Outstanding, December 31, 1995............ 185,225 $2.13 - 2.25 12,938 2.13
Granted................................... 47,000 2.75 -- --
Cancelled or expired...................... (37,600) 2.13 - 2.25 (4,313) 2.13
------- ------
Outstanding, December 31, 1996............ 194,625 2.13 - 2.75 8,625 2.13
======= ======
</TABLE>
At December 31, 1996, the weighted-average option price per share for the
incentive stock options was $2.30 and for the compensatory stock options was
$2.13. The weighted-average option price per share of all
F-56
<PAGE> 134
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options under the Program at December 31, 1996 was $2.29. Of the total incentive
stock options outstanding at December 31, 1996, 1995 and 1994, 114,624, 82,083
and 44,375, respectively, were exercisable.
(19) PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of the Holding Company are presented below.
Amounts shown as investment in wholly-owned subsidiaries and equity in earnings
of subsidiaries are eliminated in consolidation (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Cash, deposited with subsidiary............................. $ 113 $ 117
Investment in wholly-owned subsidiaries..................... 20,167 18,663
------- -------
Total............................................. $20,280 $18,780
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities................................................. $ -- $ --
Stockholders' equity........................................ 20,280 18,780
------- -------
Total............................................. $20,280 $18,780
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Income:
Equity in undistributed earnings of subsidiaries.......... $1,604 $1,591 $379
Other income.............................................. 120 120 120
Expense..................................................... (124) (65) (59)
------ ------ ----
Net income.................................................. $1,600 $1,646 $440
====== ====== ====
</TABLE>
F-57
<PAGE> 135
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings............................................ $ 1,600 $ 1,646 $ 440
Adjustments to reconcile net earnings to net cash (used
in) provided by operations:
Equity in earnings of subsidiaries................... (1,604) (1,591) (379)
------- ------- -------
Net cash (used in) provided by operating
activities.................................... (4) 55 61
------- ------- -------
Cash Flows from Financing Activities:
Proceeds from sale of common stock...................... -- -- 2,400
Investment in subsidiary................................ -- -- (2,400)
------- ------- -------
Net cash provided by financing activities....... -- -- --
------- ------- -------
Net (decrease) increase in cash........................... (4) 55 61
Cash at beginning of year................................. 117 62 1
------- ------- -------
Cash at end of year....................................... $ 113 $ 117 $ 62
======= ======= =======
</TABLE>
(20) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present summarized quarterly data (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income.............................. $5,466 $5,398 $5,340 $5,793 $21,997
Interest expense............................. 3,140 2,942 2,824 3,117 12,023
------ ------ ------ ------ -------
Net interest income.......................... 2,326 2,456 2,516 2,676 9,974
Provision for loan losses.................... 150 -- 7 625 782
------ ------ ------ ------ -------
Net interest income after provision for loan
losses..................................... 2,176 2,456 2,509 2,051 9,192
Noninterest income........................... 304 563 535 985 2,387
Noninterest expenses......................... 2,391 2,187 3,771 827 9,176
------ ------ ------ ------ -------
Income (loss) before income taxes............ 89 832 (727) 2,209 2,403
Provision (credit) for income taxes.......... 33 310 (270) 730 803
------ ------ ------ ------ -------
Net income (loss)............................ $ 56 $ 522 $ (457) $1,479 $ 1,600
====== ====== ====== ====== =======
Income (loss) per share...................... $ .01 $ .06 $ (.05) $ .17 $ .19
====== ====== ====== ====== =======
</TABLE>
F-58
<PAGE> 136
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income.............................. $4,978 $4,780 $4,897 $5,075 $19,730
Interest expense............................. 2,259 2,477 2,616 2,759 10,111
------ ------ ------ ------ -------
Net interest income.......................... 2,719 2,303 2,281 2,316 9,619
Provision for loan losses.................... 141 30 154 152 477
------ ------ ------ ------ -------
Net interest income after provision for loan
losses..................................... 2,578 2,273 2,127 2,164 9,142
Noninterest income........................... 663 665 604 670 2,602
Noninterest expenses......................... 2,530 2,428 2,182 2,317 9,457
------ ------ ------ ------ -------
Income before income taxes................... 711 510 549 517 2,287
Provision for income taxes................... 250 174 190 27 641
------ ------ ------ ------ -------
Net income................................... 461 336 359 490 1,646
------ ------ ------ ------ -------
Income per share............................. $ .05 $ .04 $ .05 $ .06 $ .20
====== ====== ====== ====== =======
</TABLE>
(21) SUBSEQUENT EVENT -- PENDING MERGER
On March 10, 1997, the Holding Company executed a Letter of Intent to merge
with Republic Bancshares, Inc. ("Republic"). Under the terms of the Letter of
Intent, Republic will exchange shares of its common stock for all of the
outstanding shares of F.F.O.'s common stock at an exchange ratio of .29 share of
Republic common stock for each share of F.F.O. common stock. The exchange ratio
