<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER 0-27652
REPUBLIC BANCSHARES, INC.
(Exact Name of Registrant As Specified In Its Charter)
FLORIDA 59-1463900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
111 2nd Avenue N.E., St. Petersburg, FL 33701
(Address of Principal Office) (Zip Code)
(813) 823-7300
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, par value $2.00 per share 4,185,667 shares outstanding
at July 31, 1997
<PAGE> 2
REPUBLIC BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - June 30, 1997 (unaudited)
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations -
Three month and six month periods
ended June 30, 1997 and 1996 (all unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Stockholders' Equity -
Year ended December 31, 1996 and
six months ended June 30, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows -
Three month and six month periods
ended June 30, 1997 and 1996 (all unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 5-9
Selected Quarterly Financial and Other Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 3
REPUBLIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND DECEMBER 31, 1996
($ IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
JUNE 30, December 31,
ASSETS 1997 1996
------ ------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 27,049 $ 27,810
Interest bearing deposits in banks 91 118
Investment securities:
Available for sale 36,968 74,397
Mortgage-backed securities:
Available for sale 34,038 20,592
FHLB stock 5,888 4,830
Federal funds sold 14,000 8,000
Loans held for sale 69,590 36,590
Loans, net of allowance for loan losses (Notes 4 and 5) 755,612 693,270
Premises and equipment, net 22,704 19,715
Other real estate owned acquired through foreclosure, net 5,814 7,363
Other assets 28,917 15,183
---------- ---------
Total assets $1,000,671 $ 907,868
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits-
Noninterest-bearing checking $ 57,269 $ 50,060
Interest checking 86,833 87,639
Money market 33,074 32,665
Savings 249,660 245,951
Time deposits 451,045 411,665
---------- ---------
Total deposits 877,881 827,980
Securities sold under agreements to repurchase 20,002 15,372
FHLB advances 35,000 -
Subordinated debt (6% rate, matures December 1, 2011) 6,000 6,000
Other liabilities 5,378 4,197
---------- ---------
Total liabilities 944,261 853,549
---------- ---------
Stockholders' equity:
Perpetual preferred convertible stock ($20.00 par, 100,000 shares authorized,
75,000 shares issued and outstanding. Liquidation preference $6,600
at June 30, 1997 and December 31, 1996.) 1,500 1,500
Common stock ($2.00 par, 20,000,000 shares authorized and 4,185,667 and
4,183,507 shares issued and outstanding at June 30, 1997 and December 31,
1996, respectively) 8,371 8,367
Capital surplus 26,723 26,699
Retained earnings 19,949 17,849
Net unrealized losses on available-for-sale securities, net of tax effect (133) (96)
---------- ---------
Total stockholders' equity 56,410 54,319
---------- ---------
Total liabilities and stockholders' equity $1,000,671 $ 907,868
========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
1
<PAGE> 4
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 17,638 $ 14,949 $ 34,144 $ 29,727
Interest on investment securities 615 312 1,100 740
Interest on mortgage-backed securities 549 333 855 624
Interest on federal funds sold 430 256 1,114 553
Interest on other investments 105 87 194 155
--------- -------- ----------- --------
Total interest income 19,337 15,937 37,407 31,799
--------- -------- ----------- --------
INTEREST EXPENSE:
Interest on deposits 9,235 7,693 17,897 15,573
Interest on FHLB advances 32 52 32 52
Interest on subordinated debt 108 - 215 -
Interest on other borrowings 265 77 464 124
--------- -------- ----------- --------
Total interest expense 9,640 7,822 18,608 15,749
--------- -------- ----------- --------
Net interest income 9,697 8,115 18,799 16,050
PROVISION FOR LOAN LOSSES 501 450 1,639 900
--------- -------- ----------- --------
Net interest income after
provision for loan losses 9,196 7,665 17,160 15,150
--------- -------- ----------- --------
NONINTEREST INCOME:
Income from mortgage banking activities 660 251 1,558 240
Service charges on deposit accounts 482 378 920 754
Loan fee income 229 139 354 264
Gains on sale of loans, net 113 - 1,301 -
Gains on sale of securities, net 171 - 213 4
Other operating income 286 193 718 377
--------- -------- ----------- --------
Total noninterest income 1,941 961 5,064 1,639
--------- -------- ----------- --------
NONINTEREST EXPENSES:
General and administrative ("G&A") expenses:
Salaries and employee benefits 4,685 3,374 9,051 6,626
Net occupancy expense 1,549 1,025 2,832 2,050
Data processing fees & services 403 313 793 631
FDIC and state assessments 176 264 303 534
Advertising 481 123 691 203
Other operating expense 2,530 1,216 4,395 2,227
--------- -------- ----------- --------
Total G & A expenses 9,824 6,315 18,065 12,271
Provision for losses on ORE 120 270 290 450
ORE expense, other 40 (145) 27 (143)
Amortization of goodwill & deposit premium 125 123 247 245
--------- -------- ----------- --------
Total noninterest expenses 10,109 6,563 18,629 12,823
--------- -------- ----------- --------
Income before income taxes 1,028 2,063 3,595 3,966
Income tax provision 399 794 1,363 1,493
--------- -------- ----------- --------
NET INCOME $ 629 $ 1,269 $ 2,232 $ 2,473
========= ======== =========== =========
PER SHARE DATA:
Net income per common and
common equivalent share $ .13 $ .26 $ .44 $ .50
========= ======== =========== ========
Weighted average common and common
equivalent shares outstanding 5,026,102 4,953,790 5,025,885 4,953,674
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 5
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Perpetual Preferred Net Unrealized
Convertible Stock Common Stock Gains (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 six
months ended June 30,
1997 - - - - - 2,232 - 2,232
Net unrealized losses on
available-for-sale securities - - - - - - (37) (37)
Issuance of common stock - - 2,160 4 24 - - 28
Dividends on preferred
stock - - - - - (132) - (132)
------- -------- --------- ---------- ---------- ---------- ------- ----------
BALANCE, JUNE 30, 1997 75,000 $ 1,500 4,185,667 $ 8,371 $ 26,723 $ 19,949 $ (133) $ 56,410
======= ======== ========= ========== ========== ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
3
<PAGE> 6
