<PAGE> 1
As filed with the Securities and Exchange Commission on June __, 1997
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------------
REPUBLIC BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
----------------------
<TABLE>
<S> <C> <C>
FLORIDA 6711 59-3347653
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NO.)
111 SECOND AVENUE N.E.
ST. PETERSBURG, FL 33701
(813) 823-7300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
</TABLE>
----------------------
CHRISTOPHER M. HUNTER, ESQ.
GENERAL COUNSEL AND CORPORATE SECRETARY
111 SECOND AVENUE N.E. SUITE 300
ST. PETERSBURG, FL 33701
(813) 823-7300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
----------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN A. BUCHMAN, ESQ. JOHN P. GREELEY, ESQ.
HOLLAND & KNIGHT, LLP SMITH, MACKINNON, GREELEY, BOWDOIN & EDWARDS, P.A.
2100 PENNSYLVANIA AVE., NW, STE. 400 255 S. ORANGE AVENUE, CITRUS CENTER, STE. 800
WASHINGTON, DC 20037-3202 ORLANDO, FL 32801
(202) 955-3000 (407) 843-7300
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED(1) REGISTERED PER UNIT OFFERING PRICE FEE(2)
<S> <C> <C> <C> <C>
Common Stock 1,754,305 $16.81 $29,490,459 $8,937
</TABLE>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of F.F.O. Financial Group, Inc. ("FFO"),
in the proposed merger of FFO and the Registrant.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the FFO common stock to be exchanged in the merger computed
in accordance with Rule 457(f)(2) on the basis of the market value of the FFO
common stock as of June 20, 1997.
----------------------
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 SECTION 8(A),
SHALL DETERMINE.
================================================================================
<PAGE> 2
REPUBLIC BANCSHARES, INC.
111 SECOND AVENUE, N.E.
ST. PETERSBURG, FLORIDA 33701
Dear Republic Bancshares, Inc. Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders (the "Special Meeting") of Republic Bancshares, Inc.
("Bancshares") to be held at ___________________________________, at
_____________, local time, notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote on a
proposal to approve an Agreement and Plan of Merger, dated as of April 14, 1997
(the "Agreement"), entered into with F.F.O. Financial Group, Inc. ("FFO")
pursuant to which FFO will merge (the "Merger") with and into Bancshares. Upon
consummation of the Merger, each share of FFO's common stock issued and
outstanding (except for certain shares owned by FFO, stockholders who perfect
their dissenters' rights of appraisal) will be converted into 0.29 of a share
of Bancshares' common stock, subject to adjustment with certain limitations.
The accompanying Joint Proxy Statement/Prospectus includes a
description of the proposed Merger and provides other information concerning
Bancshares, FFO and the Special Meeting. Please read these materials carefully
and consider thoughtfully the information set forth in them.
The Agreement and the Merger have been approved unanimously by your
Board of Directors and are recommended by the Board to you for approval. Each
member of the Board of Directors of Bancshares has indicated his or her intent
to vote all of the shares of Bancshares' common and preferred stock
beneficially owned by such member in favor of the Agreement. Consummation of
the Merger is subject to certain conditions, including approval of the
Agreement by Bancshares and FFO stockholders and approval of the Merger by
various regulatory agencies.
It is important to understand that approval of the Agreement requires
the affirmative vote by holders of a majority of the votes represented by the
common and preferred stock of Bancshares cast either in person or by proxy at
the Special Meeting. Accordingly, whether or not you plan to attend the
Special Meeting, you are urged to complete, sign, and return promptly the
enclosed proxy card. If you attend the Special Meeting, you may vote in person
if you wish, even if you previously have returned your proxy card. The proposed
Merger with FFO is a significant step for Bancshares, and your vote on this
matter is of great importance. ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU
TO VOTE FOR APPROVAL OF THE AGREEMENT BY MARKING THE ENCLOSED PROXY CARD "FOR"
ITEM ONE.
Sincerely,
John W. Sapanski Chairman,
President and Chief
Executive Officer
<PAGE> 3
F.F.O. FINANCIAL GROUP, INC.
2013 LIVE OAK BOULEVARD
ST. CLOUD, FLORIDA 34771-8462
Dear F.F.O. Financial Group, Inc. Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders (the "Special Meeting") of F.F.O. Financial Group, Inc. ("FFO")
to be held at _____________________ on ______________, at _____________, local
time, notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote on a
proposal to approve an Agreement and Plan of Merger, dated as of April 14, 1997
(the "Agreement"), entered into with Republic Bancshares, Inc. ("Bancshares")
pursuant to which FFO will merge (the "Merger") with and into Bancshares. Upon
consummation of the Merger, each share of FFO's common stock issued and
outstanding (except for certain shares owned by FFO stockholders who perfect
their dissenters' rights of appraisal) will be converted into 0.29 of a share
of Bancshares' common stock, subject to adjustment with certain limitations.
The accompanying Joint Proxy Statement/Prospectus includes a
description of the proposed Merger and provides other information concerning
Banchsares, FFO and the Special Meeting. Please read these materials carefully
and consider thoughtfully the information set forth in them.
The Agreement and the Merger have been approved unanimously by your
Board of Directors and are recommended by the Board to you for approval. Each
member of the Board of Directors of FFO has indicated his or her intent to vote
all of the shares of FFO's common stock beneficially owned by such member in
favor of the Agreement. Consummation of the Merger is subject to certain
conditions, including approval of the Agreement by Bancshares and FFO
stockholders and approval of the Merger by various regulatory agencies.
Stockholders of FFO who perfect their dissenters' rights of appraisal
prior to the proposed Merger and comply with applicable law will be entitled to
receive the fair value of their FFO shares in cash, as provided by applicable
law. A copy of Sections 607.1301, 607.1302 and 607.1320 of the Florida
Business Corporation Act is attached to the Joint Proxy Statement/Prospectus.
It is important to understand that approval of the Agreement requires
the affirmative vote by holders of a majority of the shares of common stock of
FFO outstanding and entitled to vote at the Special Meeting. Accordingly,
whether or not you plan to attend the Special Meeting, you are urged to
complete, sign, and return promptly the enclosed proxy card. If you attend the
Special Meeting, you may vote in person if you wish, even if you previously
have returned your proxy card. The proposed Merger with Bancshares is a
significant step for FFO, and your vote on this matter is of great importance.
ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR APPROVAL OF THE
AGREEMENT BY MARKING THE ENCLOSED PROXY CARD "FOR" ITEM ONE.
Sincerely,
James B. Davis
President and
Chief Executive Officer
<PAGE> 4
REPUBLIC BANCSHARES, INC.
111 SECOND AVENUE, N.E.
ST. PETERSBURG, FLORIDA 33701
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ___________, 1997
Notice is hereby given that a Special Meeting of Stockholders (the
"Special Meeting") of Republic Bancshares, Inc. ("Bancshares"), the parent
holding company of Republic Bank ("Republic"), will be held at
_________________________________________ on ________, at __________, local
time, for the following purposes:
1. Merger. To consider and vote on the approval of an Agreement and Plan
of Merger, dated as of April 14, 1997 (the "Agreement"), by and between F.F.O.
Financial Group, Inc. ("FFO") and Bancshares pursuant to which (i) Bancshares
will acquire all of the issued and outstanding common stock of FFO through the
merger of FFO with and into Bancshares (the "Merger") and (ii) each share of
FFO's common stock (except for certain shares held by stockholders who perfect
their dissenters' rights of appraisal) will be converted into 0.29 of a share
of Bancshares' common stock, subject to adjustment with certain limitations,
all as described more fully in the accompanying Joint Proxy
Statement/Prospectus; and
2. Other Business. To transact such other business as may properly come
before the Special Meeting, or any adjournment or postponement thereof.
Only stockholders of record at the close of business on ________________,
1997, are entitled to receive notice of and to vote at the Special Meeting or
any adjournment or postponement thereof.
The Board of Directors of Bancshares unanimously recommends that holders
of Bancshares' common and preferred stock vote to approve the Agreement.
We urge you to complete, sign and return the enclosed proxy card as
promptly as possible, whether or not you plan to attend the Special Meeting in
person. The proxy may be revoked by the person executing the proxy by filing
with the Secretary of Bancshares an instrument of revocation or a duly executed
proxy bearing a later date or by electing to vote in person at the Special
Meeting.
By Order of the Board of Directors
----------------------------------
Corporate Secretary
St. Petersburg, Florida
______________, 1997
<PAGE> 5
F.F.O. FINANCIAL GROUP, INC.
2013 LIVE OAK BOULEVARD
ST. CLOUD, FLORIDA 34771-8462
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ___________, 1997
Notice is hereby given that a Special Meeting of Stockholders (the
"Special Meeting") of F.F.O. Financial Group, Inc. ("FFO"), the parent holding
company of First Federal Savings and Loan Association of Osceola County ("First
Federal"), will be held at___________________________________ on ________, at
__________, local time, for the following purposes:
1. Merger. To consider and vote on the approval of an Agreement and Plan
of Merger, dated as of April 14, 1997 (the "Agreement"), by and between FFO and
Republic Bancshares, Inc. ("Bancshares") pursuant to which (i) Bancshares will
acquire all of the issued and outstanding common stock of FFO through the
merger of FFO with and into Bancshares (the "Merger") and (ii) each share of
FFO's common stock (except for certain shares held by stockholders who perfect
their dissenters' rights of appraisal) will be converted into 0.29 of a share
of Bancshares' common stock, subject to adjustment with certain limitations,
all as described more fully in the accompanying Joint Proxy
Statement/Prospectus; and
2. Other Business. To transact such other business as may properly come
before the Special Meeting, or any adjournment or postponement thereof.
Only stockholders of record at the close of business on ________________,
1997, are entitled to receive notice of and to vote at the Special Meeting or
any adjournment or postponement thereof.
Stockholders of FFO have a right to dissent from the Merger and obtain
payment of the fair value of their shares in cash by complying with the
applicable provisions of applicable law, which are attached to the accompanying
Joint Proxy Statement/Prospectus as Appendix D. DISSENTING STOCKHOLDERS WHO
COMPLY WITH THE PROCEDURAL REQUIREMENTS OF SECTION 607.1320 OF THE FLORIDA
BUSINESS CORPORATION ACT WILL BE ENTITLED TO RECEIVE PAYMENT OF THE FAIR CASH
VALUE OF THEIR SHARES. Copies of Sections 607.1301, 607.1302 and 607.1320 of
the Florida Business Corporation Act are attached hereto.
The Board of Directors of FFO unanimously recommends that holders of FFO
common stock vote to approve the Agreement.
We urge you to complete, sign and return the enclosed proxy card as
promptly as possible, whether or not you plan to attend the Special Meeting in
person. The proxy may be revoked by the person executing the proxy by filing
with the Secretary of FFO an instrument of revocation or a duly executed proxy
bearing a later date or by electing to vote in person at the Special Meeting.
By Order of the Board of Directors
----------------------------------
Corporate Secretary
St. Cloud, Florida
__________________, 1997
<PAGE> 6
REPUBLIC BANCSHARES, INC. AND REPUBLIC BANCSHARES, INC.
F.F.O. FINANCIAL GROUP, INC. PROSPECTUS
JOINT PROXY STATEMENT _________ SHARES OF COMMON STOCK
(PAR VALUE $2.00 PER SHARE)
Republic Bancshares, Inc. ("Bancshares") has filed a registration statement
with the Securities and Exchange Commission, covering up to a maximum of
1,754,305 newly-issued shares of common stock of Bancshares, par value $2.00
per share ("Bancshares Common Stock"), to be issued pursuant to which (i)
Bancshares will acquire all of the issued and outstanding common stock, par
value $0.10 per share ("FFO Common Stock"), of F.F.O. Financial Group, Inc.
("FFO"), through the merger of FFO with and into Bancshares (the "Merger") and
(ii) each share of FFO Common Stock (except for certain shares held by
stockholders who perfect their dissenters' rights of appraisal) will be
converted into 0.29 of a share of Bancshares Common Stock, subject to
adjustment with certain limitations. That registration statement includes this
Joint Proxy Statement/Prospectus, which constitutes both the prospectus for the
Bancshares Common Stock to be issued upon consummation of the Merger and the
proxy statement that is being furnished to the stockholders of Bancshares and
FFO in connection with the solicitation by the Boards of Directors of
Bancshares and FFO of proxies from holders of Bancshares Common Stock and
Bancshares' noncumulative convertible perpetual preferred stock, par value
$20.00 per share ("Bancshares Preferred Stock"), (collectively, "Bancshares
Voting Stock") and FFO Common Stock for use at the special meetings of
stockholders of Bancshares and FFO.
At the Special Meetings of Bancshares and FFO stockholders, only stockholders
of record as of the close of business on ________, 1997, will be eligible to
consider and vote upon a proposal to approve the Agreement and Plan of Merger,
dated as of April 14, 1997, by and between Bancshares and FFO (the
"Agreement"), pursuant to which, among other results, each outstanding share of
FFO Common Stock will be converted into the right to receive 0.29 of a share of
Bancshares Common Stock, which is subject to adjustment based on the average
market price of Bancshares Common Stock during a specified period as provided
for in the Agreement (the "Exchange Ratio"). For a further description of the
terms of the Merger, see "Description of the Transaction."
This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed to stockholders of Bancshares and FFO on or about
__________________, 1997.
----------------------
THE BANCSHARES COMMON STOCK OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS
ACCOUNTS, OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER OTHER INSURER OR GOVERNMENT AGENCY
THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS REFERS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION NOR
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 JOINT PROXY STATEMENT/PROSPECTUS IS ______________, 1997
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DOCUMENTS INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Dates; Votes Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Merger; Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reasons for the Merger; Recommendations of Bancshares' and FFO's Boards of Directors . . . . . . . . . . . . . . .
Opinions of Financial Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Waiver, Amendment and Termination of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Federal Income Tax Consequences of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Differences in Stockholders' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SPECIAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPARATIVE MARKET PRICES OF BANCSHARES AND FFO COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTED FINANCIAL AND OTHER DATA OF BANCSHARES AND FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Dates; Votes Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment of Common Stock Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treatment of FFO Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bancshares' Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FFO's Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Opinion of Bancshares' Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Opinion of FFO's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of Bancshares Stock Certificates and Payment for Fractional Shares . . . . . . . . . . . . . . . . . .
Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Waiver, Amendment and Termination of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management of Bancshares and Republic Following the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Federal Income Tax Consequences of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resales of Bancshares Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPARATIVE MARKET PRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN INFORMATION CONCERNING BANCSHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN INFORMATION CONCERNING FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 8
TABLE OF CONTENTS
(CON'T)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF BANCSHARES COMMON AND PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion of The Carson Medlin Company
APPENDIX C -- Opinion of Allen C. Ewing & Co.
APPENDIX D -- Provisions of the Florida Business Corporation Act Applicable to
Dissenting Stockholders
<PAGE> 9
AVAILABLE INFORMATION
Bancshares and FFO are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information concerning Bancshares and
FFO may be inspected and copied at the Commission's Public Reference Section,
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
where copies may be obtained at prescribed rates, as well as at the following
regional offices: Northeast Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048; and Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. The Commission also maintains an
internet site that contains reports, proxy and information statements and other
information regarding Bancshares and FFO. The address of the internet site is
http://www.sec.gov. Bancshares Common Stock is listed on the Nasdaq Stock
Market's National Market (the "Nasdaq National Market") and FFO Common Stock is
listed on the Nasdaq Small-Cap Market. Copies of reports, proxy statements
and other information concerning Bancshares and FFO may also be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
This Joint Proxy Statement/Prospectus constitutes part of the Registration
Statement on Form S-4 of Bancshares (including any exhibits and amendments
thereto, the "Registration Statement") filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
securities offered hereby. This Joint Proxy Statement/Prospectus does not
include all of the information in the Registration Statement, certain portions
of which have been omitted pursuant to the rules and regulations of the
Commission. For further information about Bancshares and the securities offered
hereby, reference is made to the Registration Statement. The Registration
Statement may be inspected and copied, at prescribed rates, at the Commission's
public reference facilities at the addresses set forth above.
All information contained in this Joint Proxy Statement/Prospectus with respect
to Bancshares, except such information described under "Description of the
Transaction--Opinion of Bancshares' Financial Advisor," has been supplied by
Bancshares for inclusion herein. All information contained in this Joint Proxy
Statement/Prospectus with respect to FFO, except such information described
under "Description of the Transaction--Opinion of FFO's Financial Advisor," has
been supplied by FFO for inclusion herein.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY BANCSHARES OR FFO. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO OR FROM
ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
BANCSHARES OR FFO SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission by Bancshares and
FFO pursuant to the Exchange Act are hereby incorporated by reference herein:
1. Bancshares Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
2. Bancshares Proxy Statement for its annual meeting
held on April 22, 1997;
3. FFO's Form 10-K for the fiscal year ended December 31, 1996;
4. FFO's Proxy Statement for its annual meeting held on April 23, 1997.
5. FFO's Annual Report to Shareholders for the year ended December 31,
1996.
All documents filed by Bancshares and FFO pursuant to Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act
<PAGE> 10
after the date of this Joint Proxy Statement/Prospectus and prior to the date of
the Special Meetings shall be deemed to be incorporated by reference in this
Joint Proxy Statement/Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes hereof to the extent that a statement contained
herein or in any subsequently filed document which also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THOSE DOCUMENTS ARE AVAILABLE
UPON REQUEST, WITHOUT CHARGE (EXCEPT FOR THE EXHIBITS THERETO), FROM (I)
BANCSHARES - STAN BLAKEY, VICE PRESIDENT - SHAREHOLDER RELATIONS, REPUBLIC
BANCSHARES, INC., 111 SECOND AVE. N.E., ST. PETERSBURG, FLORIDA 33701
(TELEPHONE (813) 823-7300) OR (II) FFO - MS. PHYLLIS ELAM, SENIOR VICE
PRESIDENT - CHIEF FINANCIAL OFFICER, F.F.O. FINANCIAL GROUP, INC., 2013 LIVE
OAK BLVD., ST. CLOUD, FLORIDA 34771 (TELEPHONE (407) 957- 7421). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
________________.
<PAGE> 11
SUMMARY
The following is a summary of certain information relating to the Special
Meetings, the proposed Merger, and the offering of shares of Bancshares Common
Stock to be issued upon consummation thereof. This summary does not purport to
be complete and is qualified in its entirety by the more detailed information
appearing elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus. Stockholders are urged to read carefully the entire
Joint Proxy Statement/Prospectus, including the Appendices. As used in this
Joint Proxy Statement/Prospectus, the terms "Bancshares" and "FFO" refer to
those entities, respectively, and, where the context requires, to those
entities and their respective subsidiaries. The term "Combined Company" refers
to Bancshares and FFO after consolidation.
THE PARTIES
BANCSHARES. Bancshares is a registered bank holding company formed in
February 1996 for the primary purpose of becoming the holding company parent of
Republic Bank ("Republic"), a Florida-chartered commercial bank organized on
December 13, 1973. Bancshares provides a broad range of financial services,
with a particular emphasis on residential and commercial real estate lending,
through Republic, which is the largest independently-owned commercial bank
headquartered on the west coast of Florida. Currently Republic's branch
network consists of 35 branches in Hernando, Manatee, Orange, Pasco, Pinellas,
Sarasota and Seminole Counties. At March 31, 1997, Bancshares' consolidated
assets totaled $912.1 million, loans totaled $748.5 million, deposits totaled
$829.1 million and stockholders' equity was $55.6 million.
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 Republic (the "Change in Control").
Currently, Mr. Hough and Mr. Sapanski (and their respective affiliates and
immediate family members) own shares of Bancshares' Voting Stock representing
approximately 50.6% and 9.0%, respectively, of the total voting rights of
Bancshares. Mr. Hough is a member of Bancshares' Board of Directors, and Mr.
Sapanski serves as Bancshares' Chairman of the Board, President and Chief
Executive Officer.
On April 18, 1997, Bancshares acquired Firstate Financial, F.A.
("Firstate"), a thrift institution headquartered in Orlando, Florida, for a
cash purchase of $5 million. At April 18, 1997, Firstate had total assets of
$71.1 million and total deposits of $67.9 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.
As a bank holding company, Bancshares is regulated by the Federal Reserve
Board ("Federal Reserve") under the Bank Holding Company Act of 1956, amended
(the "BHC Act"), and Republic is regulated by the Florida Department of Banking
and Finance ("Department") and the Federal Deposit Insurance Corporation
("FDIC"). Republic's deposits are insured by the FDIC to the full extent
permitted by law. Republic is a member of the Federal Home Loan Bank of
Atlanta ("FHLB").
FFO. FFO is a unitary savings and loan holding company that was organized
in June 1988 to acquire all of the stock of First Federal savings and Loan
Association of Osceola County ("First Federal") that was issued in First
Federal's conversion to the stock form of ownership in October 1988. First
Federal was originally chartered in 1934 as a federal mutual savings and loan
association and continued to conduct its operations as such from 1934 until its
stock conversion in 1988.
FFO's operations are conducted entirely through First Federal. FFO's
principal business is to attract deposits, primarily in the form of retail
savings accounts, and to invest these funds, together with borrowings and other
funds, in loans, mortgage-backed securities and other investments. FFO's
lending activities focus on origination for portfolio and sale of one-to-four
family and multifamily residential mortgage loans, commercial real estate
loans, loans insured by the Federal Housing Administration, the Department of
Veterans Affairs and
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<PAGE> 12
the Small Business Administration, and residential construction loans. First
Federal presently operates a mainoffice in Kissimmee, Florida and ten branch
offices located in Brevard, Orange and Osceola Counties. As of March 31, 1997,
FFO had total assets of $320.0 million, total deposits of $285.7 million and
total stockholders' equity of $20.8 million.
Both FFO and First Federal are regulated by the Office of Thrift
Supervision ("OTS"). First Federal's deposits are insured by the FDIC to the
full extent permitted by law, and First Federal is a member of the FHLB. First
Federal has one wholly-owned subsidiary, Gulf American Financial Corporation,
which is inactive.
SPECIAL MEETINGS
BANCSHARES. The Special Meeting of Bancshares will be held at _________,
local time, on _____________, 1997, at ________________, for the purpose of
considering and voting on approval of the Agreement and to transact such other
business as may properly come before the meeting. See "The Special Meetings."
FFO. The Special Meeting of FFO will be held at______, local time, on
_________, 1997, at ___________, for the purpose of considering and voting on
approval of the Agreement and to transact such other business as may properly
come before the meeting. See "The Special Meetings."
RECORD DATES; VOTES REQUIRED
BANCSHARES. Only holders of record of Bancshares Voting Stock at the
close of business on ________ (the "Bancshares Record Date"), will be entitled
to vote at the Special Meeting. Holders of record of Bancshares Preferred
Stock, which is convertible into Bancshares Common Stock at the ratio of ten
shares of Bancshares Preferred Stock for each share of Bancshares Common Stock,
will be entitled to 10 votes for each share held, and holders of record of
Bancshares Common Stock will be entitled to one vote for each share held. The
affirmative vote of a majority of the votes represented by the Bancshares
Voting Stock cast either in person or by proxy at the Special Meeting will be
required to approve the Agreement. As of the Bancshares Record Date, there
were 4,933,507 votes represented by Bancshares Voting Stock outstanding and
entitled to be voted.
The directors and executive officers of Bancshares and their affiliates
and associates beneficially owned, as of the Bancshares Record Date, 2,311,233
shares of Bancshares Common Stock and 75,000 shares of Bancshares Preferred
Stock (or approximately 62.1% of the votes represented by the outstanding
Bancshares Voting Stock). Each member of the Board of Directors of Bancshares
has indicated his or her intent to vote all of the shares of Bancshares Voting
Stock beneficially owned by such member in favor of the Agreement and the
Merger contemplated thereby. If all of Bancshares' directors vote to approve
the Agreement as anticipated, the Agreement will be approved by the requisite
Bancshares stockholder vote, without the vote of any other stockholder. The
directors and executive officers of FFO and their affiliates (not represented
by Bancshares directors and executive officers) did not beneficially own, as of
the Bancshares Record Date, any shares or Bancshares' Voting Stock. As of that
date, neither Bancshares nor FFO held any shares of Bancshares' Common Stock in
a fiduciary capacity for others. See "The Special Meetings-- Record Dates;
Votes Required."
FFO. Only holders of record of FFO Common Stock at the close of business
on _____________ (the "FFO Record Date"), will be entitled to vote at the
Special Meeting. The affirmative vote of a majority of the shares of the FFO
Common Stock outstanding and entitled to be voted at the Special Meeting will
be required to approve the Agreement. As of the FFO Record Date, there were
8,446,266 shares of FFO Common Stock outstanding and entitled to be voted.
The directors and executive officers of FFO and their affiliates and
associates beneficially owned, as of the FFO Record Date, 6,049,325 shares (or
approximately 71.6% of the outstanding shares) of FFO Common Stock. Each
member of the Board of Directors of FFO has indicated his or her intent to vote
all of the shares of FFO Common Stock beneficially owned by such member in
favor of the Agreement and the Merger contemplated
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<PAGE> 13
thereby. If all of FFO's directors vote to approve the Agreement as
anticipated, the Agreement will be approved by the requisite FFO stockholder
vote, without the vote of any other stockholder. The directors and executive
officers of Bancshares and their affiliates (not represented by FFO's directors
and executive officers) did not beneficially own, as of the FFO Record Date,
any shares of FFO Common Stock. As of that date, neither Bancshares nor FFO
held any shares of FFO Common Stock in a fiduciary capacity for others. See
"The Special Meetings--Record Dates; Votes Required."
THE MERGER; EXCHANGE RATIO
The Agreement provides for the acquisition of FFO by Bancshares pursuant
to the Merger of FFO with and into Bancshares. At the time the Articles of
Merger relating to the Merger became effective with the Secretary of State of
the State of Florida (the "Effective Time"), each share of FFO Common Stock
then issued and outstanding (excluding any shares held by stockholders who
perfect their dissenters' rights of appraisal) will be converted into 0.29 of a
share of Bancshares Common Stock, subject to adjustment with certain
limitations. No fractional shares of Bancshares Common Stock will be issued.
Rather, cash will be paid in lieu of any fractional share issued to which any
FFO stockholder would otherwise be entitled upon consummation of the Merger,
based on the average of the closing prices of Bancshares Common Stock on each
of the 20 consecutive trading days ending on the third business day immediately
preceding the closing date for the transaction (the "Closing Date") as reported
on the Nasdaq National Market (the "Market Value"). See "Description of the
Transaction--General."
DISSENTING STOCKHOLDERS
Holders of FFO Common Stock entitled to vote on approval of the Agreement
have the right to dissent from the Merger and, upon consummation of the Merger
and the satisfaction of certain specified procedures and conditions, to receive
fair value of such holders' shares of FFO Common Stock in cash in accordance
with the applicable provisions of the Florida Business Corporation Act (the
"FBCA"). The procedures to be followed by dissenting stockholders are
summarized under "Description of the Transaction--Dissenting Stockholders," and
the applicable provisions of the FBCA are reproduced as Appendix D.
REASONS FOR THE MERGER; RECOMMENDATION OF BANCSHARES' AND FFO'S BOARDS OF
DIRECTORS
BANCSHARES. Bancshares' Board of Directors has unanimously approved the
Merger and the Agreement and has determined that the Merger is in the best
interests of Bancshares and its stockholders, its employees, customers and the
communities which Bancshares serves. Accordingly, Bancshares' Board unanimously
recommends that Bancshares' stockholders vote FOR approval of the Agreement.
EACH MEMBER OF THE BOARD OF DIRECTORS OF BANCSHARES HAS INDICATED HIS OR HER
INTENT TO VOTE THOSE SHARES OF BANCSHARES COMMON AND PREFERRED STOCK
BENEFICIALLY OWNED BY SUCH MEMBER IN FAVOR OF THE AGREEMENT. In approving the
Agreement, Bancshares' Board considered a number of different factors,
including the financial terms of the Merger, the recommendation made by the
special committee of the Board formed to negotiate and consider the terms of
the Merger and the opinion rendered by Bancshares' financial advisor. See
"Description of the Transaction--Background of and Bancshares' Reasons for the
Merger" and "--Opinion of Bancshares' Financial Advisor".
FFO. FFO's Board of Directors has unanimously approved the Merger and the
Agreement and has determined that the Merger is in the best interests of FFO
and its stockholders, its employees, customers and the communities which FFO
serves. Accordingly, FFO's Board unanimously recommends that FFO's stockholders
vote FOR approval of the Agreement. EACH MEMBER OF THE BOARD OF DIRECTORS OF
FFO HAS INDICATED HIS OR HER INTENT TO VOTE THOSE SHARES OF FFO COMMON STOCK
BENEFICIALLY OWNED BY SUCH MEMBER IN FAVOR OF THE AGREEMENT. In approving the
Agreement FFO's Board considered a number of different factors, including the
financial terms of the Merger, the recommendation made by the special committee
of the Board formed to negotiate and consider the terms of the Merger and the
opinion rendered by FFO's financial advisor. See "Description of the
Transaction--Background of and FFO's Reasons for the Merger" and "--Opinion of
FFO's Financial Advisor."
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<PAGE> 14
OPINIONS OF FINANCIAL ADVISORS
BANCSHARES. The Carson Medlin Company ("Carson Medlin") has rendered an
opinion to Bancshares that the terms of the Merger are fair, from a financial
point of view, to the stockholders of Bancshares. The opinion of Carson Medlin
is attached as Appendix B to this Joint Proxy Statement/Prospectus.
Bancshares' stockholders are urged to read the opinion in its entirety for a
description of the procedures followed, assumptions made, matters considered
and limitations on the review undertaken in connection therewith. See
"Description of the Transaction--Opinion of Bancshares' Financial Advisor."
FFO. Allen C. Ewing & Co. ("Allen C. Ewing") has rendered an opinion to
FFO that the terms of the Merger are fair, from a financial point of view, to
the stockholders of FFO. The opinion of Allen C. Ewing is attached as Appendix
C to this Joint Proxy Statement/Prospectus. FFO's stockholders are urged to
read the opinion in its entirety for a description of the procedures followed,
assumptions made, assumptions made, matters considered and limitations on the
review undertaken in connection therewith. See "Description of the
Transaction--Opinion of FFO's Financial Advisor."
EFFECTIVE TIME
Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Time will occur on the date and at the time that the
Florida Articles of Merger are filed with the Secretary of State of the State
of Florida. Unless otherwise agreed upon by Bancshares and FFO, and subject to
the conditions and obligations of the parties to effect the Merger, the parties
will use their reasonable efforts to cause the Effective Time to occur by the
last business day of the month in which the last of the following events
occurs: (i) the effective date (including the expiration of any applicable
waiting period) of the last federal or state regulatory approval or consent
required for the Merger, or (ii) the date on which the Agreement is approved by
the requisite votes of Bancshares' and FFO's stockholders. The parties expect
that all conditions to consummation of the Merger will be satisfied so that the
Merger can be consummated during the third quarter of 1997, although there can
be no assurance as to whether or when the Merger will occur. See "Description
of the Transaction-- Effective Time of the Merger," "--Conditions to
Consummation of the Merger," and "--Waiver, Amendment and Termination of the
Agreement."
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<PAGE> 15
EXCHANGE OF STOCK CERTIFICATES
Promptly after the Effective Time, Bancshares will cause an exchange agent
selected by Bancshares (the "Exchange Agent") to mail to the former
stockholders of FFO a form letter of transmittal, together with instructions
for the exchange of such stockholders' certificates representing shares of FFO
Common Stock for certificates representing shares of Bancshares Common Stock.
FFO STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE
THE FORM LETTER OF TRANSMITTAL AND INSTRUCTIONS. See "Description of the
Transaction--Distribution of Bancshares Stock Certificates."
REGULATORY APPROVALS
The Merger is subject to approval by the FDIC, the Federal Reserve, and
the Department. Applications for the requisite approvals have been filed with
these agencies, [each of which has yet to issue its approval of the Merger].
There can be no assurance that the approvals of applicable regulatory agencies
will be given or as to the timing or conditions of such approvals. See
"Description of the Transaction--Conditions to Consummation of the Merger."
WAIVER, AMENDMENT AND TERMINATION OF THE AGREEMENT
The Agreement may be terminated, and the Merger abandoned, at any time
prior to the Effective Time by mutual action of the Boards of Directors of both
Bancshares and FFO, or by action of the Board of Directors of either party
under certain circumstances, including if the Merger is not consummated by
November 1, 1997, unless the failure to consummate by such time is due to a
willful breach of the Agreement by the party seeking to terminate. The
Agreement also may be terminated, and the Merger abandoned, if the average of
the closing prices of the Bancshares Common Stock on each of the 20 consecutive
trading days ending on the third business day preceding the Closing Date as
reported by the Nasdaq National Market (the "Market Value") is less than
$13.50. FFO may elect not to terminate the Agreement even if the Market Value
of Bancshares Common Stock falls below $13.50 per share. In determining
whether to elect to terminate the Agreement in these circumstances, the FFO
Board of Directors will take into account, consistent with its fiduciary
duties, all relevant facts and circumstances existing at the time, including,
without limitation, the advice of its financial advisor and legal counsel. By
approving the Agreement, the FFO stockholders also are authorizing the Board of
Directors to determine, in the exercise of its fiduciary duties, to proceed
with the Merger even though the Market Value of the Bancshares Common Stock is
less than $13.50 at the closing. If for any reason the Merger is not
consummated, FFO will continue to operate as a separate financial institution
under its present management. See "Description of the Transaction--Waiver,
Amendment and Termination of the Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Bancshares' and FFO's management and Board of Directors
have interests in the Merger in addition to their interests as stockholders
generally. These interests relate to, among other things, provisions in the
Agreement regarding indemnification, eligibility for certain employee benefits,
existing employment agreements and the payments to be made thereunder as a
consequence of the Merger, and the treatment of outstanding incentive stock
options. See "Description of the Transaction--Interests of Certain Persons in
the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code. An opinion of counsel as to the
federal income tax consequences has been received, but no ruling will be
requested from the Internal Revenue Service. Bancshares has received an
opinion from Holland & Knight, LLP, that, among other things, a stockholder of
FFO who exchanges shares of FFO Common Stock for Bancshares Common Stock will
not recognize gain, provided that stockholders of FFO will recognize gain to
the extent such stockholders receive cash in lieu of fractional shares of
Bancshares upon perfection of their dissenters'
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<PAGE> 16
rights. Holders of Bancshares Voting Stock and FFO Common Stock should consult
with their own tax advisors regarding the federal, state, local and foreign tax
consequences of the Merger to them individually. See "Description of the
Transaction--Certain Federal Income Tax Consequences of the Merger."
CERTAIN DIFFERENCES IN STOCKHOLDERS' RIGHTS
At the Effective Time, FFO stockholders, whose rights are governed by the
FBCA and by FFO's Articles of Incorporation and Bylaws, will automatically
become Bancshares stockholders, and their rights as Bancshares stockholders
will be determined by the FBCA and Bancshares's Articles of Incorporation and
By-Laws.
The rights of Bancshares stockholders differ from the rights of FFO
stockholders in certain important respects. See "Effect of the Merger on
Rights of Stockholders."
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<PAGE> 17
SPECIAL CONSIDERATIONS
Bancshares and FFO stockholders should consider the following factors in
addition to the other information set forth in this Joint Proxy
Statement/Prospectus before deciding how to vote on the proposals contained
herein. Certain of these factors are discussed in more detail elsewhere in
this Joint Proxy Statement/Prospectus, including, without limitation, under the
captions "Summary," "The Merger; Exchange Ratio," "Certain Information
Concerning Bancshares" and "Certain Information Concerning FFO".
SPECIAL CONSIDERATIONS APPLICABLE TO THE MERGER:
THE EXCHANGE RATIO; POSSIBLE CHANGES IN STOCK PRICE
The Exchange Ratio is expressed in the Agreement as a fixed ratio that can be
adjusted within certain limitations in the event of any increase or decrease in
the price of Bancshares Common Stock. The price of Bancshares Common Stock at
the Effective Time may vary from its price at the date of this Joint Proxy
Statement/Prospectus and at the dates of the Special Meetings, possibly by a
material amount. Such variations may be the result of changes in the business,
operations or prospects of Bancshares, market assessments of the likelihood
that the Merger will be consummated and the timing thereof, regulatory
considerations, general market and economic conditions, factors affecting the
banking industry in general, and other factors. Because the Effective Time
will occur at a date later than the Special Meetings, there can be no assurance
that the price of Bancshares Common Stock on the dates of the Special Meetings
will be indicative of its price at the Effective Time. The Effective Time will
occur as soon as practicable following the Special Meetings and the
satisfaction or waiver of the conditions set forth in the Merger agreement.
Stockholders of Bancshares and FFO are urged to obtain current market
quotations for Bancshares and FFO Common Stock. See "Comparative Market Prices
of Common Stock" and "Comparative Per Share Data."
BENEFITS ACCRUING TO MANAGEMENT OF FFO
As a result of the Merger, certain members of the FFO Board and FFO's
management will receive shares of Bancshares Common Stock in exchange for
shares of FFO Common Stock on the same terms as are applicable to the other
stockholders of FFO. In addition, all stock options currently held by each
officer and director of FFO will, in connection with the Merger, be converted
into a right to receive shares of Bancshares Common Stock based on the Exchange
Ratio. Under the Agreement, FFO is permitted to enter into employment
agreements with up to 12 employees of FFO and First Federal that will provide a
payment equal to six month's base annual salary to each employee who does not
voluntarily resign within 30 days of the Effective Time. As a result of these
transactions, certain officers and directors of FFO may have conflicts of
interest in connection with the Merger. See "Description of the
Transaction--Interests of Certain Persons in the Merger" and "Management
Following the Merger."
SPECIAL CONSIDERATIONS APPLICABLE TO BANCSHARES AND FFO AFTER THE MERGER:
The following risk factors apply to either or both of Bancshares and FFO, as
the context dictates, and will continue to apply to Bancshares and FFO after
the Merger (the "Combined Company").
SECURITIES ARE NOT INSURED
The Bancshares Common Stock to be issued to FFO stockholders upon consummation
of the Merger are not insured by the Bank Insurance Fund, the Savings
Association Insurance Fund or the Federal Deposit Insurance Corporation or by
any other insurer or government agency.
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<PAGE> 18
ABILITY TO MANAGE GROWTH AND INTEGRATE OPERATIONS
Since the Change of Control, Bancshares has experienced rapid growth through
acquisitions, the opening of loan production offices and de novo branches, the
creation of Republic's mortgage banking division and asset purchases. There is
no assurance that Bancshares 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 Bancshares' 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
Bancshares will successfully integrate or achieve the anticipated benefits of
its growth or expanded operations.
In addition, achieving the anticipated benefits of the Merger will depend in
part upon whether the operations and organizations of Bancshares 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 Merger, Bancshares 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 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 Bancshares' results of operations and financial condition following the
Merger.
NONPERFORMING ASSETS
At the time of the Change in Control, Republic 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 Bancshares 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 above the average level of other similarly-
sized financial institutions. 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 THE ALLOWANCE FOR LOAN LOSSES
Industry experience indicates that a portion of Bancshares' loans will become
delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by Bancshares,
losses may be experienced as a result of various factors beyond Bancshares'
control, including, among other things, changes in market conditions affecting
the value of real estate securing Bancshares' loans and problems affecting the
credit of Bancshares' borrowers. Bancshares' 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 Bancshares' 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 Bancshares' exposure is greatest, the loan loss reserve so
determined by Bancshares may not be adequate. A substantial portion of
Bancshares' loan loss reserves are allocated to specific portfolios of loans
purchased by Bancshares. 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,
Bancshares' results of operations would be adversely affected. There can be no
assurance that Bancshares' allowance for loan losses will be adequate to cover
its loan losses or that Bancshares will not experience significant losses in
its loan portfolios that may require significant increases to the allowance for
loan losses in the future.
8
<PAGE> 19
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of Bancshares' loan portfolio consists of residential
mortgage loans and commercial real estate loans. At March 31, 1997, 55.1% of
Bancshares' loans were secured by one-to-four family residential real estate,
34.7% were secured by commercial real estate and multifamily residential real
estate, 4.1% were construction loans and Bancshares 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 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 Bancshares' loans,
increase the level of Bancshares' nonperforming loans, require write-downs in
the book value of its ORE, and have a material negative impact on Bancshares'
financial performance.