may be adjusted for decreases in Republic's stock price, but in no event will
the exchange ratio exceed .30 share of Republic common stock for each share of
F.F.O. common stock. F.F.O. has the right to terminate the transaction if
Republic's stock price is less than $13.50 shortly before closing. Outstanding
options for F.F.O.'s common stock will be converted into options for Republic
common stock on the same terms. The transaction is expected to be completed in
1997, and is to be accounted for as a corporate reorganization under which the
controlling shareholder's interest in F.F.O. will be carried forward at its
historical cost while the minority interest in F.F.O. will be recorded at fair
value. The proposed merger is subject to completion of a definitive agreement,
approval by the respective shareholders of F.F.O. and Republic, and approval by
applicable regulatory authorities. Upon completion of the proposed merger, the
then-outstanding options under the Company's stock option program (see Note 18)
will become immediately exercisable.
F-59
<PAGE> 137
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,491 $ 6,300
Interest-bearing deposits with banks........................ 7,688 11,665
Federal funds sold.......................................... 764 --
-------- --------
Cash and cash equivalents......................... 14,943 17,965
Trading securities.......................................... 13,169 9,580
Securities available for sale............................... 43,713 41,445
Securities held to maturity, at cost........................ 14,702 15,343
Loans held for sale, at lower of cost or market value....... 4,573 10,462
Loans receivable, net....................................... 215,926 209,005
Accrued interest receivable................................. 1,972 1,710
Premises and equipment...................................... 5,268 5,324
Restricted securities -- Federal Home Loan Bank stock, at
cost...................................................... 2,378 2,378
Foreclosed real estate, net................................. 1,425 799
Deferred tax asset.......................................... 1,576 1,490
Other assets................................................ 386 1,448
-------- --------
Total assets...................................... $320,031 316,949
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits........................................... $ 16,597 $ 14,303
Savings and NOW deposits.................................. 58,060 57,981
Time deposits............................................. 211,015 214,643
-------- --------
Total deposits.................................... 285,672 286,927
Accrued interest on deposits................................ 217 256
Due to bank................................................. 988 424
Current income tax liability................................ 351 --
Advances from Federal Home Loan Bank........................ 9,000 7,000
Advance payments by borrowers for taxes and insurance....... 1,419 608
Other liabilities........................................... 1,624 1,454
-------- --------
Total liabilities................................. 299,271 296,669
-------- --------
Stockholders' equity:
Preferred stock........................................... -- --
Common stock.............................................. 845 843
Additional paid-in capital................................ 17,633 17,599
Retained income........................................... 2,431 1,844
Net unrealized depreciation on securities available for
sale................................................... (149) (6)
-------- --------
Total stockholders' equity........................ 20,760 20,280
-------- --------
Total liabilities and stockholders' equity........ $320,031 316,949
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-60
<PAGE> 138
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ---------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable.......................................... $ 4,591 4,018
Securities available for sale............................. 619 593
Securities held to maturity............................... 237 251
Trading securities........................................ 269 510
Federal funds sold........................................ 27 19
Deposits with banks....................................... 64 75
---------- ---------
Total interest income............................. 5,807 5,466
---------- ---------
Interest expense:
Deposits.................................................. 3,163 2,897
Other borrowed funds...................................... 10 243
---------- ---------
Total interest expense............................ 3,173 3,140
---------- ---------
Net interest income......................................... 2,634 2,326
Provision for loan losses................................... -- 150
---------- ---------
Net interest income after provision for loan
losses.......................................... 2,634 2,176
---------- ---------
Noninterest income:
Service charges on deposits............................... 328 323
Loan related fees and service charges..................... 122 117
Loan servicing fees....................................... 83 68
Net trading account losses................................ (138) (178)
Unrealized gain (loss) on loans held for sale............. 84 (111)
Net gain on sale of loans................................. 54 43
Other income.............................................. 68 42
---------- ---------
Total noninterest income.......................... 601 304
---------- ---------
Noninterest expenses:
Salaries and employee benefits............................ 1,021 1,016