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------ ------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
OPERATING ACTIVITIES: (unaudited) (unaudited) (unaudited) (unaudited)
---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 629 $ 1,269 $ 2,232 $ 2,473
Reconciliation of net income to net cash
provided by (used in):
Provision for losses on loans and ORE 621 720 1,929 1,350
Depreciation and amortization, net 811 (37) 552 (103)
Amortization of premium and accretion
of fair value (70) 167 219 298
(Gain) on sale of investment securities (171) - (213) (4)
(Gain) on sale of loans (773) (192) (2,859) (192)
(Gain) loss on sale of ORE (14) (129) (122) (119)
Capitalization of mortgage servicing (645) 405 (1,484) 420
Net increase in deferred tax benefit (2,528) (397) (3,425) (427)
Gain on disposal of premises & equipment 2 - 1 -
Net (increase) decrease in other assets (6,200) 5,569 (6,405) 522
Net increase (decrease) in other liabilities 34,159 (115) 35,257 (764)
---------- ----------- --------- ---------
Net cash provided by (used in)
operating activities 25,821 7,260 25,682 3,454
---------- ----------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from excess of deposit liabilities
assumed over assets acquired, net of cash acquired 7,223 - 7,223 -
Net (increase) decrease in interest bearing
deposits in banks (91) (6) 27 (15)
Proceeds from sales & maturities of:
Investment securities held to maturity - - - 7,000
Investment securities available for sale 41,475 22,000 109,922 47,006
Purchase of securities available for sale (16,973) (13,727) (53,788) (31,757)
Purchase of securities held to maturity - - - -
Principal repayment on mtg. backed securities 1,811 710 1,904 1,459
Purchase of FHLB stock - - (251) (1,290)
Net increase in loans (65,851) (25,386) (70,282) (35,535)
Purchase of premises and equipment (3,589) (406) (4,285) (612)
Proceeds from sale of ORE 2,234 1,415 3,078 1,674
(Investments) disposals in other real estate
owned (net) 117 - 138 -
---------- ----------- --------- ---------
Net cash provided by (used in) investing
activities (33,644) (15,400) (6,314) (12,070)
---------- ----------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (19,735) 23,854 (18,654) 22,832
Net increase (decrease) in repurchase
agreements 3,843 7,737 4,630 9,081
Proceeds from issuance of common stock 27 - 27 -
Dividends on perpetual preferred stock (66) (66) (132) (132)
---------- ----------- --------- ---------
Net cash provided by
(used in) financing activities (15,931) 31,525 (14,129) 31,781
---------- ----------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (23,754) 23,385 5,239 23,165
Cash and cash equivalents, beginning
of period 64,803 34,207 35,810 34,427
---------- ----------- --------- ---------
Cash and cash equivalents, end of period $ 41,049 $ 57,592 $ 41,049 $ 57,592
========== =========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for-
Interest $ 10,015 $ 9,180 $ 18,622 $ 16,048
Income taxes 3,108 1,373 3,639 2,238
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE> 7
REPUBLIC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Organization
Republic Bancshares, Inc. (the "Company") is a bank holding company organized
in March 1996 under the laws of the State of Florida and is the holding company
for Republic Bank (the "Bank"). The Bank is a state-chartered,
federally-insured commercial bank organized in 1972 and provides a full range
of retail and commercial banking products and related financial services. The
Company and the Bank are headquartered in St. Petersburg, Florida. Commercial
banking activities of the Bank include attracting checking, savings and time
deposits from the public and general business customers and using these
deposits to originate loans. The Bank also operates a mortgage banking
division which originates residential mortgage loans for sale in the secondary
market.
The accounting and reporting policies of the Company and the Bank are in
conformity with generally accepted accounting principles and prevailing
practices with the financial services industry. The preparation of financial
statements in conformity with generally accepted accounting principles requires
that management 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 income and
expenses during the reporting period. Such estimates are subject to change in
the future as additional information becomes available or previously existing
circumstances are modified.
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 and
six months ended June 30, 1997, are not necessarily indicative of the results
to be expected for the fiscal year ending December 31, 1997.
Recent Accounting Developments
Sales of Financial Assets
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standard ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which was
effective for the fiscal year beginning January 1, 1997. SFAS No. 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 No.
125 upon the results of operations of the Company was not material.
Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No.
128 simplifies the standards for computing and presenting earnings per share
("EPS") previously found in APB Opinion No. 15, Earnings Per Share, and makes
them comparable to international EPS standards. SFAS No. 128 is effective for
periods ending after December 15, 1997, and requires restatement of all prior
period EPS data. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
5
<PAGE> 8
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS pursuant to APB Opinion 15. Management is currently
assessing the financial implications of implementing SFAS No. 128 and believes
the adoption will not have a material effect on reported earnings per share.
Reporting Comprehensive Income
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was adopted.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income which includes those revenues, expenses, gains, and losses of a normal,
recurring nature as-well-as items which are non-recurring, unusual and
infrequent. A specific reporting format is not required, provided the
financial statements show the amount of total comprehensive income for the
period. Those items which are non-recurring in nature are required to be shown
in the financial statements with appropriate footnote disclosure and the
aggregate balance of such items must be shown separately from retained earnings
and additional paid- in-capital in the equity section of the balance sheet.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods is required.