Additionally, Bancshares 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.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
Bankshares' 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. Bankshares,
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. Bancshares 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, Bancshares had a
one year cumulative positive gap of .97%. This positive one year gap position
may, as noted above, have a negative impact on earnings in a falling interest
rate environment. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
REGULATORY OVERSIGHT
Republic 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
Republic's deposits up to applicable limits. Republic is a member of the FHLB
and is subject to certain limited regulation by the Federal Reserve. As the
holding company of Republic, Bancshares is also subject to regulation and
oversight by the Federal Reserve. Such regulation and supervision govern the
activities in which an institution may engage and are 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
that 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 Bancshares and Republic 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 Republic and Republic's competitors, which in turn could have a
material adverse affect on Republic and its operations. See "Supervision and
Regulation."
9
<PAGE> 20
CONTROL BY THE CONTROLLING STOCKHOLDERS
Bankshares' Controlling Stockholders, William R. Hough and John W. Sapanski
(and their respective affiliates and immediate family members) each currently
owns shares of Bancshares Voting Stock representing approximately 50.6% and
9.0%, respectively, of the total voting rights of Bankshares. Following
consummation of the 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 all of the
members of Bancshares' Board of Directors and, through their control of
Bancshares' Board, will be able to continue to direct the affairs of Bancshares
and the Bank.
CAPITAL LIMITATIONS ON FUTURE GROWTH
Since the Change of Control, one of Bancshares' primary business objectives has
been to increase its total asset size, expand into new market areas, and
increase market share in its existing markets. Bancshares 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, such as Firstate and FFO.
Bancshares intends to pursue its current growth strategy for the foreseeable
future as a means of increasing overall profitability. While Bancshares
currently meets all of the requirements for a "well-capitalized" bank holding
company under the Federal Reserve's capital guidelines, there can be no
assurance that Bancshares 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 Bancshares and, in some cases,
operate under fewer regulatory constraints. Bancshares 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 that
are active in the state. See "Business-Competition" and "Business-Supervision
and Regulation."
10
<PAGE> 21
COMPARATIVE MARKET PRICES OF BANCSHARES AND FFO COMMON STOCK
Bancshares Common Stock and FFO Common Stock are traded in the over-the-counter
market. Bancshares Common Stock is quoted on the Nasdaq National Market and
FFO Common Stock is quoted on the Nasdaq Small-Cap Market. The following table
sets forth, as of the indicated dates, (i) the last sale price of Bancshares
Common Stock and (ii) the equivalent per share price (as explained below) of
FFO Common Stock on March 10, 1997, the last trading day immediately preceding
public announcement that Bancshares and FFO had executed a letter of intent for
the combination of the two companies and, ________________________, 1997, the
latest practical date prior to mailing of this Joint Proxy Statement.
<TABLE>
<CAPTION> Equivalent Per
Bancshares FFO Share Price of
Common Stock Common Stock FFO Common Stock
------------ ------------ ----------------
<S> <C> <C> <C>
Market Price Per Share at:
March 10, 1997 $ 15.38 $ 3.75 $ 4.46
________, 1997
</TABLE>
The equivalent per share price of FFO Common Stock at each specified date
represents the last sale price of a share of Bancshares Common Stock on such
date multiplied by the Exchange Ratio of 0.29. Stockholders are advised to
obtain current market quotations for Bancshares Common Stock. No assurance can
be given as to the market price of Bancshares Common Stock at or after the
Effective Time.
[Balance of page intentionally left blank]
11
<PAGE> 22
COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative per share data relating to
net income and book value on (i) an historical basis for Bancshares and FFO,
(ii) a pro forma combined basis per share of Bancshares Voting Stock, giving
effect to the Merger, (iii) an equivalent pro forma basis per share of FFO
Common Stock, giving effect to the Merger, (iv) a pro forma combined basis per
share of Bancshares Voting Stock, giving effect to the Merger and Bancshares'
acquisition of Firstate on April 18, 1997, and (v) an equivalent pro forma
basis per share of FFO Common Stock, giving effect to the Merger and
Bancshares' acquisition of Firstate. The Bancshares and FFO pro forma combined
information and the Bancshares pro forma Merger equivalent information give
effect to the Merger on a corporate reorganization basis and assume an Exchange
Ratio of 0.29 of a share of Bancshares for each share of FFO. See "Description
of the Transaction -- Accounting Treatment." The Bancshares, FFO and Firstate
pro forma combined information and the Bancshares pro forma Merger and Firstate
equivalent information give effect to (i) the Merger as described in the
preceding sentence and (ii) Bancshares' acquisition of Firstate. Bancshares,
FFO and Firstate did not pay dividends during the periods presented. The pro
forma data are presented for information purposes only and are not necessarily
indicative of the results of operations or combined financial position that
would have resulted had the Merger been consummated at the dates or during the
periods indicated, nor are they necessarily indicative of future results of
operations or combined financial position.
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of Bancshares
and FFO, including the respective notes thereto. See "Pro Forma Financial
Information," "Documents Incorporated by Reference," "Selected Condensed
Consolidated Pro Forma Financial Data," "Selected Financial and Other Data,"
and "Index to Financial Statements."
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited) (unaudited, except for Bancshares
and FFO historical)
<S> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Bancshares historical primary & fully diluted $ .32 $ .24 $ .76 $ 1.26 $ 1.67
FFO historical primary and fully diluted .07 .01 .19 .20 .06
Bancshares and FFO pro forma combined .28 - .66 - -
FFO pro forma equivalent(1) .08 - .19 - -
Bancshares, FFO, and Firstate
pro forma combined(2) .24 - .45 - -
FFO pro forma equivalent(1) (3) .08 - .13 - -
BOOK VALUE PER COMMON SHARE
Bancshares historical primary & fully diluted 11.27 10.55 11.01 10.32 8.76
FFO historical primary & fully diluted 2.46 2.18 2.41 2.23 1.96
Bancshares and FFO pro forma combined 10.99 - - - -
FFO proforma equivalent (1) 3.19 - - - -
Bancshares, FFO, and Firstate
pro forma combined (2) 10.99 - - - -
FFO pro forma equivalent 3.19 - - - -
</TABLE>
- -----------------------------------------
(1) Represents pro forma combined information multiplied by the assumed
Exchange Ratio of 0.29 of a share of Bancshares
Common Stock for each share of FFO Common Stock.
(2) Represents the combined results of Bancshares, FFO and Firstate, as if all
such acquisitions were consummated on January 1, 1996.
(3) Adjusted to reflect Bancshares' acquisition of Firstate consummated on
April 18, 1997, as if consummated on March 31, 1997.
12
<PAGE> 23
SELECTED FINANCIAL AND OTHER DATA OF BANCSHARES AND FFO
The following tables present certain selected historical financial information
for Bancshares and FFO. The data should be read in conjunction with the
historical financial statements, related notes and other financial information
concerning Bancshares and FFO incorporated by reference or included herein.
Interim unaudited data of Bancshares and FFO for the three months ended March
31, 1997 and 1996 reflect, in the opinion of the respective managements of
Bancshares and FFO, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. Results for the
three months ended March 31, 1997, are not necessarily indicative of results
that may be expected for any other interim period or for the year as a whole.
Selected consolidated operating data, per share data, balance sheet data and
selected financial ratios for Bancshares as of and for each of the years ended
December 31, 1992, 1994, 1995 and 1996, the seven month period ended December
31, 1993, and the five month period ended May 31, 1993, were derived from the
consolidated financial statements which have been audited by Arthur Andersen,
LLP, independent certified public accountants. The selected consolidated
operating data, per share data, balance sheet data, selected financial ratios
and other data for Bancshares as of and for the seven-month period ended
December 31, 1994, and the five month period ended May 31, 1994, were derived
from unaudited consolidated financial statements. Financial data for those
interim periods include all adjustments, consisting of normal accruals, that
management considers necessary for a fair presentation of financial condition
and results of operations for such interim periods. In light of the
significant mark-to-market adjustments and other adjusting entries to
Bancshares' financial statements that were made following the Change in Control
on May 28, 1993, management of Bancshares believes that the usefulness of
comparisons between (i) the financial statements and the financial data derived
therefrom as of the dates and for the periods 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,
since (i) Republic's initial public offering and (ii) its purchase from
CrossLand Savings Bank, FSB ("CrossLand") of 12 branches and $201.6 million of
real estate-secured loans and other real estate ("ORE") and its assumption of
$327.7 million in deposits from CrossLand (collectively, the "Purchase and
Assumption") in December 1993, Bancshares has operated in a significantly
different manner from that which it had previously operated. Accordingly, the
financial results for periods prior to the Purchase and Assumption differ
significantly from periods since then.
Selected consolidated operating data, per share data, balance sheet data and
selected financial ratios for FFO as of and for each of the years ended
December 31, 1992, 1993, 1994, 1995 and 1996, were derived from the
consolidated financial statements that have been audited by Hacker, Johnson,
Cohen & Grieb, independent certified public accountants.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, related notes and other financial
information presented elsewhere by Bancshares and FFO.
13
<PAGE> 24
SELECTED HISTORICAL FINANCIAL DATA OF BANCSHARES
SELECTED FINANCIAL AND OTHER DATA - TABLE 1
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
---------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<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 - - 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:
"Core" earnings per share (1) $ .34 $ .26 $ 1.13 $ .88 $ .67
Gain on sale of ORE held for investment - - .15 - -
SAIF special assessment - - (.32 ) - -
Provisions for losses on ORE (.02 ) (.02 ) (.20 ) - -
Change in deferred tax asset valuation - - - .04 .38
Negative goodwill accretion - - - .34 .65
--------- --------- --------- --------- ---------
Total 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 (AT PERIOD-END):
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:
Return on average assets .72 % .60 % .45 % .77 % 1.25%
Return on average assets - "Core" (1) .72 .60 .64 .56 .76
Return on average equity 12.10 9.57 7.31 13.47 21.34
Return on average equity - "Core" (1) 12.10 9.57 10.37 9.79 12.97
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 (2) 1.91 2.18 1.86 2.24 1.37
Loan loss allowance to non-performing loans (2) 82.81 96.47 84.93 90.47 53.36
OTHER DATA (AT PERIOD-END):
Number of full service offices 33 32 32 32 21
Number of full-time equivalent employees 644 432 637 421 300
- -----------------------------------------
</TABLE>
(1) "Core" earnings per share and ratios for Bancshares exclude the effect of
the SAIF special assessment, provisions for losses on ORE, the gain on sale of
the headquarters building, changes in the deferred tax asset valuation reserve
and negative goodwill accretion.
(2) See "Certain Information Concerning Bancshares--Asset Quality" for a
discussion of the allocation and availability of loan loss reserves among
portfolios of loans within the Bank.
14
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA OF BANCSHARES
SELECTED FINANCIAL AND OTHER DATA - TABLE 2
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Seven Months Ended Five Months Ended Year Ended
Dec. 31, May 31, December 31,
-------------------------- ------------------------------ ------------
1994 1993 1994 1993 1992
---------- ---------- ----------- ---------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 23,684 $ 7,331 $ 13,431 $ 4,848 $ 11,845
Interest expense 10,711 3,110 6,160 1,970 6,054
---------- ---------- ---------- ---------- ----------
Net interest income 12,973 4,221 7,271 2,878 5,791
Loan loss provision 1,263 709 312 379 520
---------- ---------- ---------- ---------- ----------
Net interest income after
loan loss provision 11,710 3,512 6,959 2,499 5,271
Other noninterest income 1,758 1,411 854 743 1,679
G&A expenses 9,308 3,700 5,608 2,699 5,748
Provision for losses on ORE 10 20 - 1,214 230
Other noninterest expense 1,417 600 274 443 715
---------- ---------- ---------- ---------- ----------
Net income (loss) before income
taxes and goodwill accretion 2,733 603 1,931 (1,114) 257
Accretion of negative goodwill 1,578 1,579 1,127 - -
---------- ---------- ---------- ---------- ----------
Net income (loss) before income taxes 4,311 2,182 3,058 (1,114) 257
Income tax provision 268 - 200 - -
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 4,043 $ 2,182 $ 2,858 $ (1,114) $ 257
========== ========== ========== ========== ==========
PER SHARE DATA:
"Core" earnings (loss) per share(1) $ .44 $ .32 $ .23 $ (.32) $ 0.36
Provision for losses on ORE - (.01) - (.68) (.13)
Change in deferred tax asset valuation .16 - .19 - -
Negative goodwill accretion .38 .81 .27 - -
---------- ---------- ---------- ---------- ----------
Total earnings (loss) per share $ .98 $ 1.12 $ .69 $ (1.00) $ .23
========== ========== ========== ========== ==========
Weighted average shares outstanding 4,141,322 1,951,231 4,134,420 1,117,192 1,106,459
BALANCE SHEET DATA
(AT PERIOD-END):
Total assets $ 626,445 $ 531,312 $ 508,642 $ 168,741 $ 168,810
Investment securities 40,271 37,382 52,571 27,433 24,276
Loans net of unearned income 516,335 316,483 396,144 111,292 110,715
Allowance for loan losses 7,065 6,539 6,828 1,866 1,958
Deposits 583,885 494,316 469,461 153,660 154,984
Negative goodwill 1,578 4,283 3,156 5,861 -
Stockholders' Equity 36,165 29,454 32,234 8,058 12,215
SELECTED FINANCIAL RATIOS:
Return on average assets 1.20 % 1.99 % 1.33 % (1.61)% .15%
Return on average assets "Core" (1) .73 .55 .81 - -
Return on average equity 20.68 39.17 22.34 (21.75) 2.12
Return on average equity "Core" (1) 12.61 10.39 13.53 - -
Net interest spread 4.06 3.45 3.48 4.21 3.51
Net interest margin 4.25 4.22 3.67 4.66 3.95
G&A expense to average assets 2.79 3.94 2.40 6.28 4.01
G&A efficiency ratio 62.02 65.70 67.32 74.54 76.95
Non-accrual loans to loans 2.51 5.05 4.36 2.27 3.20
Nonperforming assets to total assets 3.59 4.95 5.64 5.89 7.55
Loan loss allowance to loans(2) 1.37 2.07 1.72 1.68 1.77
Loan loss allowance to nonperforming loans(2) 53.36 39.12 23.58 73.03 54.98
OTHER DATA (AT PERIOD-END):
Number of full service offices 21 19 19 7 7
Number of full-time equivalent employees 300 179 223 96 90
</TABLE>
(1) "Core" earnings per share and ratios for Bancshares exclude the effect of
the SAIF special assessment, provisions for losses on ORE, the gain on sale of
the headquarters building, changes in the deferred tax asset valuation reserve,
and negative goodwill accretion, where applicable.
(2) See "Certain Information Concerning Bancshares--Asset Quality" for a
discussion of the allocation and availability of loan loss reserves among
portfolios of loans within the Bank.
15
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA OF FFO
SELECTED FINANCIAL AND OTHER DATA - TABLE 3
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
---------------------- ------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 5,807 $ 5,466 $ 21,997 $ 19,730 $ 16,882
Interest expense 3,173 3,140 12,023 10,111 7,553
---------- --------- ---------- ---------- ----------
Net interest income 2,634 2,326 9,974 9,619 9,329
Loan loss provision (credit) - 150 782 477 (1,403)
----------- --------- ----------- ----------- ----------
Net interest income after loan loss provision 2,634 2,176 9,192 9,142 10,732
Other noninterest income 601 304 2,387 2,602 2,487
General and administrative ("G&A") expenses 2,263 2,358 9,528 8,844 8,761
SAIF special assessment - - 1,466 - -
(Credit) provision for losses on ORE - - (1,500 ) 240 3,410
Other noninterest expense (income) 34 33 (318 ) 373 374
----------- ---------- ----------- ----------- ---------
Net income before income taxes 938 89 2,403 2,287 674
Income tax provision 351 33 803 641 234
----------- ---------- ----------- ----------- ----------
Net income $ 587 $ 56 $ 1,600 $ 1,646 $ 440
=========== ========== ========== ========== ==========
PER SHARE DATA:
"Core" earnings per share (1) $ .07 $ .01 $ .18 $ .23 $ .52
SAIF special assessment - - (.17 ) - -
(Credit) provision for losses on ORE - - .18 (.03 ) (.46)
Change in deferred tax asset valuation - - - -
----------- ----------- ----------- ----------- ----------
Total earnings per share $ .07 $ .01 $ .19 $ .20 $ .06
=========== =========== =========== =========== ==========
Weighted average shares outstanding 8,430,181 8,430,000 8,430,000 8,430,000 7,354,658
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $ 320,031 $ 305,683 $ 316,949 $ 301,485 $ 253,428
Investment & mortgage backed securities 71,584 79,208 66,368 90,544 60,757
Loans, net of unearned income 226,078 190,325 225,080 189,093 172,199
Allowance for loan losses 5,579 5,210 5,613 5,138 8,207
Deposits 285,672 268,722 286,927 248,936 210,832
Stockholders' equity 20,760 18,408 20,280 18,780 16,545
SELECTED FINANCIAL RATIOS:
Return on average assets .74 % .07 % .54 % .64 % .18%
Return on average assets - "Core" (1) .74 .07 .53 .70 1.10
Return on average equity 11.45 1.21 8.18 9.17 3.08
Return on average equity - "Core" (1) 11.45 1.21 8.07 10.06 18.84
Net interest spread 3.44 3.26 3.20 3.86 4.24
Net interest margin 3.55 3.32 3.44 3.99 4.25
G&A expense to average assets 2.87 3.15 3.20 3.43 3.66
G&A efficiency ratio 69.95 89.66 77.08 72.37 74.15
Non-accrual loans to loans 1.74 1.70 1.89 1.61 2.05
Nonperforming assets to total assets 3.22 4.16 3.12 4.00 8.96
Loan loss allowance to loans 2.52 2.81 2.62 3.09 5.00
Loan loss allowance to non-performing loans 64.02 64.85 62.93 67.92 59.53
OTHER DATA (AT PERIOD-END):
Number of full service offices 11 11 11 11 10
Number of full-time equivalent employees 156 158 158 151 151
- -----------------------------------------
</TABLE>
(1) "Core" earnings per share and ratios for FFO exclude the effect of the SAIF
special assessment, provision for losses on ORE and changes in the deferred tax
valuation reserve, where applicable.
16
<PAGE> 27
SELECTED HISTORICAL FINANCIAL DATA OF FFO
SELECTED FINANCIAL AND OTHER DATA - TABLE 4
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1993 1992
---- ----
<S> <C> <C>
OPERATING DATA:
Interest income $ 18,888 $ 25,395
Interest expense 9,033 14,197
---------- ----------
Net interest income 9,855 11,198
Loan loss provision 4,807 7,591
---------- ----------
Net interest income after loan loss provision 5,048 3,607
Other noninterest income 3,004 4,166
General and administrative ("G&A") expenses 10,132 12,293
Provision for losses on ORE - 258
Other noninterest expense 482 835
----------- ----------
Net loss before income taxes (2,562) (5,613)
Income tax credit (2,844) (1,012)
----------- ----------
Net income (loss) $ 282 $ (4,601)
=========== ===========
PER SHARE DATA:
"Core" loss per share (1) $ (.52) $ (1.99)
Provision for losses on ORE - (.12)
Deferred tax asset valuation .60 -
----------- -----------
Total earnings (loss) per share $ .08 $ (2.11)
=========== ==========
Weighted average shares outstanding 3,481,370 2,180,000
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $ 249,399 $ 308,930
Investment & mortgage backed securities 36,660 22,073
Loans, net of unearned income 174,463 237,727
Allowance for loan losses 9,333 6,427
Deposits 211,118 278,463
Stockholders' equity 14,527 8,718
SELECTED FINANCIAL RATIOS:
Return on average assets .11% (1.36)%
Return on average assets - "Core" (1) .11 (1.31)
Return on average equity 2.60 (41.00)
Return on average equity - "Core" (1) 2.60 (39.57)
Net interest spread 4.17 3.97
Net interest margin 4.08 3.73
G&A expense to average assets 3.78 3.62
G&A efficiency ratio 78.79 80.01
Non-accrual loans to loans 1.59 8.78
Nonperforming assets to total assets 11.51 17.36
Loan loss allowance to loans 5.72 3.67
Loan loss allowance to non-performing loans 69.57 23.05
OTHER DATA (AT PERIOD-END):
Number of full service offices 10 12
Number of full-time equivalent employees 160 190
- -----------------------------------------
</TABLE>
(1) "Core" earnings per share and ratios for FFO exclude the effect of the SAIF
assessment, provision for losses on ORE and changes in the deferred tax asset
valuation reserve, where applicable.
17
<PAGE> 28
SELECTED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data give effect to the
Merger as of the dates and for the periods indicated and pursuant to the
accounting basis described within. The selected unaudited pro forma financial
data are presented for informational purposes only and are not necessarily
indicative of the combined financial position or results of operations that
actually would have occurred if the transactions had been consummated at the
date and for the periods indicated or which may be obtained in the future. The
information should be read in conjunction with the unaudited pro forma
financial information appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "Comparative Per Share Data" and "Pro Forma
Financial Information."
18
<PAGE> 29
SELECTED PRO FORMA COMBINED DATA FOR BANCSHARES AND FFO - TABLE 1
(UNAUDITED; IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
<S> <C>
Balance Sheet Data:
Total Assets
$1,237,726
Investment and mortgage backed securities 134,801
Loans held for sale 44,774
Loans, net of unearned income 929,267
Allowance for loan losses 19,087
Goodwill 6,266
Total deposits 1,114,881
Other borrowed money 31,160
Stockholders' equity 81,794
Book value per common share $ 11.09
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Income Statement Data (1):
Interest income $ 23,877 $ 88,944
Interest expense 12,142 44,949
--------- ---------
Net interest income 11,735 43,995
Loan loss provision 1,138 2,582
--------- ---------
Net interest income after loan loss provisions 10,597 41,413
Noninterest income 3,725 8,003
General and administrative ("G&A") expenses 10,503 36,880
Other non interest expense 314 4,117
--------- ---------
Net income before income taxes and goodwill 3,505 8,419
Income tax expense 1,315 3,035
--------- ---------
Net income before goodwill amortization 2,190 5,384
Goodwill amortization from the Merger 147 586
--------- ---------
Net income $ 2,043 $ 4,798
========= =========
Net income per share $ .27 $ .65
========= =========
Weighted average shares outstanding 7,429,584 7,397,637
</TABLE>
(1) Includes goodwill amortization arising from the Merger on a proforma
basis but does not include the effect of operating cost savings after
consolidation of the Combined Company.
19
<PAGE> 30
SELECTED PRO FORMA COMBINED DATA FOR BANCSHARES, FFO AND FIRSTATE - TABLE 2
(UNAUDITED; IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
<S> <C>
Balance Sheet Data:
Total Assets $ 1,308,088
Investment and mortgage backed securities 162,047
Loans held for sale 44,774
Loans, net of unearned income 960,628
Allowance for loan losses 19,206
Goodwill 6,396
Total deposits 1,183,437
Other borrowed money 31,160
Stockholders' equity 81,794
Book value per common share $ 11.09
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Income Statement Data (1):
Interest income $ 25,018 $ 94,353
Interest expense 13,021 48,964
---------- ----------
Net interest income 11,997 45,389
Loan loss provision 1,145 2,293
---------- ----------
Net interest income after loan loss provisions 10,852 43,096
Noninterest income 3,863 8,393
General and administrative ("G&A") expenses 11,166 39,627
Other non interest expense 351 4,966
---------- ----------
Net income before income taxes and goodwill 3,198 6,896
Income tax expense 1,315 3,035
---------- ----------
Net income before goodwill amortization 1,883 3,861
Goodwill amortization from the Merger
and Firstate acquisition 150 599
---------- ----------
Net income $ 1,733 $ 3,262
========== ==========
Net income per share $ .23 $ .44
========== ==========
Weighted average shares outstanding 7,429,584 7,397,637
</TABLE>
(1) Includes goodwill amortization arising from the Merger and the Firstate
acquisition but does not include the effect of operating cost savings
after consolidation of the Combined Company.
20
<PAGE> 31
THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Bancshares Voting Stock and FFO Common Stock in connection with the
solicitation by their respective Boards of Directors of proxies for use at the
Special Meetings, at which Bancshares and FFO stockholders will be asked to
vote upon a proposal to approve the Agreement contemplated thereby. The
Special Meeting for Bancshares will be held at ______________________________
local time, on _______________________, 1997, at __________________________.
The Special Meeting for FFO will be held at ______________________________
local time, on _______________________, 1997, at __________________________.
Stockholders of Bancshares and FFO are requested to promptly complete, sign,
date and return the accompanying proxy card in the enclosed postage-paid,
addressed envelope. An FFO stockholder's failure to return a properly executed
proxy card or to vote at the FFO Special Meeting will have the same effect as a
vote against the Agreement.
Any stockholder of either Bancshares or FFO who has delivered a proxy may
revoke it at any time before it is voted by giving notice of revocation in
writing or submitting a signed proxy card bearing a later date, provided that
such notice or proxy card is actually received at or before the stockholders'
Special Meeting. Any notice of revocation should be sent to
___________________________________________. A proxy will not be revoked by
death or supervening incapacity of the stockholder executing the proxy unless,
before the vote, notice of such death or incapacity is filed with the
Secretary. The shares of Bancshares Voting Stock and FFO Common Stock
represented by properly executed proxies received at or prior to the Special
Meetings unless subsequently revoked will be voted as directed in such proxies.
IF INSTRUCTIONS ARE NOT GIVEN, SHARES REPRESENTED BY PROXIES RECEIVED WILL BE
VOTED FOR APPROVAL OF THE AGREEMENT AND IN THE DISCRETION OF THE PROXY HOLDER
AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETINGS.
As of the date of this Joint Proxy Statement/Prospectus, Bancshares and FFO are
unaware of any other matter to be presented at either Special Meeting.
Solicitation of proxies will be made by mail but also may be made by telephone
or telegram or in person by the directors, officers and employees of Bancshares
and FFO, who will receive no additional compensation for such solicitation but
may be reimbursed for out-of-pocket expenses. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward solicitation
materials to beneficial owners and will be reimbursed for their reasonable
out-of-pocket expenses.
FFO STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS
RECORD DATES; VOTES REQUIRED
Bancshares' and FFO's Boards of Directors have established the close of
business on ________________, 1997, as the Record Date for determining
stockholders entitled to notice of and to vote at the Special Meetings. Only
Bancshares and FFO stockholders of record as of the Record Date will be
entitled to vote at the Special Meetings. The affirmative votes (i) by holders
of a majority of the votes represented by the Bancshares Voting Stock cast
either in person or by proxy at the Bancshares Special Meeting and (ii) by
holders of a majority of the issued and outstanding shares of FFO are required
in order to approve the Agreement. Therefore, in the case of FFO, an
abstention or failure by an FFO stockholder to return a properly executed proxy
card will have the same effect
21
<PAGE> 32
as a vote against the Agreement, as will a broker's submitting a proxy card
without exercising discretionary voting authority with respect to the
Agreement. As of the Record Date, (i) there were approximately ______ holders
of 4,183,507 shares of Bancshares Common Stock outstanding and entitled to vote
at the Special Meeting, with each share entitled to one vote and five holders
of 75,000 shares of Bancshares Preferred Stock entitled to ten (10) votes for
each share, or an aggregate of 750,000 votes, for a total of 4,933,507 votes
represented by the Bancshares Voting Stock, and (ii) there were approximately
_______ holders of ________ shares of FFO Common Stock, with each share
entitled to one vote at the FFO Special Meeting.
The presence, in person or by proxy, of holders of Bancshares Voting Stock
representing a majority of the outstanding votes is necessary to constitute a
quorum of the stockholders required to take action at the Bancshares Special
Meeting. For these purposes, shares of Bancshares Common or Preferred Stock
that are present, or represented by proxy, at the Bancshares Special Meeting
will be counted for quorum purposes regardless of whether the holder of the
shares or proxy fails to vote on the Agreement or whether a broker with
discretionary authority fails to exercise its discretionary voting authority
with respect to the Agreement.
The directors and executive officers of Bancshares and their affiliates
beneficially owned, as of the Record Date, 2,311,233 shares of Bancshares
Common Stock and 75,000 shares of Bancshares Preferred Stock (or approximately
62.1% of the votes represented by the outstanding Bancshares Voting Stock). If
all of Bancshares' directors vote to approve the Agreement as anticipated, the
Agreement will be approved by the requisite Bancshares stockholder vote. The
directors and executive officers of FFO and their affiliates (not represented
by the directors and executive officers of Bancshares) did not beneficially
own, as of the Record Date, any shares of Bancshares Voting Stock. As of that
date, no subsidiary of either FFO or Bancshares held any shares of Bancshares
Voting Stock in a fiduciary capacity for others.
The directors and executive officers of FFO and their affiliates beneficially
owned, as of the Record Date, 6,049,325 shares (or approximately 71.6% of the
outstanding shares) of FFO Common Stock. If all of FFO's directors vote to
approve the Agreement as anticipated, the Agreement will be approved by the
requisite FFO stockholder vote. The directors and executive officers of
Bancshares and their affiliates (not represented by the directors and executive
officers of FFO) did not beneficially own, as of the Record Date, any shares of
FFO Common Stock. As of that date, no subsidiary of either FFO or Bancshares
held any shares of FFO Common Stock in a fiduciary capacity for others.
DESCRIPTION OF THE TRANSACTION
The following material describes certain aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Appendices hereto, including the Agreement, which is attached
as Appendix A to this Joint Proxy Statement/Prospectus and incorporated herein
by reference. All Bancshares and FFO stockholders are urged to read the
Appendices in their entirety.
GENERAL
Each share of FFO Common Stock (excluding any shares held by stockholders who
perfect their dissenters' rights of appraisal) issued and outstanding at the
Effective Time will cease to be outstanding and will be converted into 0.29 of
a share of Bancshares Common Stock, subject to adjustment with certain
limitations. Each share of Bancshares Common and Preferred Stock outstanding
immediately prior to the Effective Time will remain outstanding and unchanged
as a result of the Merger. No fractional shares of Bancshares Common Stock will
be issued in connection with the Merger.
ADJUSTMENT OF COMMON STOCK EXCHANGE RATIO
In the event that, as of the Closing Date, the product of (a) the Exchange
Ratio and (b) the Market Value of a share of Bancshares Common Stock is below
$4.10, then the Exchange Ratio will be increased to maintain such
22
<PAGE> 33
product at $4.10. In no event, however, will the Exchange Ratio be greater
than 0.30 of a share. FFO has the right not to consummate the Merger if the
Market Value is less than $13.50 on the Closing Date.
No fractional shares of Bancshares Common Stock will be issued in connection
with the Merger. In lieu of issuing fractional shares, Bancshares will make a
cash payment (without interest) equal to the fractional part of a share of
Bancshares Common Stock that an FFO stockholder would otherwise have received
multiplied by the Market Value of a share of Bancshares Common Stock as
described above in "--Adjustment of Exchange Ratio." No FFO stockholder will
be entitled to dividends, voting rights or any other rights as a stockholder
with respect to any fractional share.
TREATMENT OF FFO OPTIONS
Each of the options to purchase FFO Common Stock issued and outstanding at the
Effective Time (the "FFO Options"), will cease to be outstanding and will be
converted into and exchanged for the right to acquire Bancshares Common Stock
on substantially the same terms applicable to the FFO Options. The number of
options to acquire Bancshares Common Stock to be issued pursuant to the
exercise of such options will equal the number of shares of FFO Common Stock
subject to such options multiplied by the Exchange Ratio, provided that no
fractions of options for shares of Bancshares Common Stock will be issued, and
the number of shares of Bancshares Common Stock to be issued upon the exercise
of FFO Options, if a fractional share exists, will equal the number of whole
shares obtained by rounding to the nearest whole number, giving account to such
fraction. The exercise price for the acquisition of Bancshares Common Stock
will be the exercise price for each share of FFO Common Stock subject to such
options divided by the Exchange Ratio, adjusted as appropriate for any rounding
to whole shares that may be done.
BACKGROUND OF THE MERGER
During the last several years, there have been significant developments in the
banking and financial services industry. These developments have included the
increased emphasis and dependence on automation, specialization of products and
services, increased competition from other financial institutions and from
financial services companies such as insurance companies, brokerage firms,
credit unions and other financial intermediaries, as well as a trend towards
consolidation and geographic expansion, coupled with a relaxation of regulatory
restrictions on interstate conduct of business of financial institutions.
In June and July 1996, the Board of Directors of FFO, including Messrs, Hough
and May, discussed the strategic alternatives available to FFO, including a
possible business combination with Bancshares. The possibility of such a
business combination with Bancshares was specifically discussed due to Messrs.
Hough's and May's also serving on the Board of Directors of Bancshares as well
as Mr. Hough's ownership of a controlling interest in Bancshares.
On July 31, 1996, FFO engaged Allen C. Ewing, an investment banking firm
headquartered in Tampa, Florida, to review the strategic alternatives available
to FFO, including a possible business combination with Bancshares. On August
1,1996, Bancshares and FFO signed a mutual confidentiality agreement and began
exchanging preliminary information about their respective companies. On August
22, 1996, representatives of Allen C. Ewing met with representatives of
Bancshares to discuss Bancshares' business. On September 24, 1996, Allen C.
Ewing presented a report to the FFO Board of Directors describing the strategic
alternatives available to FFO. These alternatives consisted of the following:
(i) continuing to pursue FFO's existing business plan, further reducing its
problem assets and pursuing internal growth in loans and deposits as resources
permit; (ii) accelerating FFO's growth by establishing new branches or by
acquiring other financial institutions, either in its existing market area or
elsewhere; (iii) pursuing a "no premium" or "peer" merger with another
financial institution having compatible strategic goals; (iv) agreeing for FFO
to be acquired by another financial institution on a negotiated basis, without
pursuing a full solicitation or controlled auction process; and (v) pursuing a
sale of FFO on a controlled auction basis, soliciting indications of interest
from a variety of potential acquirors. Because Bancshares had expressed
preliminary interest in a possible stock-for-stock business combination with
23
<PAGE> 34
FFO, Allen C. Ewing's report to the FFO Board also included a preliminary
evaluation of the potential advantages and disadvantages of such a combination
to FFO.
In September and October 1996, Bancshares conducted a preliminary on-site due
diligence review of FFO to determine its level of interest in pursuing a
possible merger with FFO. On November 14, 1996, Carson Medlin, an investment
banking firm headquartered in Tampa, Florida, was engaged to serve as
financial advisor to Bancshares in connection with a possible acquisition.
After further preliminary discussions between representatives of Bancshares and
FFO, in December 1996, Bancshares advised FFO that Bancshares was prepared to
commence formal discussions with respect to a possible acquisition of FFO by
Bancshares. Accordingly, in December 1996, the Boards of Directors of
Bancshares and FFO each formed a special committee (the "Special Committees")
comprised solely of independent directors who were not affiliated with Mr.
Hough or Mr. May to consider and negotiate the terms of any acquisition of FFO
by Bancshares. On December 16, 1996, Allen C. Ewing was engaged to serve as
financial advisor to FFO in connection with the Merger.
On December 26, 1996, Bancshares and FFO issued a joint press release
announcing that they were engaged in discussions concerning a possible
combination of the two companies.
Members of the Special Committees of Bancshares and FFO and their respective
financial advisers met periodically during the following months. Discussions
focused on the benefits that could result from such a merger to both
organizations, their stockholders, officers and employees, the proper
allocation of those benefits between Bancshares and FFO stockholders, and the
projected results of operations for Bancshares and FFO in 1997. Pricing was
the major consideration, with different exchange ratios being proposed by both
sides. After various informal offers and counteroffers were made by the
Special Committees of the Board of Bancshares and FFO, the two committees
reached a preliminary agreement as to pricing and the other material terms of
the Merger. The full Boards of Directors of Bancshares and FFO met on March
__, 1997 to consider their respective Special Committees' recommendations, at
which time each Board also heard a presentation made by its Special Committee's
financial adviser. A letter of intent was entered into by the parties on March
10, 1997. The Boards of Directors of both companies thereafter unanimously
approved the Agreement and the Merger as being in the best interests of their
respective stockholders. The Agreement was executed by Bancshares and FFO on
April 14, 1997.
Each member of the Board of Directors of Bancshares and FFO has indicated his
or her intent to vote all of the shares of Bancshares Voting Stock and/or FFO
Common Stock beneficially owned by such member in favor of the Agreement. The
Boards of Directors of Bancshares and FFO UNANIMOUSLY recommend that their
stockholders vote for approval of the Agreement.
BANCSHARES' REASONS FOR THE MERGER
The Bancshares Board of Directors has approved the Agreement and determined
that the Merger is in the best interests of Bancshares and its stockholders. In
approving the Agreement, Bancshares' Board considered a number of factors.
Without assigning any relative or specific weights to the factors, Bancshares'
Board considered the following material factors:
(a) the information presented to Bancshares' Board by its Special
Committee concerning the business, operations, earnings and financial
condition, including the capital levels and asset quality, of FFO on an
historical, prospective and pro forma basis and in comparison to other
financial institutions in the area;
(b) the demographic, economic and financial characteristics of the markets
in which FFO operates, including existing competition, history of the market
areas with respect to financial institutions and average demand for credit, on
an historical and prospective basis;
24
<PAGE> 35
(c) the results of Bancshares' due diligence review of FFO;
(d) a variety of factors affecting and relating to the overall strategic
focus of Bancshares, including Bancshares's desire to expand into the central
Florida market;
(e) the legal advice of Bancshares' counsel;
(f) the report of Carson Medlin reviewing, among other things, a
comparison of the proposed terms to other comparable merger transactions and
the effect on future financial condition of Bancshares, taking those terms into
consideration; and
(g) the opinion rendered by Carson Medlin to the effect that, from a
financial point of view, the consideration to be paid by Bancshares pursuant to
the Merger is fair to Bancshares.
Based upon the consideration of the foregoing factors, the Board of Directors
of Bancshares concluded that the Merger is in the best interest of Bancshares
stockholders.
FFO'S REASONS FOR THE MERGER
In approving the Merger, the Board of Directors of FFO considered a number of
factors. Without assigning any relative or specific weights to the factors, the
FFO Board of Directors considered, among other things, the following material
factors:
(a) the information presented to the FFO Board by the management of FFO
concerning the business, operations, earnings, asset quality and financial
condition of FFO;
(b) the results of FFO's due diligence review of Bancshares;
(c) the financial terms of the Merger, including the relationship of the
merger price to the market value, tangible book value and earnings per share of
FFO Common Stock, the partial protection against a decline in the market value
of Bancshares Common Stock and the partial participation in any appreciation in
value of Bancshares Common Stock;
(d) the treatment of the Merger as a tax-free exchange of FFO Common Stock
for Bancshares Common Stock for federal and state income tax purposes;
(e) the likelihood of the Merger being approved by applicable regulatory
authorities without undue conditions or delay;
(f) the consideration being offered by Bancshares along with the business,
financial condition and earnings prospects of Bancshares;
(g) the familiarity of certain directors of FFO with Bancshares and its
operations and their first-hand knowledge of the experience and integrity of
Bancshares and its management;
(h) the legal advice provided by FFO's outside counsel;
(i) the report of Allen C. Ewing analyzing the financial terms of the
Merger; and,
(j) the opinion rendered by Allen C. Ewing to the effect that the terms of
the Merger are fair, from a financial point of view.
Based upon the consideration of the foregoing factors, the Board of Directors
of FFO concluded that the Merger
25
<PAGE> 36
is in the best interest of FFO's stockholders.
OPINION OF BANCSHARES' FINANCIAL ADVISOR
Pursuant to an engagement letter dated December 20, 1996, the Special Committee
of the Board of Directors of Bancshares engaged Carson Medlin to provide the
Board with a written opinion regarding the fairness of the Merger from a
financial point of view. Bancshares selected Carson Medlin as its financial
adviser on the basis of Carson Medlin's experience and expertise in
representing community banks in acquisition transactions. Carson Medlin is an
investment banking firm that specializes in the securities of financial
institutions located in the southeastern United States. As part of its
investment banking activities, Carson Medlin is regularly engaged in the
valuation of financial institutions and transactions relating to their
securities.
On April 14, 1997, Carson Medlin delivered its written opinion to the
Bancshares Board that the terms of the Merger are fair, from a financial point
of view, to the stockholders of Bancshares. The full text of Carson Medlin's
written opinion dated April 14, 1997 is attached as Appendix B to this Joint
Proxy Statement/Prospectus. It sets forth the procedures followed, assumptions
made, matters considered and qualifications and limitations on the review
undertaken by Carson Medlin in connection with its opinion. The following
summary of the opinion is qualified in its entirety by reference to the full
text of such opinion.
Carson Medlin has relied upon, without independent verification, the accuracy
and completeness of the information reviewed by it for purpose of its opinion.