Occupancy expense......................................... 478 467
Loss on foreclosed real estate............................ 34 33
Deposit insurance premium................................. 63 173
Marketing and advertising................................. 111 132
Data processing........................................... 179 151
Printing and office supplies.............................. 73 78
Telephone expense......................................... 66 71
Other expense............................................. 272 270
---------- ---------
Total noninterest expenses........................ 2,297 2,391
---------- ---------
Income before income taxes.................................. 938 89
Income tax expense.......................................... 351 33
---------- ---------
Net income.................................................. $ 587 $ 56
========== =========
Net income per share of common stock........................ $ .07 $ .01
========== =========
Dividends per share......................................... $ -- $ --
========== =========
Weighted average number of shares outstanding............... 8,430,181 8,430,000
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-61
<PAGE> 139
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
DEPRECIATION
ADDITIONAL ON SECURITIES TOTAL
COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
STOCK CAPITAL INCOME FOR SALE EQUITY
------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996................ $843 $17,599 $1,844 $ (6) $20,280
Net proceeds from the issuance of 16,266
shares of common stock (unaudited)........ 2 34 -- -- 36
Net change in unrealized depreciation on
securities available for sale net of
income taxes of $86 (unaudited)........... -- -- -- (143) (143)
Net income for the three months ended March
31, 1997 (unaudited)...................... -- -- 587 -- 587
---- ------- ------ ----- -------
Balance at March 31, 1997 (unaudited)....... $845 $17,633 $2,431 $(149) $20,760
==== ======= ====== ===== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-62
<PAGE> 140
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 587 $ 56
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses.............................. -- 150
Net amortization of deferred loan fees................. (3) 39
Depreciation of premises and equipment................. 137 137
Net (increase) decrease in trading securities.......... (3,589) 7,184
Provision for deferred income taxes.................... -- 16
Proceeds from sales of loans held for sale............. 6,027 7,171
Gain on sale of loans.................................. (54) (43)
Unrealized (gain) loss on loans held for sale.......... (84) 111
(Increase) decrease in accrued interest receivable..... (262) 64
Decrease (increase) in other assets.................... 1,062 (501)
Decrease in accrued interest payable................... (39) (74)
Increase in current income tax liability............... 351 --
Increase in other liabilities and due to bank.......... 734 245
------- --------
Net cash provided by operating activities......... 4,867 14,555
------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities................. (2,988) --
Proceeds from maturities of available-for-sale
securities............................................. -- 2,000
Principal repayments on available-for-sale securities..... 479 899
Principal repayments on held-to-maturity securities....... 653 568
Net increase in loans receivable.......................... (7,544) (8,787)
Proceeds from sales of foreclosed real estate............. -- 112
Payments capitalized to foreclosed real estate............ -- (55)
Net purchases of premises and equipment................... (81) (101)
------- --------
Net cash used in investing activities............. (9,481) (5,364)
------- --------
Cash flows from financing activities:
Net increase in demand, savings and NOW deposits.......... 2,373 54
Net (decrease) increase in time deposits.................. (3,628) 19,732
Net proceeds from the sale of common stock................ 36 --
Net proceeds from (repayment of) Federal Home Loan Bank
advances............................................... 2,000 (16,000)
Net increase in advance payments by borrowers for taxes
and insurance.......................................... 811 613
------- --------
Net cash provided by financing activities......... 1,592 4,399
------- --------
Net (decrease) increase in cash and cash equivalents........ (3,022) 13,590
Cash and cash equivalents at beginning of period............ 17,965 10,426
------- --------
Cash and cash equivalents at end of period.................. $14,943 $ 24,016
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes........................................... $ -- $ 18
======= ========
Interest............................................... $ 3,212 $ 3,214
======= ========
Noncash investing and financing activities:
Transfers of loans to foreclosed real estate........... $ 626 $ 199
======= ========
Transfer of loans held for sale to loans receivable, at
market................................................ $ -- $ 10,603
======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-63
<PAGE> 141
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL.
In the opinion of the management of F.F.O. Financial Group, Inc. (the
"Company" or "F.F.O."), the accompanying condensed consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position at March 31, 1997, and the
results of operations and cash flows for the three-month periods ended March 31,
1997 and 1996. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. The results of
operations for the three months ended March 31, 1997, are not necessarily
indicative of the operating results to be anticipated for the full year.