Disclosures About Business Segments
In June 1997, the FASB adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way the Company reports information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial reports. SFAS No. 131 is effective for
periods beginning after December 15, 1997. Management believes its commercial
banking and mortgage banking activities constitute operating segments which
will require disclosure about their respective assets, revenues, profit or loss
and other operating data.
2. BUSINESS COMBINATIONS
Firstate Financial, F.A.
On April 18, 1997, the Company acquired Firstate Financial, F.A. ("Firstate"),
a thrift institution headquartered in Orlando, Florida, for a cash purchase of
$5.5 million. At April 18, 1997, Firstate had total assets of $72.1 million,
total deposits of $68.1 million and operated a branch in each of Orange and
Seminole Counties. The acquisition was accounted for using purchase accounting
rules and the amount of goodwill recorded was $130,000.
F.F.O. Financial Group, Inc.
Also in April 1997, the Company and F.F.O. Financial Group, Inc. ("FFO"), St.
Cloud, Florida, the holding company for First Federal Savings and Loan
Association of Osceola County ("First Federal"), 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. William R. Hough, one of the Company's Controlling
Stockholders, also owns a majority interest in FFO. Regulatory approval of the
transaction has been granted and special meetings of the Company's and FFO's
stockholders have been scheduled on August 29, 1997, to consider the
transaction. Either party has the right to terminate the FFO Agreement if the
FFO Merger does not occur by November 1, 1997.
6
<PAGE> 9
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 over the market value is 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 using data as of
March 31, 1997, is as follows:
Exchange ratio: 0.29 shares of the Company's stock for each share of FFO's
stock
<TABLE>
<S> <C>
Number of Company 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 of the stock on Nasdaq's National Market two days
before, two days after, and on March 11, 1997, the date that 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 times 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 30.9% minority interest.
3. RECENT DEVELOPMENTS
RBI Capital Trust I ("RBI Capital")
RBI Capital is a wholly-owned subsidiary of the Company which was formed on May
29, 1997, to issue Cumulative Trust Preferred Securities (the "Preferred
Securities") to the public. The Preferred Securities, issued through an
underwritten public offering on July 28, 1997, were sold at their $10 par
value. RBI Capital issued 2,875,000 shares of the Preferred Securities bearing
an interest rate of 9.10% for net proceeds of $27.4 million, after deducting
underwriting commissions and other costs. RBI Capital invested the proceeds in
junior subordinated debt of the Company which also had an interest rate of
9.10%. The Company used the proceeds from the junior subordinated debt to
increase the equity capital of the Bank.
7
<PAGE> 10
4. LOANS AND LOANS HELD FOR SALE:
Loans at June 30, 1997, and December 31, 1996, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ---------
<S> <C> <C>
Real estate mortgage loans:
One-to-four family residential $ 402,999 $ 383,015
Multifamily residential 69,253 68,337
Commercial real estate 213,704 182,298
Construction/land development 35,765 27,050
Commercial loans 33,013 34,427
Consumer loans 13,789 9,983
Other loans 844 1,294
--------- ---------
Total gross portfolio loans 769,367 706,404
Less-allowance for loan losses 13,755 13,134
--------- ---------
Total loans held for portfolio 755,612 693,270
Loans held for sale 69,590 36,590
--------- ----------
Total loans $ 825,202 $ 729,860
========= =========
</TABLE>
As of June 30, 1997, loans available for sale were comprised of $41.3 million
of one-to-four family residential mortgages and $28.3 million of high
loan-to-value mortgages secured by junior liens on residential properties. The
weighted average interest rate was 9.85%. At December 31, 1996, loans
available for sale were comprised of $32.0 million of one-to-four family
residential mortgages and $4.6 million of high loan-to-value mortgages secured
by junior loans on residential properties. The weighted average interest rate
was 8.72%. Mortgage loans serviced for others as of June 30, 1997, and
December 31, 1996, amounted to $186.0 million and $120.7 million, respectively.
5. 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 half
of 1997, management sold $7.2 million of loans previously purchased and
transferred $773,000 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 half of 1997, the allowance for loan losses was
comprised of (i) $7.7 million allocated to originated loans (including loans
acquired through the Firstate acquisition), (ii) $1.0 million allocated to
loans acquired from CrossLand Savings, FSB in December 1993, (iii) $3.4 million
allocated to a pool of loans purchased in March
8
<PAGE> 11
1995 (the "March 1995 Purchase") and, (iv) $1.7 million allocated to the other
pools of purchased loans. Additionally, as of June 30, 1997, the balance of
unaccreted loan discount available to absorb losses on pools or portfolios of
purchased loans exceeding amounts transferred to the allowance amounted to $4.4
million. Loans on which interest was not being accrued totaled $14.8 million
and $15.4 million at June 30, 1997, and December 31, 1996, respectively. Loans
past due 90 days or more and still accruing interest at June 30, 1997, and
December 31, 1996, totaled $1.1 million and $113,000, respectively. Changes in
the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1997 1996
---- ----
<S> <C> <C>
Balance, beginning of period $ 13,134 $ 14,910
Provision for loan losses 1,639 900
Allowance for loan losses on purchased loans transferred
to discount (includes amounts taken to income on loans sold) (773) (29)
Allowances from acquisitions 132 -
Loans charged off (532) (1,296)
Recoveries of loans charged off 155 123
---------- --------
Balance, end of period $ 13,755 $ 14,608
======== ========
</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 six months ended June 30, 1997, the
Company recorded a provision expense for losses on ORE of $290,000.