Carson Medlin did not undertake any independent evaluation or appraisal of the
assets and liabilities of Bancshares or FFO, nor was it furnished with any such
appraisals.
Carson Medlin is not expert in the evaluation of loan portfolios, including
under-performing or non-performing assets, charge-offs or the allowance for
loan losses. It has not reviewed any individual credit files of Bancshares or
FFO. Instead, it has assumed that the allowances for each of Bancshares and
FFO are adequate to cover their potential loan losses. Carson Medlin's opinion
is necessarily based on economic, market and other conditions existing on the
date of its opinion, and on information as of various earlier dates made
available to it.
Carson Medlin reviewed certain financial projections prepared by Bancshares and
FFO. Carson Medlin assumed that these projections were prepared on a
reasonable basis utilizing the best and most current information available to
the managements of Bancshares and FFO, and that such projections will be
realized in the amounts and at the times contemplated thereby. Neither
Bancshares nor FFO publicly discloses internal management projections of the
type provided to Carson Medlin. Such projections were neither prepared for,
nor with a view toward, public disclosure.
The preparation of a fairness opinion involves various determinations as to the
most appropriate methods of financial analysis and the application of those
methods to the particular circumstances. In connection with rendering its
opinion, Carson Medlin performed a variety of financial analyses. Carson
Medlin believes that is analyses must be considered together as a whole and
that selecting portions of such analyses and the facts considered therein,
without considering all other factors and analyses, could create an incomplete
or inaccurate view of the analyses and the process underlying Carson Medlin's
opinion. In its analyses, Carson Medlin made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Bancshares and FFO and may not be
realized. Any estimates contained in Carson Medlin's analyses are not
necessarily predictive of future results or values, which may be significantly
more or less favorable than such estimates. Estimates of values of companies
do not purport to be appraisals or necessarily reflect the prices at which such
companies or their securities may actually be sold. Except as described below,
none of the analyses performed by Carson Medlin were assigned a greater
significance by Carson Medlin than any other.
No company or transaction used in Carson Medlin's analyses is identical to
Bancshares, FFO or contemplated transactions. Accordingly, the results of
these analyses necessarily involve complex considerations and judgments
26
<PAGE> 37
concerning differences in financial and operating characteristics of Bancshares
and FFO and other factors that could affect the value of the companies to which
they have been compared. Mathematical analyses (such as determining the
average or median) is not, in itself, a meaningful method of using comparable
industry or transaction data.
In connection with its opinion dated April 14, 1997, Carson Medlin reviewed:
(i) the Agreement; (ii) the annual reports to stockholders of Bancshares,
including the audited financial statements for the five years ended December
31, 1996; (iii) audited financial statements of FFO for the five years ended
December 31, 1996; and (iv) certain financial and operating information with
respect to the business, operations and prospects of Bancshares and FFO. In
addition, Carson Medlin: (a) held discussions with members of senior management
of Bancshares and FFO regarding the historical and current business operations,
financial conditions and future prospects of their respective companies; (b)
reviewed the historical market prices and trading activity for the common stock
of Bancshares and FFO and compared them with those of certain publicly traded
companies that it deemed to be relevant; (c) compared the results of operations
of Bancshares and FFO with those of certain financial institutions that it
deemed to be relevant; (d) compared the financial terms of the Merger with the
financial terms, to the extent publicly available, of certain other recent
business combinations of financial institutions; (e) analyzed the pro forma
financial impact of the Merger on Bancshares; and (f) conducted such other
studies, analyses, inquiries and examinations as Carson Medlin deemed
appropriate.
The following is a summary of the principal analyses performed by Carson Medlin
in connection with its opinion delivered to the Bancshares' Board of Directors
on April 14, 1997.
Summary of Proposal
Carson Medlin reviewed the terms of the proposed transaction, including the
Exchange Ratio and the aggregate transaction value. Carson Medlin reviewed the
implied value of the consideration to be paid based upon the Exchange Ratio of
0.29 of a share of Bancshares Common Stock for each share of FFO Common Stock
and at the price of $16.00 per share for Bancshares Common Stock, which showed
that the implied value of the Bancshares proposal was approximately $4.64 per
share of FFO Common Stock, representing a total transaction value of
approximately $39.1 million ($40.1 on a fully diluted basis). Carson Medlin
calculated that the aggregate transaction value represented 193% of stated book
value at December 31, 1996, 21 times adjusted 1996 earnings, a 7.6% core
deposit premium (defined as the aggregate transaction value minus stated book
value divided by core deposits) and 12.6% of total assets of FFO at December
31, 1996.
Contribution Analysis
Carson Medlin reviewed the relative contributions in terms of various balance
sheet and income statement components to be made by FFO and Bancshares to the
combined institution based on (i) balance sheet data at December 31, 996, and
(ii) year end earnings as of December 31, 1996. The income statement and
balance sheet components analyzed included total assets, total loans (net),
total deposits, stockholders equity and net income. This analysis showed that,
while FFO stockholders would own approximately 30.8% of the aggregate
outstanding shares of the combined institution based on the Exchange Ratio and
a Bancshares Common Stock price of $16.00 per share, FFO was contributing 25.9%
of total assets, 23.1% of total loans (net), 25.8% of total deposits, 27.2% of
stockholders equity and 29.7% of reported 1996 year-end net income.
Comparable Transaction Analysis
Carson Medlin reviewed certain information relating to five selected Florida
thrift mergers announced or completed since January 1995 in which the acquired
institution had total assets from $100 million to $400 million (the "Comparable
Transactions"). The Comparable Transactions were (acquiree/acquiror); First
Financial of Polk County/Barnett Banks, Inc.; FFE Financial Corp./South Trust
Corp.; First Financial Bancorp/Capital City Bank Group, Inc.; Florida First
Bancorp/Regions Financial Corporation; and First Family Financial/The Colonial
BancGroup, Inc. Carson Medlin considered, among other factors, the earnings,
capital level, asset size and
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quality of assets of the acquired financial institutions. Carson Medlin
compared the transaction prices to trailing four quarters earnings, stated book
values, total assets and core deposit premium.
On the basis of the Comparable Transactions and a Bancshares Common Stock price
of $16.00 per share, Carson Medlin calculated a range of purchase prices as a
percentage of stated book value for the Comparable Transactions from a low of
134.4% to a high of 189.9%, with a mean of 154.8% compared to a transaction
multiple of 193% for FFO (based on FFO's stated book value of $2.41 per share
at December 31, 1996). Carson Medlin calculated a range of purchase prices as
a multiple of earnings for the Comparable Transactions from a low of 9.1 times
to a high of 18.1 times, with a mean of 14.6 times compared to a transaction
multiple of 21 times (based on FFO's adjusted 1996 annual earnings of $0.22 per
share). Carson Medlin calculated the core deposit premiums for the Comparable
Transactions and found a range of values from a low of 2.8% to a high of 8.4%,
with a mean of 4.8% compared to core deposit premium of 7.6% for FFO. Finally,
Carson Medlin calculated a range of purchase prices as a percentage of total
assets for the Comparable Transactions from a low of 8.1% to a high of 15.1 %,
with a mean of 10.9%. The percentage of total assets implied by the terms of
the Agreement is approximately 12.6% of the December 31, 1996 total assets of
FFO.
Summary Pro Forma Per Share Analysis
Carson Medlin analyzed the pro forma impact of the Merger on the 1997 primary
and fully diluted earnings per share, and December 31, 1996 book value per
share of Bancshares Common Stock using 1997 financial projections prepared by
the management of each respective company and December 31, 1996 audited
financial statements for each company. Carson Medlin also used assumptions
regarding phase-in of cost reductions and the impact of expenses resulting from
the Merger. Carson Medlin's analysis did not include any possible revenue
enhancements that may result from the combination of Bancshares and FFO. Using
these projections and assumptions, the analysis showed that on such pro forma
basis shares of Bancshares Common Stock would experience a decrease in earnings
per share of 3.3% and 0.3% on a primary and fully- diluted basis, respectively,
as compared to management's stand-alone projections. Carson Medlin also
analyzed the changes in pro forma book value per share, noting that pro forma
book value per share at December 31, 1996 would have decreased by approximately
7%.
Other Analysis
Carson Medlin also reviewed an overview of historical financial performance of
FFO since 1983, a shareholder claims analysis for both Bancshares and FFO, an
analysis of the shareholder base of and controlling ownership position of
William R. Hough in both companies and an analysis of the combined company's
franchise/branch network and the market in which the companies operate.
The opinion expressed by Carson Medlin was based upon market, economic and
other relevant considerations as they existed and have been evaluated as of the
date of the opinion. Events occurring after the date of issuance of the
opinion, including but not limited to, changes affecting the securities
markets, the results of operations or material changes in the assets or
liabilities of Bancshares or FFO could materially affect the assumptions used
in preparing the opinion.
OPINION OF FFO'S FINANCIAL ADVISOR
General
On December 16, 1996, Allen C. Ewing was engaged to serve as financial advisor
to FFO in connection with the Merger. As financial advisor to FFO, Allen C.
Ewing participated in the negotiations of the financial terms contained in the
Agreement. The scope of Allen C. Ewing's engagement did not provide for Allen
C. Ewing to solicit, and Allen C. Ewing did not solicit or receive, acquisition
proposals from potential acquirors other than Bancshares.
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At the April 14, 1997 meeting of the Board of Directors of FFO, Allen C. Ewing
rendered a written opinion to the Board of Directors of FFO to the effect that
the terms of the Merger were fair, from a financial point of view, to the
stockholders of FFO. On April 11, 1997, the trading day before Allen C. Ewing
delivered its written opinion to the Board of Directors of FFO, the closing
price of the Bancshares Common Stock was $16.25 per share. The text of Allen
C. Ewing's written opinion is set forth in Appendix C to this Joint Proxy
Statement/Prospectus and should be read in its entirety by FFO's stockholders.
Allen C. Ewing's opinion is directed to the Board of Directors of FFO and
addresses only the fairness from a financial point of view of the consideration
to be received by the stockholders of FFO in the Merger, based on conditions as
they existed and could be evaluated as of the date of the opinion. Allen C.
Ewing's opinion does not constitute a recommendation to any FFO stockholder as
to how such stockholder should vote at the Special Meeting, nor does Allen C.
Ewing's opinion address the underlying business decision to effect the Merger.
In connection with its opinion, Allen C. Ewing reviewed, analyzed and relied
upon information and material bearing upon the Merger and the financial and
operating condition of FFO and Bancshares, including, among other things, the
following: (i) the Agreement; (ii) Annual Reports to Stockholders and Annual
Reports on Form 10-K (or equivalent) for FFO and Bancshares for the three years
ended December 31, 1996; (iii) certain unaudited interim financial information
for FFO and Bancshares for various periods during the years 1996 and 1997; (iv)
other financial information concerning the business and operations of FFO
furnished by FFO to Allen C. Ewing for purposes of its analysis, including
certain internal forecasts for FFO prepared by its senior management; (v) other
financial information concerning the business and operations of Bancshares
furnished by Bancshares to Allen C. Ewing for purposes of its analysis,
including certain internal forecasts for Bancshares prepared by its senior
management; and (vi) certain publicly available information concerning the
trading of, and the trading market for, FFO Common Stock and Bancshares Common
Stock. Allen C. Ewing also held discussions with the management of FFO and
Bancshares concerning their respective operations, financial condition and
prospects, as well as the results of regulatory examinations.
Allen C. Ewing also considered such further financial, economic, regulatory and
other factors as it deemed relevant and appropriate under the circumstances,
including among others the following: (i) certain publicly available
information concerning the financial terms of certain mergers and acquisitions
of other financial institutions in Florida and the financial position and
operating performance of the institutions acquired in those transactions; (ii)
certain publicly available information concerning the trading of, and the
trading market for, the publicly-traded common stocks of certain other
financial institutions; and (iii) the controlling beneficial ownership
interests in FFO and Bancshares held by William R. Hough and the position
expressed to Allen C. Ewing by Mr. Hough that, as of the time of Allen C.
Ewing's analysis, he would not be likely to vote his shares of FFO Common Stock
in favor of an acquisition of FFO by an acquiror other than Bancshares. Allen
C. Ewing also took into account its assessment of general economic, market and
financial conditions and its experience in other transactions, as well as its
experience in securities valuation and its knowledge of the banking and thrift
industry generally.
In conducting its review and arriving at its opinion, Allen C. Ewing relied
upon and assumed the accuracy and completeness of all of the financial and
other information provided to it or publicly available, and Allen C. Ewing did
not attempt to verify such information independently. Allen C. Ewing relied
upon the managements of FFO and Bancshares, respectively, as to the
reasonableness and achievability of the financial and operational forecasts and
projections (and the assumptions and bases therefor) provided to Allen C. Ewing
by the respective companies, and Allen C. Ewing assumed that such forecast and
projections reflected the best estimates and judgments of management then
available, and that such forecasts and projections would be realized in the
amounts and in the time periods then estimated by management. Allen C. Ewing
also assumed, without independent verification, that the aggregate allowances
for loan and other losses for FFO and Bancshares were adequate to cover such
losses. Allen C. Ewing did not make or obtain any inspections, evaluations or
appraisals of the assets or liabilities of FFO or Bancshares, nor did Allen C.
Ewing examine any individual loan, property or securities files. Allen C.
Ewing also assumed that the conditions to the Merger as set forth in the
Agreement would be satisfied, and that the Merger would be consummated on a
timely basis as contemplated by the Agreement.
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Valuation Methodologies
In connection with its written opinion with respect to the terms of the Merger,
Allen C. Ewing performed several analyses. Set forth below is a brief summary
of these analyses.
Analysis Of Terms Of the Merger
Allen C. Ewing calculated the imputed value of the Merger to the holders of FFO
Common Stock based upon the Exchange Ratio contained in the Agreement and
varying assumptions concerning the stock price of Bancshares Common Stock at
the Effective Time of the Merger. See "Description of the Transaction --
General" and "--Adjustment of Common Stock Exchange Ratio." The analysis
showed a value ranging from $3.90 to $5.22 per share of FFO Common Stock based
on an assumed closing price for Bancshares Common Stock at the Effective Time
of the Merger ranging from $13.00 to $18.00 per share. Under the terms of the
Agreement, FFO may terminate the Agreement or abandon the Merger if the Market
Value of Bancshares Common Stock is less than $13.50 per share as of the
Closing Date. See "Description of the Transaction -- Consummation of the
Merger" and "--Waiver, Amendment and Termination of the Agreement."
Stock Premium Analysis
FFO and Bancshares announced on December 26, 1996, that the two companies were
in discussions regarding a possible merger. At December 24, 1996, the trading
day immediately preceding the announcement, the closing price for FFO Common
Stock was $3.00 per share ("Pre-Announcement FFO Price Per Share"). The
Agreement was executed on April 14, 1997. On April 11, 1997, the trading day
immediately preceding the date of the Agreement, the closing price for FFO
Common Stock was $4.125 per share ("Pre-Agreement FFO Price Per Share").
Allen C. Ewing compared the Pre-Announcement FFO Price Per Share and the
Pre-Agreement FFO Price Per Share to an assumed transactional value of the
Merger, using an assumed closing price for Bancshares Common Stock as of the
Effective Time of the Merger ranging from $13.00 to $18.00 per share, producing
a value of $3.90 to $5.22 per share of FFO Common Stock ("Assumed Range of
Merger Value"). Allen C. Ewing found that the Assumed Range of Merger Value
represented a premium of 30.0% to 74.0% to the Pre-Announcement FFO Price Per
Share and a discount of 5.5% to a premium of 26.6% to the Pre- Agreement Price
Per Share.
Stock Trading History
Allen C. Ewing examined recent trading prices and volume history for FFO Common
Stock and Bancshares Common Stock. FFO Common Stock trades on the Nasdaq
Small-Cap Market and Bancshares Common Stock trades on the Nasdaq National
Market. During the period from January 1, 1997 to April 11, 1997, closing
prices for FFO Common Stock ranged from a low of $3.375 per share to a high of
$4.25 per share, with total share volume of 772,900 shares traded. During the
same period, closing prices for Bancshares Common Stock ranged from a low of
$14.00 per share to a high of $16.25 per share, with total volume of 429,400
shares traded.
For the year ended December 31, 1996, closing prices for FFO Common Stock
ranged from a low of $2.375 per share to a high of $3.75 per share, with total
volume of 1,298,500 shares traded. During the same period, closing prices for
Bancshares Common Stock ranged from a low of $11.75 per share to a high of
$15.50 per share, with total volume of 968,700 shares traded.
Allen C. Ewing examined the recent history of trading prices for the Bancshares
Common Stock and the relationship between movements of those stock prices and
movements in the Keefe Bruyette & Woods, Inc. Bank Sector Index (the "Keefe
Index"), a capital-weighted index traded on the Philadelphia Stock Exchange
(trading symbol BKX) composed of 24 listed and over-the-counter stocks
representing national money center and leading regional bank holding companies.
This analysis showed that, during the period from December 31, 1996 through
April 11, 1997, the price of the Bancshares Common Stock increased by
approximately 7.44% and the Keefe
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Index increased by approximately 1.37%. During the period from December 31,
1993 through April 11, 1997, the price of Bancshares Common Stock increased by
approximately 58.54% and the Keefe Index increased by approximately 99.90%. In
considering these analyses, Allen C. Ewing noted that prior performance is not
necessarily indicative of future performance.
Comparable Transaction Analysis
Allen C. Ewing performed an analysis of the premiums paid in comparable
acquisition transactions. For such purposes, Allen C. Ewing considered
comparable transactions to be acquisitions announced from January 1, 1994 to
January 31, 1997, where the target institution was a thrift or thrift holding
company located in Florida. In each of the selected transactions, Allen C.
Ewing analyzed the premium to the target institution's book value, tangible
book value, previous four quarters' earnings, total deposits and total assets.
Allen C. Ewing then compared the ranges of these premiums to the Assumed Range
of Merger Value. This analysis produced the following premium ranges for the
selected comparable transactions and the Assumed Range of Merger Value: (i)
price offered as a multiple of the target institution's book value of 1.06
times to 2.54 times, with a mean of 1.53 times and a median of 1.52 times,
compared to a premium ranging from 1.62 times to 2.17 times for the Assumed
Range of Merger Value based upon FFO's book value at December 31, 1996; (ii)
price offered as a multiple of the target institution's tangible book value of
1.06 times to 2.54 times, with a mean of 1.58 and a median of 1.53 times,
compared to a premium ranging from 1.62 times to 2.17 times for the Assumed
Range of Merger Value based upon FFO's tangible book value at December 31,
1996; (iii) price offered as a multiple of the target institution's previous
four quarters' earnings of 8.87 times to 29.85 times, with a mean of 16.52
times and a median of 15.19 times, compared to a premium ranging from 20.55
times to 27.50 times for the Assumed Range of Merger Value based upon FFO's
previous four quarters' earnings at December 31, 1996; (iv) price offered as a
percentage of the target institution's total deposits of 5.51% to 38.57%, with
a mean of 14.98% and a median of 14.19%, compared to 11.42% to 15.28% for the
Assumed Range of Merger Value based upon FFO's total deposits at December 31,
1996; and (v) price offered as a percentage of the target institution's total
assets of 3.87% to 27.80%, with a mean of 12.06% and a median of 10.87%,
compared to 10.37% to 13.88% for the Assumed Range of Merger Value based upon
FFO's total assets at December 31, 1996. No target institution or transaction
used as a comparison in the analysis described above is identical to FFO or the
Merger. Accordingly, an analysis of the foregoing necessarily involves complex
considerations and judgments, as well as other factors that affect the
acquisition value of the companies being compared.
Discounted Cash Flow Analysis
Using discounted cash flow analysis, Allen C. Ewing estimated the present value
of the future stream of after-tax cash flows that FFO might be expected to
produce through 2001, under various circumstances, assuming that FFO performed
in accordance with the earnings projections of FFO management. Allen C. Ewing
estimated the terminal value of FFO at the end of the period by applying
multiples of earnings (ranging from 14.0 times to 16.0 times) and then
discounting the cash flow streams and terminal value using differing discount
rates (ranging from 15.0% to 18.0%) chosen to reflect different assumptions
about the required rates of return of FFO and the inherent risk surrounding the
underlying projections by the management of FFO. This discounted cash flow
analysis indicated a reference range of $32.5 million to $39.9 million, or
$3.86 to $4.74 per share of FFO Common Stock.
Dividend Analysis
As of April 14, 1997, cash dividends were not being declared or paid on FFO
Common Stock or Bancshares Common Stock.
Contribution Analysis
Allen C. Ewing analyzed the pro forma combined balance sheet and income
statement for FFO and Bancshares at or for the year ended December 31, 1996,
and the relative contribution made by each institution to total assets,
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net loans, total deposits, stockholders' equity and net income. Based on the
Exchange Ratio of 0.29, FFO stockholders would own approximately 33.1% of the
common stock of the combined institution (assuming the conversion of the 75,000
shares of Bancshares Preferred Stock outstanding at December 31, 1996 to
750,000 shares of Bancshares Common Stock), while contributing 25.9% of the
combined total assets, 23.1% of the combined net loans, 25.8% of the combined
total deposits, 27.2% of the combined stockholders' equity, and 29.7% of the
combined net income.
Allen C. Ewing also considered for FFO and Bancshares (i) net income for the
year ended December 31, 1996, adjusted for certain non-recurring items, and
(ii) certain internal net income forecasts for the year ended December 31,
1997, and found FFO's contribution to the combined institution to be consistent
with the Exchange Ratio.
The summary set forth above does not purport to be a complete description of
the analyses performed by Allen C. Ewing. The preparation of a fairness
opinion is not necessarily susceptible to partial analysis or summary
description. Allen C. Ewing believes that its analyses and the summary set
forth above must be considered as a whole, and that selecting portions of its
analyses without considering all analyses, or selecting part or all of the
above summary without considering all factors and analyses, would create an
incomplete view of the processes underlying the analyses reflected in Allen C.
Ewing's opinion. In addition, Allen C. Ewing may have given various analyses
more or less weight than other analyses and may have deemed various assumptions
more or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Allen C. Ewing's view of the actual value of FFO. The fact that any
specific analysis has been referred to in the summary above is not intended to
indicate that such analysis was given greater weight than any other analysis.
In performing its analyses, Allen C. Ewing made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of FFO and Bancshares. The
analyses performed by Allen C. Ewing are not necessarily indicative of actual
values or actual future results which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely
as part of Allen C. Ewing's analysis of the fairness, from a financial point of
view, of the terms of the Merger to the stockholders of FFO. The analyses do
not purport to be appraisals or to reflect the prices at which a company
actually might be sold or the prices at which any securities might trade at the
present time or at any time in the future. In addition, as described above,
Allen C. Ewing's opinion is just one of many factors taken into consideration
by the Board of Directors of FFO in determining to enter into the Agreement.
Compensation of Allen C. Ewing
FFO has agreed to pay Allen C. Ewing an incentive fee, payable at the closing
of the Merger, equal to 0.40% of the value of the consideration issued to FFO
or the security holders of FFO in the Merger. FFO has also paid Allen C. Ewing
a total of $30,000 for services performed by Allen C. Ewing since Allen C.
Ewing was engaged by FFO in connection with the Merger. Further, FFO has
agreed to indemnify and hold harmless Allen C. Ewing and its directors,
officers and employees against certain liabilities, including liabilities under
the federal securities laws, in connection with its services under its
engagement agreement with FFO, except for liabilities resulting solely from the
bad faith or gross negligence of Allen C. Ewing. FFO has previously paid other
fees to Allen C. Ewing as compensation for unrelated financial advisory
services. In the ordinary course of its business as a broker-dealer, Allen C.
Ewing may, from time to time, purchase securities from, and sell securities to,
banking and thrift companies and, as a market maker in securities, may from
time to time have a long or short position in, and buy or sell, debt or equity
securities of banking and thrift companies for its own account and for the
accounts of its customers. As of the close of business on April 14, 1997, the
date of Allen C. Ewing's written opinion to the Board of Directors of FFO,
Allen C. Ewing made net trading markets in FFO Common Stock and Bancshares
Common Stock, and held a net long position in FFO Common Stock.
As part of its investment banking business, Allen C. Ewing is regularly engaged
in the valuation of securities in connection with mergers and acquisitions,
underwritings, private placements, trading and market making activities
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and valuations for various other purposes. FFO's Board of Directors decided to
engage Allen C. Ewing based on its experience as a financial advisor in mergers
and acquisitions of financial institutions, particularly transactions in
Florida, its general investment banking experience in the financial services
industry and its prior financial advisory services to FFO.
EFFECTIVE TIME OF THE MERGER
Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Time will occur on the date and at the time that the
Florida Articles of Merger are declared effective with the Secretary of State
of the State of Florida. Unless otherwise agreed upon by Bancshares and FFO,
and subject to the conditions and the obligations of the parties to effect the
Merger, the parties will use their reasonable efforts to cause the Effective
Time to occur on or before the tenth business day (as designated by Bancshares)
following the last to occur of (i) the effective date (including expiration of
any applicable waiting period) of the last required consent of any regulatory
authority having authority over and approving or exempting the Merger; (ii) the
date on which the stockholders of FFO approve the Agreement; or (iii) the date
on which the stockholders of Bancshares approve the Agreement or such later
date within 30 days thereof as may be specified by Bancshares.
No assurance can be provided that the necessary stockholder and regulatory
approvals can be obtained or that other conditions precedent to the Merger can
or will be satisfied. Bancshares and FFO anticipate that all conditions to
consummation of the Merger will be satisfied so that the Merger can be effected
during the third quarter of 1997. However, delays in the consummation of the
Merger could occur.
The Board of Directors of either Bancshares or FFO generally may terminate the
Agreement if the Merger is not consummated by November 1, 1997, and the Board
of Directors of FFO can refuse to consummate the merger if the Market Value of
Bancshares Common Stock is less than $13.50. See "--Conditions to Consummation
of the Merger" and "--Waiver, Amendment and Termination of the Agreement."
DISTRIBUTION OF BANCSHARES' STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL
SHARES
Promptly after the Effective Time, Bancshares will cause an exchange agent
selected by Bancshares to mail to the former stockholders of FFO a form letter
of transmittal, together with instructions for the exchange of such
stockholders' certificates theretofore representing shares of FFO Common Stock
for new certificates representing shares of Bancshares Common Stock.
FFO STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE FORM LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Upon surrender to the Exchange Agent of certificates for FFO Common Stock,
together with a properly completed letter of transmittal, there will be issued
and mailed to each holder of FFO Common Stock surrendering such items a
certificate or certificates representing the number of shares of Bancshares
Common Stock to which such holder is entitled, as well as payment, by check,
for any resulting fractional shares of Bancshares Common Stock. The amount of
the payment to be received by the holder will equal the product of the
fractional share amount multiplied by the Market Value of Bancshares Common
Stock. After the Effective Time, to the extent permitted by law, FFO
stockholders of record as of the Effective Time will be entitled to vote at any
meeting of holders of Bancshares Voting Stock the number of whole shares of
Bancshares Common Stock into which their FFO Common Stock has been converted,
regardless of whether such stockholders have surrendered their FFO Common Stock
certificates. No dividend or other distribution payable after the Effective
Time with respect to Bancshares Common Stock, however, will be paid to the
holder of any unsurrendered FFO certificate until the holder duly surrenders
such certificate. Upon such surrender, all undelivered dividends and other
distributions will be delivered to such former FFO stockholder, in each case
without interest.
The stock transfer books of FFO shall be closed at the Effective Time. After
the Effective Time, there will be no transfers of shares of FFO Common Stock on
FFO's stock transfer books. If certificates representing shares
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of FFO Common Stock are presented for transfer after the Effective Time, they
will be canceled and exchanged for the shares of Bancshares Common Stock
deliverable in respect thereof.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to a number of conditions, including, but
not limited to:
(a) approval from the Federal Reserve, FDIC and Department without any
conditions or restrictions that would, in the reasonable judgment of
Bancshares' or FFO's Board of Directors, so materially adversely impact the
economic or business benefits of the transactions contemplated by the Agreement
that had such condition or requirement been known, Bancshares or FFO would not,
in their reasonable respective judgments, have entered into the Agreement, and
the expiration of all applicable waiting periods;
(b) the approval by the requisite number of votes represented by the
Bancshares Voting Stock and by the holders of the requisite number of shares of
FFO Common Stock;
(c) the absence of any action by any court or governmental authority
restraining or prohibiting or making illegal consummation of the Merger;
(d) the receipt of a satisfactory opinion of counsel that the Merger
qualifies for federal income tax treatment as a reorganization under Section
368(a) of the Code and that the exchange of FFO Common Stock for Bancshares
Common Stock will not give rise to recognition of gain or loss to FFO
stockholders, except to the extent of any cash received; and
(e) The Registration Statement of which this Joint Proxy
Statement/Prospectus is a part shall have become effective under the Securities
Act of 1933, as amended (the "1933 Act"), no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no action,
suit, proceeding or investigation by the Securities and Exchange Commission (
the "Commission") to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
laws or the 1933 Act relating to the issuance or trading of the shares of
Bancshares Common Stock issuable pursuant to the Merger shall have been
received.
FFO's obligation to consummate the Merger is further conditioned upon (i) the
Market Value of the Bancshares Common Stock not being less than $13.50 per
share and (ii) Bancshares having taken such steps as may be necessary to ensure
that, following the Effective Time, its financial press releases are released
to and available on the Dow Jones New Wire. FFO may elect not to terminate the
Agreement even if the Market Value of Bancshares Common Stock falls below
$13.50 per share. In determining whether to terminate the Agreement in these
circumstances, the FFO Board of Directors will take into account, consistent
with its fiduciary duties, all relevant facts and circumstances existing at the
time, including, without limitation, the advice of its financial advisor and
legal counsel. By approving the Agreement, the FFO stockholders also are
authorizing the Board of Directors to determine, in the exercise of its
fiduciary duties, to proceed with the Merger even though the Market Value of
the Bancshares Common Stock is less than $13.50 at the closing.
Consummation of the Merger also is subject to the satisfaction or waiver of
various other conditions specified in the Agreement, including, among others:
(i) the delivery by Bancshares and FFO of opinions of their respective counsel
and certificates executed by their respective duly authorized officers as to
compliance with the Agreement and, (ii) as of the Closing Date, the accuracy of
certain representations and warranties and the compliance in all material
respects with the agreements and covenants of each party.
REGULATORY APPROVALS
The Merger may not proceed in the absence of receipt of the requisite
regulatory approvals. There can be no assurance that such regulatory approvals
will be obtained or as to the timing of such approvals. There also can
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be no assurance that such approvals will not be accompanied by a conditional
requirement that causes such approvals to fail to satisfy the conditions set
forth in the Agreement. Applications for the approvals and notifications
described below have been submitted to the appropriate regulatory agencies.
Bancshares and FFO are not aware of any material governmental approvals,
notifications or actions that are required for consummation of the Merger,
except as described below. Should any other approval, notice, or action be
required, it presently is contemplated that such approval, notification, or
action would be sought.
The Merger requires the prior approval of the Federal Reserve, pursuant to
Section 4(c)(8) of the BHC Act. It is contemplated that immediately following
the Effective Time, FFO's subsidiary, First Federal, will be merged with and
into Republic, with Republic as the surviving entity (the "Bank Merger"). The
Bank Merger is subject to the approval of the FDIC pursuant to Section 18(c) of
the FDI Act and the Department pursuant to Section 655.412 of the Florida
Statutes. In addition, at least 30 days' prior notification to the OTS of the
Bank Merger is required. In granting their approvals, the Federal Reserve and
FDIC must take into consideration, among other factors, the financial and
managerial resources and future prospects of the institutions and the
convenience and needs of the communities to be served. The relevant statutes
prohibit the Federal Reserve and FDIC from approving the Merger (i) if it would
result in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of banking in any part of the
United States or (ii) if its effect in any section of the country may be to
substantially lessen competition or to tend to create a monopoly, or if it
would be a restraint of trade in any other manner, unless the agencies find
that any anticompetitive effects are outweighed clearly by the public interest
and the probable effect of the transaction in meeting the convenience and needs
of the communities to be served.
Under the FDI Act, the Merger may not be consummated until the 30th day
following the date of FDIC approval, which may be shortened to the 15th day by
the FDIC, during which time the United States Department of Justice may
challenge the transaction on antitrust grounds. The commencement of any
antitrust action would stay the effectiveness of the FDIC's approval, unless a
court specifically orders otherwise.
WAIVER, AMENDMENT AND TERMINATION OF THE AGREEMENT
Prior to the Effective Time, and to the extent permitted by law, any provision
of the Agreement generally may be (i) waived by the party benefitted by the
provision or (ii) amended by a written agreement between Bancshares and FFO
approved by their respective Boards of Directors; provided, however, after
stockholder approval of the Agreement, no amendment relating to the manner in
which FFO Common Stock shall be exchanged for Bancshares Common Stock may be
made without the further approval of such stockholders.
The Agreement may be terminated, and the Merger abandoned, at any time prior to
the Effective Time, either before or after approval by Bancshares and FFO
stockholders, under certain circumstances, including:
(a) By mutual consent of the Board of Directors of Bancshares and the
Board of Directors of FFO;
(b) By the Board of Directors of either Bancshares or FFO in the event of
an inaccuracy of any representation or warranty of the other party contained in
the Agreement provided that (i) the terminating Party is not then in breach of
any representation or warranty or in material breach of any covenant or other
agreement contained in the Agreement that cannot be or has not been cured
within 30 days after the giving of written notice to the other party and, (ii)
in the case of a termination by the Board of Directors of Bancshares, the
Market Value of the Bancshares Common Stock is not less than $13.50;
(c) By the Board of Directors of Bancshares or FFO in the event of a
material breach by the other Party of any covenant contained in the Agreement
that cannot be or has not been cured within 30 days after the giving of written
notice to the breaching Party of such breach; provided that, in the case of a
termination by the Board of Directors of Bancshares, the Market Value of
Bancshares Common stock is not less than $13.50;
(d) By the Board of Directors of Bancshares or FFO in the event (i) any
application filed with any regulatory
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authority required for consummation of the Merger and the other transactions
contemplated hereby is denied by final nonappealable action of such authority
or if any action taken by such authority is not appealed within the time limit
for appeal, or (ii) the stockholders of Bancshares or FFO fail to vote their
approval of the matters submitted for the approval by such stockholders at the
Special Meetings where the transactions will be presented to such stockholders
for approval and voted upon; provided that such denial or failure is not caused
by any willful breach of the Agreement by the Party electing to terminate;
(e) By the Board of Directors of either Bancshares or FFO in the
event that the Merger shall not have been consummated by November 1, 1997;
provided that such failure to consummate is not caused by any willful breach of
the Agreement by the Party electing to terminate; or
(f) By the Board of Directors of either Bancshares or FFO in the
event that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date specified in
the Agreement; provided that (i) the terminating Party is not then in breach of
any representation or warranty or in material breach of any covenant or other
agreement contained in the Agreement, and (ii) in the case of a termination by
the Board of Directors of Bancshares, the Market Value of Bancshares Common
Stock is not less than $13.50.
If the Agreement is terminated, the Parties will have no further obligations,
except with respect to certain provisions, including those providing for
payment of expenses and restricting disclosure of confidential information.
Further, termination will not relieve the Parties from the consequences of any
uncured willful breach of the Agreement giving rise to such termination.
CONDUCT OF BUSINESS PENDING THE MERGER
Each of Bancshares and FFO has generally agreed, unless the prior consent of
the other Party is obtained, and except as otherwise contemplated by the
Agreement, to operate its business only in the ordinary course, preserve intact
in all material respects its business organizations and assets, maintain its
rights and franchises, and take no action that would materially adversely
affect the ability of either Party to perform its covenants and agreements
under the Agreement or to obtain any consent or approval required for the
consummation of the transactions contemplated by the Agreement. In addition,
the Agreement contains certain other restrictions applicable to the conduct of
the business of FFO and Bancshares prior to consummation of the Merger, as
described below.
FFO
FFO has agreed not to take certain actions relating to the operation of its
business pending consummation of the Merger without the prior approval of
Bancshares. Those actions generally include, without limitation: (i) amending
the Articles of Incorporation or Bylaws or other governing instrument of FFO
and its subsidiaries; (ii) becoming responsible for any obligation for borrowed
money in excess of an aggregate amount outstanding at any time of $50,000
(except in the ordinary course of business consistent with past practices);
(iii) repurchasing, redeeming, acquiring or exchanging, directly or indirectly,
any shares or any securities convertible into shares of its capital stock
(other than exchanges in the ordinary course under employee benefits plans) or
declaring or paying any dividend or making any other distribution in respect of
its capital stock; (iv) except pursuant to the exercise of outstanding options
to purchase FFO Common Stock, issuing or selling any additional shares of any
FFO capital stock, any rights to acquire any such stock or any security
convertible into such stock; (v) adjusting, splitting, combining or
reclassifying any of its capital stock; (vi) except for U.S. Treasury or
federal agency securities having maturities or average lives of five years or
less or that are variable rate in nature, purchasing any securities of or
making any material investment in any entity other than one of its wholly-owned
subsidiaries or otherwise acquiring control over any other entity; (vii) except
in accordance with past practice or as previously approved by the Board of
Directors of FFO, granting any increase in compensation or benefits to
employees, officers or directors, paying any severance pay or bonus (except
pursuant to any existing written policies or contracts), entering into or
amending any severance agreements with officers (except as provided by the
Agreement), or voluntarily accelerating the vesting of any employee benefits;
(viii) granting any increase in fees or other increases in compensation or
other benefits to the directors of FFO or any of its subsidiaries except in
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accordance with past practice; (ix) entering into or amending (except for any
amendment required by law) any employment contract that it does not have the
unconditional right to terminate without liability (other than liability for
services already rendered); (x) adopting any new employee benefit plan or
program or materially changing any existing plan or program (except for any
change required by law or advisable to maintain the tax qualified status of any
such plan); (xi) making any significant change in tax or accounting methods or
systems of internal accounting controls (except in conformity to changes in tax
laws or generally accepted accounting principles ("GAAP")); (xii) commencing
any litigation (except in accordance with past practices), or settling any
litigation for material money damages or restrictions upon the operations of
FFO or any of its subsidiaries; or (xiii) modifying or terminating any material
contract.
Bancshares
Bancshares has agreed (i) to take action within 60 days of the date of the
Agreement to ensure its financial press releases are released to and available
on the Dow Jones News Wire and (ii) to use its reasonable efforts to list for
quotation, on the Nasdaq National Market, the shares of Bancshares Common Stock
to be issued to the FFO stockholders in the Merger.
MANAGEMENT OF BANCSHARES AND REPUBLIC FOLLOWING THE MERGER
Consummation of the Merger will not alter the present directors and officers of
Bancshares. Upon consummation of the Merger, Mr. James B. Davis, the President
and Chief Executive Officer of FFO and First Federal, will become President,
Central Florida Division of Republic. Information concerning the management of
Bancshares and Republic is included in the documents incorporated herein by
reference. See "Documents Incorporated by Reference."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Agreement generally provides that Bancshares will, to full extent provided
by Florida law and by FFO's Articles of Incorporation and By-laws, indemnify,
defend and hold harmless the present and former directors, officers, employees
and agents of FFO or any of its subsidiaries against all liabilities arising
out of actions or omissions occurring at or prior to the Effective Time.
The Agreement also provides that, after the Effective Time, Bancshares will
provide generally to officers and employees of FFO and its subsidiaries who
become officers or employees of Bancshares or its subsidiaries employee
benefits under employee benefit plans on terms and conditions that, taken as a
whole, are substantially similar to those currently provided by Bancshares and
its subsidiaries to their similarly situated officers and employees. For
purposes of participation and vesting (but not benefit accrual) under such
employee benefit plans, service with FFO or its subsidiaries prior to the
Effective Time will be treated as service with Bancshares or its subsidiaries.
The Agreement further provides that Bancshares will cause FFO to honor all
provisions for vested amounts earned or accrued through the Effective Time
under FFO's benefit plans.
As noted above, immediately following the Effective Time, Republic will enter
into an employment agreement with Mr. Davis designating him as "President,
Central Florida Division" of Republic and generally providing for Mr. Davis'
continued employment with the Bank through December 31, 1998 [at current
compensation and benefit levels]. Bancshares also will assume the employment
agreement entered into between FFO and Phyllis A. Elam (Chief Financial Officer
of FFO), which provides for her continued employment through March 31, 1998 at
her current compensation and benefits levels, and receipt of a bonus of $50,000
payable on March 31, 1998. In addition, the Agreement authorizes FFO to enter
into employment agreements with up to 12 officers providing that if such
officer remains an officer of FFO through the Effective Time and does not
voluntarily resign within 30 days thereafter, the officer will receive six
months' severance pay (including benefits) or, if greater, base salary for a
period of two weeks for each twelve month period of employment by the officer
with FFO and Bancshares, if the officer is relocated, reassigned or terminated
without cause within 12 months after the Effective Time.