F.F.O. Financial Group, Inc. is a Florida corporation organized in 1988 as
a unitary savings and loan holding company. The accompanying unaudited condensed
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, First Federal Savings and Loan Association of Osceola
County (the "Association"), and the Association's wholly-owned subsidiary, Gulf
American Financial Corporation, which is currently inactive. All significant
intercompany transactions and accounts have been eliminated in consolidation.
2. NET INCOME PER SHARE.
Net income per share has been computed by dividing net income by the
weighted average number of shares outstanding during the period. No adjustment
has been made to give effect to the shares that would be outstanding, assuming
the exercise of outstanding stock options, since the impact is deemed
immaterial.
3. LOAN IMPAIRMENT AND LOSSES.
The following summarizes the amounts of impaired loans, as defined by
Statements of Financial Accounting Standards No. 114 and 118 ("SFAS No. 114 and
118"), all of which were collateral-dependent, at March 31, 1997 and December
31, 1996, and the average net investment in impaired loans and interest income
recognized and received on impaired loans during the three-month periods ended
March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
Loans identified as impaired:
Gross loans with related allowance for credit losses
recorded............................................... $ 7,989 $ 8,256
Less: Allowances on these loans........................... (1,848) (1,766)
------- -------
Net investment in impaired loans............................ $ 6,141 $ 6,490
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Average investment in impaired loans........................ $6,316 $4,697
====== ======
Interest income recognized on impaired loans................ $ 130 $ 118
====== ======
Interest income received on impaired loans.................. $ 130 $ 118
====== ======
</TABLE>
F-64
<PAGE> 142
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Balance at January 1........................................ $5,613 $5,138
Provision for loan losses................................... -- 150
Loans charged-off, net of recoveries........................ (34) (78)
------ ------
Balance at March 31......................................... $5,579 $5,210
====== ======
</TABLE>
4. FORECLOSED REAL ESTATE.
Activity in the allowance for losses on foreclosed real estate was as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
----- -------
(UNAUDITED)
<S> <C> <C>
Balance at January 1........................................ $158 $1,124
Recoveries, net of charge-offs.............................. 5 51
---- ------
Balance at March 31......................................... $163 $1,175
==== ======
</TABLE>
5. IMPACT OF NEW ACCOUNTING STANDARDS.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). That
Statement provides accounting and reporting standards for transfers and
servicing of financial assets as well as extinguishments of liabilities. The
Statement also provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. SFAS
No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The adoption
of SFAS No. 125 had no significant effect on the Company's financial position at
March 31, 1997 or results of operations for the three months then ended.
6. PENDING MERGER.
On April 14, 1997, the Company executed a definitive agreement to merge
with Republic Bancshares, Inc. ("Republic"). Under the terms of the definitive
agreement, Republic will exchange shares of its common stock for all of the
outstanding shares of F.F.O.'s common stock at an exchange ratio of .29 share of
Republic common stock for each share of F.F.O. common stock. The exchange ratio
may be adjusted for decreases in Republic's stock price, but in no event will
the exchange ratio exceed .30 share of Republic common stock for each share of
F.F.O. common stock. F.F.O. has the right to terminate the transaction if
Republic's stock price is less than $13.50 shortly before closing. Outstanding
options for F.F.O.'s common stock will be converted into options for Republic
common stock on the same terms. The transaction is expected to be completed in
1997, and is to be accounted for as a corporate reorganization under which the
controlling shareholder's interest in F.F.O. will be carried forward at its
historical cost while the minority interest in F.F.O. will be recorded at fair
value. The proposed merger is subject to approval by the respective shareholders
of F.F.O. and Republic, and approval by applicable regulatory authorities.
F-65
<PAGE> 143
F.F.O. FINANCIAL GROUP, INC.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Hacker, Johnson, Cohen & Grieb, the Company's independent certified public
accountants, have made a limited review of the financial data as of March 31,
1997, and for the three-month periods ended March 31, 1997 and 1996 presented in
this document, in accordance with standards established by the American
Institute of Certified Public Accountants.
Their report, furnished pursuant to Article 10 of Regulation S-X, is
included herein.
F-66
<PAGE> 144
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors
F.F.O. Financial Group, Inc.
St. Cloud, Florida:
We have reviewed the condensed consolidated balance sheet of F.F.O.