The largest piece included in the ORE balance is a tract of land carried at
$2.8 million 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. In the second quarter
of 1997, the Company sold approximately two-thirds of its second-largest ORE
property, a parcel of undeveloped land in Pasco County. As a result, the
balance of this property carried on the Company's books has declined from $1.1
million at December 31, 1996, to $597,000 as of June 30, 1997. Management
believes the carrying value of the unsold remainder of the parcel approximates
the amount which could be realized upon final sale.
9
<PAGE> 12
[This page intentionally left blank]
10
<PAGE> 13
SELECTED QUARTERLY FINANCIAL AND OTHER DATA
EIGHT CONSECUTIVE QUARTERS (UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarters Ending
----------------------------------------------------
June 1997 Mar. 1997 Dec. 1996 Sept. 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 19,337 $ 18,070 $ 18,423 $ 16,725
Interest expense 9,640 8,969 8,722 8,455
---------- ---------- ---------- -----------
Net interest income 9,697 9,101 9,701 8,270
Loan loss provision 501 1,138 450 450
---------- ---------- ---------- -----------
Net interest income after loan loss provision 9,196 7,963 9,251 7,820
Noninterest income 1,941 3,124 1,610 1,113
General and administrative ("G&A") expenses 9,824 8,240 8,167 6,867
Other noninterest expense 285 280 261 2,449
---------- ---------- ---------- -----------
Net income (loss) before income taxes & negative goodwill 1,028 2,567 2,433 (383)
Accretion of negative goodwill - - - -
---------- ---------- ---------- -----------
Net income before income taxes 1,028 2,567 2,433 (383)
Income tax provision (benefit) 399 964 920 (181)
----------- ---------- ---------- -----------
Net income (loss) $ 629 $ 1,603 $ 1,513 $ (202)
=========== ========== ========== ===========
PER SHARE DATA (FULLY DILUTED, NET OF TAX EFFECT):
Core net income (1) $ .16 $ .36 $ .34 $ .28
SAIF Special Assessment - - - (.32)
Provision for losses on ORE (.01) (.02) (.02) (.13)
Gain on sale of building - - - .15
Accretion (amortization) of goodwill (.02) (.02) (.02) (.02)
----------- ---------- ---------- -----------
Net income $ .13 $ .32 $ .30 $ (.04)
=========== ========== ========== ===========
Weighted average shares outstanding 5,026,102 4,980,167 4,968,199 4,951,301
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $ 1,000,671 $ 912,093 $ 907,868 $ 852,478
Investment & mortgage backed securities 71,006 63,198 94,989 46,562
Loans held for sale 69,590 40,201 36,590 22,901
Portfolio loans, net of unearned income 769,367 708,292 706,404 698,991
Allowance for loan losses 13,755 13,508 13,134 14,776
Deposits 877,881 829,060 827,980 783,188
Stockholders' equity 56,410 55,579 54,319 52,934
SELECTED FINANCIAL RATIOS:
Return on average assets .26% .72% .69% (.09)%
Return on average equity 4.57 12.10 11.44 (1.53)
Net interest spread 3.97 3.83 4.34 3.77
Net interest margin 4.25 4.12 4.66 4.08
G&A expense to average assets (2) 4.11 3.63 3.71 3.24
G&A efficiency ratio (2) 84.42 67.40 72.18 73.19
Non-accrual loans to portfolio loans 1.93 2.27 2.15 2.33
Nonperforming assets to total assets 2.16 2.58 2.50 3.14
Allowance for loan loss to portfolio loans (total) 1.79 1.91 1.86 2.05
Originated portfolio 1.49 1.61 1.45 1.51
March 1995 Purchase 11.30 9.74 10.92 14.55
CrossLand portfolio 1.20 1.20 1.14 1.10
Other purchased portfolios 1.16 1.14 1.21 1.14
Allowance for loan loss to non-performing loans (total) 87.32 82.81 85.94 81.46
Originated portfolio 73.16 63.76 50.73 45.78
March 1995 Purchase 441.82 551.88 488.78 689.66
CrossLand portfolio 106.60 104.82 126.12 81.80
Other purchased portfolios 46.67 45.60 89.80 59.97
OTHER DATA (AT PERIOD-END):
Number of branch banking offices 35 33 32 32
Number of full-time equivalent employees 706 644 637 591
----------- ---------- ---------- -----------
</TABLE>
__________________________________
(1) Excludes the effect of the non-recurring, unusual and infrequent items.
(2) Excludes the SAIF Special Assessment.