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As described above under "--Treatment of FFO Options," the Agreement also
provides that all rights with respect to FFO Common Stock pursuant to stock
options or stock appreciation rights granted by FFO under its stock option
plans that are outstanding at the Effective Time, whether or not then
exercisable, will be converted into and will become rights with respect to
Bancshares Common Stock, and Republic will assume each of such options in
accordance with its terms and the Exchange Ratio in the Agreement.
DISSENTING STOCKHOLDERS
General
If the Merger and the transactions contemplated thereby are consummated, any
FFO stockholder who properly perfects his or her dissenter's rights of
appraisal will be entitled to receive in cash the fair value of such
stockholder's shares of FFO Common Stock determined immediately prior to the
Effective Time, excluding any appreciation or depreciation in anticipation of
the Merger, as provided in Section 607.1301, 607.1302 and 607.1320 of the FBCA,
copies of which are included as Appendix D to this Joint Proxy
Statement/Prospectus. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES
PRESCRIBED BY APPLICABLE FLORIDA LAW WILL RESULT IN THE LOSS OF DISSENTERS'
RIGHTS.
Statutory Requirements
The following is a summary of the steps to be taken by a FFO stockholder who is
interested in perfecting such holder's dissenters' rights and should be read in
conjunction with the full text of Appendix D. Each of the steps enumerated
below must be taken in strict compliance with the applicable provisions of
Florida law in order for holders of FFO Common Stock to perfect their
dissenters' rights.
Any written objection, demand, or notice required by the FBCA in connection
with the exercise of dissenters' rights should be sent to FFO at 2013 Live Oak
Boulevard, St. Cloud, Florida 34771, Attention: Phyllis Elam, Corporate
Secretary (telephone (407) 957-7421). It is recommended that all required
documents to be delivered by mail be sent by registered or certified mail with
return receipt requested.
Any stockholder of FFO entitled to vote on the Agreement has the right to
receive payment of the fair value of his or her shares of FFO Common Stock upon
compliance with the applicable provisions of the FBCA. A stockholder may
dissent as to all or less than all of the shares that are registered in his or
her name. Any FFO stockholder intending to enforce the right to dissent (i)
must not vote in favor of the Agreement, and (ii) must file a written notice of
intent to demand payment for his or her shares (the "Objection Notice") with
FFO before the vote on the proposal to approve the Agreement and the
transactions contemplated thereby is taken at the meeting. The Objection
Notice must state that the stockholder intends to demand payment for his or her
shares of FFO Common Stock if the Merger is effected. A VOTE AGAINST APPROVAL
OF THE AGREEMENT, IN AND OF ITSELF, WILL NOT CONSTITUTE AN OBJECTION NOTICE
SATISFYING THE REQUIREMENTS OF THE FBCA.
If the Merger Agreement is approved by FFO's stockholders at the FFO Special
Meeting, each stockholder who has properly filed an Objection Notice and has
not voted in favor of the Agreement will be notified by FFO of such approval
within 10 days of the FFO Special Meeting. Within 20 days following receipt of
such notice, any stockholder electing to dissent must file a notice of his or
her election to exercise dissenters' rights, stating the stockholder's name,
address, the number, classes and series of shares as to which the stockholder
dissents, and a demand for payment of the fair value of such shares ("Election
Notice"), and simultaneously deposit the certificates representing the FFO
Common Stock with FFO.
Within the later to occur of 10 days following the expiration of the period in
which stockholders may file their Election Notices and 10 days after the Merger
is consummated (but in no case later than 90 days following the date of the FFO
stockholders approve the Agreement), FFO must make a written offer to each
stockholder who has properly filed an Election Notice to pay an amount FFO
estimates to be a fair value for the stockholder's
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shares. This offer will be accompanied by certain FFO financial statements.
If the Merger is not consummated within 90 days following the date of approval
of the Agreement, any offer to pay by FFO to dissenting stockholders shall be
conditional upon consummation of the Merger. Any stockholder who accepts such
offer within 30 days shall receive payment for the dissenting stockholder's
shares within 90 days of such offer to pay or consummation of the Merger,
whichever is later.
In the event that FFO fails to make any payment offer within the time period
set forth above or any dissenting stockholder fails to accept such offer within
30 days and FFO receives written demand for payment from any dissenting
stockholder within 60 days following the consummation of the Merger, FFO must
institute proceedings in state circuit court in Osceola County, Florida (the
"Court") requesting that the fair value of such dissenting stockholder's shares
be determined. If FFO fails to file such action, any dissenting stockholder
will have the right to file an action in FFO's name for determination as to the
fair value of such stockholder's shares. All dissenting stockholders who have
not accepted payment offers by FFO must be made a party to such court action.
The Court may, in its discretion, appoint an appraiser to receive evidence and
recommend a decision on the question of fair value. The judgment may, in the
discretion of the Court, include a fair rate of interest. Each dissenting
stockholder will be entitled to payment, as determined by the Court, within 10
days following final determination by the Court as to the fair value of such
stockholder's stock.
The Court will assess the costs and expenses of such proceeding (including
reasonable compensation for and the expenses of the appraiser, but excluding
fees and expenses of counsel and experts) against FFO, except that the Court
may assess such costs and expenses as it deems appropriate against any or all
of the dissenting stockholders if it finds that their demand for additional
payment was arbitrary, vexatious or otherwise not in good faith. The Court may
award fees and expenses of counsel and expert in amounts the Court finds
equitable against FFO if the fair value of the shares, as determined by the
Court, materially exceeds the amount which FFO offered to pay or if FFO failed
to make an offer to pay.
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF SECTIONS 607.1301 THROUGH
607.1320 OF THE FBCA IS NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH
PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SECTIONS,
WHICH ARE REPRODUCED IN FULL AS APPENDIX D HEREOF. THE PROVISIONS OF THE
STATUTES ARE TECHNICAL IN NATURE AND COMPLEX. IT IS SUGGESTED THAT ANY FFO
STOCKHOLDER WHO DESIRES TO EXERCISE THE RIGHT TO OBJECT TO THE AGREEMENT
CONSULT HIS OR HER COUNSEL. FAILURE TO STRICTLY COMPLY WITH THE PROVISIONS OF
THE STATUTE MAY DEFEAT A STOCKHOLDER'S RIGHT TO DISSENT.
Any dissenting FFO stockholder who perfects such holder's right to be paid the
value of such holder's shares in cash under the foregoing procedures for
dissent and appraisal will recognize taxable gain or loss for federal income
tax purposes upon receipt of cash for such shares. See "--Certain Federal
Income Tax Consequences."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE FOLLOWING IS A SUMMARY OF CERTAIN ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THIS SUMMARY IS BASED ON THE FEDERAL INCOME TAX
LAWS NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT DOES NOT TAKE INTO ACCOUNT
POSSIBLE CHANGES IN SUCH LAWS OR INTERPRETATIONS, INCLUDING AMENDMENTS TO
APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN JUDICIAL OR ADMINISTRATIVE
RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT. THIS SUMMARY DOES NOT
PURPORT TO ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. IN PARTICULAR,
AND WITHOUT LIMITING THE FOREGOING, THIS SUMMARY DOES NOT ADDRESS THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES OR STATUS (FOR EXAMPLE, AS FOREIGN PERSONS, TAX-EXEMPT
ENTITIES, DEALERS IN SECURITIES, INSURANCE COMPANIES AND CORPORATIONS, AMONG
OTHERS). NOR DOES THIS SUMMARY ADDRESS ANY CONSEQUENCES OF THE MERGER UNDER
ANY STATE, LOCAL, ESTATE OR FOREIGN TAX LAWS. STOCKHOLDERS, THEREFORE, ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICATION AND EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL AND OTHER TAX LAWS,
AND THE IMPLICATIONS
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OF ANY PROPOSED CHANGES IN THE TAX LAWS.
A federal income tax ruling with respect to this transaction was not requested
from the Internal Revenue Service. Instead, Holland & Knight LLP, special
counsel to Bancshares, has rendered an opinion to Bancshares and FFO concerning
certain federal income tax consequences of the proposed Merger under federal
income tax law. It is such firm's opinion that:
(a) Provided the Merger qualifies as a statutory merger under
applicable law, the Merger will be a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
FFO and Bancshares will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code.
(b) The stockholders of FFO will recognize no gain or loss upon the
exchange of their FFO Common Stock solely for shares of Bancshares Common
Stock.
(c) The basis of the Bancshares Common Stock received by the FFO
stockholders in the proposed transaction will, in each instance, be the same as
the basis of the FFO Common Stock surrendered in exchange therefor less the
basis of any fractional share of Bancshares Common Stock settled by cash
payment.
(d) The holding period of the Bancshares Common Stock received by the
FFO stockholders will, in each instance, include the period during which the
FFO Common Stock surrendered in exchange therefor was held, provided that the
FFO Common Stock was held as a capital asset on the date of the exchange.
(e) The payment of cash to FFO stockholders in lieu of fractional
share interests of Bancshares Common Stock will be treated for federal income
tax purposes as if the fractional shares were distributed as part of the
exchange and then were redeemed by Bancshares. These cash payments will be
treated as having been received as distributions in full payment in exchange
for the stock redeemed. Generally, any gain or loss recognized upon such
exchange will be capital gain or loss, provided the fractional share would
constitute a capital asset in the hands of the exchanging stockholder.
(f) Where solely cash is received by a FFO stockholder in exchange
for his FFO Common Stock pursuant to the exercise of dissenters' rights, such
cash will be treated as having been received in redemption of his FFO Common
Stock, subject to the provisions and limitations of Section 302 of the Code.
THE TAX OPINION DOES NOT ADDRESS ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES OF
THE MERGER. FFO STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO THEM INDIVIDUALLY,
INCLUDING TAX CONSEQUENCES UNDER STATE OR LOCAL LAW.
ACCOUNTING TREATMENT
The Merger will be accounted for as a corporate reorganization under which
William R. Hough's controlling interest in FFO will be carried forward at its
historical cost in a manner similar to a pooling of interest, while the
minority interest in FFO will be accounted for using purchase accounting rules.
Under the purchase method, a purchase price equivalent of the minority interest
will be determined by calculating the number of shares issued to the minority
interest times $15.50, the average of the closing bid price for Bancshares
Common Stock over the period two days before, two days after, and including
March 11, 1997, and the date it was announced that Bancshares and FFO had
signed a letter of intent to combine the two companies. The resulting excess
of purchase price over the book value of the net assets acquired is
approximately $5.7 million, of which approximately $400,000 will be allocated
among assets, liabilities and other identified intangibles to reduce, in the
aggregate, the minority interest in FFO's book value to its fair market value.
The excess of the purchase
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price equivalent over the fair market value of FFO's assets, liabilities and
other intangibles of approximately $6.1 million will be charged to goodwill.
The equity of the Combined Company will be increased by $5.7 million.
Bancshares will amortize this goodwill as a charge against earnings over a ten
year term. See "Summary--Comparative Per Share Data".
Following the Merger, the Combined Company will restate its historical
financial and other data necessary for a fair presentation of financial
condition and results of operations "as if" Bancshares and FFO had been
combined during the current and four preceding fiscal years.
EXPENSES AND FEES
The Agreement provides, in general, that each of the parties will bear and pay
its own expenses in connection with the transactions contemplated by the
Agreement, including fees and expenses of its own financial or other
consultants, investment bankers, accountants and counsel, except that
Bancshares will bear and pay the filing fees and printing costs in connection
with this Joint Proxy Statement/Prospectus.
RESALES OF BANCSHARES COMMON STOCK
The Bancshares Common Stock to be issued to stockholders of FFO in connection
with the Merger will be registered under the Securities Act. All shares of
Bancshares Common Stock received by holders of FFO Common Stock, and all shares
of Bancshares Common Stock issued and outstanding immediately prior to the
Effective Time, upon consummation of the Merger, will be freely transferable by
those stockholders of FFO and Bancshares not deemed to be "Affiliates" of FFO
or Bancshares. "Affiliates" generally are defined as persons or entities who
control, are controlled by or are under common control with FFO or Bancshares
at the Effective Time of the Merger.
Rules 144 and 145 promulgated under the Securities Act restrict the sale of
Bancshares Common Stock received in the Merger by Affiliates and certain of
their family members and related interests. Generally speaking, during the
one-year period following the Effective Time, Affiliates of FFO or bancshares
may resell publicly the Bancshares Common Stock received by them in the Merger
within certain limitations as to the amount of Bancshares Common Stock sold in
any three-month period and as to the manner of sale. After this one-year
period, such Affiliates of FFO who are not Affiliates of Bancshares may resell
their shares without restriction. This Joint Proxy Statement/Prospectus does
not cover any resales of Bancshares Common Stock received by persons who may be
deemed to be Affiliates of FFO or Bancshares.
FFO has agreed to use its reasonable efforts to cause each person who FFO
reasonably believes will be an Affiliate of FFO to execute and deliver to
Bancshares a written agreement providing that such person generally will not
sell, pledge, transfer or otherwise dispose of any Bancshares Common Stock to
be received by such person upon consummation of the Merger, except in
compliance with the Securities Act and the rules and regulations of the
Commission promulgated thereunder.
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EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS
As a result of the Merger, holders of FFO Common Stock will be exchanging their
shares of FFO, a Florida corporation governed by the FBCA, FFO's Articles of
Incorporation, as amended (the "FFO Articles"), and FFO's Bylaws, for shares of
Bancshares, a Florida corporation governed by the FBCA, Bancshares' Articles of
Incorporation (the "Bancshares Articles") and Bancshares' By-Laws. Certain
differences exist between the rights of FFO stockholders and those of
Bancshares stockholders. The differences deemed material by Bancshares and FFO
are summarized below. The following discussion is necessarily general; it is
not intended to be a complete statement of all differences affecting the rights
of stockholders and their respective entities, and it is qualified in its
entirety by reference to the FBCA as well as to the Bancshares Articles and
By-Laws and the FFO Articles and Bylaws.
AUTHORIZED CAPITAL STOCK
Bancshares
The Bancshares Articles authorize the issuance of up to 20,000,000 shares of
Bancshares Common Stock, $2.00 par value, and 100,000 shares of Bancshares
Series A Preferred Stock, $20.00 par value, of which 4,183,507 and 75,000
shares, respectively, were issued and outstanding as of the Record Date. Each
share of Bancshares Preferred Stock is convertible at any time into ten shares
of Bancshares Common Stock and is redeemable at any time by Bancshares upon 30
days prior written notice at a price of $96.80 per share.
Unless otherwise required by law or the Bancshares Articles, holders of
Bancshares Common and Preferred Stock vote together as a single class on all
matters presented to Bancshares' stockholders. Each share of Bancshares
Preferred Stock is entitled to 10 votes for all purposes, and each share of
Bancshares Common Stock is entitled to one vote. No cash dividend may be
declared or paid on shares of Bancshares Common Stock unless, simultaneously
therewith or prior thereto, there is or has been declared or paid the quarterly
dividend payable on Bancshares Preferred Stock.
In any liquidation or dissolution of the corporation, the holders of Bancshares
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 Bancshares Common Stock. After the above
preference amount has been paid to the holders of Bancshares Preferred Stock,
such holders will not be entitled to any further distributions. The holders of
Bancshares Common Stock will then be entitled to participate, pro rata in
accordance with the number of shares owned by them, in the distribution of
Bancshares' remaining assets.
Bancshares' Board of Directors may authorize the issuance of additional
authorized but unissued shares of Bancshares Common and Preferred Stock without
further action by Bancshares' stockholders, unless such action is required in a
particular case by applicable laws or regulations or by any stock exchange upon
which Bancshares' capital stock may be listed. The Bancshares Articles do not
provide any preemptive rights to Bancshares' stockholders.
The authority to issue additional shares of Bancshares Common Stock provides
Bancshares with the flexibility necessary to met its future needs without the
delay resulting from seeking stockholder approval. The authorized but unissued
shares of Bancshares 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.
FFO
As of the Record Date, FFO's authorized capital stock consisted of 20,000,000
shares of FFO Common Stock, $.10 par value, of which 8,446,266 shares were
issued and outstanding and 2,500,000 authorized shares of FFO serial preferred
stock, $.10 par value ("FFO Preferred Stock"), none of which was outstanding.
FFO's Board
42
<PAGE> 53
of Directors may authorize the issuance of additional shares of FFO Common or
Preferred Stock without further action by FFO's stockholders, with FFO
Preferred Stock having such rights, preferences, liquidation value, dividend
rate, conversions rights and other terms as may be designated in one or more
distinctive series by the FFO Board of Directors at the time of such issuance.
FFO's Articles do not provide the stockholders of FFO with preemptive rights.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
Bancshares
The Bancshares Articles provide that such articles may be amended as provided
by law. The FBCA generally requires that the approval of a corporation's board
of directors and the affirmative vote of a majority of, (i) all shares entitled
to vote thereon and (ii) the shares of each class of stock entitled to vote
thereon as a class, to amend a corporation's articles of incorporation, unless
the corporation's articles specify a greater voting requirement. A majority of
the Bancshares Board of Directors has the power to adopt, amend, or repeal the
Bancshares By-Laws. Neither the Bancshares Articles nor By-Laws expressly
permit the Bancshares stockholders to make, alter or rescind any By-Laws.
FFO
The FFO Articles generally provide that such Articles may be amended pursuant
to a resolution adopted by the affirmative vote of a majority of the FFO
directors then in office and the affirmative vote of two-thirds of the shares
of FFO, provided that, in the case of an amendment to the provisions of the FFO
Articles that increases the amount of authorized FFO Common or Preferred Stock,
only the affirmative vote of a majority of the shares of FFO is required. The
FFO By-Laws may be amended by the affirmative vote of a majority of the
directors then in office.
The effect of FFO's more stringent voting requirement for the amendment of the
FFO Articles, including those provisions relating to business consolidations
and the removal of directors, is that FFO stockholders possess a greater
ability to prevent the amendment of such provisions than do the stockholders of
Bancshares. Conversely, Bancshares stockholders are afforded more latitude in
amending the provisions in the Bancshares Articles relating to, for example,
business consolidations and the removal of directors than are the shareholders
of FFO with regard to the FFO Articles.
CLASSIFIED BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING
Bancshares
Bancshares' By-Laws generally provide that the number of directors constituting
the Bancshares Board shall be not less than five nor more than 25 directors as
fixed from time to time by resolution of Bancshares' Board of Directors.
Currently, the number of directors is fixed at six. Unlike the FFO Board, the
Bancshares directors are elected to one-year-terms, and the Bancshares Board
is not classified. Bancshares' stockholders do not have cumulative voting
rights with respect to the election of directors. All elections for directors
are decided by a plurality vote.
FFO
The FFO Articles and Bylaws provide that FFO's Board of Directors is divided
into three classes, with each class to be as nearly equal in number as
possible. The number of directors is determined by the Board of Directors from
time to time, but in no event shall the FFO Board have less than five directors
nor more than 15 directors. The directors in each class serve three-year terms
of office, with only one class standing for re-election each year. FFO's Board
of Directors presently consists of six members. The effect of FFO having a
classified Board of
43
<PAGE> 54
Directors and staggering the three classes is that only approximately one-third
of the members of the Board are elected each year, which effectively requires
two annual meetings for FFO's stockholders to change a majority of the members
of the Board. In general, the election of directors by FFO stockholders is in
accordance with the FBCA, which provides that the elections for directors are
determined by a plurality vote.
REMOVAL OF DIRECTORS
Bancshares
Pursuant to Bancshares' By-Laws, any or all of the directors may be removed
with or without cause by the affirmative vote of the holders of at least a
majority of the outstanding shares then entitled to vote.
FFO
Under the FFO Articles, any director or the entire Board of Directors may be
removed only for cause and only by the affirmative vote of the holders of at
least two-thirds of FFO's Common Stock. The FFO stockholders face a more
restrictive voting requirement to remove FFO directors than Bancshares
stockholders do with respect to Bancshares directors. The effect of this
difference in voting requirements is that the directors of FFO are afforded
greater protection against their removal by the vote of the FFO stockholders
than are the directors of Bancshares.
INDEMNIFICATION
Bancshares
The Bancshares By-Laws essentially provide that Bancshares will indemnify its
officers, directors, employees and agents to the full extent permitted by the
FBCA. Under the FBCA, other than in actions brought by or in the right of
Bancshares, such indemnification would apply if it were determined in the
specific case that the proposed indemnitee acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests
of Bancshares and, with respect to any criminal proceeding, if such person had
no reasonable cause to belief that the conduct was unlawful. In actions
brought by or in the right of Bancshares, such indemnification would apply if
it were determined in the specific case that the proposed indemnitee acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of Bancshares, except that no indemnification may
be made with respect to any matter as to which such person is adjudged liable
to Bancshares, unless, and only to the extent that, the court determines upon
application that, in view of all the circumstances of the case, the proposed
indemnitee is fairly and reasonably entitled to indemnification for such
expenses as the court deems proper. To the extent that any director, officer,
employee or agent of Bancshares has been successful on the merits or otherwise
in defense of any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, such person must be indemnified against
reasonable expenses incurred by such person in connection with the action.
The Bancshares By-Laws also provide that a director of Bancshares will have no
indemnification rights for liability for (i) willful misconduct or a conscious
disregard for the best interests of Bancshares or its stockholders, (ii) acts
or omissions constituting a violation of criminal law, (iii) the payment of
certain unlawful dividends and the making of certain unlawful stock purchases
or redemptions, or (iv) any transaction from which the director derived an
improper personal benefit.
Expenses, including attorneys' fees, incurred by a Bancshares director or
officer in defending a civil or criminal action, suit or proceeding must be
paid by Bancshares in advance of the final disposition of the action upon
receipt of an undertaking by the director or officer to repay such amounts if
he is ultimately found not to be entitled to indemnification by Bancshares.
44
<PAGE> 55
FFO
FFO's Bylaws provide for indemnification of, and advancement of expenses to,
FFO directors, officers, employees and agents in substantially the same manner
and to the same extent as the Bancshares By-Laws.
SPECIAL MEETINGS OF STOCKHOLDERS
Bancshares
Under the Bancshares By-Laws, a special meeting of Bancshares stockholders may
be called at any time by the Chairman of the Board, the President or the Board
of Directors of Bancshares, or as otherwise required by the FBCA.
FFO
FFO's Bylaws provide that special meetings of stockholders may be called at any
time, but only by a majority of FFO's Board of Directors.
Neither the stockholders of Bancshares nor the stockholders of FFO have the
right to call a special meeting or to require that either Board of Directors
call such a meeting. Thus, a substantial stockholder of either Bancshares or
FFO would be unable to compel stockholder consideration of any proposal (such
as a proposal for a business combination) over the opposition of either
company's Board of Directors by calling a special meeting of stockholders.
ACTIONS OF STOCKHOLDERS WITHOUT A MEETING
Bancshares
The Bancshares By-Laws provide that any action required or permitted to be
taken by Bancshares stockholders at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent signed by the holders of outstanding stock of each
group having not less than the minimum number of votes necessary to take such
action at a meeting at which all voting groups were present and voted is
delivered to Bancshares.
FFO
The FFO Articles and Bylaws are silent on whether action required or permitted
to be taken by FFO stockholders must be effected at a duly called meeting of
the stockholders or whether such action may be effected by any written consent
by the stockholders. Section 607.0704 of the FBCA provides that, unless
otherwise provided in the articles of incorporation, action required or
permitted by the FBCA to be taken at an annual or special meeting may be taken
without a meeting, without prior notice and without a vote if the action is
taken by the holders of the minimum number of votes with respect to each voting
group that would be necessary to authorize such action at a meeting. The
action must be evidenced by the written consent of such stockholder and, within
ten days after obtaining such authorization by written consent, notice must be
given to those stockholders who have not consented in writing or who are not
entitled to vote on the action.
STOCKHOLDER NOMINATIONS AND PROPOSALS
Bancshares
Bancshares' Articles and By-Laws are silent as to the procedures to be followed
for stockholders' director nominations and the submission of stockholder
proposals.
45
<PAGE> 56
FFO
FFO's Bylaws provide that nominations of candidates for election as directors
at any annual meeting of stockholders may be made by any stockholder by
delivering written notice of such nomination to the principal executive offices
of FFO not less than 60 days prior to the anniversary date of the preceding
annual meeting. In the case of an election to be held at a special meeting of
FFO stockholders, such notice must be delivered not later than the tenth day
following the day on which notice of the special meeting was mailed to
stockholders. The notice must set forth certain background information about
the persons to be nominated, including information concerning (i) the name,
age, business, and, if known, residential address of each nominee, (ii) the
principal occupation or employment of each such nominee and nominating
stockholder, and (iii) the number of shares of FFO Common Stock beneficially
owned by each such nominee.
MERGERS, CONSOLIDATION AND SALES OF ASSETS
Bancshares
Neither the Bancshares Articles nor its By-Laws contain provisions regarding
business combination transactions. Under the FBCA, such transactions generally
must be approved by Bancshares' Board of Directors and by the holders of each
class of voting securities by a majority of the total outstanding votes
entitled to be cast by the class unless, in the case of a surviving corporation
in a business combination, (i) its articles of incorporation will not differ
from its articles before the combination and, (ii) each stockholder whose
shares were outstanding immediately prior to the combination will hold the same
number of shares with identical designations, preferences, limitations and
relative rights immediately after the business combination.
FFO
FFO Articles are silent as to business combinations, and sales, leases, or
other dispositions of assets other than in the regular course of business that
are consummated with persons or entities (and their affiliates) whose
beneficial ownership of FFO capital stock represents less than ten percent of
the outstanding voting stock of FFO. For such transactions, the Board of
Director and stockholder approval provisions set forth in the FBCA (described
above) would apply. However, if the other entity involved with FFO in such
transactions beneficially owns ten percent or more of the outstanding voting
stock of FFO (a "Related Person"), the provisions of the FFO Articles are
triggered, requiring that the approval of such transactions by FFO stockholders
be subject to special voting requirements.
In the event that FFO undertakes (i) any business combination with a Related
Person, (ii) any sale, lease, or other disposition of all or substantially all
of its assets or business to a Related Person, (iii) any purchase, exchange,
lease or other acquisition by FFO of all or substantially all of the assets or
business of a Related Person, or (iv) any reclassification of securities,
recapitalization or other transaction that has the effect of increasing the
proportionate amount of voting stock of FFO beneficially owned by a Related
Person, then the FFO Articles provide (1) that the affirmative vote of the
holders of at least eighty percent (80%) of the outstanding shares of FFO's
voting stock and (2) the affirmative vote of the holders of a majority of
voting shares beneficially owned by persons other than the Related Person are
required to authorize such transactions, unless approval by disinterested board
members is obtained. The foregoing "supermajority" approval requirements are
not applicable in the present instance because the Agreement and the Merger
were unanimously approved by the Special Committee of FFO's Board of Directors.
DISSENTERS' RIGHTS OF APPRAISAL
The rights of appraisal of dissenting stockholders of Bancshares and FFO in
business combination transactions are governed by the FBCA. See "Description
of the Transaction--Dissenting Stockholders" and "Appendix D."
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<PAGE> 57
STOCKHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS
Bancshares and FFO
Bancshares and FFO charter documents are silent with respect to the
stockholders' rights to examine books and records. In the absence of such a
provision, the FBCA provides that a stockholder may inspect books and records
upon written demand at least five days before the date on which he wishes to
inspect such records. Such inspection is to occur during regular business
hours at the corporation's principal office. The corporation may deny any
demand for inspection if the demand was made for an improper purpose, which
means a purpose not reasonably related to such person's interest as a
stockholder.
DIVIDENDS
Bancshares
The Bancshares Articles provide that Bancshares Preferred Stock shall pay a
noncumulative annual dividend of $3.52 per share payable in quarterly
increments from legally available funds prior to payment of any dividend on
Bancshares Common Stock for the dividend period. No dividend may be paid on
Bancshares Common Stock unless holders of Bancshares Preferred Stock have
received their dividend for that quarter. Under the FBCA, no dividend or other
distribution to stockholders may be made by Bancshares if, after giving effect
to the distribution, (1) Bancshares would not be able to pay its debts as they
come due in the usual course of business, or (2) its total assets would be less
than the sum of its liabilities.
FFO
The FFO Bylaws provide that dividends may be declared by the FFO Board of
Directors and paid by FFO out of the unreserved and unrestricted earned surplus
of FFO, or out of FFO's unreserved and unrestricted net earnings of its current
fiscal year and the prior fiscal year, subject to any conditions or limitations
imposed by Florida and any Federal regulatory agency.
[Balance of page intentionally left blank]
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<PAGE> 58
COMPARATIVE MARKET PRICES
BANCSHARES
Since April 24, 1995, Bancshares Common Stock (and, prior to ____, 1996
Republic's common stock) has been listed on the Nasdaq National Market under
the symbol "REPB". From January 1, 1995 through April 23, 1995, Republic's
common stock was listed on the Nasdaq Small-Cap Market under the same symbol.
The high, low and closing bids on the Nasdaq Small-Cap Market for the period
January 1, 1995 through April 23, 1995, and for the Nasdaq National Market for
the period April 24, 1995 through March 31, 1997 were as follows:
<TABLE>
<CAPTION>
High Low Closing
---- --- -------
<S> <C> <C> <C>
Quarter ended March 31, 1995 12 1/2 12 12
Quarter ended June 30, 1995 13 3/4 11 3/4 13 5/8
Quarter ended September 30, 1995 15 3/4 13 3/16 15 1/4
Quarter ended December 31, 1995 15 1/4 13 3/4 14 1/4
Quarter ended March 31, 1996 14 1/4 13 1/4 13 3/8
Quarter ended June 30, 1996 14 15/16 12 1/4 12 5/16
Quarter ended September 30, 1996 12 7/8 11 3/4 12 7/8
Quarter ended December 31, 1996 15 1/2 13 5/8 15 1/8
Quarter ended March 31, 1997 16 14 15 1/2
</TABLE>
FFO
FFO Common Stock is traded on the Nasdaq Small-Cap Market under the symbol
"FFFG". The high, low and closing bid prices quoted on the Nasdaq Small-Cap
Market for the period January 1, 1995 through March 31, 1997 were as follows:
<TABLE>
<CAPTION>
High Low Closing
---- --- -------
<S> <C> <C> <C>
Quarter ended March 31, 1995 2 1/4 2 1/8 2 1/4
Quarter ended June 30, 1995 2 7/8 2 1/4 2 7/8
Quarter ended September 30, 1995 3 2 3/8 2 7/8
Quarter ended December 31, 1995 2 5/8 2 1/4 2 9/16
Quarter ended March 31, 1996 2 7/8 2 3/8 2 22/32
Quarter ended June 30, 1996 3 1/2 2 5/8 2 5/8
Quarter ended September 30, 1996 3 1/8 2 1/2 2 4/16
Quarter ended December 31, 1996 4 2 3/4 3 3/8
Quarter ended March 31, 1997 4 1/16 2 1/4 4 1/16
</TABLE>
48
<PAGE> 59
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET FOR
BANCSHARES, FIRSTATE AND FFO
The following unaudited pro forma combined balance sheet presents (i) the
historical unaudited consolidated balance sheets of Bancshares and Firstate at
March 31, 1997, (ii) the pro forma combined balance sheet of Bancshares at
March 31, 1997, giving effect to Bancshares' acquisition of Firstate, and (iii)
the pro forma combined balance sheet of Bancshares at March 31, 1997, giving
effect to both the Firstate acquisition and the Merger. The pro forma
adjustments are based upon available information and upon certain assumptions
that bancshares believes are reasonable under the circumstances. The unaudited
pro forma combined balance sheet should be read in conjunction with the
historical consolidated financial statements of Bancshares and FFO, including
the respective notes thereto, which are set forth at pages - and - ,
respectively, of this Joint Proxy Statement/Prospectus, and the unaudited
financial information appearing elsewhere herein. See "Summary--Comparative
Per Share Data" and "--Summary Pro Forma financial Data." The pro forma
combined balance sheet is not necessarily indicative of the combined financial
position that actually would have occurred if the Firstate acquisition and the
Merger had been consummated at the date indicated or that may be obtained in
the future.
[Balance of page intentionally left blank]
49
<PAGE> 60
UNAUDITED PROFORMA COMBINED BALANCE SHEET FOR BANCSHARES, FIRSTATE AND FFO
AS OF MARCH 31, 1997
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combined
Firstate Bancshares FFO Company
Adjustments with Adjustments with
Bancshares Firstate Inc.(Dec) (a) Firstate FFO Inc.(Dec) (b) Firstate
---------- -------- ----------- ---------- --- ----------- --------
<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
in banks - 950 - 950 7,688 - 8,638
Investment and MBS
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, net 694,784 37,931 (6,689) 726,026 215,926 (530) 941,422
Premises and equipment, net 20,015 655 - 20,670 5,268 251 26,189
Other real estate owned 7,250 2,526 (2,453) 7,323 1,425 - 8,748
Goodwill 404 - 130 534 - 5,862 6,396
Other assets 16,357 1,531 2,469 20,357 3,934 - 24,291
--------- --------- --------- ----------- -------- -------- -----------
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 checking 89,895 1,453 - 91,348 22,676 - 114,024
Savings & 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
agreements to repurchase 16,160 - - 16,160 - - 16,160
Other borrowed funds 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 unrealized gains (losses)
on available-for-sale
securities, net of tax effect
(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>
50
<PAGE> 61
PRO FORMA COMBINED STATEMENTS OF INCOME AND OPERATIONS
FOR BANCSHARES, FIRSTATE, AND FFO
The following unaudited pro forma combined condensed statements of income and
operations have been prepared for the years ended December 31, 1996 and 1995
and for the three months ended March 31, 1997, giving effect to both the
Firstate acquisition and the Merger, as if they had occurred at the beginning
of the respective periods. The pro forma adjustments are based upon available
information and upon certain assumptions that Bancshares believes are
reasonable under the circumstances. The pro forma adjustments to the combined
condensed statements of income and operations are limited to amortization of
goodwill from the transactions and do not include the effect of operating cost
savings or revenue enhancements that may be realized after the Firstate
acquisition and the Merger are completed. The unaudited pro forma combined
condensed statements of income and operations should be read in conjunction
with the historical consolidated financial statements of Bancshares and FFO,
including the respective notes thereto, which are set forth at pages ____ -
____ and ____ - _____ respectively, of this Joint Proxy Statement/Prospectus,
and the unaudited financial information appearing elsewhere herein. See
"Summary--Comparative Per Share Data" and "--summary Pro Forma Financial Data."
The pro forma combined condensed statements of income and operations are not
necessarily indicative of the results that actually would have occurred if the
Firstate acquisition and the Merger had been consummated at the dates indicated
or that may be obtained in the future.
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<PAGE> 62
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR BANCSHARES, FIRSTATE AND FFO
THREE MONTHS ENDED MARCH 31, 1997
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combined
Firstate Bancshares FFO Company
Adjustments with Adjustments with
Bancshares Firstate Inc.(Dec) (c) Firstate FFO Inc.(Dec) (d) Firstate
---------- -------- ----------- ---------- --- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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
merger & Firstate acquisition - - 3 3 - 147 150
-------- -------- -------- -------- -------- -------- ---------
Net Income $ 1,603 $ (307) $ (3) $ 1,293 $ 587 $ (147) $ 1,733
======== ======== ======== ======== ======== ======== =========
Earnings per share $ .32 $ .26 $ .23
========= ========= ==========
Weighted average shares
outstanding 4,980,167 4,980,167 7,429,584
</TABLE>
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR BANCSHARES, FIRSTATE AND FFO
TWELVE MONTHS ENDED DECEMBER 31, 1996
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combined
Firstate Bancshares FFO Company
Adjustments with Adjustments with
Bancshares Firstate Inc.(Dec) (c) Firstate FFO Inc.(Dec) (d) Firstate
---------- -------- ----------- ---------- --- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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 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
merger & Firstate acquisition - - 13 13 - 586 599
-------- -------- -------- --------- --------- ---------- ---------
Net income $ 3,784 $ (1,523) $ (13) $ 2,248 $ 1,600 $ (586) $ 3,262
======== ======== ======== ========= ========= ========== =========
Earnings per share $ 0.76 $ .45 $ .44
======== ========== ==========
Weighted average shares
outstanding 4,952,937 4,952,937 7,397,637
</TABLE>
52
<PAGE> 63
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR BANCSHARES, FIRSTATE AND FFO
TWELVE MONTHS ENDED DECEMBER 31, 1995
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combined
Firstate Bancshares FFO Company
Adjustments with Adjustments with
Bancshares Firstate Inc.(Dec) (c) Firstate FFO Inc.(Dec) (d) Firstate
---------- -------- ----------- ---------- --- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 57,863 $ 6,482 - $ 64,345 $ 19,730 $ - $ 84,075
Interest expense 30,001 5,055 - 35,056 10,111 - 45,167
-------- -------- -------- -------- -------- ---------
Net interest income 27,862 1,427 - 29,289 9,619 - 38,908
Loan loss provision 1,685 (535) - 1,150 477 - 1,627
-------- -------- -------- -------- -------- -------- ---------
Net interest income after
loan loss provision 26,177 1,962 - 28,139 9,142 - 37,281
Noninterest income 2,751 639 - 3,390 2,602 - 5,992
General & administrative
(G&A expenses) 22,119 2,756 - 24,875 8,844 - 33,719
Other noninterest expenses 739 - - 739 613 - 1,352
-------- -------- -------- -------- -------- -------- ---------
Net income before taxes
and goodwill 6,070 (155) - 5,915 2,287 - 8,202
Income tax expense 1,875 - - 1,875 641 - 2,516
-------- -------- -------- -------- -------- -------- ---------
Net income before goodwill
amortization 4,195 (155) - 4,040 1,646 - 5,686
Goodwill amortization (accretion)
(1,578) - 13 (1,565) - 586 (979)
-------- -------- -------- -------- -------- -------- -------
Net Income $ 5,773 $ (155) $ (13) $ 5,605 $ 1,646 $ (586) $ 6,665
======== ======== ======== ======== ======== ======== =========
Earnings per share $ 1.26 $ 1.23 $ 0.95
======== ======== =========
Weighted average shares
outstanding 4,562,642 4,562,642 7,007,342
</TABLE>
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR BANCSHARES, FIRSTATE AND FFO
TWELVE MONTHS ENDED DECEMBER 31, 1994
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combined
Firstate Bancshares FFO Company
Adjustments with Adjustments with
Bancshares Firstate Inc.(Dec) (c) Firstate FFO Inc.(Dec) (d) Firstate
---------- -------- ----------- ---------- --- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Condensed Income Statements
- ---------------------------
Interest income $ 37,115 $ 6,861 - $ 43,976 $ 16,882 $ - $ 60,858
Interest expense 16,871 4,319 - 21,190 7,553 - 28,743
-------- -------- -------- -------- -------- ---------- --------
Net interest income 20,244 2,542 - 22,786 9,329 - 32,115
Loan loss provision 1,575 (837) - 738 (1,403) - (665)
-------- -------- -------- -------- -------- ---------- --------
Net interest income after
loan loss provision 18,669 3,379 - 22,048 10,732 - 32,780
Noninterest income 2,612 58 - 2,670 2,487 - 5,157
General & administrative
(G&A expenses) 14,916 2,655 - 17,571 8,761 - 26,332
Other noninterest expenses 1,701 (1) - 1,700 3,784 - 5,484
-------- -------- -------- -------- -------- ---------- --------
Net income before taxes
and goodwill 4,664 783 - 5,447 674 - 6,121
Income tax expense 468 - - 468 234 - 702
-------- -------- -------- -------- -------- ---------- --------
Net income before goodwill
amortization 4,196 783 - 4,979 440 - 5,419
Goodwill amortization (accretion)
(2,705) - 13 (2,692) - 586 (2,106)
--------- -------- -------- --------- --------- ---------- ---------
Net income $ 6,901 $ 783 $ (13) $ 7,671 $ 440 $ (586) $ 7,595
========= ======== ======== ========= ========= ========== =========
Earnings per share $ 1.67 $ 1.85 $ 1.07
========== ========== ==========
Weighted average shares
outstanding 4,136,790 4,136,790 7,085,788
</TABLE>
53
<PAGE> 64
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 Merger will be accounted for as a corporate reorganization in which
the majority stockholder's interest 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 pro forma
valuation of the minority interest, book value and the estimated amount of
goodwill and market value adjustments is as follows:
<TABLE>
<S> <C>
Exchange ratio: 0.29 of a share of Bancshares Common Stock for each
share of FFO Common Stock
Number of Bancshares Common Stock 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 Bancshares 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 Bancshares Common Stock is based on the average of the
closing bid price on the Nasdaq National Market two days before, two
days after, and including March 11, 1997, the date that Bancshares and
FFO announced they had signed a letter of intent to combine the two
companies.