Financial Group, Inc. and Subsidiaries (the "Company") as of March 31, 1997, and
the related condensed consolidated statements of income and cash flows for the
three-month periods ended March 31, 1997 and 1996, and the condensed
consolidated statement of stockholders' equity for the three-month period ended
March 31, 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended (not presented herein), and in our report dated February
11, 1997, except for Note 21, as to which the date was March 11, 1997, expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1996 is fairly stated in all material respects,
in relation to the consolidated balance sheet from which it has been derived.
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
April 17, 1997
F-67
<PAGE> 145
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any security other than the Debentures and
Shares offered by this Prospectus, nor does it constitute an offer to sell or a
solicitation of an offer to buy the Debentures and Shares by anyone in any
jurisdiction in which such an offer or solicitation is not authorized, or in
which the person making such offer or solicitation is not qualified to do so, or
to any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary........................................ 2
The Company and the Bank....................... 2
Risk Factors................................... 6
Use of Proceeds............................... 13
Plan of Distribution.......................... 13
Price Range of Common Stock.................... 14
Selling Securityholders........................ 15
Capitalization................................. 17
Pro Forma Financial Data....................... 18
Selected Consolidated Financial Data........... 24
Management's Discussion and Analysis
of Financial Condition and
Results of Operations........................ 27
Business....................................... 44
Management..................................... 64
Description of the Debentures.................. 66
Description of Capital Stock................... 71
Certain Federal Income Tax
Consequences................................. 72
Legal Matters.................................. 74
Experts........................................ 74
Available Information.......................... 74
Incorporation of Certain Documents
By Reference................................. 75
Index to Consolidated Financial
Statements................................... F-1
</TABLE>
================================================================================
================================================================================
$6,000,000
REPUBLIC BANCSHARES, INC.
6% Convertible Subordinated
Debentures due 2011
---------------------------
PROSPECTUS
---------------------------
July ___, 1997
================================================================================
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. -- Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses in connection with
the issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......................................... $ *
--------
Nasdaq National Market additional listing fee............................................... *
--------
Printing and engraving expenses............................................................. *
Accounting fees and expenses................................................................ *
Legal fees and expenses..................................................................... *
Blue Sky fees and expenses.................................................................. *
Miscellaneous............................................................................... *
---------
Total................................................................................. *
=========
</TABLE>
- ----------
* To be filed by amendment.
ITEM 15. -- Indemnification of Directors and Officers.
The Company is a Florida corporation. The Florida Business Corporation Act
("FBCA") provides that, in general, a business corporation may indemnify any
person who is or was a party to any proceeding (other than an action by, or in
the right of, the corporation) by reason of the fact that he is or was a
director or officer of the corporation, against liability incurred in connection
with such proceeding, including any appeal thereof, provided certain standards
are met, including that such officer or director acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, and provided further that, with respect to any criminal action
or proceeding, the officer or director had no reasonable cause to believe his
conduct was unlawful. In the case of proceedings by or in the right of the
corporation, the FBCA provides that, in general, a corporation may indemnify any
person who was or is a party to any such proceeding by reason of the fact that
he is or was a director or officer of the corporation against expenses and
amounts paid in settlement actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof,
provided that such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made in respect of any claim as to which
such person is adjudged liable unless a court of competent jurisdiction
determines upon application that such person is fairly and reasonably entitled
to indemnity. To the extent that any officers or directors are successful on the
merits or otherwise in the defense of any of the proceedings described above,
the FBCA provides that the corporation is required to indemnify such officers or
directors against expenses actually and reasonably incurred in connection
therewith. However, the FBCA further provides that, in general, indemnification
or advancement of expenses shall not be made to or on behalf of any officer or
director if a judgment or other final adjudication establishes that his actions,
or omissions to act, were material to the cause of action so adjudicated and
constitute: (i) a violation of the criminal law, unless the director or officer
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe it was unlawful; (ii) a transaction from which the director or
officer derived an improper personal benefit; (iii) in the case of a director, a
circumstance under which the director has voted for or assented to a
distribution made in violation of the FBCA or the corporation's articles of
incorporation; or (iv) willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a
II-1
<PAGE> 147
shareholder. Article V of the Company's Bylaws provides that the Company shall
indemnify any director, officer, employee or agent or any former director,
officer, employee or agent to the full extent permitted by Florida law.
The Company has purchased insurance with respect to, among other things,
any liabilities that may arise under the statutory provisions referred to above.