11
<PAGE> 14
SELECTED QUARTERLY FINANCIAL AND OTHER DATA
EIGHT CONSECUTIVE QUARTERS (UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarters Ending
---------------------------------------------------------
June 1996 March 1996 Dec. 1995 Sept. 1995
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 15,937 $ 15,862 $ 15,901 $ 14,842
Interest expense 7,822 7,927 8,051 7,794
---------- ---------- ---------- ----------
Net interest income 8,115 7,935 7,850 7,048
Loan loss provision 450 450 275 330
---------- ---------- ---------- ----------
Net interest income after loan loss provision 7,665 7,485 7,575 6,718
Noninterest income 988 678 747 647
G&A expenses 6,342 5,955 6,388 5,509
Other noninterest expense 248 305 (6) 389
---------- ---------- ---------- ----------
Net income before income taxes & negative goodwill 2,063 1,903 1,940 1,467
Accretion of negative goodwill - - - 225
---------- ---------- ---------- ----------
Net income before income taxes 2,063 1,903 1,940 1,692
Income tax provision 794 699 694 424
---------- ---------- ---------- ----------
Net income $ 1,269 $ 1,204 $ 1,246 $ 1,268
========== ========== ========== ==========
PER SHARE DATA (FULLY DILUTED, NET OF TAX EFFECT):
Core net income (1) $ .31 $ .28 $ .27 $ .23
SAIF Special Assessment - - - -
Provision for losses on ORE (.03) (.02) - -
Gain on sale of building - - - -
Accretion (amortization) of goodwill (.02) (.02) (.02) .03
---------- ---------- ---------- ----------
Net income $ .26 $ .24 $ .25 $ .26
========== ========== ========== ==========
Weighted average shares outstanding 4,954,555 4,953,229 4,954,555 4,961,541
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $ 835,005 $ 802,363 $ 801,995 $ 758,739
Investment & mortgage backed securities 44,104 51,481 64,801 47,635
Loans held for sale 21,202 12,554 4,711 -
Portfolio loans, net of unearned income 677,038 664,104 664,705 633,908
Allowance for loan losses 14,608 14,746 14,910 14,641
Deposits 765,936 742,082 743,105 703,237
Stockholder's equity 53,214 52,047 50,903 49,706
SELECTED FINANCIAL RATIOS:
Return on average assets .63 % .60 % .62 % .66 %
Return on average equity 9.93 9.57 10.07 10.45
Net interest spread 3.92 3.83 3.84 3.59
Net interest margin 4.21 4.14 4.17 3.91
G&A expense to average assets (2) 2.98 2.96 3.22 2.89
G&A efficiency ratio (2) 69.68 68.84 74.30 71.59
Non-accrual loans to total loans 2.24 2.24 2.02 2.43
Nonperforming assets to total assets 3.13 3.02 2.93 3.19
Allowance for loan loss to portfolio loans (total) 2.09 2.18 2.23 2.31
Originated portfolio 1.52 1.49 1.46 1.69
March 1995 Purchase 14.50 14.60 15.25 15.13
CrossLand portfolio 1.07 1.17 1.04 1.06
Other purchased portfolios 1.15 1.11 1.16 .85
Allowance for loan loss to non-performing loans (total) 85.06 96.47 90.47 84.53
Originated portfolio 62.95 68.05 71.43 93.02
March 1995 Purchase 552.18 778.75 647.83 508.82
CrossLand portfolio 53.22 63.46 41.77 34.63
Other purchased portfolios 39.79 40.39 41.84 25.03
OTHER DATA (AT PERIOD-END):
Number of branch offices 32 32 32 32
Number of full-time equivalent employees 534 436 421 403
</TABLE>
______________________________
(1) Excludes the effect of the non-recurring, unusual and infrequent items.
(2) Excludes the SAIF Special Assessment.
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF BALANCE SHEETS AT JUNE 30, 1997 AND DECEMBER 31, 1996
Overview
Total assets were $1.0 billion at June 30, 1997, and $907.9 million at December
31, 1996, an increase of $92.8 million or 10.22%. During April 1997, the
Company consummated its acquisition of Firstate Financial, F.A., which accounted
for a $69.5 million or 7.66% increase. Principally as a result of the Firstate
acquisition, total deposits increased by $49.9 million from $828.0 million at
year-end 1996 to $877.9 million. Total loans increased by $96.0 million from
$743.0 million at the end of the prior year to $839.0 million at the end of the
second quarter.
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities, consisting of U.S. Treasury and
federal agency securities, were $71.0 million at June 30, 1997, compared to
$95.0 million at December 31, 1996, a decrease of $24.0 million. The Company
has recorded its investment and mortgage-backed securities categorized as
"available for sale" at their period-end market value. The Company did not
have any investment and mortgage-backed securities which were categorized as
"held to maturity" as of June 30, 1997. During the first six months of 1997
management permitted the amount in this category to decline by allowing
maturities and sales to exceed purchases. The Company recorded $213,000 in net
gains on the sales of $48.3 million in investments and mortgage-backed
securities of which $26.4 million were obtained through the Firstate
acquisition. Federal funds sold, all on an overnight basis, increased by $6.0
million from $8.0 million at the prior year-end to $14.0 million at June 30,
1997.
Loans
Total loans held for portfolio increased $63.0 million (of which $56.8 million
was from the Firstate acquisition) from $706.4 million at the prior year-end to
$769.4 million at June 30, 1997. One-to-four family residential loans
increased by $20.0 million primarily as a result of the Firstate acquisition.
Commercial real estate and multifamily residential loans increased $32.3
million to $283.0 million. Consumer loans increased $3.8 million while
commercial (business) and other loans declined slightly.
Allowance for Loan Losses
The allowance for loan losses amounted to $13.8 million at June 30, 1997 (1.79%
of portfolio loans) compared to $13.1 million at December 31, 1996. At June
30, 1997, the allowance for loan losses included $7.5 million allocated to
loans originated by the Company, $3.5 million allocated to the largest loan
purchase made in March 1995 (the "March 1995 Purchase"), $1.0 million allocated
to loans purchased from CrossLand, and $1.7 million allocated to other loan
purchases. For a discussion of discounts on purchased loans and the use of
amounts allocated to the allowance for loan losses, see the notes to the
consolidated financial statements. Other activity to the allowance in 1997
included provisions for loan losses of $1.6 million (based generally on the
growth in the loan portfolio), loan charge-offs (net of recoveries) of
$377,000, $773,000 re-allocated from the allowance to loan discounts and
$132,000 in allowances obtained through the Firstate acquisition. The net
charge-off amount for the period included $120,000 assessed against the
allowance for loan losses on loans allocated to the March 1995 Purchase as
properties securing certain nonperforming loans in that purchase were acquired
through foreclosure and recorded at their fair value.