(2) The fair value per share of Bancshares Common Stock times the number of
shares to be issued to the minority interest.
(3) The number of FFO options outstanding (203,259) times the fair value of
Bancshares Common Stock adjusted for the Exchange Ratio of 0.29, less
the aggregate exercise price of the FFO Common Stock options, all times
the 30.9% minority interest.
(4) FFO's book value times the 30.9% minority interest.
(c) Amortization of goodwill on the Firstate acquisition 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 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>
54
<PAGE> 65
CERTAIN INFORMATION CONCERNING BANCSHARES
GENERAL
Bancshares is a bank holding company organized in March 1996 under the laws of
the State of Florida and is the parent of Republic, a Florida-chartered,
federally-insured commercial bank. At March 31, 1997 Bancshares' 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. Bancshares is
regulated by the Federal Reserve and Republic is regulated by the Department
and the FDIC. Republic's deposits are insured by the FDIC up to applicable
limits. Republic is a member of the FHLB. See "- Supervision and Regulation."
BACKGROUND AND PRIOR OPERATING HISTORY
In May 1993, William R. Hough and John W. Sapanski acquired from the prior
controlling stockholder over 99% of Republic'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 accreted 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 of control.
Pursuant to the Purchase and Assumption, Republic purchased 12 branches in
Pinellas, Manatee and Sarasota counties from CrossLand Savings, FSB, a federal
stock savings bank, and assumed deposit liabilities of $327.7 million.
Republic 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, Republic
purchased performing and non-performing loans secured by real estate and ORE
amounting to $201.6 million from CrossLand. The Purchase and Assumption
increased total assets to $531.3 million and total deposits to $494.3 million
at December 31, 1993.
In December 1993, Republic sold 1.47 million shares of common stock in an
initial public offering at a price of $8.00 per share. The net proceeds of
such offering totaled $10.3 million. In addition, Republic 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, Republic 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, Republic's stockholders approved a reorganization under which
Republic became a wholly-owned subsidiary of Bancshares. All holders of shares
of Republic's common and preferred stock received one share of Bancshares'
Common Stock for each share of Republic's common stock held of record and one
share of Bancshares' $20.00 par value noncumulative convertible perpetual
preferred stock for each share of Republic's preferred stock held of record.
Holders of outstanding options to purchase or acquire Republic's common stock
received options to purchase an equal number of shares of Bancshares Common
Stock.
In December 1996, Bancshares completed a private offering of $6.0 million of
its 6.0% convertible subordinated debentures due 2011 (the "Debentures.")
BUSINESS STRATEGY
Bancshares' business strategy entails (i) originating and purchasing real
estate secured loans, business loans and consumer loans, any of which in the
future will be held, sold or securitized; (ii) improving market share and
expanding its market area through acquisitions of financial institutions and de
novo branching; (iii) increasing non-
55
<PAGE> 66
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.
Bancshares' business strategy has resulted in:
. Earnings - In 1994 and 1995 earnings before taxes and amortization of
negative goodwill were $4.7 million and $6.1 million, respectively. In
1996, earnings before taxes and the one time SAIF special assessment were
$8.6 million. In the three months ended March 31, 1997, earnings before
taxes totaled $2.6 million. Included in Bancshares' March 31, 1997
results of operations was $898,000 in income from mortgage banking
activities. The majority of this income resulted from Title I and debt
consolidation loan originations being sold into the secondary market.
The Company recently announced a change in strategy for these loans from
immediately selling such loans following origination toward a combination
of retention in portfolio, possible securitization and secondary market
sales. This strategy was undertaken with the objective of increasing
long-term earnings. The Company anticipates June 30, 1997 quarterly
earnings will be substantially lower than earnings for the March 31, 1997
quarter due to the relatively high costs associated with originating
these loans and the deferral of revenues normally associated with loan
sales.
. Expanded Branch Network - Since the Change of Control in May 1993,
Bancshares has expanded its branch network from seven branches in
northern Pinellas County at mid-year 1993, to its current 35 branches in
Orange, Seminole, Hernando, Pasco, Pinellas, Manatee and Sarasota
Counties. Further market expansion will occur upon the 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 - Bancshares has
expanded its sources and amounts of fee income by emphasizing mortgage
banking activities and new products, including a program that generates
fee income when Bancshares' checking account customers utilize the travel
and other services of certain third-party providers.
. Improved Asset Quality Ratios - The assets acquired in the Change of
Control and from CrossLand included significant levels of nonperforming
assets. As a result, Bancshares' 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. Virtually none of Bancshares' nonperforming assets were
originated following the Change in Control in 1993.
. Management of Interest Rate Risk - One of Bancshares' primary objectives
is to reduce fluctuations in net interest income caused by changes in
market interest rates. To manage interest rate risk, Bancshares
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. Bancshares
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 were closely matched.
RECENT ACQUISITION
Management believes that acquisitions of financial institutions provide
Bancshares 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, Bancshares 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.
56
<PAGE> 67
The acquisition was accounted for as a purchase, and the amount of goodwill
recorded was $130,000. Because it 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. Accordingly, Bancshares will, on July 1, 1997, pay
a pro rata portion of the special assessment ($346,734 from July 1 to December
31, 1997). See "Pro Forma Financial Data."
BRANCH NETWORK
Currently, Bancshares has 35 branches, including 3 offices in Pasco County, 20
offices in Pinellas County, 7 offices in Manatee County, 2 offices in Sarasota
County, and 1 each in Hernando, Seminole and Orange Counties. As a
multi-office institution, Bancshares' market area encompasses all of the
counties in which it operates. Bancshares also operates 10 loan production
offices in Pinellas, Lee, Orange, Palm Beach and Polk Counties in Florida and
an office in Boston, Massachusetts.
Most of Bancshares' branches are in Metropolitan Statistical Areas ("MSA"). An
MSA is defined by the U.S. Census Bureau as a geographic areas with a
significant population nucleus, along with any adjacent communities that have a
high degree of economic and social integration with that nucleus. Of
Bancshares' 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 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 Bancshares 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.
Bancshares 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, Bancshares 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.
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, Bancshares intends to rely on
repurchase agreements, FHLB advances, and other traditional money market
sources of funding. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management".
A full range of deposit services is offered, including checking and other
transaction accounts, savings accounts,
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<PAGE> 68
and time deposits. At March 31, 1997, Bancshares 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
(in thousands):
<TABLE>
<CAPTION>
Period ended Percent of
March 31, Amount Total Time Deposits
------------ ------ -------------------
<S> <C> <C>
1998 $ 258,908 63.7%
1999 51,622 12.7
2000 46,898 11.5
2001 18,256 4.5
2002 31,021 7.6
Thereafter 32 0.0
--------- -----
Total $ 406,737 100.0%
========= =====
</TABLE>
58
<PAGE> 69
LENDING AND LOAN PORTFOLIO PURCHASE ACTIVITIES
Bancshares 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, Bancshares 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.
In April 1996, Bancshares started a mortgage banking division 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. Bancshares also originates home improvement and debt
consolidation loans secured by junior liens on real estate and sells these
loans to investors. In the future, Banchsares may securitize these loans, sell
the loans on a whole 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 purposes but the
Bancshares 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 possibly retaining the servicing of these loans.
Bancshares 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. 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.
[Balance of page intentionally left blank]
59
<PAGE> 70
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 (in thousands):
<TABLE>
<CAPTION>
Based on total dollars: At March 31, At December 31,
- ----------------------- ------------ -------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<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 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>
At March 31, 1997 and December 31, 1996, the balance of loans purchased
included in portfolio totals 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>
Based on percent of portfolio: At March 31, At December 31,
- ------------------------------ ------------ --------------------------------------------------------
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>
The following table sets forth the contractual amortization of real estate and
commercial loans at March 31, 1997 and December 31, 1996 (in thousands). 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 (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
Type of loan: Real Estate Commercial Real Estate Commercial
----------- ---------- ----------- ----------
<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>
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<PAGE> 71
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
Bancshares has incorporated into its lending policy.
The 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.
Bancshares' 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 to investors at an acceptable premium.
The policy is reviewed and approved by the Board of Directors at least
annually.
Bancshares' commercial (business) lending is based on a strategy of extending
credit to the local business community, and the Bancshares' 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.
Bancshares 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
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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 Bancshares' 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 Bancshares' loan loss
allowance policy guidelines. The remainder of the discount arising from the
purchase price is recorded as unearned discount and subsequently accreted 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. Bancshares' 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, Bancshares 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>
Seven Five
Months Months
Quarter Ended Ended Ended Year Ended
March 31, Years Ended December 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)
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 amounts 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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The following table (in thousands) 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 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
----------------------------- --------------------------
Allowance Allocation Percent of Percent of
- -------------------- Amount Loan Portfolio Amount Loan Portfolio
------ -------------- ------- --------------
<S> <C> <C> <C> <C>
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 .1
Loss - - - -
-------- ----- --------- ------
Subtotal 2,860 3.1 3,201 3.1
Off balance sheet risk 439 - 434 -
Unallocated 2,764 - 90 -
-------- ----- --------- ------
Total $ 13,508 100.0 % $ 13,134 100.0 %
======== ===== ========= ======
</TABLE>
Nonperforming Assets
Nonperforming assets include (i) non-accrual loans (i.e., loans 90 days or more
delinquent and restructured loans that have not yet demonstrated a sufficient
payment history to warrant being returned to performing status), (ii) accruing
loans 90 days or more delinquent that are deemed by management to be adequately
secured and in the process of collection, and (iii) 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. At March
31, 1997 and December 31, 1996, Bancshares had nonperforming assets (including
loans classified as non-accrual) of $23.6 million or 2.58% of total assets and
$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."
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The following table sets forth information regarding the components of
nonperforming assets at the dates indicated (in thousands):
<TABLE>
<CAPTION>
Non-Performing Assets: At March 31, At December 31,
------------ --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential loans (1-4 family) $ 8,098 (1) $ 7,366 (1) $ 9,540 (1) $ 9,062 $ 3,707 $ 35
Multi-family residential - 55 129 1,160 10,200 -
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 97 164 495 620 0 10
-------- -------- -------- -------- -------- --------
Total non-accrual loans 16,192 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 122 113 1,876 293 725 22
-------- -------- -------- -------- -------- --------
Nonperforming assets $ 23,563 $ 22,827 $ 23,494 $ 22,519 $ 26,285 $ 12,751
======== ======== ======== ======== ======== ========
Nonperforming loans
to 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.
Other Real Estate Acquired Through Foreclosure
All ORE assets are recorded at the lower of cost or estimated fair value based
on appraisal information which 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 Bancshares'
ORE balances, net of allowances, as of the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ ----------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<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>
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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 center 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. Bancshares 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. Bancshares presently operates a branch banking facility on
the tract. Federal regulations had required the Republic 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 Bancshares' books at
$1.1 million. The entire parcel (which includes both Bancshares'
undivided interest and that of the other owners) was appraised at $4.7
million in January 1997. Negotiations are ongoing to sell
approximately two-thirds of the property to a governmental agency.
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 in lieu of the debt.
At March 31, 1997 and December 31, 1996 and 1995, respectively, the loan
portfolio included TDRs amounting to $2.5 million, $2.5 million and $1.7
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.
Bancshares makes use of part-time and flex-time employees in connection with
its branch operations. One of the Bancshares' 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
Bancshares and Republic are extensively regulated under both federal and state
law. The following is a brief summary of certain statutes, rules, and
regulations affecting Bancshares and Republic. 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 Bancshares' business. Supervision,
regulation, and examination of Bancshares and Republic by the bank regulatory
agencies are intended primarily for the protection of depositors rather than
stockholders.
Bancshares is a bank holding company, registered with the Federal Reserve under
the Bank Holding Company Act of 1956, as amended ("BHC Act"). As such,
Bancshares and its subsidiaries are subject to the supervision,
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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 Bancshares 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 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.
Republic is organized as a Florida-chartered commercial bank and is regulated
and supervised by the Department. In addition, the Republic is regulated and
supervised by the FDIC, which serves as its primary federal regulator.
Accordingly, the Department and the FDIC conduct regular examinations of
Republic, 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 Republic's operations. In addition to
these regular examinations, Republic must furnish to the FDIC quarterly reports
containing detailed financial statements and schedules.
Federal and Florida banking laws and regulations govern all areas of the
operations of Republic, 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 Republic from engaging in unsafe or unsound practices. Republic is a
member of the Bank Insurance Fund and, as such, deposits in Republic are
insured by the FDIC to the maximum extent permissible by law.
Republic also is subject to the provisions of the CRA. Under the CRA, Republic
has a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire communities,
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including low- and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does
it limit the Republic'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 Republic, the FDIC), in connection with its
regular examination of a bank, to assess Republic'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 Republic's record is
made available to the public. Further, such assessment is required whenever
the Republic 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 Republic. Republic 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, when fully implemented on July
1, 1997, will 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.
Republic does not anticipate that the revised CRA regulations will have any
material impact on the Republic's operations or that they will have any impact
on the Republic's CRA rating.
Capital Requirements
Bancshares and Republic are required to comply with the capital adequacy
standards established by the Federal Reserve (for Bancshares), and the FDIC
(for Republic). 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.
Under Federal Reserve policy, bank holding companies are expected to act as a
sources of financial strength to, and to commit resources to support, 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.
Payment of Dividends
As a Florida-chartered commercial bank, Republic 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.
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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 Republic's anticipated continued growth and management's intent to
maintain certain regulatory capital levels, dividend payments on the
Bancshares' common stock are not expected in the foreseeable future.
Deposit Insurance
Republic is subject to FDIC deposit insurance assessments. In 1994, Republic
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").
Republic, as a state-chartered commercial bank, is a member of the Bank
Insurance Fund (the "BIF"). However, as part of a deposit assumption
transaction with CrossLand, FSB in December 1993, Republic acquired $327.7
million in deposits insured by the Savings Association Insurance Fund (the
"SAIF") and thereby became a so-called Oakar bank. Based on that deposit
assumption, Republic 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 Republic's
deposits were treated as SAIF-insured deposits, with the remaining 27.5% of
deposits being assessed at the BIF rate. Republic's ratio of SAIF- and BIF-
assessed deposits will increase somewhat following Republic's planned
acquisition in 1997 of FFO and its wholly-owned subsidiary First Federal
Savings and Loan Association of Osceola County. 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,
Republic paid $8,800 in insurance assessments to the BIF and $796,800 to the
SAIF. Republic 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, Republic, on November 27,
1996, paid a special assessment to the SAIF of $2.5 million. This assessment
was determined by taking Republic's SAIF-assessable deposits as of March 31,
1995 and multiplying that amount by a 0.657 percent (or
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<PAGE> 80
65.7 basis points) 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 Republic 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 assessment rate for SAIF-assessable
deposits is 0.0648 percent or (6.48 basis points). For the first half of 1997,
Republic has been assessed a semiannual FICO payment obligation of $192,480,
$176,449 of which was attributable to Republic's SAIF-assessable deposits and
the balance of which was attributable to its BIF-assessable deposits.
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: for accounts aggregating $49.3 million or less (subject to
adjustment by the Federal Reserve) the reserve requirement is 3.0%; and 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. Republic
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 Republic'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
FHLB sources before borrowing from a Federal Reserve Bank.
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 Republic 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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<PAGE> 81
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 Bancshares 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 Bancshares' 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 Bancshares was not material.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which is
effective for the Bancshares' 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 earnings per sahre. 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 Bancshares'
financial statements, but does not expect it to be material.
LEGAL PROCEEDINGS
Bancshares 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 Bancshares' financial position or results of
operations.
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71
<PAGE> 82
MANAGEMENT
The table below sets forth the names and ages of the directors and
executive officers of Bancshares and Republic as well as the positions and
offices held by such persons. Bancshares' directors also serve on Republic's
Board of Directors. Bancshares' 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 of Bancshares and Republic; 1993
President and Chief Executive Officer
Fred Hemmer 42 Director, Senior Executive Vice President of 1986
Republic
William R. Hough 70 Director 1993
Marla Hough 39 Director 1997
Alfred T. May 58 Director 1993
William J. Morrison 64 Director 1980
William R. Falzone 49 Treasurer of Bancshares, Executive Vice President
and Chief Financial Officer of Republic
John W. Fischer, Jr. 48 Executive Vice President of Republic
Richard C. Gleitsman 43 Executive Vice President and Chief Administrative
Officer of Republic
Steve McWhorter 35 Head of Republic's Mortgage Banking Division
Kathleen Reinagel 45 Executive Vice President of Republic
</TABLE>
John W. Sapanski. Mr. Sapanski has been Chairman of the Board, Chief
Executive Officer and President of Republic since June 1993 and Chairman of the
Board, Chief Executive Officer and President of Bancshares 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
Republic in charge of Corporate Banking and Special Assets since joining
Republic 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. 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, 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 from March 1997
and Vice President of Bishop & Associates, Bradenton, Florida,
72
<PAGE> 83
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 Savings & Loan Association of Osceola
County, Kissimmee, Florida, 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.
William R. Falzone. Mr. Falzone has served as Treasurer of Bancshares
since March 1996 and Executive Vice President and Chief Financial Officer of
Republic 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.
John W. Fischer, Jr. Mr. Fischer has served as Executive Vice President
of Republic 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 Republic in Miami and Executive Vice
President/Consumer Financial Services for Florida Federal. Mr. Fischer holds
life, health, annuity and Series 7 securities license.
Richard C. Gleitsman. Mr. Gleitsman has served as Executive Vice
President and Chief Administrative Officer of Republic 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.
Steve McWhorter. Mr. McWhorter has served as Division Director in charge
of Bancshares' 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.
Kathleen A. Reinagel. Ms. Reinagel served as Executive Vice President of
Republic in charge of Credit and Loan Administration since August 1993. She
has over 20 years of experience in the lending field with 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.
73
<PAGE> 84
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
Liquidity
The Asset/Liability Management Committee ("ALCO") reviews Bancshares'
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, and sales of investments. Republic is a member of the FHLB and has the
ability to borrow to supplement its liquidity needs.
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 $828.0
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 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 its investment portfolio and emphasizing
loan originations and loan purchases carrying variable interest rates tied to
interest-sensitive indices. Additionally, Republic 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. 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.
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<PAGE> 85
The cumulative one year gap at March 31, 1997 was a positive $8.9 million or
.97% (expressed as a percentage of total assets). Management will attempt to
moderate any lengthening of the repricing structure of earning assets by
emphasizing variable-rate assets and, where appropriate, match-funding
longer-term fixed rate loans with FHLB advances. See "Business -- Sources of
Funds".
The following table presents the anticipated maturities or repricing of
interest-earning assets and interest-bearing liabilities at March 31, 1997.
The balances shown have been derived based on the financial characteristics of
the various assets and liabilities. Adjustable and floating-rate assets are
included in the period in which interest rates are next scheduled to adjust
rather than their scheduled maturity dates. Fixed rate loans are shown in the
periods in which they are scheduled to be repaid according to contractual
amortization and, where appropriate, prepayment assumptions are used to adjust
the repayment amounts based on the coupon rates in the portfolio. Repricing of
time deposits is based on their scheduled maturities. Based on management's
experience in the markets in which Bancshares operates, statement savings
deposits are assumed to reprice at 8.3% of the total balance in the first three
months, 8.3% in the four-to-six month category, 16.7% in the six-to-12 month
category, and the remaining 66.7% from one to five years. Passbook savings
deposits are assumed to reprice equally over a 24 month period. Repricing of
interest checking and money market accounts is assumed to occur at 10% of the
total balance for every three month interval.
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75
<PAGE> 86
INTEREST SENSITIVITY ANALYSIS
MARCH 31, 1997
($ 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>
76
<PAGE> 87
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
PPERATIONS
QUARTER ENDED MARCH 31, 1997
COMPARISON OF BALANCE SHEETS AT MARCH 31, 1997 AND DECEMBER 31, 1996
Overview
Total assets of Bancshares 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, Bancshares had recorded all its investment and
mortgage-backed securities in the "available for sale" category which are
included in Bancshares' financial position at their period-end 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 new loan production
during the first quarter of $108.4 million, 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 (36.2% of total loans) and
Bancshares has allocated a portion of the discount on those purchases to the
allowance for loan losses in amounts consistent with Bancshares' loan loss
policy guidelines. At March 31, 1997, the allowance for loan losses included
$3.7 million allocated to Bancshares' 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 Republic. 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, Bancshares 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 amount allocated for originated loans. This
transfer was accomplished by recording in equivalent amounts a gain on sale of
loans and an increase in the loan loss provision. Discounts on loan purchases
not allocated to the 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.
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<PAGE> 88
Nonperforming Assets
Nonperforming assets amounted to $23.6 million or 2.58% of total assets at
March 31, 1997, as 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 $1.0
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. Other real estate acquired through foreclosure
declined from $7.4 million at the end of the prior year to $7.2 million at the
end of the first quarter.
Deposits
Total deposits were $829.0 million at March 31, 1997, compared to $828.0
million at December 31, 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, Bancshares' Tier 1 ("Leverage") Capital ratio was 5.83%, the
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 a bank
holding company to be considered "well-capitalized". At March 31, 1997,
Republic's regulatory capital levels were 6.47% for the Tier 1 ("Leverage")
ratio, 9.85% for the Tier 1 Risk-Based Capital ratio, and 11.09% for the Total
Risk-Based Capital ratio, all in excess of minimum regulatory guidelines for a
bank to be considered "well capitalized".
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. Bancshares return on
average assets and return on average equity also improved to 0.72% and 12.10%,
respectively, for the first quarter of 1997 compared to 0.60% 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% and net interest margin, which
includes the benefit of noninterest bearing funds, decreased from 4.14% for
1996 to 4.12% for 1997.
78
<PAGE> 89
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>
Summary of Average Rates
- ------------------------
Interest earning assets:
Loans, net $ 745,893 $ 16,506 8.85% $ 677,439 $ 14,778 8.72%
Investment securities 33,749 486 5.76 32,275 428 5.30
Mortgage backed securities 19,962 306 6.13 20,403 291 5.71
Interest bearing deposits in banks 118 - - 43 - -
FHLB stock 4,869 87 7.15 3,695 68 7.36
Federal funds sold 52,950 685 5.17 21,743 297 5.46
--------- --------- --------- ---------
Total interest-earning assets 857,541 18,070 8.43 755,598 15,862 8.40
Non interest-earning assets 49,507 46,291
--------- ---------
Total assets $ 907,048 $ 801,889
========= =========
Interest-bearing liabilities:
Interest checking $ 88,679 240 1.08 $ 77,552 254 1.31
Savings 27,082 137 2.02 29,322 159 2.17
Passbook gold 221,023 2,649 4.79 70,735 766 4.33
Money market 33,007 165 2.00 39,709 219 2.21
Time deposits 410,499 5,471 5.33 482,125 6,481 5.38
Subordinated debt 6,000 108 7.20 - - -
Other borrowings 16,137 199 4.93 4,357 48 4.41
--------- --------- ---------- ---------
Total interest-bearing liabilities 802,427 8,969 4.47 703,800 7,927 4.50
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 3.96% $ 7,935 3.90%
========= ==== ========= ====
Net interest margin 4.24% 4.20%
==== ====
</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 values.
79
<PAGE> 90
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. Gains on sale of loans in portfolio amounted to $1.2
million for the first quarter of 1997. Other improvements included $93,000
from a 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 38
Generations Gold fee income 100 7 93
Merchant charge card processing fees 48 23 25
Other income 285 154 131
------- ------ -------
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, an increase of $2.3 million. The major
factor responsible for the expense increase was the expansion of 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 expenses, 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.
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>
80
<PAGE> 91
YEARS ENDED DECEMBER 31, 1996 AND 1995
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1996 AND 1995
OVERVIEW
Total assets of Bancshares 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 Bancshares' residential loan
production capability. Total loans increased by $73.6 million from $669.4
million at the end of the prior year 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.
INVESTMENT AND MORTGAGE BACKED SECURITIES
Bancshares' 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 a lien
upon the proceeds of special assessments levied by the district. This
investment is taxable for 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 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 compared to $41.5 million for 1995.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $13.1 million at December 31, 1996
(1.86% of loans), 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 Bancshares and purchased loans amounting to
$275.5 million.
Bancshares made various loan purchases totaling $157.4 million during 1994,
$102.3 million during 1995, and $8.2 million in 1996, and has allocated a
portion of the discount on its purchased loans to the allowance in amounts
consistent with its loan loss guidelines and recorded the remainder as an
unearned discount to be accreted to income as a yield adjustment. In 1995 such
allocation included $7.2 million related solely to the "March 1995 Purchase".
At December 31, 1996 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.
Bancshares' 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, Bancshares 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 at December 31, 1996. 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
81
<PAGE> 92
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 loans declined from 2.32% at the end of
1995 to 2.19% at year-end 1996. Other real estate acquired through foreclosure
decreased by $701,000 from $8.1 million at the end of the prior year to $7.4
million at year-end 1996. The ratio of nonperforming assets to total assets at
the end of 1996 was 2.51% compared to 2.93% at the end of 1995.
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%. Bancshares 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.
CONVERTIBLE SUBORDINATED DEBT
In December 1996 Bancshares completed a private offering of $6.0 million in
6.0% convertible subordinated debentures (the "Debentures"). The proceeds were
used to increase the capital of Republic. The Debentures are convertible by
the holder at any time prior to maturity into shares of Bancshares Common Stock
at a conversion price of $17.85714 per share (equivalent to a conversion rate
of 56 shares per $1,000 principal amount of Debentures). The Debentures were
sold at par and Bancshares incurred $213,000 in expenses associated with the
offering. Bancshares 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 Bancshares' common stock equals or exceed
130% of the conversion price for not less than 20 consecutive trading days.
STOCKHOLDERS' EQUITY
Stockholders' equity of Bancshares 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, Bancshares and Republic's capital
ratios were all in excess of minimum regulatory guidelines to be considered
"well-capitalized".
82
<PAGE> 93
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. Core net income, as defined in
"Selected Historical Financial Data of Bancshares", would have been $5.6
million or $1.13 per share for 1996 compared to $4.0 million or $.88 per share
for 1995.
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.
NONINTEREST INCOME
Noninterest income for 1996 was $5.6 million compared to $2.8 million for the
same period of 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 Bancshares' 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,
------------------------------------------------
Increase
1996 1995 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Service charges on deposit accounts $ 1,606 $ 1,395 $ 211
Mortgage banking activities 1,002 124 878
Loan fee income 604 277 327
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>
83
<PAGE> 94
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>
Summary of Average Rates
- ------------------------
Interest earning assets:
Loans, net $704,919 $ 62,244 8.83% $604,535 $ 52,389 8.66%
Investment securities 25,905 1,413 5.45 31,042 1,431 4.61
Mortgage backed securities 20,494 1,325 6.46 13,515 827 6.12
Interest bearing deposits in banks 79 2 2.53 290 17 5.86
FHLB stock 4,548 330 7.26 3,126 231 7.39
Federal funds sold 30,188 1,633 5.41 49,978 2,968 5.94
-------- -------- -------- --------
Total interest-earning assets 786,133 66,947 8.52 702,486 57,863 8.24
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 3.61
Money market 37,778 809 2.14 58,862 1,735 2.95
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 3.84
--------- -------- -------- --------
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 3.69%
======== ==== ======== ====
Net interest margin 4.28% 3.97%
==== ====
</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.
84
<PAGE> 95
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 SAIF Special Assessment
and a $1.6 million provision for losses on ORE. 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 Bancshares' 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,
--------------------------------------------------
Increase
1996 1995 (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>
[Balance of page intentionally left blank]
85
<PAGE> 96
CERTAIN INFORMATION CONCERNING FFO
BUSINESS
FFO
FFO was incorporated in the State of Florida on June 6, 1988. On October 20,
1988, FFO became the unitary savings and loan holding company for First
Federal. FFO's operations are limited to ownership of First Federal. As of
March 31, 1997, FFO had total assets of $320.0 million, total deposits of
$285.7 million, and total stockholders' equity of $20.8 million. FFO's
executive office is located at 2013 Live Oak Boulevard, St. Cloud, Florida
34771, and its telephone number is (407) 892-1200.
First Federal
First Federal 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. First Federal was founded
in 1934 as a mutual savings and loan association. On October 20, 1988, First
Federal converted to a federally chartered stock association. First Federal's
deposits are insured by the FDIC through the Savings Association Insurance Fund
("SAIF"). First Federal has one wholly-owned subsidiary, Gulf American
Financial Corporation, which is currently inactive.
The principal business of First Federal is to attract deposits, primarily in
the form of savings deposits from the general public, and to invest these
funds, together with borrowings and other funds, in loans, securities and other
investments. Loans are primarily made to enable borrowers to purchase,
refinance, construct or improve residential and other real estate and are
secured by mortgages on the real estate. Funds are also provided for the
operations of First Federal through proceeds from the sale of loans, repayment
of outstanding loans, proceeds from the sale and maturity of securities, and
borrowings from the Federal Home Loan Bank ("FHLB") of Atlanta. First
Federal's operating results depend substantially on (i) net interest income
(the difference between its interest income and interest expense), (ii)
provisions for losses on loans and foreclosed real estate, (iii) noninterest
income, (iv) noninterest expenses and (v) income taxes. Net interest income is
determined primarily by interest rate spread and the relative amounts of
interest-earning assets (primarily loans, securities and other investments) and
interest-bearing liabilities (primarily deposits and borrowings).
LENDING ACTIVITIES
General
At March 31, 1997, FFO's loans held for sale and net loan portfolio totaled
$220.5 million, representing approximately 68.9% of its $320.0 million of total
assets at that date. The principal categories of loans include conventional
residential mortgage loans, multifamily residential loans, nonresidential real
estate loans, loans which are insured by the Federal Housing Administration
("FHA") or partially guaranteed by the Department of Veterans Affairs ("VA"),
residential construction loans, SBA-guaranteed loans, and consumer loans.
As a federally chartered savings and loan association, First Federal has
general authority to originate and purchase loans secured by real estate
located throughout the United States. Notwithstanding this nationwide lending
authority, substantially all of the mortgage loans in First Federal's portfolio
are secured by properties located in Florida, with the majority of such loans
secured by property located in Osceola, Brevard, and Orange Counties, Florida.
Moreover, substantially all of First Federal's nonmortgage loan portfolio
consists of loans made to residents and businesses located in Florida.
86
<PAGE> 97
First Federal is permitted by law to invest without limitation in residential
mortgage loans and invest up to 400% of its total capital in loans secured by
nonresidential real estate. First Federal may also invest in secured and
unsecured consumer loans in an amount not to exceed 35% of First Federal's
total assets; however, such 35% limit may be exceeded for certain types of
consumer loans such as home equity, property improvement, mobile home loans and
education loans. In addition, First Federal may invest up to 10% of its total
assets in secured and unsecured loans for commercial, corporate, business or
agricultural purposes.
From time to time, First Federal engages in loan participation transactions
with other financial institutions. As a part of such participation activity,
First Federal may participate loans to, or otherwise participate in loans from,
Republic. Mr. William R. Hough (a director and principal shareholder of FFO)
is a director of Republic and is its principal shareholder. Mr. Alfred T. May
(Chairman of the Board of FFO and First Federal) is a director of Republic.
[Balance of page intentionally left blank]
87
<PAGE> 98
Loan Portfolio Composition
The following table sets forth the composition of FFO's loan portfolio at the
dates indicated (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
--------- ----------------------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
% of % of % of % of
Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First mortgage loans:
Conventional 1-4 family
residential (1) $ 125,621 53.86% $112,827 50.05% $ 78,680 45.37% $ 56,039 32.94%
FHA and VA 9,829 4.21 10,131 4.49 11,529 6.65 9,698 5.70
Multifamily residential 19,629 8.42 19,778 8.77 18,576 10.71 45,700 26.86
Land 9,678 4.15 8,279 3.67 6,476 3.74 6,397 3.76
Other nonresidential 33,537 14.38 34,138 15.15 26,927 15.53 26,789 15.74
Construction residential 7,725 3.31 14,166 6.28 10,288 5.93 9,469 5.56
Construction nonresidential 543 0.23 990 0.44 - 0.00 - 0.00
-------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans 206,562 88.56 200,309 88.85 152,476 87.93 154,092 90.56
-------- ------ -------- ------ -------- ------ -------- ------
Deposit account loans 892 0.38 957 .42 868 .50 882 .52
Credit cards 477 0.20 594 .26 2,637 1.52 4,085 2.40
Consumer loans 22,250 9.54 20,537 9.12 13,717 7.91 5,757 3.38
SBA loans (2) 3,012 1.29 3,009 1.33 3,633 2.10 5,226 3.08
Home improvement loans 52 0.02 55 .02 76 .04 102 .06
-------- ------ -------- ------ -------- ------ -------- ------
Total other loans 26,683 11.44 25,152 11.15 20,931 12.07 16,052 9.44
-------- ------ -------- ------ -------- ------ -------- ------
Total loans $233,245 100.00% $225,461 100.00% $173,407 100.00% $170,144 100.00%
======== ====== ======== ====== -------- ====== -------- ======
Deduct:
Loans in process 11,714 10,824 6,880 5,549
Deferred origination fees
and deferred gains on
sale of SBA loans 26 19 199 326
Allowance for loan losses 5,579 5,613 5,138 8,207
-------- -------- -------- --------
Total deductions 17,319 16,456 12,217 14,082
-------- -------- -------- --------
Loans receivable - net 215,926 $209,005 $161,190 $156,062
======== ======== ======== ========
</TABLE>
(1) Excludes $4.0 million, $9.9 million, $22.2 million and $6.6 million in
loans held for sale as of March 31, 1997, December 31, 1996, 1995 and
1994, respectively.
(2) Excludes $625,000, $600,000, $600,000 and $1.3 million in loans held for
sale as of March 31, 1997, December 31, 1996, 1995 and 1994,
respectively.
88
<PAGE> 99
<TABLE>
<CAPTION>
Loan Portfolio Composition (con't) December 31,
- ---------------------------------- ---------------------------------------------------
1993 1992
---- ----
% of % of
Amount Total Amount Total
------ ----- ------ -----
<S> <C> <C> <C> <C>
First mortgage loans:
Conventional 1-4 family
residential (1) $ 53,208 32.39% $ 28,055 15.71%
FHA and VA 8,013 4.88 16,563 9.27
Multifamily residential 48,614 29.60 54,554 30.54
Land 7,776 4.73 14,442 8.08
Other nonresidential 28,644 17.44 38,008 21.28
Construction residential 2,081 1.27 6,926 3.88
-------- ------ -------- ------
Total mortgage loans 148,336 90.31 158,548 88.76
-------- ------ -------- ------
Deposit account loans 1,061 .65 1,359 .76
Credit cards 4,894 2.98 5,788 3.24
Consumer loans 2,719 1.65 6,529 3.66
SBA loans (2) 7,119 4.33 6,124 3.43
Home improvement loans 132 .08 272 .15
-------- ------ -------- ------
Total other loans 15,925 9.69 20,072 11.24
-------- ------ -------- ------
Total loans 164,261 100.00% 178,620 100.00%
====== ======
Deduct:
Loans in process 656 2,310
Deferred origination fees
and deferred gains on
sale of SBA loans 488 1,326
Allowance for loan losses 9,333 6,427
-------- --------
Total deductions 10,477 10,063
-------- --------
Loans receivable - net $153,784 $168,557
======== ========
</TABLE>
- --------------------
(1) Excludes $9.5 million and $59.9 million in loans held for sale as of
December 31, 1993 and 1992, respectively.
(2) Excludes $1.8 million and $2.8 million in loans held for sale as of
December 31, 1993 and 1992, respectively.
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<PAGE> 100
Origination and Sale of Loans
Applications for all types of loans are taken at First Federal's branch
offices. Residential loan applications are primarily attributable to referrals
from builders and real estate brokers, existing customers and, to a lesser
extent, walk-in customers. Consumer loans are primarily obtained through
existing customers.
Applications are obtained by full-time employees located at First Federal's
branch offices. Mortgage loan applications are processed, and all underwriting
is done at First Federal's main office or its loan production office in
Maitland, Florida. First Federal believes that its centralized approach to
approving loan applications allows it to process and approve applications
faster and with greater efficiency.
First Federal has established various levels of review and approval of loans.
Under current loan policies, most first mortgage loans are approved by certain
designated officers or First Federal's underwriter. Mortgage loans on
commercial real estate, nonconforming residential loans, loans to employees,
and loans to a single borrower of $500,000 or more (individually or in the
aggregate) require approval by the Loan Committee of the Board of Directors.
Consumer loans may be approved by certain designated officers up to $50,000
secured and $15,000 unsecured. Consumer loans in excess of these amounts
require approval by the Board of Directors' Loan Committee.
Substantially all of First Federal's nonconstruction one-to-four family
residential first mortgage loans are originated under terms and conditions
which will facilitate their sale in the secondary mortgage market. In recent
years, First Federal has sold a portion of the fixed-rate residential loans in
the portfolio while retaining the servicing of such loans. In recent years
First Federal has sold substantially all non-construction fixed-rate
one-to-four family residential loans originated to the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA"), and other institutional purchasers. Generally, such loans are sold
as whole loans or through securitization. Although such sales have in the past
consisted primarily of fixed-rate loans, First Federal has on occasion sold
adjustable-rate loans ("ARMs"). Such loan sales are intended to increase First
Federal's noninterest income and assist First Federal in better matching the
maturities and interest-rate sensitivity of its assets and liabilities. As of
March 31, 1997, First Federal had $4.1 million in fixed-rate one-to-four family
first mortgage loans held for sale and $625,000 in SBA loans held for sale.
FFO's loan originations increased in 1996 compared to prior periods primarily
due to increased loan demand. In addition, First Federal continued to increase
its holdings of fixed-rate residential mortgages to increase the amount of its
interest-earning assets. During the fourth quarter of 1994, in consideration
of the decision to hold increased levels of fixed-rate loans in its portfolio,
the level of residential origination volumes, and a capital infusion of $5.2
million in September 1994, FFO modified its policy regarding residential loans
held-for-sale. Prior thereto, FFO included all permanent fixed-rate
one-to-four family residential loans (regardless of the date of origination) in
the held-for-sale portfolio. The possibility that such loans could be sold
provided an additional alternative for FFO to increase its capital. Since the
infusion of the $5.2 million in additional capital in September 1994 and in
order to reflect its intent to increase total interest-earning assets, FFO
modified its policy such that only loans originated within the past 12 months
are classified as held-for-sale. With regard to the decision to increase
holdings of fixed-rate residential mortgages, although such fixed-rate loans
in general tend to increase an institution's sensitivity to interest rate risk,
FFO anticipates that the increase in the level of fixed-rate loans held will
result in a more balanced overall interest rate sensitivity for First Federal.
As of March 31, 1997, First Federal serviced $100.8 million of loans for
others. First Federal's portfolio of loans serviced for others generally
consists of loans on one-to-four family residential properties located in the
State of Florida that have been sold to FHLMC, FNMA, and other institutional
lenders, and loans made on various types of commercial properties located
throughout the southeastern United States that are partially guaranteed by the
SBA. None of the loans were sold with recourse to First Federal.
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The following table shows total loans originated, sold and repaid (including
loans held for sale) during the three months ended March 31, 1997 and each of
the years in the three year period ended December 31, 1996 (in thousands).
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- -----------------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Originations:
Residential real estate loans $ 9,528 $ 92,680 $ 63,807 $ 31,867
Nonresidential real estate loans 1,834 7,675 6,745 3,858
Consumer and other loans 5,141 11,998 11,328 5,273
-------- -------- -------- --------
Total loans originated 16,503 112,353 81,880 40,998
-------- -------- -------- --------
Sales and principal reductions:
Loans sold (5,233) (26,405) (8,919) (10,008)
Loan principal reductions (3,486) (33,894) (52,408) (30,978)
-------- -------- -------- --------
Total loans sold and
principal reductions (8,719) (60,299) (61,327) (40,986)
-------- -------- -------- --------
Increase in loans receivable
(before net items) $ 7,784 $ 52,054 $ 20,553 $ 12
======== ======== ======== =========
</TABLE>
Residential Real Estate Loans
Historically, savings institutions such as First Federal have concentrated
their lending activities on the origination of permanent loans secured
primarily by first mortgage liens on existing residential real estate. At
March 31, 1997, $155.1 million or 66.5% of FFO's total loan portfolio consisted
of such loans. Of this amount, $135.4 million consisted of one-to-four family
residential loans (excluding $4.0 million which were deemed held for sale at
such date) and $19.6 million consisted of multifamily residential loans.