ITEM 16. - Exhibits
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
2.1 Agreement and Plan of Merger, dated April 14, 1997, by and
between the Company and FFO (incorporated by reference from
Exhibit 2 of the Company's Registration Statement on Form S-4,
File No. 333-30317, dated June 30, 1997).
2.2 Stock Purchase Agreement dated December 19, 1996, by and between
the Company and Equity Holdings Limited (incorporated by
reference from Exhibit 2.2 of the Company's Registration
Statement on Form S-2, File Nos. 333-28213 and 333-28213-01.
4.1 Form of Indenture with respect to the Debentures.*
4.2 Form of Specimen Debenture (included in Exhibit 4.1).
5.1 Opinion of Holland & Knight LLP regarding the Debentures.*
12 Statement regarding computation of earnings to fixed charges.*
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hacker, Johnson, Cohen & Grieb.
24 Power of Attorney (included with signature pages to this
Registration Statement).
25.1 Form T-1: Statement of Eligibility of SouthTrust Bank of
Florida, National Association to act as Trustee.*
</TABLE>
- -----------------------
* To be filed by amendment.
ITEM 17. -- Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effect amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price
II-2
<PAGE> 148
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) For the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona vide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under section 305(b)(2) of
the Act.
II-3
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Tampa, State of Florida, on
July 23, 1997.
REPUBLIC BANCSHARES, INC.
By: /s/ John W. Sapanski
-----------------------------------
John W. Sapanski, Chairman of
the Board of Directors, Chief
Executive Officer, and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John W. Sapanski and William R. Falzone
and each of them acting alone, his true and lawful attorneys-in-fact and
against, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorneys-in-fact and agents or any
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman, Chief Executive Officer July 23, 1997
/s/ John W. Sapanski and Director (Principal Executive
- ------------------------------------------------- Officer)
John W. Sapanski
/s/ William R. Falzone Treasurer (Principal Financial and July 23, 1997
- ------------------------------------------------- Accounting Officer)
William R. Falzone
/s/ Fred Hemmer Director July 23, 1997
- -------------------------------------------------
Fred Hemmer
</TABLE>
II-4
<PAGE> 150
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Marla Hough Director July 23, 1997
- -------------------------------------------------
Marla Hough
Director July 23, 1997
- -------------------------------------------------
William R. Hough
/s/ Alfred T. May Director July 23, 1997
- -------------------------------------------------
Alfred T. May
Director July 23, 1997
- -------------------------------------------------
William J. Morrison
</TABLE>
II-5
<PAGE> 151
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
2.1 Agreement and Plan of Merger, dated April 14, 1997, by and
between the Company and FFO (incorporated by reference from
Exhibit 2 of the Company's Registration Statement on Form S-4,
File No. 333-30317, dated June 30, 1997).
2.2 Stock Purchase Agreement dated December 19, 1996, by and between
the Company and Equity Holdings Limited (incorporated by
reference from Exhibit 2.2 of the Company's Registration
Statement on Form S-2, File Nos. 333-28213 and 333-28213-01.
4.1 Form of Indenture with respect to the Debentures.*
4.2 Form of Specimen Debenture (included in Exhibit 4.1).
5.1 Opinion of Holland & Knight LLP regarding the Debentures.*
12 Statement regarding computation of earnings to fixed charges.*
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hacker, Johnson, Cohen & Grieb.
24 Power of Attorney (included with signature pages to this
Registration Statement).
25.1 Form T-1: Statement of Eligibility of SouthTrust Bank of
Florida, National Association to act as Trustee.*
</TABLE>
- -----------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 23.2
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference and inclusion in this registration statement of our
report dated February 7, 1997 (except with respect to the matter discussed in
Note 18, as to which the date is March 10, 1997), included in Republic
Bancshares, Inc.'s Form 10-K for the year ended December 31, 1996, and to all
references to our firm included in this registration statement.
ARTHUR ANDERSEN LLP
Tampa, Florida
July 24, 1997
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report dated February 11, 1997, except for Note
21, as to which the date is March 11, 1997, relating to the Consolidated
Financial Statements of F.F.O. Financial Group, Inc. as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996, and to the use of our review report on the unaudited condensed
Consolidated Financial Statements of F.F.O. Financial Group, Inc. as of March
31, 1997 and for the three-month periods ended March 31, 1997 and 1996, and to
the reference to our Firm under the caption "Experts" in the Form S-2
Registration Statement of Republic Bancshares, Inc.
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
July 25, 1997