13
<PAGE> 16
Nonperforming Assets
Nonperforming assets amounted to $21.6 million or 2.16% of total assets at June
30, 1997, as compared to $22.6 million or 2.51% of total assets at December 31,
1996. Nonperforming loans totaled $15.8 million at the end of the second
quarter, an increase of $500,000 from the prior year-end total of $15.3
million. This increase was primarily the result of a $1.7 million increase in
1-4 residential nonperforming loans which was partially offset by a $1.2
million reduction in commercial real estate and commercial business loans.
Other real estate decreased by $1.5 million from $7.3 million at the end of the
prior year to $5.8 million at the end of the second quarter. This improvement
was primarily the result of the sale of $3.0 million of ORE properties, at an
aggregate net gain of $122,000, which exceeded foreclosures on properties, the
majority of which were securing residential loans which had been purchased at
substantial discounts from their face value.
Deposits
Total deposits were $877.9 million at June 30, 1997, compared to $828.0 million
at the prior year-end, an increase of $49.9 million. Excluding the Firstate
acquisition which comprised $68.4 million in deposits, total deposits would
have declined by $18.5 million, which included a $22.0 million decline in
certificates of deposit as the Company adopted a less competitive rate strategy
during the first six months of the year. Regular savings accounts increased by
$2.0 million and passbook savings accounts offered to higher-balance customers
at a premium rate of 5.00% increased by $1.7 million while retail checking
balances declined by $2.9 million.
Stockholders' Equity
Stockholders' equity was $56.4 million at June 30, 1997, or 5.64% of total
assets compared to $54.3 million or 5.98% of total assets at December 31, 1996.
At June 30, 1997, the Bank's Tier 1 ("Leverage") Capital ratio was 6.03%, its
Tier 1 Risk-Based Capital ratio was 8.78%, and its Total Risk-Based Capital
ratio was 10.04%, all in excess of minimum FDIC guidelines for an institution
to be considered a "well-capitalized" bank. The Company's Tier 1 ("Leverage")
ratio, Tier 1 Risk-Based Capital ratio and total Risk-Based Capital ratio was
5.42%, 7.88% and 10.06%, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997
AND 1996
Overview
Net income for the three months ended June 30, 1997, was $629,000 or $.13 per
share, compared with net income of $1.3 million, or $.26 per share, for the
second quarter of 1996. Return on average assets for the second quarter of
1997 was .26% compared with .63% for the second quarter of 1996, while return
on average equity was 4.57% compared with 9.93%. 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.
14
<PAGE> 17
Analysis of Net Interest Income (see table on page 16)
Net interest income for the second quarter of 1997 was $9.7 million compared
with $8.1 million for the same period last year. This $1.6 million or 19.49%
increase was the result of $646,000 from an improved net interest spread and
$936,000 in additional income from balance sheet growth. Interest income was
$19.3 million for 1997, an increase of $5.9 million over 1996 while interest
expense increased by $1.8 million. Average asset yield increased 19 basis
points from 8.35% for the second quarter of 1996 to 8.54% for 1997. The
average cost of interest-bearing liabilities increased 13 basis points from
4.44% to 4.57%. As a result, net interest spread increased six basis points
from 3.91% for 1996 to 3.97% for 1997 and net interest margin, which includes
the benefit of noninterest bearing funds, increased four basis points from
4.21% for 1996 to 4.25% for 1997.
Noninterest Income
Noninterest income for the second quarter of 1997 was $1.9 million compared
with $961,000 for the same period of 1996, an increase of $980,000. This
increase was primarily the result of net gains on mortgage banking activities,
consisting of gains on sale of loans and recognition of the value of originated
mortgage servicing rights ("OMSR's"), which increased $409,000. Service fees
on deposit accounts increased $104,000 and loan service fees increased $90,000.
Additionally, fee income from the Company's new Generations Gold program
increased by $56,000, a 124% increase compared with the same period last year.