Residential ARMs currently originated by First Federal have up to 30-year terms
and an interest rate which adjusts annually based upon changes in an index,
plus a margin. Such indices are based on the weekly average yield of the one-
year, three-year, or five-year U.S. Treasury securities adjusted to a constant
maturity, as made available by the Federal Reserve Board. There is generally a
1% to 2% cap on any increase or decrease in the interest rate per annum, and
there is generally a limit of 4% to 6% on the amount that the interest rate can
adjust over the life of the loan. Although First Federal generally offers
discounts of 1% to 3% on the interest rate on its ARMs during the first year of
the mortgage loan for competitive reasons, First Federal determines a
borrower's ability to pay at the higher of 200 basis points above the initial
interest rate or a minimum of 7.00%.
ARMs decrease the risks associated with changes in interest rates, but involve
other risks because as interest rates increase the underlying payments by the
borrower increase, thus increasing the potential for default. At the same
time, the marketability of the underlying collateral may be adversely affected
by higher interest rates.
First Federal continues to originate fixed-rate residential mortgage loans with
terms up to 30 years in order to provide a full range of products to its
customers. Substantially all such loans are originated under terms, conditions
and documentation which make them eligible for sale to FHLMC, FNMA and other
secondary market investors. Although these loans generally provide for
repayments of principal over a fixed period of 15 to 30 years, it has been
First Federal's experience that because of prepayments and due-on-sale clauses,
such loans generally remain outstanding for a substantially shorter period of
time.
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Multifamily real estate loans totaled $19.6 million or 8.42% of First Federal's
total loan portfolio at March 31, 1997. These loans possess a greater risk of
collectibility compared with one-to-four family residential property lending
due to the higher loan amounts relative to the number of borrowers, and the
dependency on income production of the real estate. These loans generally are
more costly to resolve or work out than one-to-four family loans. The payments
experienced on such loans also are typically dependent on the successful
operation of the real estate project. Further, multifamily loans can be
significantly impacted by supply and demand conditions in the market, and as
such, may be subject to a greater extent to adverse conditions in the general
economy. To minimize these risks, First Federal generally originates
multifamily loans of no more than $500,000 secured by property in its primary
market area. In addition, First Federal examines whether the property securing
the loan will generate sufficient cash flow to adequately cover operating
expenses and debt service payments. Permanent multifamily residential real
estate loans currently are made at a loan-to-value ratio of 75% or less.
FHA and VA Lending
In early 1991, First Federal began to originate single-family loans made
pursuant to the FHA insurance programs under the National Housing Act, and
loans made pursuant to the VA program under the Serviceman's Loan Guaranty
Readjustment Act of 1944. First Federal originated an aggregate of $7.4
million and $10.4 million of FHA and VA loans during 1996 and 1995,
respectively. The addition of these single-family lending programs has enabled
First Federal to continue to expand the product range offered to its customers.
Substantially all of such loans originated are sold in the secondary market.
Nonresidential Real Estate Loans
Nonresidential real estate loans originated by First Federal are primarily
secured by strip shopping centers, office buildings, unimproved land and
building lots, warehouses, hotel/motel properties and churches located within
First Federal's primary market area. Although terms are determined and may
vary on a case-by-case basis, nonresidential real estate loans secured by
existing properties generally have amortization schedules of 25 to 30 years,
but require a balloon payment after either three or five years and may have
either fixed or adjustable interest rates.
Nonresidential real estate lending is generally considered to involve a higher
level of risk than single-family residential lending due to the concentration
of principal in a limited number of loans and borrowers, and the dependency on
income production or future development of the real estate. The nature of
these loans is also such that they are generally more difficult to evaluate and
monitor, and are more costly to resolve or work out than residential real
estate loans. Nonresidential loans amounted to $33.5 million or 14.4% of First
Federal's total loan portfolio at March 31, 1997.
Construction Loans
Construction loans for the construction of single-family residential properties
amounted to $7.7 million or 3.31% of First Federal's total loan portfolio at
March 31, 1997. First Federal has historically provided fixed-rate and
adjustable-rate residential construction loans primarily to selected local
developers with whom First Federal is familiar and who have a record of
successfully completing projects and, to a lesser extent, to individuals
building their primary or secondary residence. Generally, loans to both
individuals and developers are made with terms of six to eighteen months,
depending on the magnitude of the project. With respect to individuals, the
construction loan is generally made in connection with the granting of the
permanent financing on the property. Such loans convert to permanent loans at
maturity or upon completion of construction, whichever occurs first.
First Federal offers adjustable-rate loans with terms of up to 18 months for
the construction of commercial properties such as office buildings and shopping
centers. Advances on these loans are generally made on a percentage of
completion basis, usually consisting of four or more draws. Such construction
loans totaled $543,000 at March 31, 1997.
Construction loans afford First Federal the opportunity to increase the
interest rate sensitivity of its loan portfolio and, with respect to
nonresidential properties, to receive higher yields than those obtainable on
single-family residential loans. These higher yields correspond to the higher
risks associated with construction loans.
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Construction lending (especially commercial construction lending) is generally
considered to involve a higher degree of risk than long-term financing on
improved, owner-occupied real estate. Risk of loss on construction loans is
dependent largely upon the accuracy of the initial appraisal of the property's
projected value at completion of construction as well as the estimated cost of
construction, including interest. During the construction phase, a number of
factors could result in delays and cost overruns. If either estimate proves to
be inaccurate and the borrower is unable to provide additional funds, the
lender may be required to advance funds beyond the amount originally committed
to permit completion of the project and/or be confronted at the maturity of the
construction loan with a project whose value is insufficient to assure full
payment.
SBA-guaranteed Loans
At March 31, 1997, SBA loans amounted to $3.0 million or 1.29% of total loans
(excluding $625,000 of SBA loans deemed held for sale at such date). First
Federal may continue to originate, on a limited basis, SBA loans.
Consumer and Other Loans
First Federal offers certain types of consumer loans in order to provide a full
range of financial services to its customers. Consumer and other loans, which
totaled $4.4 million or 1.9% of total loans at March 31, 1997, generally have
shorter terms and higher interest rates than mortgage loans and generally
involve more risk than single-family residential mortgage loans because of the
type and nature of the collateral and, in certain cases, the absence of
collateral.
The consumer and other loans offered by First Federal include credit cards,
loans for the purchase of both new and used automobiles and boats, deposit
account loans, home improvement and home equity loans. First Federal also
makes unsecured consumer loans to individuals who are established customers of
the Association. Credit lines are also offered on a secured (usually by real
estate) basis.
Regulatory Requirements and Underwriting Policies
Under Federal regulations, First Federal was prohibited, after August 9, 1989,
from making real estate loans to one borrower including related entities in
excess of 15% of its unimpaired capital and surplus except for loans not to
exceed $500,000. This 15% limitation resulted in a dollar limitation of
approximately $3.3 million at March 31, 1997. As of such date, First Federal
had three borrowers whose total indebtedness exceeded that limit. While First
Federal is not required to reduce or divest the loans because they existed on
August 9, 1989, First Federal is unable to extend additional credit to these
borrowers, and will have very limited authority to amend or modify the existing
terms on these loans. As of March 31, 1997, loans to First Federal's three
largest borrowers and related entities amounted to $5.0 million, $4.9 million
and $3.7 million. The $5.0 million group of loans consists of two loans
secured by multifamily properties located in Central Florida. The $4.9 million
consists of one loan on a multifamily property located in Central Florida. The
$3.7 million group of loans consists of two loans for warehouse and office
space in Central Florida. All such loans are performing in accordance with
their current contracts.
First Federal is permitted to lend up to 100% of the appraised value of the
real property securing a loan; however, if the amount of a residential loan
originated or refinanced exceeds 90% of the appraised value, First Federal is
required by federal regulation to obtain private mortgage insurance on the
portion of the principal amount of the loan that exceeds 80% of the appraised
value of the secured property. Pursuant to underwriting guidelines adopted by
the Board of Directors, private mortgage insurance must be obtained on
residential loans for which loan-to-value ratios exceed 80%. First Federal
generally lends up to 95% of the appraised value of one-to-four family,
owner-occupied residential dwellings when the required private mortgage
insurance is obtained. With respect to construction loans for owner-occupied
properties made in connection with permanent financing, First Federal generally
lends up to 95% of the appraised value (as completed). For residential
construction loans issued to developers, the loan-to-value ratio is limited to
75%. While no statutory requirements are set out for SBA loan collateral, most
of First Federal's SBA loans are secured by real estate.
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All financial institutions are required to adopt and maintain comprehensive
written real estate lending policies 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, including the OTS, in December 1992 ("Guidelines"). The
Guidelines set forth uniform regulations prescribing standards for real estate
lending. 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.
The policies must address 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. These policies must also
be appropriate to the size of the institution and the nature and scope of its
operations, and must be reviewed and approved by the institution's board of
directors at least annually. The LTV ratio framework, with a LTV ratio being
the total amount of credit to be extended divided by the appraised value of the
property at the time the credit is originated, must be established for each
category of real estate loans. If not a first lien, the lender must combine
all senior liens when calculating this ratio. The Guidelines, among other
things, establish the following supervisory LTV limits: raw land (65%); land
development (75%); construction (commercial, multifamily and nonresidential)
(80%); improved property (85%); and one-to-four family residential (owner
occupied) (no maximum ratio; however the Guidelines state that any LTV ratio in
excess of 90% should require appropriate insurance or readily marketable
collateral).
Certain institutions can make real estate loans that do not conform with the
established LTV ratio limits up to 100% of the institution's total capital.
Within this aggregate limit, total loans for all commercial, agricultural,
multifamily and other non one-to-four family residential properties should not
exceed 30% of total capital. An institution will come under increased
supervisory scrutiny as the total of such loans approaches these levels.
Certain loans are exempt from the LTV ratios (e.g. those guaranteed by a
government agency, loans to facilitate the sale of real estate owned and loans
renewed, refinanced or restructured by the original lender(s) to the same
borrower(s) where there is no advancement of new funds, etc.).
All of First Federal's lending is subject to its written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by First
Federal's Board of Directors. In the loan approval process, First Federal
assesses both the borrower's ability to repay the loan and the adequacy of the
proposed security. In connection therewith, First Federal requires an
appraisal of the secured property and information concerning the income,
financial condition, employment and credit history of the applicant. Loans
must be approved at various management levels, including by the Loan Committee
and the Board of Directors of the Association, depending on the amount and type
of the loan. Commercial construction loans and commercial real estate loans as
well as SBA loans are also evaluated based on debt service coverage provided by
existing or projected cash flows.
First Federal requires title insurance insuring the priority of its lien, as
well as fire and extended coverage casualty insurance in order to protect the
developed properties securing its real estate loans. Borrowers must also
obtain flood insurance coverage when the property is in a flood plain as
designated by the Department of Housing and Urban Development. Borrowers may
be required to advance funds on a monthly basis together with each payment of
principal and interest to a mortgage loan account from which First Federal
makes disbursements for items such as real estate taxes and hazard insurance
premiums as they become due.
Loan Fee Income
In addition to interest earned on loans, First Federal receives income from
fees in connection with loan originations, loan modifications, late payments,
prepayments and for miscellaneous services related to its loans. Income from
such activities varies with the volume and type of loans made as well as
competitive conditions.
First Federal charges loan origination fees which are calculated as a
percentage of the amount borrowed. Loan origination fees generally amount to
1% to 2% of the amount borrowed in the case of a mortgage loan. Loan
origination fees are not obtained in connection with consumer loans.
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First Federal accounts for loan fees in accordance with Statement of Financial
Accounting Standards No. 91 ("SFAS 91"), "Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs
of Leases."SFAS 91" requires that loan fees, net of certain specific
incremental direct loan origination costs, be deferred and accreted into income
over the life of each loan as a yield adjustment. However, upon sale of a
loan, the deferred fees related thereto are recognized into income.
Nonperforming Loans and Foreclosed Real Estate
When a borrower fails to make a required payment on a loan, First Federal
attempts to cure the deficiency by contacting the borrower and seeking payment.
Initial contact is generally made on the fifteenth day after a payment is due.
If a delinquency extends beyond 30 days, the loan and payment history is
reviewed and measures may be instituted to remedy the default. While First
Federal generally prefers to work with borrowers to resolve such problems, it
does institute foreclosure and other proceedings, including deed in lieu of
foreclosure, as necessary, to minimize any potential loss. Loans are placed on
nonaccrual status when, in the judgment of management, the probability of
collection of interest is deemed to be insufficient to warrant further accrual.
When a loan is placed on nonaccrual status, previously accrued but unpaid
interest is deducted from interest income. First Federal generally does not
accrue interest on loans more than 90 days past due unless the estimated fair
value of the collateral and active collection efforts ensure full recovery.
Property acquired by First Federal as a result of foreclosure or by deed in
lieu of foreclosure is classified as foreclosed real estate ("REO"). When a
property interest is acquired, it is recorded at the lower of fair value (less
estimated selling costs) or the principal balance of the related loan on the
property at the date of acquisition. Costs incurred for the improvement or
development of such property are capitalized, while costs relating to holding
the property are charged to operations.
[Balance of page intentionally left blank]
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The following table sets forth information regarding nonaccrual loans, loans
which were 90 days or more delinquent but on which First Federal was accruing
interest, loans which have been restructured due to financial difficulties with
the borrowers, and foreclosed real estate held by First Federal as of each of
the dates shown (dollars in thousands):
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ -----------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
Non accrual loans:
Single family residential $ 1,644 $ 2,080 $ 887 $ 371 $ 1,293 $ 1,541
Multifamily residential - - - - 470 12,402
Improved and unimproved land 544 544 414 214 - 211
Commercial real estate 1,673 1,434 623 2,178 305 1,015
SBA loans - - 751 588 382 66
Consumer loans - - - 12 143 134
------- ------- ------- ------- ------- --------
Total 3,861 4,058 2,675 3,363 2,593 15,369
------- ------- ------- ------- ------- --------
Accruing loans 90 days or more past due:
SBA loan - - - - - 1,290
------- ------- ------- ------- ------- --------
Total - - - - - 1,290
------- ------- ------- ------- ------- --------
Troubled debt restructured:
Multifamily residential 4,854 4,862 4,890 10,424 10,823 11,220
Construction properties and
improved and unimproved land - - - - - -
------- ------- ------- ------- ------- --------
Total 4,854 4,862 4,890 10,424 10,823 11,220
------- ------- ------- ------- ------- --------
Total nonperforming loans 8,715 8,920 7,565 13,787 13,416 27,879
Foreclosed real estate:
Single family residential 688 57 38 86 1,687 2,706
Multifamily residential - - 2,651 - - -
Improved and unimproved land 900 900 1,278 6,171 4,561 10,144
Commercial real estate - - 515 2,255 7,799 3,882
SBA loans - - - 415 1,237 9,008
------- ------- ------- ------- ------- -------
Total foreclosed real estate 1,588 957 4,482 8,927 15,284 25,740
------- ------- ------- ------- ------- -------
Total nonperforming assets $10,303 $ 9,877 $12,047 $22,714 $28,700 $53,619
======= ======= ======= ======= ======= =======
Nonperforming assets to
total assets 3.22% 3.12% 4.00% 8.96% 11.51% 17.36%
Allowance for loan losses 5,579 5,613 5,138 8,207 9,333 6,427
Allowance for losses on
foreclosed real estate 163 158 1,124 2,873 62 1,470
------- ------- ------- ------- ------- -------
Total allowance for losses $ 5,742 $ 5,771 $ 6,262 $11,080 $ 9,395 $ 7,897
======= ======= ======= ======= ======= =======
Total allowance for losses as a
percentage of total
nonperforming assets 55.74% 58.43% 51.98% 48.78% 32.74% 14.73%
Allowance for loan losses as a
percentage of nonperforming loans 64.02% 62.93% 67.92% 59.53% 69.57% 23.05%
</TABLE>
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During the three months ended March 31, 1997 and the years ended December 31,
1996, 1995, and 1994, 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>
Three Months Ended
March 31, Years Ended December 31,
------------------ ---------------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income that would have been recorded $ 211 $ 863 $ 742 $ 971
Interest income recognized (85) (340) (342) (383)
----- ----- ----- -----
Interest income foregone $ 126 $ 523 $ 400 $ 588
===== ===== ===== =====
</TABLE>
At March 31, 1997, loans on nonaccrual status totaled $3.9 million, including
11 commercial loans totaling $1.7 million and 19 single family residential
loans totaling $1.6 million. During the first quarter of 1997 and the full year
of 1996, approximately $505,000 and $523,000, respectively, in interest income
would have been recorded on loans accounted for on a nonaccrual basis and
troubled debt restructurings if each loan had been current in accordance with
its original contract and had been outstanding throughout the period. These
amounts were not included in the FFO's interest income in the respective
periods. There were no loans which were 90 or more days past due and continued
to accrue interest at March 31, 1997.
At March 31, 1997, First Federal's troubled debt restructurings totaled $4.9
million and consisted of one multifamily real estate loan. The loan is
collateralized by a 172-unit apartment complex located in Seminole County,
Florida. The apartment complex was appraised for $6.4 million as of the most
recent appraisal in 1988. During December 1992, while the loan was delinquent,
First Federal allowed it to be assumed by a nonprofit organization, and reduced
the interest rate from 10.75% to 7.0%. Under the restructured terms, the loan
requires monthly principal and interest payments of approximately $31,000 plus
a balloon payment of $4,361,000 in December 2007. First Federal retained the
personal guarantees of two individuals who executed the note at the time of
origination. Subsequent to the date of modification, the loan has performed in
accordance with the restructured terms of the contract. In conjunction with the
quarterly evaluation of the reasonableness of the carrying value of this
property, management has considered, among other factors, the appraisal of the
property performed in 1988, the indicated valuation of the property by the
nonprofit organization which assumed the loan in 1992, the location of the
property and management's assessment of the current real estate valuation of
similar properties in the local real estate market, management's assessment of
the cash flow generated by the collateral property based on current operating
information provided by the borrower, and management's assessment of the
financial capacity of the two individuals whose personal guarantees also secure
the loan.
Foreclosed real estate includes property acquired by foreclosure or deed in
lieu of foreclosure. Total foreclosed real estate decreased from $8.9 million
at December 31, 1994 to $1.6 million at March 31, 1997. The decreases were due
to sales of foreclosed real estate properties, partially offset by foreclosures
and transfers to foreclosed real estate.
As of March 31, 1997, FFO had nine single family residences in its inventory of
foreclosed real estate totaling $688,000. Also included in foreclosed real
estate at March 31, 1997 was one parcel of developed commercial property with
an approximate area of seven acres, which totaled approximately $900,000.
When a loan is transferred to foreclosed real estate, a new appraisal of the
underlying property is ordered. First Federal calculates the estimated fair
value of the collateral (that is, the proceeds anticipated from the sale of the
collateral, less estimated selling costs), and the asset is carried at the
lower of the balance of the loan transferred or the estimated fair value. While
the property is held, management evaluates on at least a quarterly basis
whether the estimated fair value should be adjusted due to changes in the real
estate market or other factors which may in the opinion of management affect
the ultimate sales price. Such evaluation may consider, among other things,
current operating information available on the properties, changes in the
disposition or marketing plan of individual properties, and changes in
management's assessment of local real estate market values. If the revised fair
value is below the current carrying value of the property, the carrying value
is adjusted by a charge to earnings, and a
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<PAGE> 108
corresponding increase in the allowance for losses on real estate owned. First
Federal does not generally update the appraisal unless requested by the
regulatory authorities or unless management otherwise believes that an updated
appraisal would be beneficial in assisting it in evaluating fair value. First
Federal's practice of not updating appraisals on a more frequent periodic basis
may increase the risk that First Federal will experience delays or
discrepancies in recognizing and providing for adverse changes in the valuation
of its foreclosed real estate or other nonperforming assets. The adjustments,
if any, required upon the receipt of updated appraisals could have a material
adverse effect on the results of operations and financial and capital positions
of the Company.
As to new loans, current appraisals are ordered for all real estate mortgages
at the time of loan submission. Otherwise, First Federal does not generally
order an updated appraisal unless the loan has a call or a balloon provision,
in which case a new appraisal may be requested prior to reviewing the renewal,
depending upon the type of property, its location and physical condition.
Allowance for Losses on Loans and Foreclosed Real Estate
It is First Federal's policy to establish and maintain adequate reserves for
losses on loans and foreclosed real estate. At December 31, 1996, First Federal
had reserves for losses on loans and foreclosed real estate amounting to $5.8
million. The management of First Federal periodically reviews the adequacy of
the allowance for losses on loans and foreclosed real estate. Such review
includes an analysis of First Federal's historical experience, the volume and
type of lending conducted by First Federal, industry standards, the status of
past due principal and interest payments, directives of the OTS, general
economic conditions, particularly as they relate to First Federal's market
area, the credit condition of the borrowers, current fair market values of
collateral and foreclosed real estate and other factors related to the
collectibility of First Federal's loan portfolio.
Pursuant to applicable regulations, the OTS and the FDIC have the authority to
require First Federal to increase its loss allowances if either agency
determines that the allowances are inadequate. The estimation of appropriate
levels of loss allowances is a process that involves a high degree of
subjectivity, and the regulatory authorities may arrive at conclusions that
differ from management's regarding the adequacy of loss allowance levels.
Although management believes that First Federal's loss allowances were adequate
as of March 31, 1997, FFO is unable to predict whether the FDIC or the OTS will
propose that First Federal increase its loss allowances. Future events, such as
increased interest rates, a downturn in the Florida economy, or adverse
developments with respect to specific loans or other assets could also require
adjustments to First Federal's loss allowances. Such adjustments would likely
have a material adverse effect on the Company's operating results and could
have a material adverse effect on its financial condition.
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The following table summarizes activity in First Federal's allowance for loan
losses during each of the years in the five year period ended December 31, 1996
(dollars in thousands).
<TABLE>
<CAPTION>
At March 31, At December 31,
--------- -----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Allowance at beginning of year $ 5,613 $ 5,138 $ 8,207 $ 9,333 $ 6,427 $ 8,296
--------- --------- --------- --------- --------- ---------
Charge--offs:
Single--family residential -- (36) -- (25) (745) (1,362)
Multifamily residential -- -- (3,147) -- -- (586)
Commercial real estate loans -- (120) -- (113) (472) (1,779)
SBA loans -- -- (442) (16) (409) (5,899)
Consumer loans (38) (181) -- (141) (203) (258)
Land -- -- -- (27) (999) --
--------- --------- --------- --------- --------- ---------
Total loans charged--off (38) (337) (3,589) (322) (2,828) (9,884)
Recoveries 4 30 43 62 927 424
--------- --------- --------- --------- --------- ---------
Net charge--offs (34) (307) (3,546) (260) (1,901) (9,460)
--------- --------- --------- --------- --------- ---------
Reclassification due to adoption
of SFAS 114 and 118 -- -- -- 537 -- --
Provision (credit) for loan losses
charged to operations -- 782 477 (1,403) 4,807 7,591
--------- --------- --------- --------- --------- ---------
Allowance at end of year $ 5,579 $ 5,613 $ 5,138 $ 8,207 $ 9,333 $ 6,427
========= ========= ========= ========= ========= =========
Average loans outstanding (1) 220,045 206,755 174,203 167,192 217,167 269,082
Net charge--offs to average
loans outstanding (1) .06% .15% 2.04% .16% .88% 3.52%
Period--end total loans (1) 237,884 235,923 196,172 175,619 175,607 241,363
Ratio of allowance to
period--end loans (1) 2.35% 2.38% 2.62% 4.67% 5.31% 2.66%
</TABLE>
- ----------------------------
(1) Includes total loans held for sale
Securities
First Federal invests in mortgage-backed securities which are insured or
guaranteed by the Government National Mortgage Association ("GNMA"), FHLMC, and
FNMA. Although mortgage-backed securities generally have a lower yield than
loans, mortgage-backed securities increase the quality of First Federal's
assets by virtue of the guarantees that back them, are more liquid than
individual mortgage loans, and may be used to collateralize borrowings or other
obligations of the Association. First Federal also has the authority to invest
in various types of investment securities, including U.S. Treasury obligations
and securities of various federal agencies, certificates of deposit at insured
banks and thrift institutions, bankers' acceptances and federal funds. Subject
to various restrictions, federally chartered thrift institutions may also
invest a portion of their assets in commercial paper, corporate debt securities
and mutual funds whose assets conform to the investments that a federally
chartered thrift institution is authorized to make directly. At December 31,
1996, First Federal's securities were classified as either trading, available
for sale, or held to maturity, according to management's intent.
99
<PAGE> 110
The Board of Directors has authorized FFO 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 FFO and Bancshares) is
Chairman and principal shareholder of WRHC. During the quarter ended March 31,
1997 and the years ended December 31, 1996 and 1995, FFO purchased
approximately $7.4 million, $53.3 million and $69.5 million, respectively, of
securities and sold $0 million, $46.0 million and $19.7 million of securities
through WRHC. In connection with such transactions, FFO paid WRHC an aggregate
of $9,278, $118,183 and $91,509 in commissions.
The accounting treatment for collateralized mortgage obligations ("CMO") has
been the subject of recent discussion among various regulatory agencies and the
accounting profession. Certain CMOs are considered to be high risk mortgage
derivatives because they have failed the Federal Financial Institutions
Examination Council ("FFIEC") low-risk mortgage derivative test. The FFIEC test
does not address credit risk, but rather indicates whether a particular CMO has
a high level of exposure to interest-rate risk (that is, the security's market
value may be particularly sensitive to increases or decreases in market
interest rates). If a CMO security is considered to be high-risk, the security
cannot be classified as held-to-maturity as the OTS or FDIC can direct that the
security be sold. Each of the CMOs purchased by First Federal in 1996 passed
the FFIEC test at the date of acquisition and at March 31, 1997. At
acquisition, all CMOs were classified as trading securities by the Association.
The following table sets forth the FFO's securities portfolio at March 31, 1997
and December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
TRADING SECURITIES:
March 31, 1997:
Agency notes and debentures $ 6,001 -- $ (62) $ 5,939
Collateralized mortgage-backed
obligations 7,280 -- (50) 7,230
-------- -------- -------- --------
$ 13,281 -- $ 112 $ 13,169
======== ======== ======== ========
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
======== ======== ======== ========
SECURITIES AVAILABLE FOR SALE:
March 31, 1997 -
Mortgage-backed securities 43,952 -- (239) 43,713
======== ======== ======== ========
December 31, 1996 -
Mortgage-backed securities $ 41,455 $ 108 $ (118) $ 41,445
======== ======== ======== ========
SECURITIES HELD TO MATURITY:
March 31, 1997 -
Mortgage-backed securities $ 14,702 $ 66 $ - $ 14,768
======== ======== ======== ========
December 31, 1996 -
Mortgage-backed securities $ 15,343 $ 218 $ (47) $ 15,514
======== ======== ======== ========
</TABLE>
100
<PAGE> 111
The scheduled maturities of securities (other than mortgage-backed securities)
at March 31, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
TRADING
---------------------
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Due from five years to ten years $ 6,001 $ 5,939
======= =======
</TABLE>
SOURCES OF FUNDS
Deposits obtained through First Federal's branch offices have traditionally
been the principal source of First Federal's funds for use in lending and for
other general business purposes. To a lesser extent, First Federal also derives
funds from amortization and prepayments of outstanding loans, sales of
securities and loans, and borrowings from the FHLB of Atlanta.
Deposits
First Federal currently offers deposit products including passbook and
statement savings and club accounts, demand accounts, NOW accounts and
certificates of deposit ranging in terms from three months to ten years.
Included among these deposit products are Individual Retirement Account ("IRA")
certificates. Substantially all of First Federal's deposits are obtained from
individual and business residents of the State of Florida. The principal
methods used by First Federal to attract deposits include offering a wide
variety of products and services, competitive interest rates and convenient
office locations and hours. First Federal is a member of the HONOR and CIRRUS
networks and currently operates automatic teller machines at all 11 of its
offices, as well as one off-site location.
The following table shows the distribution of First Federal's deposits by type
of deposit as of March 31, 1997 and December 31, 1996 and 1995 ($ in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
-------- ---------------------------------------------------
1997 1996 1995
---- ---- ----
% of % of % of
Amount Deposits Amount Deposits Amount Deposits
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing $ 16,598 5.81% $ 14,303 4.98% $ 13,107 5.27%
NOW accounts 22,676 7.94 28,593 9.97 22,918 9.21
Passbook and statement
savings accounts 35,383 12.39 29,388 10.24 40,764 16.37
-------- ------ -------- ------ -------- ------
Total 74,657 26.13 72,284 25.19 76,789 30.85
-------- ------ -------- ------ -------- ------
Certificate deposits:
3-12 months 67,434 23.61 132,990 46.35 38,753 15.57
13-24 months 67,807 23.74 53,346 18.59 70,345 28.26
25-36 months 25,562 8.95 13,834 4.82 16,180 6.50
37+ months 50,212 17.58 14,473 5.05 46,869 18.82
-------- ------ -------- ------ -------- ------
Total 211,015 73.87 214,643 74.81 172,147 69.15
-------- ------ -------- ------ -------- ------
Total deposits $285,672 100.00% $286,927 100.00% $248,936 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
First Federal has been required by market conditions to rely increasingly on
newly-authorized types of short-term certificate accounts and other types of
deposit accounts that are more responsive to market interest rates than
passbook accounts and fixed-rate, fixed-term certificates that were
historically First Federal's primary sources of deposits. In recent years,
First Federal has priced its deposits to be competitive with other financial
institutions conducting business in its market area, but has not attempted to
match the highest rates paid by competing
101
<PAGE> 112
institutions. The ability of First Federal to attract and maintain deposits and
First Federal's cost of funds have been and will continue to be significantly
affected by economic and competitive conditions.
The following table sets forth the net deposit flows of First Federal during
the quarter ended March 31, 1997 and each of the years in the three year period
ended December 31, 1996. The decrease during 1994 was primarily attributable to
management's efforts to improve First Federal's capital ratios by reducing its
assets, restrictions imposed on First Federal's business by Federal regulatory
authorities, the effects of conducting business under growth restrictions in a
competitive industry and First Federal's financial condition during these
periods, as well as investors seeking enhanced returns on investments available
through mutual funds and other market alternatives.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years ended December 31,
------------------- ----------------------------------------
1997 1996 1995 1994
-------- -------- -------- --------
($ in thousands)
<S> <C> <C> <C> <C>
Increase (decrease) before interest credited $ (3,889) $ 28,992 $ 30,172 $ (5,950)
Interest credited 2,634 8,999 7,932 5,664
-------- -------- -------- --------
Net deposit increase (decrease) $ (1,255) $ 37,991 $ 38,104 $ (286)
======== ======== ======== ========
</TABLE>
The following table presents by various interest rate categories the amounts of
certificates of deposit as of March 31, 1997 and December 31, 1996, and 1995.
<TABLE>
<CAPTION>
Years Ended December 31,
March 31, ------------------------------
1997 1996 1995
-------- --------- ---------
($ in thousands)
Interest Rate:
<S> <C> <C> <C>
1.00% - 3.00% $ 923 $ 542 $ 829
3.01% - 4.00% 164 251 2,483
4.01% - 5.00% 36,673 33,459 12,962
5.01% - 6.00% 140,289 146,338 87,815
6.01% - 7.00% 22,950 23,992 59,043
7.01% - 8.00% 8,930 9,128 6,796
8.01% - 9.00% 1,086 933 1,824
9.01% -10.00% - - 317
10.01% -11.00% - - 78
-------- --------- ---------
Total $211,015 $ 214,643 $ 172,147
======== ========= =========
</TABLE>
At March 31, 1997, First Federal had $25.2 million of certificate deposits in
amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Maturity Amount
-------- ------
($ in thousands)
<S> <C>
Three months or less $ 2,275
Over three through six months 5,699
Over six through 12 months 5,894
Over 12 months 11,356
--------
Total $ 25,224
========
</TABLE>
As of March 31, 1997, First Federal had no deposits of public funds.
102
<PAGE> 113
Borrowings
First Federal may obtain advances from the FHLB of Atlanta upon the security of
the common stock it owns in the Bank, certain of its residential mortgage loans
and certain U.S. Government securities provided certain standards related to
creditworthiness have been met. See "Regulation -- Savings Institution
Regulations -- Federal Home Loan Bank System." Such advances are made pursuant
to several credit programs, each of which has its own interest rate and range
of maturities. Such advances are generally available to meet seasonal and other
withdrawals of deposit accounts and to permit increased lending, as well as to
assist the efforts of members to establish better asset and liability
management through the extension of maturities of liabilities. As of March 31,
1997, First Federal had outstanding FHLB advances totaling $9.0 million.
The following table sets forth certain information with respect to short-term
borrowings at March 31, 1997, December 31, 1996, 1995 and 1994, and for the
quarter ended March 31, 1997 and each of the years in the three-year period
ended December 31, 1996 ($ in thousands):
<TABLE>
<CAPTION>
For the Quarter Ending For the Year Ending
March 31, December 31,
---------------------- -------------------------------
1997 1996 1995 1994
------ ------- ------- -------
FHLB advances:
<S> <C> <C> <C> <C>
Average balance outstanding $ 744 $ 5,604 $ 2,705 $ 8,672
Maximum amount outstanding at
any month-end during the period 9,000 28,000 30,000 25,000
Weighted average interest rate
during the period 5.38% 5.59% 6.03% 4.74%
Weighted average interest rate
at end of period 6.85% 6.95% 5.85% 6.81%
Total borrowings at end of period $9,000 7,000 30,000 21,400
</TABLE>
SUBSIDIARIES
Under Federal regulations, investments in and extensions of credit to
subsidiaries engaged in activities which are not permissible for national banks
must generally be deducted from First Federal's regulatory capital. However,
certain exemptions generally apply where (i) a subsidiary is engaged in
activities permissible for national banks solely as an agent for its customers,
(ii) the subsidiary is engaged solely in mortgage-banking activities, (iii) the
subsidiary is itself an insured depository institution or a company the sole
investment of which is an insured depository institution acquired by the parent
insured depository institution prior to May 1989, and (iv) the institution is a
federal savings bank, was chartered prior to October 1982 as a federal savings
bank, or acquired its principal assets for a federal savings bank chartered
prior to October 1982.
First Federal has one wholly owned subsidiary: Gulf American Financial
Corporation ("GAFC"). GAFC owns Gulf American SBL, Inc. ("Gulf American"),
which was an approved U.S. Small Business Administration ("SBA") lender. Gulf
American ceased operations in December 1992, when FFO sold Gulf American's SBA
license. The remaining net assets of Gulf American were transferred to First
Federal in 1994. GAFC, which previously made conventional commercial loans and
commercial construction loans, is no longer originating new loans and has
ceased its operations. During 1994, GAFC transferred its remaining assets and
liabilities to the Association. GAFC owns Gulf American, which was an approved
SBA lender prior to the Company's sale of Gulf American's SBA license, which
sale occurred in December 1992. Generally, Gulf American sold the guaranteed
portion of the SBA loans, retained the non-guaranteed portion, and also
retained the servicing rights to the loans. During 1992, Gulf American sold
approximately $27.0 million of SBA loans and servicing rights related to $117.0
million of SBA loans. These transactions were based on a decision to cease such
lending in areas not directly served by the Company's thrift branches. The
remaining net assets of Gulf American were transferred to First Federal in
1994.
103
<PAGE> 114
COMPETITION
First Federal faces intense competition in its market areas from major banking
and financial institutions, including many which have substantially greater
resources, name recognition and market presence than the Association.
Particularly intense competition exists for attracting and retaining deposits
and lending funds. First Federal competes for deposits principally by offering
depositors a variety of deposit programs, convenient branch locations and
hours, and other services. First Federal does not rely upon any individual
group or entity for a material portion of its deposits. For additional
information regarding pending and recent legislation which is expected to
increase competition further by allowing additional out-of-state bank holding
companies to conduct business in Florida, see "Regulation -- Recent Legislative
Developments -- Interstate Banking."
First Federal's competition for real estate loans comes primarily from mortgage
banking companies, other savings institutions and commercial banks, many of
which have higher legal lending limits than the Association. First Federal
competes for loan originations primarily through the interest rates and loan
fees it charges, and the efficiency and quality of services it provides
borrowers, real estate brokers and builders. Factors which affect competition
include the general and local economic conditions, current interest rate levels
and volatility in the mortgage markets.
EMPLOYEES
First Federal had 146 full-time employees and 20 part-time employees as of
March 31, 1997. None of these employees is represented by a collective
bargaining agent, and FFO believes that it enjoys good relations with its
personnel.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ASSET/LIABILITY MANAGEMENT
First Federal, like most other savings institutions, is engaged primarily in
the business of investing funds obtained from deposits, borrowings and other
sources, in loans, securities and other investments. Consequently, the
Company's earnings depend to a significant extent on its net interest income,
which is the difference between the interest earned on loans, securities and
other investments, and the interest paid on deposits and borrowings. FFO is
subject to interest rate risk, and corresponding fluctuations in its net
interest income, to the extent that its interest-earning assets and
interest-bearing liabilities do not mature or reprice at the same time.
Asset/Liability management policies are employed in an effort to reduce the
Company's exposure to interest rate risk and thereby reduce the volatility of
net interest income. The primary goal of these policies is to achieve a
reasonable interest rate spread while reducing the repricing imbalance by
increasing the interest rate sensitivity and shortening the repricing period of
the Company's interest-earning assets and lengthening the repricing period of
its interest-bearing liabilities.
In order to increase the interest-rate sensitivity of its interest-earning
assets, FFO has emphasized the origination of residential mortgage loans with
adjustable interest rates and loans with short-term maturities. FFO also has
sought in recent years to diversify and increase the interest-rate sensitivity
of its loan portfolio by emphasizing the origination of construction loans for
residential properties within its primary market area. Such loans generally
provide for contractual maturities within one year. Although competitive
pressures require FFO to offer long-term, fixed-rate mortgage loans, most such
loans are originated under terms and conditions intended to permit their sale
in the secondary market.
104
<PAGE> 115
The following table summarizes the anticipated maturities or repricing of the
Company's interest-earning assets and interest-bearing liabilities as of March
31, 1997, based upon certain estimates and assumptions as to loan prepayment
rates and certain deposit erosion rates which management believes are
reasonable based on the FFO's experience ($ in thousands):
<TABLE>
<CAPTION>
One Year Over
One Year to Three Three
or Less Years Years Total
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Rate-Sensitive Assets:
Loans (1) $ 109,420 $ 72,116 $ 44,542 $ 226,078
Securities 53,950 11,696 5,938 71,584
Other interest-earning assets (2) 8,452 - 2,378 10,830
---------- --------- --------- ---------
Total Rate-Sensitive Assets $ 171,822 $ 83,812 $ 52,858 $ 308,492
========= ========= ========= =========
Rate-Sensitive Liabilities:
Deposits (3) $ 177,251 $ 83,121 $ 25,300 $ 285,672
Borrowed funds 9,000 - - 9,000
--------- --------- --------- ---------
Total Rate-Sensitive Liabilities $ 186,251 $ 83,121 $ 25,300 $ 294,672
========= ========= ========= =========
GAP (Repricing differences) $ (14,429) $ 691 $ 27,558 $ 13,820
========= ========= ========= =========
Cumulative GAP $ (14,429) $ (13,738) $ 13,820
========= ========= =========
Cumulative GAP as a
Percent of Total Assets (4.51)% (4.29)% 4.31%
</TABLE>
- -----------------------
(1) Loans are net of the undisbursed portion of loans in process and
nonaccrual loans.
(2) Consists of interest-earning deposits and FHLB stock.
(3) In preparing the table above, the following assumptions were made
regarding the withdrawal of deposits: (i) passbook withdrawals of 33% in
the first year and 67% from one to five years and (ii) NOW account
withdrawals at 40% of the total balance in the first year, 40% in the
second year and 20% in the third year.
The above assumptions are annual percentages based on remaining balances and
should not be regarded as indicative of the actual withdrawals that may be
experienced by FFO. Moreover, certain shortcomings are inherent in the analysis
presented in the foregoing table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
differently to changes in market interest rates. Also, interest rates on
certain types of assets and liabilities may fluctuate in advance of or lag
behind changes in market interest rates. Additionally, certain assets, such as
adjustable rate mortgage loans, have features that restrict changes in interest
rates on a short-term basis and over the life of the assets. Moreover, in the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in calculating the above
table.
105
<PAGE> 116
RESULTS OF OPERATIONS
The following table sets forth information for the three months ended March 31,
1997 vs. 1996 regarding (i) the average balance of FFO's interest-earning
assets and interest-bearing liabilities, (ii) the total dollar amount of
interest and dividend income from interest-earning assets and the resultant
average yields, (iii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average cost, (iv) net
interest/dividend income, (v) interest rate spread and (vi) net interest
margin.
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------------------
1997 1996
----------------------------------- ----------------------------------
Average Average
Average Interest/ Yield/ Average Interest/ Yield/
Balance Dividends Rate Balance Dividends Rate
--------- -------- ---- --------- -------- ----
($ in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1) $ 220,045 $ 4,591 8.35% $ 186,210 $ 4,018 8.63%
Securities 71,506 1,125 6.29 88,237 1,354 6.14
Other interest-earning assets 5,442 91 6.69 5,793 94 6.49
--------- -------- --------- --------
Total interest-earning assets 296,993 5,807 7.82 280,240 5,466 7.80
-------- --------
Noninterest-earning assets 18,464 18,996
--------- ---------
Total assets $ 315,457 $ 299,236
========= =========
Interest-bearing liabilities:
Deposits 288,979 3,163 4.38 259,290 2,897 4.47
Borrowed funds 744 10 5.38 17,099 243 5.69
--------- -------- --------- --------
Total interest-bearing liabilities 289,723 3,173 4.38 276,389 3,140 4.54
-------- --------
Noninterest-bearing liabilities 5,225 4,347
Stockholders' equity 20,509 18,500
--------- ---------
Total liabilities and
stockholders' equity $ 315,457 $ 299,236
========= =========
Net interest/dividend income $ 2,634 $ 2,326
======== ========
Interest rate spread (2) 3.44% 3.26%
==== ====
Net average interest-earning
assets, net interest margin (3) $ 7,270 3.55% $ 3,851 3.32%
========= ==== ========= ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.02 1.01
========= =========
</TABLE>
(1) Includes nonaccrual loans.
(2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
106
<PAGE> 117
RESULTS OF OPERATIONS
The following table presents certain information regarding changes in interest
and dividend income and interest expense of FFO for the years indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided with respect to changes attributable to (i) changes in
rate (change in rate multiplied by prior volume), (ii) changes in volume
(change in volume multiplied by prior rate) and (iii) changes in rate/volume
(change in rate multiplied by change in volume) (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1997 VS. 1996
INCREASE (DECREASE) DUE TO
------------------------------------------------
INTEREST/ RATE/
RATE VOLUME VOLUME TOTAL
----- -------- ------ ---------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ (1300) $ 730 $ (277) $ 573
Securities 33 (257) (257) (229)
Other interest-earning
assets 3 (6) - (3)
-------- ------- ------- -------
Total (94) 467 (32) 341
-------- ------- ------- -------
Interest-bearing liabilities:
Deposits (58) 332 (8) 266
Borrowings (13) (233) 13 (233)
-------- ------- ------- -------
Total (71) 99 5 33
-------- ------- ------- -------
Net change in interest income $ (23) $ 368 $ (37) $ 308
======== ======= ======= =======
</TABLE>
COMPARISON OF QUARTERS ENDED MARCH 31, 1997 AND 1996
INTEREST INCOME
For the three months ended March 31, 1997, total interest income was $5.8
million, an increase of $341,000 from the same period in 1996, due primarily to
a $573,000 increase in interest income on loans. Interest income on loans
increased due to an increase in the average balance of $33.8 million partially
offset by a decrease in the average yield earned on such loans from 8.63% in
1996 compared to 8.35% in 1997. The decrease in interest income on securities
is due to a decrease of $16.7 million in the average balance outstanding
partially offset by an increase in the average yield earned from 6.14% in 1996
to 6.29% in 1997. Interest income on other interest-earning assets decreased
from $94,000 to $91,000, due to a decrease in the average balance outstanding
partially offset by an increase in the average yield earned.
INTEREST EXPENSE
Total interest expense for the three months ended March 31, 1997 was $3.2
million, an increase of $33,000 or 1.1% from the similar period in 1996.
Interest expense on deposits increased from $2.9 million in the first quarter
of 1996 to $3.2 million in the first quarter of 1997. The increase was
primarily attributable to an increase of $29.7 million in the average deposits
outstanding during 1997 compared to the 1996 period, partially offset by a
decrease in the average rate paid on those deposits from 4.47% in 1996 to 4.38%
in 1997. Interest expense on borrowed funds decreased $233,000 or 95.9%
compared to the 1996 period. The decrease was primarily attributable to the
$16.4 million decrease in the average borrowed funds from $17.1 million during
1996 to $744,000 during 1997.
107
<PAGE> 118
PROVISION FOR LOAN LOSSES
FFO's provision for loan losses for the three months ended March 31, 1996 was
$150,000. The Company did not record a provision for loan losses during the
three months ended March 31, 1997. Management of the Company monitors the loan
portfolio on a regular basis and evaluates the adequacy of the allowance for
loan losses. Management believes that the allowance as of March 31, 1997 is
adequate based on facts and circumstances known to it.
NONINTEREST INCOME
Noninterest income for the three-month period ended March 31, 1997 increased
$297,000 or 97.7%, compared to the same period in 1996, primarily due to an
unrealized gain on loans held for sale of $84,000 during the 1997 period
compared to an unrealized loss on loans held for sale of $111,000 during the
1996 period and a decrease in net trading account losses of $40,000.
NONINTEREST EXPENSES
Total noninterest expenses decreased by $94,000 or 3.9% for the three-month
period ended March 31, 1997, compared to the same period in 1996. The decrease
was due to a decrease in deposit insurance premiums of $110,000 as a result of
a decrease in the assessment rate on deposits from 29.0 cents per $100 in 1996
to 6.5 cents per $100 in 1997, partially offset by an increase in data
processing of $28,000.
INCOME TAXES
The income tax provision for the three months ended March 31, 1997, was
$351,000 (an effective rate of 37.4%) compared to $33,000 (an effective rate of
37.1%) for the 1996 period.
[Balance of page intentionally left blank]
108
<PAGE> 119
RESULTS OF OPERATIONS
The following table sets forth information for the years ending December 31,
1996 and 1995, regarding (i) the average balance of the FFO's interest-earning
assets and interest-bearing liabilities (ii) the total dollar amount of
interest and dividend income from interest-earning assets and the resultant
average yields, (iii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average cost, (iv) net
interest/dividend income, (v) interest rate spread and (vi) net interest
margin.
<TABLE>
<CAPTION>
Years Ended December 31, Years Ended December 31,
1996 1995
-------------------------------------- ---------------------------------------
Average Average
Average Interest/ Yield/ Average Interest/ Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ------- ------- --------- -------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $ 206,735 $ 16,712 8.08% $ 174,203 $ 15,357 8.82%
Securities 77,524 4,917 6.34 58,024 3,782 6.52
Other interest-earning assets 5,330 368 6.92 8,585 591 6.88
--------- --------- --------- ---------
Total interest-earning assets 289,609 21,997 7.60 240,812 19,730 8.19
--------- ---------
Noninterest-earning assets 8,010 17,028
--------- ---------
Total assets $ 297,619 $ 257,840
========= =========
Interest-bearing liabilities:
Deposits:
Noninterest-bearing accounts 14,054 - - 12,415 - -
NOW accounts 24,386 339 1.39 29,708 440 1.48
Passbook and statement accounts 37,935 597 1.57 35,920 914 2.55
Certificate accounts 190,927 10,774 5.64 152,716 8,594 5.63
--------- --------- --------- ---------
Total deposits 267,302 11,710 4.38 230,759 9,948 4.31
Borrowed funds 5,627 313 5.56 2,705 163 6.03
--------- --------- --------- ---------
Total interest-bearing liabilities 272,929 12,023 4.40 233,464 10,111 4.33
Noninterest-bearing liabilities 5,134 6,420
Stockholders' equity 19,556 17,956
--------- ---------
Total liabilities & stockholders
equity $ 297,619 $ 257,840
========= =========
Net interest/dividend income 9,974 9,619
========= =========
Interest rate spread (2) 3.20% 3.86%
==== ====
Net average interest-earning assets,
net interest margin (3) $ 16,680 3.44% $ 7,348 3.99%
========= ==== ========= ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.06 1.03
========= =========
Interest-bearing liabilities:
Deposits
Borrowed funds
</TABLE>
- ----------------------------------------
(1) Includes nonaccrual loans.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
109
<PAGE> 120
The following table presents certain information regarding changes in interest
and dividend income and interest expense of FFO for the years indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided with respect to changes attributable to (i) changes in
rate (change in rate multiplied by prior volume), (ii) changes in volume
(change in volume multiplied by prior rate) and (iii) changes in rate/volume
(change in rate multiplied by change in volume) (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 VS. 1995
----------------------------------------------------
INCREASE (DECREASE) DUE TO
INTEREST/ RATE/
RATE VOLUME VOLUME TOTAL
---------- ----------- ------ --------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ (1,276) $ 2,870 $ (2399) $ 1,355
Securities (104) 1,271 (333) 1,134
Other interest-earning
assets 3 (2244) (11) (2222)
-------- -------- -------- --------
Total (1,377) 3,917 (273) 2,267
--------- ------- -------- -------
Interest-bearing liabilities:
Deposits 161 1,575 26 1,762
Borrowings (133) 176 (144) 149
--------- ------- -------- -------
Total 148 1,751 12 1,911
-------- ------- ------- -------
Change in net interest income $ (1,525) $ 2,166 $ (285) $ 356
========= ======= ======== =======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 TO DECEMBER 31, 1995
GENERAL
FFO reported net earnings of $1.6 million or $0.19 per share for the year ended
December 31, 1996 compared to net earnings of $1.6 million or $0.20 per share
for 1995.
INTEREST INCOME
Total interest income for 1996 was $22.0 million, an increase of $2.3 million
from 1995. Interest income on loans increased $1.4 million or 8.8% in 1996
compared to 1995. The increase in interest income on loans was the result of an
increase in the average balance of loans outstanding from $174.2 million in
1995 to $206.8 million in 1996, partially offset by a decrease in the average
yield earned on such loans from 8.82% in 1995 to 8.08% in 1996. Interest income
on securities increased $1.1 million or 30.0%, due to an increase in the
average balance from $58.0 million in 1995 to $77.5 million in 1996, partially
offset by a decrease in the average yield earned from 6.52% in 1995 to 6.34% in
1996. Interest income on other interest-earning assets decreased $223,000 from
$591,000 in 1995 to $368,000 in 1996. The decrease was the result of a decrease
in the average balance outstanding during 1996 compared to 1995, partially
offset by a slight increase in average yield earned in 1996 compared to 1995.
INTEREST EXPENSE
Total interest expense for 1996 increased from $10.1 million in 1995 to $12.0
million in 1996. Interest paid on deposit accounts increased by $1.8 million.
The increase in interest expense on deposits was due to an increase in the
average balances outstanding and an increase in the rates paid thereon. During
1996, deposits averaged $267.3 million at an average rate of 4.38% compared to
$230.8 million at an average rate of 4.31% during 1995.
110
<PAGE> 121
PROVISION FOR LOAN LOSSES
FFO recorded a provision for loan losses of $782,000 for 1996, compared to a
$477,000 provision for 1995. The ratio of nonperforming loans and foreclosed
real estate to total assets was 3.12% at December 31, 1996, compared to 4.00%
at December 31, 1995. The Company's total allowance for losses on loans and
foreclosed real estate equaled 58.4% of nonperforming assets at December 31,
1996 compared to 52.0% of nonperforming assets at December 31, 1995.
NONINTEREST INCOME
For the year ended December 31, 1996, noninterest income was $2.4 million, a
decrease of $215,000 from 1995. The decrease was primarily due to a net loss on
trading securities during 1996 of $196,000 compared to a net profit on trading
securities of $229,000 during 1995 and an unrealized loss on loans held for
sale of $150,000 at December 31, 1996 compared to no such loss at December 31,
1995. Partially offsetting these decreases was a $264,000 increase in other
income.
NONINTEREST EXPENSES
During 1996 noninterest expenses decreased by $281,000 from $9.5 million during
1995 to $9.2 million in 1996. The decrease resulted from a $2.4 million
decrease in loss on foreclosed real estate during 1996, partially offset by the
one-time SAIF assessment of $1.5 million and an increase of $247,000 in other
expenses. The decrease in loss on foreclosed real estate was due to a credit
provision for losses on foreclosed real estate of $1.5 million in 1996 compared
to $240,000 provision for losses on foreclosed real estate in 1995.
INCOME TAXES
The income tax provision increased from $641,000 for 1995 (an effective rate of
28.0%) to $803,000 for 1996 (an effective rate of 33.4%).
111
<PAGE> 122
DESCRIPTION OF BANCSHARES COMMON AND PREFERRED STOCK
Bancshares Common Stock
Bancshares is authorized to issue 20,000,000 shares of Bancshares Common Stock
of which 4,183,507 shares were issued and outstanding on the Record Date. Each
holder of Bancshares Common Stock has the same relative rights as each other
holder of Bancshares Common Stock, and each share of Bancshares Common Stock is
identical in all respects with each other share of Bancshares Common Stock.
Bancshares Common Stock does not constitute a deposit account of any savings
association or bank and is not be insured by the FDIC.
Holders of shares of Bancshares Common Stock are entitled to dividends, when,
as and if declared by the Board of Directors, from funds legally available
therefor, but only after payment of all required dividends on any outstanding
preferred stock. Upon the liquidation, dissolution or winding up of Bancshares,
the holders of Bancshares Common Stock are entitled to share ratably in all
assets remaining after payment of all liabilities, subject to the liquidation
preferences of any preferred stock that may be issued and outstanding. Shares
of Bancshares Common Stock are not redeemable and do not have any conversion
rights.
The holders of shares of Bancshares Common Stock do not have preemptive rights
to subscribe to a pro-rata share of any future offers of shares of Bancshares
Common Stock. Accordingly, shares may be offered to the public, stockholders,
or to both at the discretion of the Bancshares Board of Directors. In addition,
holders do not have the right to cumulate their votes for the election of
directors. In certain circumstances, cumulative voting rights allow the holders
of less than a majority of the voting shares to elect one or more directors
when such holders would not be able to elect any directors if cumulative voting
were not allowed. The holders of Bancshares Common Stock have voting powers on
all matters requiring approval of stockholders, subject to the voting rights of
the holders of any preferred stock that may be issued and outstanding. Each
holder of Bancshares Common Stock is entitled to one vote for each share held.
Bancshares Perpetual Preferred Convertible Stock
There are 100,000 authorized shares of Bancshares Preferred Stock, of which
75,000 shares were issued and outstanding at the Record Date. The Board of
Directors, without further action by the stockholders, may issue shares of
Bancshares Preferred Stock in one or more series and with such terms, at such
times and for such consideration as the Board may determine. The Board's
authority includes the determination or fixing of the following matters with
respect to the shares or any series thereof: (i) the number of shares and
designation thereof; (ii) rights as to dividends; (iii) voting rights, if any;
(iv) the terms upon which shares will be redeemable; (v) the amount payable on
the shares in the event of dissolution, liquidation or winding-up of the
affairs of the Bank; (vi) the sinking fund provisions, if any, for the
redemption or purchase of the shares; and (vii) whether and upon what terms the
shares will be convertible. The Board of Directors may determine that any
shares that are issued would rank prior to shares of Bancshares Common Stock as
to dividend and liquidation rights. The Bancshares Preferred Stock is
non-cumulative, perpetual preferred stock and qualifies as Tier 1 Capital for
bank regulatory purposes.
Holders of shares of Bancshares Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for payment, non-cumulative cash dividends, payable quarterly in
arrears, at the rate of $3.52 per share per annum, which is equivalent to $0.88
per share per quarter. Declared dividends shall accrue from the date of
issuance or the most recent date on which dividends were payable and be payable
quarterly on the first day of March, June, September and December of each year
(each, a "Dividend Payment Date"). The rights of holders of Bancshares
Preferred Stock to receive dividends is non-cumulative. Accordingly, if the
Board of Directors fails to declare a dividend payable on a Dividend Payment
Date, then holders will have no right to receive a dividend in respect of the
dividend period ending on such Dividend Payment Date, and Bancshares will have
no obligation to pay the dividend for such period, whether or not dividends are
declared payable on any future Dividend Payment Dates.
112
<PAGE> 123
No full dividends shall be declared and paid or set apart for payment on
Bancshares Preferred Stock of any series ranking, as to dividends, on a parity
with Bancshares Preferred Stock during any calendar quarter unless full
dividends on Bancshares Preferred Stock for the dividend period ending during
such calendar quarter have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof is set apart for such
payment. Unless full dividends have been declared and paid or set apart for
payment for the Dividend Payment Date falling in the then-current dividend
period, no dividend or distribution may be declared, set aside or paid on any
shares of Bancshares Common Stock or on any series of preferred stock ranking,
as to dividends, junior to Bancshares Preferred Stock.
In the event of any liquidation, dissolution or winding up of Bancshares,
voluntary or involuntary, the holders of Bancshares Preferred Stock will be
entitled to receive out of the assets of Bancshares available for distribution
to stockholders, before any distribution of assets is made to the holders of
Bancshares Common Stock or any other shares of stock ranking junior to
Bancshares Preferred Stock as to such distribution, liquidating distributions
in the amount of $88.00 per share plus dividends declared but unpaid for the
then-current dividend period (without accumulation of unpaid dividends for
prior dividend periods) to the date fixed for such liquidation, dissolution or
winding up. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of the Preferred Stock will not be
entitled to any further participation in any distribution of assets. All
distributions made with respect to Bancshares Preferred Stock in connection
with such liquidation, dissolution or winding up of Bancshares shall be made
pro rata to the holders entitled thereto.
Bancshares Preferred Stock is redeemable, subject to any required bank
regulatory approvals, out of funds of Bancshares legally available therefor, at
the option of Bancshares for cash, in whole at any time or in part, from time
to time, at $96.80 per share, plus declared but unpaid dividends for the
then-current dividend period to the date fixed for redemption (without
accumulation of unpaid dividends for prior dividend periods) without interest.
In order to exercise the right of redemption, Bancshares must give 30 days
prior written notice to the holders, during which time period the holders may
convert Bancshares Preferred Stock into Bancshares Common Stock as described
below.
Except as described below or otherwise required by the FBCA, the holders of
Bancshares Preferred Stock are entitled to vote on all matters submitted to a
vote of the holders of Bancshares Common Stock, voting together with the
holders of Bancshares Common Stock as one class. Each share of Bancshares
Preferred Stock is entitled to a number of votes equal to the number of shares
of Bancshares Common Stock into which such share could be converted on the
record date for determining the stockholders entitled to vote. Currently, each
share of Bancshares Preferred Stock is entitled to ten votes. Bancshares
Preferred Stock is entitled to vote as a separate class with respect to any
proposal to (i) alter or change any of the powers, preferences, privileges or
rights of Bancshares Preferred Stock, (ii) amend the provisions of the Articles
of Incorporation relating to Bancshares Preferred Stock, (iii) create any new
class or series of stock having preferences prior to or being on a parity with
the Bancshares Preferred Stock as to dividends or assets, (iv) sell, lease,
convey, exchange, transfer or otherwise dispose of all or substantially all of
the assets of Bancshares, or (v) merge or consolidate with or into any other
corporation except into or with a wholly-owned subsidiary.
Each share of Bancshares Preferred Stock is convertible at the option of the
holder into ten shares of Bancshares Common Stock, subject to adjustment in the
event of a stock split, stock dividend or similar recapitalization.
LEGAL OPINIONS
The legality of Bancshares Common Stock to be issued in the Merger and certain
tax matters will be passed upon by the law firm of Holland & Knight LLP.
Certain legal matters related to the Mergers being passed upon for FFO by the
law firm of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A., Orlando,
Florida.
EXPERTS
The audited consolidated financial statements of Bancshares have been audited
by Arthur Andersen, LLP, independent public accountants, for the period
indicated in their report thereon that is included in Bancshares'
113
<PAGE> 124
Annual Report on Form 10-K. The financial statements audited by Arthur
Andersen, LLP, have been included herein in reliance on their report given on
their authority as experts in accounting and auditing. The audited consolidated
financial statements of FFO have been audited by Hacker, Johnson, Cohen and
Grieb, independent public accountants, for the period indicated in their report
thereon that is included in FFO's Annual Report to Stockholders. The financial
statements audited by Hacker, Johnson, Cohen and Grieb have been included
herein in reliance on their report given on their authority as experts in
accounting and auditing.
[Balance of page intentionally left blank]
114
<PAGE> 125
[This page intentionally left blank]
115
<PAGE> 126
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.
/s/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-1
<PAGE> 127
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
($ IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
ASSETS 1996 1995
- ------ ------ ------
<S> <C> <C>
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 411,665 495,402
of time deposits of $100,000 or more) -------- --------
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 & 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 $801,995
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-2
<PAGE> 128
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
INTEREST INCOME: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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-3
<PAGE> 129
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
($ 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, 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-4
<PAGE> 130
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ 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 & 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 available for sale 21,848 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-5
<PAGE> 131
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.
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
F-6
<PAGE> 132
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.
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.
F-7
<PAGE> 133
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.
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,
F-8
<PAGE> 134
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.
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.
F-9
<PAGE> 135
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>
<TABLE>
<CAPTION>
BOOK VALUE AT DECEMBER 31: 1996 1995
---- ----
<S> <C> <C>
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.
F-10
<PAGE> 136
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>
<TABLE>
<CAPTION>
BOOK VALUE AT DECEMBER 31: 1996 1995
---- ----
<S> <C> <C>
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.
F-11
<PAGE> 137
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>
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,
$14,504,000, 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>
F-12
<PAGE> 138
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.
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.
F-13
<PAGE> 139
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>
8. INCOME TAXES:
Income taxes are comprised of the following (in thousands):
<TABLE>
<CAPTION>
For the
Years Ended
December 31,
------------------------------
1996 1995 1994
---- ---- ----
<C> <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 decreased by $177,000 and
$1,427,000 for the years ended December 31, 1995 and 1994, respectively. 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-14
<PAGE> 140
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-15
<PAGE> 141
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.
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>
F-16
<PAGE> 142
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.
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
F-17
<PAGE> 143
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.
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.
F-18
<PAGE> 144
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
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.
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
F-19
<PAGE> 145
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 Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
-------------
Outstanding - beg. 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
Wtd. avg. 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 -- -- -- -- -- --
Wtd. avg. fair value
of options granted 5.84
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------ ------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- ---------------- ----------------- ----------- ----------------
<S> <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>
F-20
<PAGE> 146
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 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.
F-21
<PAGE> 147
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-22
<PAGE> 148
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-23
<PAGE> 149
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
========
<CAPTION>
PARENT-ONLY CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
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-24
<PAGE> 150
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 $13.50. Either party has the right to
terminate the agreement if the merger does not occur by November 1, 1997.
Outstanding options for FFO common stock will be converted into options for
Company Common Stock on the same basis. The transaction will be accounted for as
a corporate reorganization under which the controlling shareholder's interest in
FFO will be carried forward at its historical cost while the minority interest
in FFO will be recorded at fair value. The transaction is subject to completion
of a definitive agreement, shareholder approval by the parties, approval by
various regulatory authorities, receipt of opinion that the transaction
qualifies as a tax-free reorganization, and receipt of fairness opinions by each
companies' financial advisor.
The above financial information regarding Firstate and FFO was derived from
unaudited financial statements at December 31, 1996.
F-25
<PAGE> 151
REPUBLIC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1997 AND DECEMBER 31, 1996
($ IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
MARCH 31, December 31,
ASSETS 1997 1996
------ ------
(UNAUDITED)
<S> <C> <C>
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-26
<PAGE> 152
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ 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 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-27
<PAGE> 153
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE THREE MONTHS ENDED MARCH 31, 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 three
months ended March 31, 1997
(unaudited)
-- -- -- -- -- 1,603 -- 1,603
Net unrealized losses on
available-for-sale securities -- -- -- -- -- -- (277) (277)
(unaudited)
Dividends on preferred stock -- -- -- -- -- (66) -- (66)
(unaudited) ------ ------ --------- ------ ------- -------- ----- --------
BALANCE, MARCH 31, 1997 75,000 $1,500 4,183,507 $8,367 $26,699 $ 19,386 $(373) $ 55,579
(unaudited) ====== ====== ========= ====== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-28
<PAGE> 154
REPUBLIC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ 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 & 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 & 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-29
<PAGE> 155
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
March 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 ("Commission") 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-30
<PAGE> 156
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
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.
F-31
<PAGE> 157
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
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 18, 1997, the Company acquired all of the outstanding common
stock of EHL Holdings, Inc., the privately-held parent company of First
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. The goodwill will be
amortized over a period of 120 months.
F-32
<PAGE> 158
F.F.O. FINANCIAL GROUP, INC.
St. Cloud, Florida
Consolidated Financial Statements
December 31, 1996 and 1995 and for the Years Ended
December 31, 1996, 1995 and 1994
(Together with Independent Auditors' Report)
F-33
<PAGE> 159
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-34
<PAGE> 160
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-35
<PAGE> 161
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-36
<PAGE> 162
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-37
<PAGE> 163
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)
-------- ------- -------
</TABLE>
F-38
<PAGE> 164
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 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-39
<PAGE> 165
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.
F-40
<PAGE> 166
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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.
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.
F-41
<PAGE> 167
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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.
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-42
<PAGE> 168
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-43
<PAGE> 169
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>
F-44
<PAGE> 170
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS RECEIVABLE, CONTINUED
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>
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>
F-45
<PAGE> 171
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS RECEIVABLE, CONTINUED
Nonaccrual and renegotiated loans for which interest has been reduced
totaled 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-46
<PAGE> 172
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>
F-47
<PAGE> 173
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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.
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.
F-48
<PAGE> 174
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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>
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>
F-49
<PAGE> 175
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCOME TAXES, CONTINUED
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> 176
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCOME TAXES, 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> 177
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) PENSION AND PROFIT SHARING PLANS, 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.
F-52
<PAGE> 178
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) FINANCIAL INSTRUMENTS, CONTINUED
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.
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.
F-53
<PAGE> 179
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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>
(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.
F-54
<PAGE> 180
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) REGULATORY MATTERS, CONTINUED
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.
The Association's actual capital amounts and ratios at December 31,
1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM CAPITALIZED
FOR CAPITAL FOR PROMPT
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>
F-55
<PAGE> 181
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) REGULATORY MATTERS, CONTINUED
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 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.
F-56
<PAGE> 182
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(18) STOCK OPTION PLAN, CONTINUED
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
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.
F-57
<PAGE> 183
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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-58
<PAGE> 184
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(19) PARENT COMPANY ONLY 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 $ 400
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-59
<PAGE> 185
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(20) QUARTERLY FINANCIAL DATA (UNAUDITED), 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-60
<PAGE> 186
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1997 1996
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
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-61
<PAGE> 187
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-62
<PAGE> 188
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT 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-63
<PAGE> 189
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
======== ========
</TABLE>
F-64
<PAGE> 190
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
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-65
<PAGE> 191
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
======= =======
<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-66
<PAGE> 192
LOAN IMPAIRMENT AND LOSSES (CON'T)
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-67
<PAGE> 193
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-68
<PAGE> 194
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-69
<PAGE> 195
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and
entered into as of April 14, 1997, by and between REPUBLIC BANCSHARES, INC.
("Republic"), a corporation organized and existing under the laws of the State
of Florida, with its principal office located in St. Petersburg, Florida; and
F.F.O. FINANCIAL GROUP, INC. ("FFO"), a corporation organized and existing
under the laws of the State of Florida, with its principal office located in
St. Cloud, Florida.
PREAMBLE
The Boards of Directors of Republic and FFO are of the opinion that
the transactions described herein are in the best interests of the parties to
this Agreement and their respective stockholders. This Agreement provides for
the acquisition of FFO by Republic pursuant to the merger of FFO with and into
Republic. At the effective time of such merger, the outstanding shares of the
capital stock of FFO shall be converted into shares of the common stock of
Republic (except as provided herein). As a result of the merger, FFO's
wholly-owned subsidiary, First Federal Savings and Loan Association of Osceola
County ("First Federal"), shall become a wholly-owned subsidiary of Republic.
It is contemplated that, either simultaneously with or shortly following the
merger of FFO into Republic, First Federal will be merged with and into
Republic's wholly-owned subsidiary, Republic Bank (the "Bank"). The
transactions described in this Agreement are subject to the approvals of the
stockholders of Republic and FFO, the Board of Governors of the Federal Reserve
System, the FDIC, and the Florida Department of Banking and Finance, and the
satisfaction of certain other conditions described in this Agreement. It is
the intention of the parties to this Agreement that the Merger for federal
income tax purposes shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
Certain terms used in this Agreement are defined in Section 11.1 of
this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth herein, the
Parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time, FFO shall be merged with and into Republic in
accordance with the provisions of Section 607.1101 of the Florida Business
Corporation Act ("FBCA") and with the effect provided in Section 607.1106 of
the FBCA (the "Merger"). Republic shall be the Surviving Corporation resulting
from the Merger and shall continue to be governed by the Laws of the State of
Florida. The Merger shall be consummated
<PAGE> 196
pursuant to the terms of this Agreement, which has been approved and adopted by
the respective Boards of Directors of FFO and Republic.
1.2 TIME AND PLACE OF CLOSING. The closing for the Merger (the
"Closing") will take place at 9:00 A.M. on the date that the Effective Time
occurs (or the immediately preceding day if the Effective Time is earlier than
9:00 A.M.), or at such other time as the parties, acting through their duly
authorized officers, may mutually agree. The place of Closing shall be at such
location as may be mutually agreed upon by the parties.
1.3 EFFECTIVE TIME. The Merger contemplated by this Agreement
shall become effective on the date and at the time the Florida Articles of
Merger reflecting the Merger shall become effective with the Secretary of State
of the State of Florida (the "Effective Time"). Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing by the duly
authorized officers of each party, the parties shall use their reasonable
efforts to cause the Effective Time to occur on or before the tenth business
day (as designated by Republic) following the last to occur of (i) the
effective date (including expiration of any applicable waiting period) of the
last required Consent of any Regulatory Authority having authority over and
approving or exempting the Merger; (ii) the date on which the stockholders of
FFO approve the matters relating to this Agreement required to be approved by
such stockholders by applicable law; or (iii) the date on which the
stockholders of Republic approve the matters relating to this Agreement
required to be approved by such stockholders by applicable law or such later
date within 30 days thereof as may be specified by Republic.
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER. The Articles of Incorporation of Republic in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until otherwise amended or repealed.
2.2 BY-LAWS. The By-Laws of Republic in effect immediately prior
to the Effective Time shall be the By-Laws of the Surviving Corporation until
otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of Republic in office
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the By-Laws of
the Surviving Corporation. The officers of Republic in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of the
- 2 -
<PAGE> 197
Surviving Corporation from and after the Effective Time in accordance with the
By-Laws of the Surviving Corporation.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of Republic or FFO, or the stockholders of either of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of Republic Common Stock and Republic
Preferred Stock and each of the options to purchase Republic Common Stock
disclosed in Section 6.3 of the Republic Disclosure Memorandum issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of FFO Common Stock (excluding shares held
by any FFO Company or any Republic Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted or shares held
by stockholders who perfect their dissenters' rights of appraisal) issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
converted into and exchanged for 0.29 of a share of Republic Common Stock (the
"Exchange Ratio"). In the event that, as of the Closing Date, the product of
the Exchange Ratio and the Market Value of the Republic Common Stock is below
$4.10, then the Exchange Ratio will be increased to maintain such product at
$4.10. In no event, however, shall the Exchange Ratio be greater than 0.30.
(c) Each of the options to purchase FFO Common Stock
issued and outstanding at the Effective Time, which options were granted
pursuant to FFO's customary arrangements consistent with past practice and are
disclosed in Section 3.1(c) of the FFO Disclosure Memorandum (the "FFO
options"), shall cease to be outstanding and shall be converted into and
exchanged for the Right to acquire Republic Common Stock on substantially the
same terms applicable to the FFO options. The number of shares of Republic
Common Stock to be issued pursuant to the exercise of such options shall equal
the number of shares of FFO Common Stock subject to such options multiplied by
the Exchange Ratio, provided that no fractions of shares of Republic Common
Stock shall be issued, and the number of shares of Republic Common Stock to be
issued upon the exercise of the FFO options, if a fractional share exists,
shall equal the number of whole shares obtained by rounding to the nearest
whole number, giving account to such fraction. The exercise price for the
acquisition of Republic Common Stock shall be the exercise price for each share
of FFO Common Stock subject to such options divided by the Exchange Ratio,
adjusted as appropriate
- 3 -
<PAGE> 198
for any rounding to whole shares that may be done. As soon as reasonably
practicable after the Effective Time, Republic shall file a registration
statement on Form S-3 or Form S-8, or an amendment thereto, as the case may be
(or any successor or other appropriate forms), with respect to the shares of
Republic Common Stock subject to such options and shall use its reasonable
efforts to maintain the effectiveness of such registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the 1934 Act, where applicable, Republic
shall administer the FFO stock option plan assumed pursuant to this Section in
a manner that complies with Rule 16b-3 promulgated under the Exchange Act to
the extent the FFO stock option plan complied with such rule prior to the
Merger.
(d) Provided that the stock option plan pursuant to which the
FFO options were issued permits such practice, holders of the FFO options will
also have the right to convert their options directly into shares of Republic
Common Stock. The number of shares of Republic Common Stock that will be
issuable upon conversion of an FFO option will be (i) the difference between
the Market Value of one share of FFO Common Stock and the exercise price of the
FFO option divided by (ii) the Market Value of one share of Republic Common
Stock, such quotient then multiplied by the number of shares of FFO Common
Stock subject to the FFO option.
3.2 ANTI-DILUTION PROVISIONS. In the event Republic changes the
number of shares of Republic Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend or similar
recapitalization with respect to such stock and the record date therefor (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Exchange Ratio and the
amounts set forth in Sections 3.1(b) and 9.3(d) shall be proportionately
adjusted.
3.3 SHARES HELD BY FFO OR REPUBLIC. Each of the shares of FFO
Common Stock held by any FFO Company or by any Republic Company, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 FRACTIONAL SHARES. Notwithstanding any other provision of
this Agreement, each holder of shares of FFO Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of Republic Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Republic
Common Stock multiplied by the Market Value of one share of Republic Common
Stock at the Closing Date. The Market Value of one share of Republic Common
Stock at the Closing Date shall be determined by calculating
- 4 -
<PAGE> 199
the average of the closing prices of Republic Common Stock on the Nasdaq NMS
(as reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Republic) on each of the twenty (20)
consecutive trading days ending on the third business day immediately preceding
the Closing Date. No such holder will be entitled to dividends, voting rights
or any other rights as a stockholder in respect of any fractional shares.
3.5 DISSENTING STOCKHOLDERS. Any holder of shares of FFO Common
Stock who perfects such holder's dissenters' rights of appraisal in accordance
with and as contemplated by Section 607.1302 of the FBCA shall be entitled to
receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, that no such payment shall be made to any
dissenting stockholder unless and until such dissenting stockholder has
complied with the applicable provisions of the FCBA and has surrendered to FFO
or Republic the certificate or certificates representing the shares for which
payment is being made. In the event that after the Effective Time a dissenting
stockholder of FFO fails to perfect, or effectively withdraws or loses, such
holder's right to appraisal and of payment for such holder's shares, Republic
shall issue and deliver the consideration to which such holder of shares of FFO
Common Stock is entitled under this Article 3 (without interest) upon surrender
by such holder of the certificate or certificates representing the shares of
FFO Common Stock held by such holder.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time,
Republic and FFO shall cause the exchange agent selected by Republic (the
"Exchange Agent") to mail to the former stockholders of FFO appropriate
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
FFO Common Stock shall pass, only upon proper delivery of such certificates to
the Exchange Agent). After the Effective Time, each holder of shares of FFO
Common Stock (other than shares to be canceled pursuant to Section 3.3 of this
Agreement or as to which dissenters' rights have been perfected as provided in
Section 3.5 of this Agreement) issued and outstanding at the Effective Time
shall surrender the certificate or certificates representing such shares to the
Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the consideration provided in Section 3.1 of this Agreement, together
with all undelivered dividends or distributions in respect of such shares
(without interest thereon) pursuant to Section 4.2 of this Agreement. To the
extent required by Section 3.4 of this Agreement, each holder of shares of FFO
Common Stock issued and outstanding at the Effective Time also shall receive,
upon surrender of the certificate or certificates representing such shares,
cash in lieu of any fractional share of Republic Common Stock to which such
holder may be otherwise entitled (without interest). Republic shall not be
obligated to deliver the consideration to which any former holder of FFO
- 5 -
<PAGE> 200
Common Stock is entitled as a result of the Merger until such holder surrenders
such holder's certificate or certificates representing the shares of FFO Common
Stock for exchange as provided in this Section 4.1, or otherwise complies with
the procedures of the Exchange Agent with respect to lost, stolen or destroyed
certificates. The certificate or certificates of FFO Common Stock so
surrendered shall be duly endorsed as the Exchange Agent may require. Any
other provision of this Agreement notwithstanding, neither Republic, FFO nor
the Exchange Agent shall be liable to a holder of FFO Common Stock for any
amounts paid or property delivered in good faith to a public official pursuant
to any applicable abandoned property law.
4.2 RIGHTS OF FORMER FFO STOCKHOLDERS. At the Effective Time, the
stock transfer books of FFO shall be closed as to holders of FFO Common Stock
immediately prior to the Effective Time and no transfer of FFO Common Stock by
any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.1 of this Agreement,
each certificate theretofore representing shares of FFO Common Stock (other
than shares to be canceled pursuant to Section 3.3 of this Agreement or as to
which dissenters' rights have been perfected as provided in Section 3.5 of this
Agreement) shall from and after the Effective Time represent for all purposes
only the right to receive the consideration provided in Sections 3.1 and 3.4 of
this Agreement in exchange therefor. To the extent permitted by law, former
stockholders of record of FFO shall be entitled to vote after the Effective
Time at any meeting of Republic stockholders the number of whole shares of
Republic Common Stock into which their respective shares of FFO Common Stock
are converted, regardless of whether such holders have exchanged their
certificates representing FFO Common Stock for certificates representing
Republic Common Stock in accordance with the provisions of this Agreement.
Whenever a dividend or other distribution is declared by Republic on the
Republic Common Stock, the record date for which is at or after the Effective
Time, the declaration shall include dividends or other distributions on all
shares issuable pursuant to this Agreement, but no dividend or other
distribution payable to the holders of record of Republic Common Stock as of
any time subsequent to the Effective Time shall be delivered to the holder of
any certificate representing shares of FFO Common Stock issued and outstanding
at the Effective Time until such holder surrenders such certificate for
exchange as provided in Section 4.1 of the Agreement. However, upon surrender
of such FFO Common Stock certificate, both the Republic Common Stock
certificate (together with all such undelivered dividends or other
distributions without interest) and cash payments to be paid for fractional
share interests (without interest) shall be delivered and paid with respect to
each share represented by such certificate.
- 6 -
<PAGE> 201
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FFO
FFO hereby represents and warrants to Republic:
5.1 ORGANIZATION, STANDING AND POWER. FFO is a corporation duly
organized, validly existing, and in good standing under the Laws of the State
of Florida, and has the corporate power and authority to carry on its business
as now conducted and to own, lease and operate its material Assets. FFO is
duly qualified or licensed to transact business as a foreign corporation in
good standing in the states of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on FFO.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) FFO has the corporate power and authority necessary
to execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
FFO, subject to the approval of this Agreement by the required vote of the
holders of outstanding shares of FFO Common Stock, which is the only
stockholder vote required for approval of this Agreement and consummation of
the Merger by FFO. Subject to such requisite stockholder approval, this
Agreement represents a legal, valid and binding obligation of FFO, enforceable
against FFO in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement
by FFO, nor the consummation by FFO of the transactions contemplated hereby,
nor compliance by FFO with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of FFO's Articles of Incorporation or
Bylaws; or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any FFO
Company under, any Contract or Permit of any FFO Company, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FFO; or (iii)
subject to receipt of the requisite Consents referred to in Section 9.1(b) of
this Agreement, violate any Law or Order applicable to any FFO Company or any
of their respective material Assets.