The following table reflects the components of noninterest income for the three
months ended June 30, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
---------------------------------------------------
Increase
1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Income from mortgage banking operations $ 660 $ 251 $ 409
Service charges on deposit accounts 482 378 104
Loan fee income 229 139 90
Merchant charge card processing fees 52 36 16
Gains on sales of loans, net 113 - 113
Gain on sale of securities, net 171 - 171
Generations Gold fee income 101 45 56
Other income 133 112 21
------ ----- -----
Total noninterest income $1,941 $ 961 $ 980
====== ===== =====
</TABLE>
15
<PAGE> 18
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 June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------------------------
1997 1996
---------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Summary of Average Rates
- ------------------------
Interest earning assets:
Loans, net $ 790,039 $ 17,638 8.90% $ 691,998 $ 14,949 8.60%
Investment securities 41,603 615 5.92 23,477 312 5.34
Mortgage backed securities 34,379 549 6.39 20,198 333 6.59
Interest bearing deposits in banks 81 1 6.00 143 - .42
FHLB stock 5,729 104 7.25 4,830 87 7.25
Federal funds sold 31,037 430 5.48 19,090 256 5.31
--------- --------- ---------- ----------
Total interest-earning assets 902,868 19,337 8.54 759,736 15,937 8.36
Non interest-earning assets 54,314 46,012
--------- ----------
Total assets $ 957,182 $ 805,748
========= =========
Interest-bearing liabilities:
Interest checking $ 88,795 $ 236 1.07 $ 80,693 230 1.15
Savings 251,198 2,866 4.58 135,513 1,349 4.01
Money market 33,928 166 1.97 38,545 208 2.17
Time deposits 444,048 5,967 5.39 443,322 5,906 5.36
FHLB advances 2,198 32 5.90 3,846 52 5.39
Other borrowings 26,057 373 5.73 6,494 77 4.79
--------- --------- ----------- ----------
Total interest-bearing liabilities 846,224 9,640 4.57 708,413 7,822 4.44
--------- ----------
Non interest-bearing liabilities 55,783 46,088
Stockholders' equity 55,175 51,247
--------- ----------
Total liabilities and equity $ 957,182 $ 805,748
========= =========
Net interest income/net interest spread $ 9,697 3.97% $ 8,115 3.91%
========= ==== ========= ====
Net interest margin 4.25% 4.21%
==== ====
</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 $ 2,001 $ 688 $ 2,689
Investment securities 273 30 303
Mortgage backed securities 226 (10) 216
Interest bearing deposits in banks - 1 1
FHLB stock 16 1 17
Federal funds sold 165 9 174
-------- --------- --------
Total change in interest income 2,681 719 3,400
Interest-bearing liabilities:
Interest checking 23 (17) 6
Savings 1,407 110 1,517
Money market (24) (18) (42)
Time deposits 82 (21) 61
FHLB advances (26) 6 (20)
Other borrowings 283 13 296
-------- --------- --------
Total change in interest expense 1,745 73 1,818
-------- --------- --------
Increase (decrease) in net interest income $ 936 $ 646 $ 1,582
======== ========= ========
</TABLE>
- ------------------------
(1) Changes in net interest income due to changes in volume and rate are
based on absolute values.
16
<PAGE> 19
Noninterest Expense
General and administrative ("G & A") expenses for 1997 were $9.8 million
compared with $6.3 million, an increase of $3.5 million. Total noninterest
expenses, which include G & A expense, were $10.1 million for the second
quarter of 1997 compared with $6.6 million for the same period last year, an
increase of $3.5 million. Increases occurred in substantially all areas of
expense primarily as a result of the costs associated with increased loan
production capabilities, and to a lesser degree, the Firstate acquisition.
The following table reflects the components of noninterest expense for the
three months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
---------------------------------------------------
Increase
1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Salaries and benefits $ 4,685 $ 3,374 $ 1,311
Net occupancy expense 1,549 1,025 524
Advertising 481 123 358
Data processing fees 403 313 90
FDIC and state assessments 176 264 (88)
Telephone expense 284 131 153
Legal & professional 299 150 149
Postage and supplies 846 232 614
Other operating expense 1,101 703 398
-------- -------- -------
Total G & A expenses 9,824 6,315 3,509
Provision for losses on ORE 120 270 (150)
ORE expense, net of ORE income 40 (45) 185
Amortization of premium on deposits 125 123 2
-------- -------- -------
Total noninterest expense $ 10,109 $ 6,563 $ 3,546
======== ======== =======
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996
Overview
Net income for the six months ended June 30, 1997, was $2.2 million, or $.44
per share, compared with $2.5 million, or $.50 per share, for the same period
in 1996. Return on average assets for the first six months of 1997 was .48%
compared with .62% for the same period of 1996, while return on average equity
was 8.27% compared with 9.76%.
Analysis of Net Interest Income (see table on page 18)
Net interest income for the first six months of 1997 was $18.8 million compared
with $16.1 million for 1996. This $2.7 million or 17.13% increase was the
result of $1.5 million in additional income from balance sheet growth and $1.2
million from an increased net interest spread. Interest income was $37.4
million for 1997, an increase of $5.6 million over 1996. During the same
period interest expense increased by $2.9 million from $15.7 million for 1996
to $18.6 million for 1997. Average asset yield increased nine basis points
from 8.36% for 1996 to 8.45% for 1997 and average earning assets increased
$122.3 million. During this same period the average cost of interest-bearing
liabilities increased six basis points from 4.49% to 4.55%. Net interest
spread increased three basis points from 3.87% for 1996 to 3.90% for 1997 and
net interest margin, which includes the benefit of noninterest bearing funds,
increased slightly from 4.18% for 1996 to 4.19% for 1997.
17
<PAGE> 20
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the six
months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------------------
1997 1996
--------------------------------- ------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Summary of Average Rates
- ------------------------
Interest earning assets:
Loans, net $ 768,024 $ 34,144 8.84% $ 684,709 $ 29,727 8.64%
Investment securities 37,974 1,100 5.84 27,876 740 5.34
Mortgage backed securities 27,170 855 6.29 20,300 624 6.15
Interest bearing deposits in banks 99 3 5.70 93 1 1.17
FHLB stock 5,301 191 7.25 4,263 154 7.26
Federal funds sold 41,419 1,114 5.35 20,416 553 5.36
--------- -------- ---------- ----------
Total interest-earning assets 879,987 37,407 8.45 757,657 31,799 8.36
Non interest-earning assets 52,075 46,154
--------- ----------
Total assets $ 932,062 $ 803,811
========= =========
Interest-bearing liabilities:
Interest checking $ 88,629 $ 476 1.08 $ 79,122 484 1.23
Savings 249,641 5,652 4.57 117,786 2,274 3.88
Money market 33,474 332 2.00 39,127 428 2.19
Time deposits 427,411 11,437 5.40 462,723 12,387 5.38
FHLB advances 1,105 32 5.90 1,923 52 5.39
Other borrowings 24,120 679 5.67 5,426 124 4.63
--------- -------- ---------- ----------
Total interest-bearing liabilities 824,380 18,608 4.55 706,107 15,749 4.49
Non interest-bearing liabilities 53,227 46,865
Stockholders' equity 54,455 50,839
--------- ----------
Total liabilities and equity $ 932,062 $ 803,811
========= =========
Net interest income/net interest spread $ 18,799 3.90% $ 16,050 3.87%
======== ==== ========= ====
Net interest margin 4.19% 4.18%
==== ====
</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 $ 3,332 $ 1,085 $ 4,417
Investment securities 303 57 360
Mortgage backed securities 216 15 231
Interest bearing deposits in banks - 2 2
FHLB stock 37 - 37
Federal funds sold 562 (1) 561
-------- -------- --------
Total change in interest income 4,450 1,158 5,608
Interest-bearing liabilities:
Interest checking 53 (61) (8)
Savings 3,180 198 3,378
Money market (60) (36) (96)
Time deposits (762) (188) (950)
FHLB advances (26) 6 (20)
Other borrowings 531 24 555
-------- -------- --------
Total change in interest expense 2,916 (57) 2,859
-------- ------- --------
Increase (decrease) in net interest income $ 1,534 $ 1,215 $ 2,749
======== ======== ========
- ------------------------
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are
based on absolute values.
18
<PAGE> 21
Noninterest Income
Noninterest income for the first six months of 1997 was $5.1 million compared
to $1.6 million for the same period of 1996, an increase of $3.5 million. This
increase is primarily the result of higher income from mortgage banking
activities which increased $1.3 million and gains on the sale of portfolio
loans of $1.3 million. Additional increases were in service fees on deposit
accounts of $166,000, loan service fees of $90,000, gains on sale of securities
of $209,000, and Generations Gold fee income of $149,000.
The following table reflects the components of noninterest income for the six
months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------------------------------------------
Increase
1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Income from mortgage banking operations $ 1,558 $ 240 $ 1,318
Service charges on deposit accounts 920 754 166
Loan fee income 354 264 90
Merchant charge card processing fees 101 59 42
Gains on sales of loans, net 1,301 - 1,301
Gain on sale of securities, net 213 4 209
Generations Gold fee income 201 52 149
Other income 416 266 150
------- -------- -------
Total noninterest income $ 5,064 $ 1,639 $ 3,425
======= ======== =======
</TABLE>
Noninterest Expense
Total noninterest expenses for the first six months of 1997 were $18.6 million
compared to $12.8 million for the same period last year, an increase of $5.8
million G & A expenses for 1997, included in the noninterest expense total,
were $18.1 million compared to $12.3 million an increase of $5.8 million. The
increase was the result of increased costs from an overall expansion of the
Company's loan production capabilities and the Firstate acquisition.
The following table reflects the components of noninterest expense for the six
months ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
------------------------------------------------------
Increase
1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Salaries and benefits $ 9,051 $ 6,626 $ 2,425
Net occupancy expense 2,832 2,050 782
Advertising 691 203 488
Data processing fees 793 631 162
Telephone expense 535 256 279
Legal and professional 547 256 291
Postage and supplies 1,182 461 721
FDIC and state assessments 303 534 (231)
Other operating expense 2,131 1,254 877
-------- ------- --------
Total G & A expenses 18,065 12,271 5,794
Provision for losses on ORE 290 450 (160)
ORE expense, net of ORE income 27 (143) 170
Amortization of premium on deposits 247 245 2
--------- --------- --------
Total noninterest expense $ 18,629 $ 12,823 $ 5,806
======== ======== ========
</TABLE>
19
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. 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 in such
proceedings, in the aggregate, would have a material adverse effect
on the Company's financial position or results of operation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27.0 Financial Data Schedule (for SEC use only)
b. Reports on Form 8-K
There were no reports on Form 8-K filed during the three months
ended June 30, 1997.
20
<PAGE> 23
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
REPUBLIC BANCSHARES, INC.
Date: August 12, 1997 By: /s/ John W. Sapanski
--------------------------------
John W. Sapanski
Chairman and Chief Executive
Officer (principal executive
officer)
Date: August 12, 1997 By: /s/ William R. Falzone
--------------------------------
William R. Falzone
Treasurer (principal
financial and accounting
officer)
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 27,408
<INT-BEARING-DEPOSITS> 91
<FED-FUNDS-SOLD> 14,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,026
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 838,957
<ALLOWANCE> 13,755
<TOTAL-ASSETS> 1,000,671
<DEPOSITS> 877,881
<SHORT-TERM> 55,002
<LIABILITIES-OTHER> 5,378
<LONG-TERM> 6,000
0
1,500
<COMMON> 8,371
<OTHER-SE> 46,539
<TOTAL-LIABILITIES-AND-EQUITY> 1,000,671
<INTEREST-LOAN> 34,144
<INTEREST-INVEST> 3,263
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 37,407
<INTEREST-DEPOSIT> 17,897
<INTEREST-EXPENSE> 18,609
<INTEREST-INCOME-NET> 18,799
<LOAN-LOSSES> 1,639
<SECURITIES-GAINS> 213
<EXPENSE-OTHER> 18,626
<INCOME-PRETAX> 3,595
<INCOME-PRE-EXTRAORDINARY> 3,595
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,232
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<YIELD-ACTUAL> 8.45
<LOANS-NON> 14,838
<LOANS-PAST> 1,063
<LOANS-TROUBLED> 2,367
<LOANS-PROBLEM> 3,667
<ALLOWANCE-OPEN> 13,134
<CHARGE-OFFS> 532
<RECOVERIES> 156
<ALLOWANCE-CLOSE> 13,755
<ALLOWANCE-DOMESTIC> 13,755
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,755
</TABLE>