- 7 -
<PAGE> 202
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and securities
laws, and rules of the NASD, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation with respect to any
employee benefit plans, or under the HSR Act, and other than Consents, filings
or notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on FFO, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by FFO of the Merger and the other transactions
contemplated in this Agreement.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of FFO consists of (i)
20,000,000 shares of FFO Common Stock, of which 8,446,266 shares are issued and
outstanding as of the date of this Agreement and not more than 8,623,816 shares
will be issued and outstanding at the Effective Time and (ii) 2,500,000 shares
of FFO preferred stock, none of which are issued and outstanding as of the date
of this Agreement. All of the issued and outstanding shares of capital stock
of FFO are duly and validly issued and outstanding and are fully paid and
nonassessable under the FBCA. None of the outstanding shares of capital stock
of FFO has been issued in violation of any preemptive rights of the current or
past stockholders of FFO.
(b) Except as set forth in Section 5.3(a) of this
Agreement and Section 3.1(c) of the FFO Disclosure Memorandum, there are no
shares of capital stock or other equity securities of FFO outstanding and no
outstanding Rights relating to the capital stock of FFO.
5.4 FFO SUBSIDIARIES. FFO has disclosed in Section 5.4 of the FFO
Disclosure Memorandum all of the FFO Subsidiaries as of the date of this
Agreement. FFO or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock of each FFO Subsidiary. No equity
securities of any FFO Subsidiary are or may become required to be issued (other
than to another FFO Company) by reason of any Rights, and there are no
Contracts by which any FFO Subsidiary is bound to issue (other than to another
FFO Company) additional shares of its capital stock or Rights or by which any
FFO Company is or may be bound to transfer any shares of the capital stock of
any FFO Subsidiary (other than to another FFO Company). There are no Contracts
relating to the rights of any FFO Company to vote or to dispose of any shares
of the capital stock of any FFO Subsidiary. All of the shares of capital stock
of each FFO Subsidiary held by an FFO Company are fully paid and nonassessable
under the applicable corporation law of the jurisdiction in which such
Subsidiary is incorporated or organized and are owned by the FFO Company free
and clear of any Lien. Each FFO Subsidiary is either a Federal savings
association or a corporation, and is duly organized, validly existing and (as
to corporations) in good standing under
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the Laws of the jurisdiction in which it is incorporated or organized, and has
the corporate power and authority necessary for it to own, lease and operate
its Assets and to carry on its business as now conducted. Each FFO Subsidiary
is duly qualified or licensed to transact business as a foreign corporation in
good standing in the states of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on FFO. Each
FFO Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Savings Association
Insurance Fund.
5.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) FFO and First Federal have filed and made available
to Republic all forms, reports and documents required to be filed by FFO and
First Federal with the SEC and/or the Office of Thrift Supervision since
December 31, 1992 (collectively, the "FFO SEC Reports"). The FFO SEC Reports
(i) at the time filed, complied in all material respects with the applicable
requirements of the 1933 Act and the 1934 Act, as the case may be; and (ii) did
not at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required
to be stated in such FFO SEC Reports or necessary in order to make the
statements in such FFO SEC Reports, in light of the circumstances under which
they were made, not misleading. None of FFO's Subsidiaries is required to file
any forms, reports or other documents with the SEC.
(b) Each of the FFO Financial Statements (including, in
each case, any related notes) contained in the FFO SEC Reports, including any
FFO SEC Reports filed after the date of this Agreement until the Effective
Time, complied as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements,
or in the case of unaudited statements, as permitted by Form 10-Q of the SEC),
and fairly presented the consolidated financial position of FFO and its
Subsidiaries as at the respective dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. No FFO Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FFO, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of FFO as of
December 31, 1996 included in
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the FFO Financial Statements or reflected in the notes thereto. No FFO Company
has incurred or paid any Liability since December 31, 1996, except for such
Liabilities incurred or paid in the ordinary course of business consistent with
past business practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FFO.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1996, except as disclosed in the FFO Financial Statements delivered prior to
the date of this Agreement or in Section 5.7 of the FFO Disclosure Memorandum,
(i) there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FFO; and (ii) the FFO Companies have not taken any action, or failed
to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result
in a material breach or violation of any of the covenants and agreements of FFO
provided in Article 7 of this Agreement.
5.8 TAX MATTERS.
(a) All tax returns required to be filed by or on behalf
of any of the FFO Companies have been timely filed or requests for extensions
have been timely filed and granted and have not expired for periods ended on or
before December 31, 1995, and on or before the date of the most recent fiscal
year end immediately preceding the Effective Time, except to the extent that
all such failures to file, taken together, are not reasonably likely to have a
Material Adverse Effect on FFO, and all Tax Returns filed are complete and
accurate in all material respects. All Taxes shown on filed Tax Returns have
been paid. There is no audit examination, deficiency or refund Litigation with
respect to any Taxes that is reasonably likely to result in a determination
that would have, individually or in the aggregate, a Material Adverse Effect on
FFO, except as reserved against in the FFO Financial Statements delivered prior
to the date of this Agreement. All Taxes and other Liabilities due with
respect to completed and settled examinations or concluded Litigation have been
paid.
(b) None of the FFO Companies has executed an extension
or waiver of any statute of limitations on the assessment or collection of any
Tax due that is currently in effect.
(c) Adequate provision for any Taxes due or to become due
for any of the FFO Companies for the period or periods through and including
the date of the respective FFO Financial Statements has been made and is
reflected on such FFO Financial Statements.
(d) Deferred Taxes of the FFO Companies have been
adequately provided for in the FFO Financial Statements.
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(e) Each of the FFO Companies is in compliance with, and
its records contain all information and documents (including properly completed
IRS Forms W-9) necessary to comply with, all applicable information reporting
and tax withholding requirements under federal, state and local tax laws, and
such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code, except for such
instances of noncompliance and such omissions as are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on FFO.
(f) None of the FFO Companies has made any payments, is
obligated to make any payments, or is a party to any contract, agreement or
other arrangement that could obligate it to make any payments that would be
disallowed as a deduction under Section 280G or 162(m) of the Internal Revenue
Code.
(g) There are no Liens with respect to Taxes upon any of
the Assets of the FFO Companies.
(h) There has not been an ownership change, as defined in
Internal Revenue Code Section 382(g), of the FFO Companies that occurred during
or after any taxable period after December 31, 1994 in which the FFO Companies
incurred a net operating loss that carries over to any Taxable Period ending
after December 31, 1994.
(i) No FFO Company has filed any consent under Section
341(f) of the Internal Revenue Code concerning collapsible corporations.
(j) All material elections with respect to Taxes
affecting the FFO Companies as of the date of this Agreement have been or will
be timely made as set forth in Section 5.8(j) of the FFO Disclosure Memorandum.
After the date hereof, no election with respect to Taxes will be made without
the prior written consent of Republic, which consent will not be unreasonably
withheld.
(k) No FFO Company has or has had a permanent
establishment in any foreign country, as defined in any applicable tax treaty
or convention between the United States and such foreign country.
(l) Except as set forth in Section 5.8(l) of the FFO
Disclosure Memorandum, to the Knowledge of FFO, no FFO Company has received any
notice, oral or written, of any substantial increase or proposed substantial
increase in the assessed valuation of or Tax rates applicable to any of its
Assets from the assessed values or tax rates in effect as of the date hereof.
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5.9 ASSETS.
(a) Except as disclosed in Section 5.9(a) of the FFO
Disclosure Memorandum, the FFO Companies have good and marketable title, free
and clear of all Liens, to all of their respective Assets. All tangible
properties used in the businesses of the FFO Companies are in good condition,
reasonable wear and tear excepted, and are usable in the ordinary course of
business consistent with FFO's past practices. All Assets which are material
to FFO's business on a consolidated basis, held under leases or subleases by
any of the FFO Companies, are held under valid contracts enforceable in
accordance with their respective terms (except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect.
(b) Set forth in Section 5.9(b) of the FFO Disclosure
Memorandum is a list of the insurance policies for each of the FFO Companies
("Policies"). Each of the Policies constitutes a valid contract enforceable in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Policy is in full force and effect. None of the
FFO Companies has received notice from any insurance carrier that (i) any such
Policy will be canceled or that coverage thereunder will be reduced or
eliminated; or (ii) premium costs with respect to such Policies will be
substantially increased. Except as set forth in Section 5.9(b) of the FFO
Disclosure Memorandum, there are presently no claims pending under such
Policies and no notices have been given by an FFO Company under such Policies.
The Assets of the FFO Companies include all assets required to operate the
business of the FFO Companies as presently conducted.
5.10 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Section 5.10(a) of the FFO
Disclosure Memorandum, to the Knowledge of FFO, each FFO Company, its
Participation Facilities and its Loan Properties are and have been in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FFO.
(b) Except as disclosed in Section 5.10(b) of the FFO
Disclosure Memorandum, there is no Litigation pending or, to the Knowledge of
FFO, threatened before any court, governmental agency or authority or other
forum in which any FFO Company or any of its Loan Properties or Participation
Facilities (or any FFO
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Company in respect of any such Loan Property or Participation Facility) has
been or, with respect to threatened Litigation, may be named as a defendant or
potentially responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law; or (ii) relating to the release into
the environment of any Hazardous Material, whether or not occurring at, on,
under or involving any of its Loan Properties or Participation Facilities,
except for such Litigation pending or threatened that is not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on FFO.
(c) Except as disclosed in Section 5.10(c) of the FFO
Disclosure Memorandum, to the Knowledge of FFO, there have been no releases of
Hazardous Material in, on, under or affecting any Participation Facility or
Loan Property of an FFO Company, except such as are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on FFO.
5.11 COMPLIANCE WITH LAWS. FFO is duly registered as a savings and
loan holding company under the HOLA. Each FFO Company has in effect all
Permits necessary for it to own, lease or operate its material Assets and to
carry on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on FFO, and there has occurred no Default under any
such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FFO. None of
the FFO Companies:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business,
except for violations which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FFO;
and
(b) has received any notification or communication from
any agency or department of federal, state or local government or any
Regulatory Authority or the staff thereof (i) asserting that any FFO
Company is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FFO; (ii) threatening to
revoke any Permits, the revocation of which is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
FFO; or (iii) requiring any FFO Company to enter into or consent to
the issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the
conduct of its business, or in any manner relates to its capital
adequacy, its credit or reserve policies, its management or the
payment of dividends.
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5.12 LABOR RELATIONS. Except as disclosed in Section 5.12 of the
FFO Disclosure Memorandum, no FFO Company is the subject of any Litigation
asserting that it or any other FFO Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other FFO Company to bargain with any
labor organization as to wages or conditions of employment, nor is there any
strike or other labor dispute involving any FFO Company, pending or threatened,
or to the knowledge of FFO, is there any activity involving any FFO Company's
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
5.13 EMPLOYEE BENEFIT PLANS.
(a) FFO has disclosed in Section 5.13 of the FFO
Disclosure Memorandum, and has delivered or made available to Republic prior to
the execution of this Agreement copies and summary plan descriptions in each
case of all pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus or other
incentive plans, all other written employee programs, arrangements or
agreements, all medical, vision, dental or other health plans, all life
insurance plans and all other employee benefit plans or fringe benefit plans,
including "employee benefit plans" as that term is defined in Section 3(3) of
ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any FFO Company or an ERISA Affiliate (as defined below)
thereof for the benefit of employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate (collectively, the "FFO Benefit
Plans"). Any of the FFO Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as an "FFO ERISA Plan." Each FFO ERISA Plan which is also a "defined benefit
plan" (as defined in Section 414(j) of the Internal Revenue Code) is referred
to herein as an "FFO Pension Plan." No FFO Pension Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) All FFO Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
laws the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FFO, and each
FFO ERISA Plan which is intended to be qualified under Section 401(a) of the
Internal Revenue Code has received a favorable determination letter from the
Internal Revenue Service, and FFO is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
knowledge of FFO, no FFO Company has engaged in a transaction with respect to
any FFO Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject any FFO Company to a tax imposed
by either Section 4975 or 4976 of the Internal Revenue Code or Section 502(i)
of ERISA in
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amounts which are reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on FFO.
(c) No FFO Pension Plan has any "unfunded current
liability," as that term is defined in Section 302(d)(8)(A) of ERISA, and the
fair market value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan terminated in
accordance with all applicable legal requirements. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any FFO Pension Plan; (ii) no change in the actuarial
assumptions with respect to any FFO Pension Plan; and (iii) no increase in
benefits under any FFO Pension Plan as a result of plan amendments or changes
in applicable law which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FFO or materially adversely affect the
funding status of any such plan. Neither any FFO Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any FFO Company, or the single-employer
plan of any entity which is considered one employer with FFO under Section 4001
of ERISA or Section 414 of the Internal Revenue Code or Section 302 of ERISA
(whether or not waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Internal Revenue Code or
Section 302 of ERISA, which is reasonably likely to have a Material Adverse
Effect on FFO. No FFO Company has provided or is required to provide security
to any FFO Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Internal Revenue Code.
(d) Within the six-year period preceding the Effective
Time, no liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by any FFO Company with respect to any ongoing, frozen
or terminated single-employer plan or the single-employer plan of any ERISA
Affiliate, which liability is reasonably likely to have a Material Adverse
Effect on FFO. No FFO Company has incurred any withdrawal liability with
respect to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate), which
liability is reasonably likely to have a Material Adverse Effect on FFO. No
notice of a "reportable event," within the meaning of Section 4043 of ERISA for
which the 30-day reporting requirement has not been waived, has been required
to be filed for any FFO Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof.
(e) Other than those disclosed in Section 5.13(e) of the
FFO Disclosure Memorandum, no FFO Company has any liability for retiree health
and life benefits under any of the FFO Benefit Plans and there are no
restrictions on the rights of such FFO Company to amend or terminate any such
Plan without incurring any liability thereunder, which liability is reasonably
likely to have a Material Adverse Effect on FFO.
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(f) Except for the acceleration of vesting of FFO options
under the FFO stock option plan as disclosed in Section 5.13(f) of the FFO
Disclosure Memorandum, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of any FFO Company from
any FFO Company under any FFO Benefit Plan or otherwise; (ii) increase any
benefits otherwise payable under any FFO Benefit Plan; or (iii) result in any
acceleration of the time of payment or vesting of any such benefit, where such
payment, increase or acceleration is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on FFO.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement or employment agreement) of employees and
former employees of any FFO Company and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the FFO Financial Statements to the extent
required by and in accordance with GAAP.
(h) There are no Material claims pending (or, to the
Knowledge of FFO, threatened in a writing which is under review, or has been
reviewed within twelve (12) months prior to the date of this Agreement, by
counsel to FFO or FFO's Director of Human Resources) by or on behalf of any FFO
Benefit Plan, by any employee or beneficiary covered under any FFO Benefit
Plan, or otherwise concerning the operation or administration of any FFO
Benefit Plan (other than routine claims for benefits).
5.14 MATERIAL CONTRACTS. Except as otherwise reflected in the FFO
Financial Statements or as disclosed in Section 5.14 of the FFO Disclosure
Memorandum, none of the FFO Companies, nor any of their respective Assets,
businesses or operations is a party to or is bound or affected by or receives
benefits under (i) any employment, severance, terminating, consulting or
retirement contract providing for aggregate payments to any Person in any
calendar year in excess of $100,000; (ii) any contract relating to the
borrowing of money by any FFO Company or the guarantee by any FFO Company of
any such obligation (other than contracts evidencing deposit liabilities,
purchases of federal funds, fully-secured repurchase agreements and Federal
Home Loan Bank advances of depository institution subsidiaries, trade payables
and contracts relating to borrowings or guarantees made in the ordinary course
of business); and (iii) any other contract or amendment thereto that would be
required to be filed as an exhibit to a Form 10-K filed by FFO with the SEC as
of the date of this Agreement that has not been filed as an exhibit to FFO's
Form 10-K filed for the fiscal year ended December 31, 1995, or in another SEC
document and identified to Republic (together with all contracts referred to in
Section 5.9 and 5.13(a) of this Agreement, the "FFO Contracts"). With respect
to each FFO Contract: (i) the contract is in full force and
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effect; (ii) no FFO Company is in default thereunder, other than defaults which
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FFO; (iii) no FFO Company has repudiated or waived any
material provision of any such contract; and (iv) no other party to any such
contract is, to the knowledge of FFO, in default in any respect, other than
defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FFO or has repudiated or waived any
material provision thereunder. Except for Federal Home Loan Bank advances, all
of the indebtedness of any FFO Company for money borrowed is prepayable at any
time by such FFO Company without penalty or premium.
5.15 LEGAL PROCEEDINGS.
(a) Except as disclosed in Section 5.15(a) of the FFO
Disclosure Memorandum, there is no Litigation instituted or pending or, to the
Knowledge of FFO, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any FFO Company, or against any Asset, employee
benefit plan, interest or right of any of them, that is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on FFO, nor
are there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against any FFO Company, that are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FFO.
(b) Section 5.15(b) of the FFO Disclosure Memorandum
includes a summary report of all Litigation as of the date of this Agreement to
which any FFO Company is a party and which names an FFO Company as a defendant
or cross-defendant and where the maximum exposure is estimated to be $100,000
or more.
5.16 REPORTS. Since January 1, 1992, or the date of organization
if later, each FFO Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it
was required to file with any Regulatory Authorities (except, in the case of
state securities authorities, failures to file which are not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on FFO).
As of their respective dates, each of such reports and documents, including the
financial statements, exhibits and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all material respects, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.17 STATEMENTS TRUE AND CORRECT. None of the information supplied
or to be supplied by any FFO Company or any Affiliate thereof for inclusion in
the Registration Statement to be filed by Republic with the SEC will, when the
Registration
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Statement becomes effective, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any FFO Company or any Affiliate thereof for inclusion in the Proxy
Statements to be mailed to Republic's and FFO's stockholders in connection with
their respective Stockholders' Meetings, and any other documents to be filed by
an FFO Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, and with respect to the Proxy
Statements, when first mailed to the stockholders of Republic and FFO, be false
or misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading or, in the case of the Proxy
Statements or any amendment thereof or supplement thereto, at the time of the
Stockholders' Meetings, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
Stockholders' Meetings. All documents that any FFO Company or any Affiliate
thereof is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all
material respects with the provisions of applicable Law.
5.18 TAX AND REGULATORY MATTERS. Except as specifically
contemplated by this Agreement, no FFO Company or any Affiliate thereof has
taken or agreed to take any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code; or (ii)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) of this Agreement or result in the imposition of
a condition or restriction of the type referred to in the last sentence of such
Section.
5.19 CHARTER PROVISIONS. Each FFO Company has taken all action so
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not
result in the grant of any Rights to any person under the Articles of
Incorporation, Bylaws or other governing instruments of any FFO Company or
restrict or impair the ability of Republic or any of its Subsidiaries to vote
or otherwise to exercise the rights of a stockholder with respect to shares of
any FFO Company that may be directly or indirectly acquired or controlled by
it.
5.20 DERIVATIVES CONTRACTS. Except as disclosed in Section 5.20 of
the FFO Disclosure Memorandum, neither FFO nor any of its Subsidiaries is a
party to or has agreed to enter into an exchange-traded or over-the-counter
swap, forward, future, option, cap, floor or collar financial contract, or any
other interest rate or foreign currency protection contract not included on its
balance sheet which is a financial derivative contract (including various
combinations thereof).
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF REPUBLIC
Republic hereby represents and warrants to FFO as follows:
6.1 ORGANIZATION, STANDING AND POWER. Republic is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its material Assets.
Republic is duly qualified or licensed to transact business as a foreign
corporation in good standing in the states of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic.
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Republic has the corporate power and authority
necessary to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Republic. This Agreement represents a legal, valid and binding
obligation of Republic, enforceable against Republic in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement
by Republic nor the consummation by Republic of the transactions contemplated
hereby nor compliance by Republic with any of the provisions hereof will (i)
conflict with or result in a breach of any provision of Republic's Articles of
Incorporation or By-Laws; or (ii) constitute or result in a Default under, or
require any Consent pursuant to or result in the creation of any Lien on any
Asset of any Republic Company under any Contract or Permit of any Republic
Company, where such Default or Lien or any failure to obtain such Consent is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic; or (iii) subject to receipt of the requisite Consents
referred to in Section 9.1(b) of this Agreement, violate any Law or Order
applicable to any Republic Company or any of their respective material Assets.
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(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and securities
laws and rules of the NASD and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation with respect to any
employee benefit plans, or under the HSR Act and other than Consents filings or
notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Republic,
no notice to, filing with or Consent of any public body or authority is
necessary for the consummation by Republic of the Merger and the other
transactions contemplated in this Agreement.
6.3 CAPITAL STOCK. The authorized capital stock of Republic
consists of 20,000,000 shares of Republic Common Stock, of which 4,183,507
shares were issued and outstanding as of the date of this Agreement, and
100,000 shares of Republic Preferred Stock, of which 75,000 shares were issued
and outstanding as of the date of this Agreement. All of the issued and
outstanding shares of Republic Common Stock and Republic Preferred Stock are,
and all of the shares of Republic Common Stock to be issued in exchange for
shares of FFO Common Stock upon consummation of the Merger, when issued in
accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable under the FBCA. None of the
outstanding shares of Republic Common Stock has been, and none of the shares of
Republic Common Stock to be issued in exchange for shares of FFO Common Stock
upon consummation of the Merger will be, issued in violation of any preemptive
rights of the current or past stockholders of Republic. Except as set forth
above in this section or as disclosed in Section 6.3 of the Republic Disclosure
Memorandum, there are no shares of capital stock or other equity securities of
Republic outstanding and no outstanding Rights relating to the capital stock of
Republic.
6.4 REPUBLIC SUBSIDIARIES. Republic or one of its Subsidiaries
owns all of the issued and outstanding shares of capital stock of each Republic
Subsidiary. No equity securities of any Republic Subsidiary are or may become
required to be issued (other than to another Republic Company) by reason of any
Rights, and there are no Contracts by which any Republic Subsidiary is bound to
issue (other than to another Republic Company) additional shares of its capital
stock or Rights or by which any Republic Company is or may be bound to transfer
any shares of the capital stock of any Republic Subsidiary (other than to
another Republic Company). There are no Contracts relating to the rights of
any Republic Company to vote or to dispose of any shares of the capital stock
of any Republic Subsidiary. All of the shares of capital stock of each
Republic Subsidiary held by a Republic Company are fully paid and nonassessable
under the applicable corporation law of the jurisdiction in which such
Subsidiary is incorporated or organized and are owned by the Republic Company
free and clear of any Lien. Each Republic Subsidiary is either a bank or a
corporation, and is duly organized, validly existing, and (as to corporations)
in good standing under the Laws of the jurisdiction in which it is incorporated
or organized, and has the corporate
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power and authority necessary for it to own, lease and operate its Assets and
to carry on its business as now conducted. Each Republic Subsidiary is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Republic. Each Republic
Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Bank Insurance Fund or
Savings Association Insurance Fund.
6.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Republic and the Bank have filed and made available
to FFO all forms, reports and documents required to be filed by Republic and
the Bank with the FDIC and/or the SEC since December 31, 1993 (collectively,
the "Republic SEC Reports"). The Republic SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the 1933
Act and the 1934 Act, as the case may be; and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Republic SEC Reports or necessary in order to make the statements in such
Republic SEC Reports, in light of the circumstances under which they were made,
not misleading. None of Republic's Subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the Republic Financial Statements (including,
in each case, any related notes) contained in the Republic SEC Reports,
including any Republic SEC Reports filed after the date of this Agreement until
the Effective Time, complied as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC), and fairly presented the consolidated financial position of
Republic and its Subsidiaries as at the respective dates and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
6.6 ABSENCE OF UNDISCLOSED LIABILITIES. No Republic Company has
any Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Republic, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of Republic as
of December 31, 1996 included
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in the Republic Financial Statements or reflected in the notes thereto. Except
as disclosed in Section 6.6 of the Republic Disclosure Memorandum, no Republic
Company has incurred or paid any Liability since December 31, 1996, except for
such Liabilities incurred or paid in the ordinary course of business consistent
with past business practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic.
6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1996, except as disclosed in the Republic Financial Statements delivered prior
to the date of this Agreement or in Section 6.7 of the Republic Disclosure
Memorandum, (i) there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Republic; and (ii) the Republic Companies have not
taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this Agreement,
would represent or result in a material breach or violation of any of the
covenants and agreements of Republic provided in Article 7 of this Agreement.
6.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf
of any of the Republic Companies have been timely filed or requests for
extensions have been timely filed and granted and have not expired for periods
ended on or before December 31, 1995, and on or before the date of the most
recent fiscal year end immediately preceding the Effective Time, except to the
extent that all such failures to file, taken together, are not reasonably
likely to have a Material Adverse Effect on Republic, and all Tax Returns filed
are complete and accurate in all material respects. All Taxes shown on filed
Tax Returns have been paid. There is no audit examination, deficiency or
refund Litigation with respect to any Taxes that is reasonably likely to result
in a determination that would have, individually or in the aggregate, a
Material Adverse Effect on Republic, except as reserved against in the Republic
Financial Statements delivered prior to the date of this Agreement. All Taxes
and other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) Adequate provision for any Taxes due or to become due
for any of the Republic Companies for the period or periods through and
including the date of the respective Republic Financial Statements has been
made and is reflected on such Republic Financial Statements.
(c) Deferred Taxes of the Republic Companies have been
adequately provided for in the Republic Financial Statements.
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6.9 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of Republic, each Republic Company,
its Participation Facilities and its Loan Properties are and have been in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic.
(b) There is no Litigation pending or, to the Knowledge
of Republic, threatened before any court, governmental agency or authority or
other forum in which any Republic Company or any of its Loan Properties or
Participation Facilities (or any Republic Company in respect of any such Loan
Property or Participation Facility) has been or, with respect to threatened
Litigation, may be named as a defendant or potentially responsible party (i)
for alleged noncompliance (including by any predecessor) with any Environmental
Law; or (ii) relating to the release into the environment of any Hazardous
Material, whether or not occurring at, on, under or involving any of its Loan
Properties or Participation Facilities, except for such Litigation pending or
threatened that is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Republic.
(c) To the Knowledge of Republic, there have been no
releases of Hazardous Material in, on, under or affecting any Participation
Facility or Loan Property of a Republic Company, except such as are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Republic.
6.10 COMPLIANCE WITH LAWS. Republic is duly registered as a bank
holding company under the BHC Act. Each Republic Company has in effect all
Permits necessary for it to own, lease or operate its material Assets and to
carry on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Republic, and there has occurred no Default under
any such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Republic. No
Republic Company:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business,
except for violations which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
Republic; and
(b) has received any notification or communication from
any agency or department of federal, state or local government or any
Regulatory Authority or the staff thereof (i) asserting that any
Republic Company is not in compliance with any of the Laws or Orders
which such governmental authority or Regulatory Authority enforces,
where such noncompliance is reasonably likely to have, individually or
in the
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aggregate, a Material Adverse Effect on Republic; (ii) threatening to
revoke any Permits, the revocation of which is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
Republic; or (iii) requiring any Republic Company to enter into or
consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any
Board resolution or similar undertaking, which restricts materially
the conduct of its business, or in any manner relates to its capital
adequacy, its credit or reserve policies, its management or the
payment of dividends.
6.11 LEGAL PROCEEDINGS.
(a) Except as set forth in Section 6.11 of the Republic
Disclosure Memorandum, there is no Litigation instituted or pending or, to the
Knowledge of Republic, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any Republic Company, or against any Asset,
employee benefit plan, interest or right of any of them, that is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Republic, nor are there any Orders of any Regulatory Authorities, other
governmental authorities or arbitrators outstanding against any Republic
Company, that are reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on Republic.
(b) Section 6.11(b) of the Republic Disclosure Memorandum
includes a summary report of all Litigation as of the date of this Agreement to
which any Republic Company is a party and which names a Republic Company as a
defendant or cross-defendant and where the maximum exposure is estimated to be
$250,000 or more.
6.12 REPORTS. Since January 1, 1992, or the date of organization
if later, each Republic Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it
was required to file with Regulatory Authorities (except, in the case of state
securities authorities, failures to file which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Republic).
As of their respective dates, each of such reports and documents, including the
financial statements, exhibits and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all material respects, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
6.13 STATEMENTS TRUE AND CORRECT. None of the information supplied
or to be supplied by any Republic Company or any Affiliate thereof for
inclusion in the Registration Statement to be filed by Republic with the SEC
will, when the Registration
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Statement becomes effective, be false or misleading with respect to any
material fact or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any Republic Company or any Affiliate thereof for inclusion in the
Proxy Statements to be mailed to Republic's and FFO's stockholders in
connection with their respective Stockholders' Meetings, and any other
documents to be filed by any Republic Company or any Affiliate thereof with the
SEC or any other Regulatory Authority in connection with the transactions
contemplated hereby will, at the respective times such documents are filed, and
with respect to the Proxy Statements, when first mailed to the stockholders of
Republic and FFO, be false or misleading with respect to any material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading or, in
the case of the Proxy Statements or any amendment thereof or supplement
thereto, at the time of the Stockholders' Meetings, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Stockholders' Meetings. All documents that
any Republic Company or any Affiliate thereof is responsible for filing with
any Regulatory Authority in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable Law.
6.14 TAX AND REGULATORY MATTERS. Except as specifically
contemplated by this Agreement, no Republic Company or any Affiliate thereof
has taken or agreed to take any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying for treatment as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code; or (ii) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) of this Agreement or result in the
imposition of a condition or restriction of the type referred to in the last
sentence of such Section.
6.15 DERIVATIVES CONTRACTS. Except as disclosed in Section 6.15 of
the Republic Disclosure Memorandum, neither Republic nor any of its
Subsidiaries is a party to or has agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract, or any other interest rate or foreign currency protection contract
not included on its balance sheet which is a financial derivative contract
(including various combinations thereof).
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 AFFIRMATIVE COVENANTS OF FFO. Unless the prior written
consent of Republic shall have been obtained and, except as otherwise expressly
contemplated
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herein, FFO shall and shall cause each of its Subsidiaries to (i) operate its
business only in the usual, regular and ordinary course; (ii) preserve intact
its business organization and Assets and maintain its rights and franchises;
(iii) use its reasonable efforts to maintain its current employee
relationships; and (iv) take no action which would (a) adversely affect the
ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the
type referred to in the last sentence of Section 9.1(b) of this Agreement; or
(b) adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement.
7.2 NEGATIVE COVENANTS OF FFO. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
FFO covenants and agrees that it will not do or agree or commit to do, or
permit any of its Subsidiaries to do or agree or commit to do, any of the
following without the prior written consent of an authorized officer of
Republic:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of any FFO Company; or
(b) incur any additional debt obligation or other
obligation for borrowed money (other than indebtedness of an FFO
Company to another FFO Company) in excess of an aggregate of $50,000
(for the FFO Companies on a consolidated basis) except in the ordinary
course of the business of FFO Subsidiaries consistent with past
practices (which shall include, for FFO Subsidiaries that are
depository institutions, creation of deposit liabilities, purchases of
federal funds, advances from the Federal Home Loan Bank, and entry
into repurchase agreements fully secured by U.S. government or agency
securities), or impose or suffer the imposition on any Asset of any
FFO Company of any Lien or permit any such Lien to exist (other than
in connection with deposits, repurchase agreements, bankers
acceptances, "treasury tax and loan" accounts established in the
ordinary course of business, the satisfaction of legal requirements in
the exercise of trust powers, and Liens in effect as of the date
hereof that are disclosed in the FFO Disclosure Memorandum); or
(c) repurchase, redeem or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit
plans), directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of any FFO Company,
or declare or pay any dividend or make any other distribution in
respect of FFO's capital stock; or
(d) except for this Agreement or pursuant to the exercise
of outstanding FFO options set forth in Section 3.1(c) of the FFO
Disclosure
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Memorandum, issue, sell, pledge, encumber, authorize the issuance of,
enter into any Contract to issue, sell, pledge, encumber or authorize
the issuance of, or otherwise permit to become outstanding, any
additional shares of FFO Common Stock or any other capital stock of
any FFO Company, or any stock appreciation rights, or any option,
warrant, conversion or other Right to acquire any such stock or any
security convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital
stock of any FFO Company or issue or authorize the issuance of any
other securities in respect of or in substitution for shares of FFO
Common Stock, or sell, lease, mortgage or otherwise dispose of or
otherwise encumber (x) any shares of capital stock of any FFO
Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another FFO Company) or (y) any Asset other than in the
ordinary course of business for reasonable and adequate consideration;
or
(f) except for purchases of U.S. Treasury securities or
U.S. Government agency securities, which in either case have
maturities or average lives of five years or less or are variable rate
in nature, purchase any securities or make any material investment,
either by purchase of stock or securities, contributions to capital,
Asset transfers, or purchase of any Assets, in any Person other than a
wholly-owned FFO Subsidiary, or otherwise acquire direct or indirect
control over any Person, other than in connection with (i)
foreclosures in the ordinary course of business; (ii) acquisitions of
control by a depository institution Subsidiary in its fiduciary
capacity; or (iii) the creation of new wholly-owned Subsidiaries
organized to conduct or continue activities otherwise permitted by
this Agreement; or
(g) grant any increase in compensation or benefits to the
employees or officers of any FFO Company, except in accordance with
past practice disclosed in Section 7.2(g) of the FFO Disclosure
Memorandum or as required by Law; pay any severance or termination pay
or any bonus other than pursuant to written policies or written
Contracts in effect on the date of this Agreement; except as
authorized by Section 8.13 of this Agreement, enter into or amend any
severance agreements with officers of any FFO Company; grant any
material increase in fees or other increases in compensation or other
benefits to directors of any FFO Company except in accordance with
past practice disclosed in Section 7.2(g) of the FFO Disclosure
Memorandum; or voluntarily accelerate the vesting of any stock options
or other stock-based compensation or employee benefits; or
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(h) except as authorized by Section 8.13 of this
Agreement, enter into or amend any employment Contract between any FFO
Company and any Person (unless such amendment is required by Law) that
the FFO Company does not have the unconditional right to terminate
without Liability (other than Liability for services already
rendered), at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan of any FFO
Company or make any material change in or to any existing employee
benefit plans of any FFO Company other than any such change that it
required by Law or that, in the opinion of counsel, is necessary or
advisable to maintain the tax qualified status of any such plan; or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may be
appropriate to conform to changes in Tax Laws or regulatory accounting
requirements or GAAP; or
(k) commence any Litigation other than in accordance with
past practice or settle any Litigation involving any Liability of any
FFO Company for material money damages or restrictions upon the
operations of any FFO Company; or
(l) except in the ordinary course of business, modify,
amend or terminate any material Contract or waive, release, compromise
or assign any material Contract or waive, release, compromise or
assign any material rights or claims.
7.3 COVENANTS OF REPUBLIC. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement,
Republic covenants and agrees that it shall (i) continue to conduct its
business and the business of its Subsidiaries in a manner designed in its
reasonable judgment, to enhance the long-term value of the Republic Common
Stock and the business prospects of the Republic Companies; and (ii) take no
action which would (a) materially adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentence of Section 9.1(b) of this Agreement; or (b) materially adversely
affect the ability of any Party to perform its covenants and agreements under
this Agreement; provided, that the foregoing shall not prevent any Republic
Company from discontinuing or disposing of any of its Assets or business which,
in the aggregate, are not Material to the financial condition or results of
operations of Republic and if such action is, in the judgment of Republic,
desirable in the conduct of the business of Republic and its Subsidiaries. In
addition, within 60 days following the date of this
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Agreement, Republic shall take such steps as may be necessary to ensure that
its financial press releases are released to and available on the Dow Jones
News Wire.
7.4 ADVERSE CHANGES IN CONDITION. Each party agrees to give
written notice promptly to the other party upon becoming aware of the
occurrence or impending occurrence of any event or circumstance relating to it
or any of its Subsidiaries which (i) is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on it; or (ii) would cause or
constitute a material breach of any of its representations, warranties or
covenants contained herein, and to use its reasonable efforts to prevent or
promptly to remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and shall deliver to the other Party
copies of all such reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, such financial
statements will fairly present the consolidated financial position of the
entity filing such statements as of the dates indicated and the consolidated
results of operations, changes in stockholders' equity and cash flows for the
periods then ended in accordance with GAAP (subject in the case of interim
financial statements to normal recurring year-end adjustments that are not
material). As of their respective dates, such reports filed with the SEC will
comply in all material respects with the Securities Laws and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT; PROXY STATEMENT; STOCKHOLDER APPROVAL.
As soon as reasonably practicable after execution of this Agreement, Republic
shall file the Registration Statement with the SEC and shall use its reasonable
efforts to cause the Registration Statement to become effective under the 1933
Act and take any action required to be taken under the applicable state Blue
Sky or Securities Laws in connection with the issuance of the shares of
Republic Common Stock upon consummation of the Merger. FFO shall furnish all
information concerning it and the holders of its capital stock as Republic may
reasonably request in connection with such action. The Parties shall call
Stockholders' Meetings, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC, for the purpose of
voting upon approval of this Agreement and such other related matters as they
deem appropriate. In connection with the Stockholders' Meetings, (i) the
Parties shall mail the Proxy Statements to their respective stockholders; (ii)
the Parties shall
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furnish to each other all information concerning them that they may reasonably
request in connection with such Proxy Statements; (iii) the Boards of Directors
of the Parties shall recommend (subject to compliance with their fiduciary
duties as advised by counsel and as to FFO, provided the Market Value
(substituting, for purposes of this section, the phrase "date of the Proxy
Statement" for the phrase "Closing Date" in the calculation of Market Value as
defined in Section 11.1 of this Agreement) of the Republic Common Stock as of
the date of FFO's Proxy Statement is not less than $13.50) to their respective
stockholders the approval of the matters submitted for approval; and (iv) the
Boards of Directors and officers of the Parties shall (subject to compliance
with their fiduciary duties as advised by counsel and, as to FFO, provided the
Market Value of the Republic Common Stock as of the date of FFO's Proxy
Statement is not less than $13.50) use their reasonable efforts to obtain such
stockholders' approval.
8.2 EXCHANGE LISTING. Republic shall use its reasonable efforts
to list, prior to the Effective Time, on the Nasdaq NMS, subject to official
notice of issuance, the shares of Republic Common Stock to be issued to the
holders of FFO Common Stock pursuant to the Merger.
8.3 APPLICATIONS. Republic shall promptly prepare and file, and
FFO shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
Republic shall provide FFO with an opportunity to review drafts of all such
applications and with copies of all such applications filed and all
correspondence to and from the Regulatory Authorities with respect to the
applications.
8.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, Republic and FFO shall execute and file the
Florida Articles of Merger with the Secretary of State of the State of Florida
in connection with the Closing.
8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable best efforts to take, or cause to be taken,
all actions and to do or cause to be done all things necessary, proper or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable best efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9 of this Agreement; provided that nothing herein shall
preclude either Party from exercising its rights under this Agreement. Each
Party shall use, and shall cause each of its Subsidiaries to use, its
reasonable best efforts to obtain
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all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
8.6 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each Party shall keep
the other Party advised of all material developments relevant to its business
and to consummation of the Merger and shall permit the other Party to make or
cause to be made such investigation of the business and properties of its and
its Subsidiaries and of their respective financial and legal conditions as the
other Party reasonably requests, provided that such investigation shall be
reasonably related to the transactions contemplated hereby and shall not
interfere unnecessarily with normal operation. No investigation by a Party
shall affect the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and
agents to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations and financial positions ("Confidential Information") and
shall not use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement. Each Party shall maintain the
confidentiality of all Confidential Information obtained in connection with this
Agreement or the transactions contemplated hereby unless (i) such information
becomes publicly available through no fault of such Party, or was, is or becomes
available to that Party from a source other than the other Party or its
Representatives, which source was itself not bound by a confidentiality
agreement with, or other contractual, legal or fiduciary obligation of
confidentiality with respect to that information; or (ii) the furnishing or use
of such information is required by proper judicial, administrative or other
legal proceeding, provided that the other Party is promptly notified in writing
of such request, unless such notification is not, in the opinion of counsel,
permitted by Law. Each Party and its Representatives will hold and maintain all
Confidential Information in confidence and will not disclose to any third Party
or permit any third Party access to any Confidential Information or the
substance thereof; provided that a Party may disclose Confidential Information
to such of its Representatives who need to know such information in connection
with the transactions contemplated hereby. If this Agreement is terminated
prior to the Effective Time, each Party shall promptly return or certify the
destruction of all documents and copies thereof, and all work papers containing
Confidential Information received from the other Party.
(c) Each Party agrees to give the other Party notice as
soon as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course of its
investigation and which represents, or is reasonably likely to represent,
either a material breach of any
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representation, warranty, covenant or agreement of the other Party or which has
had or is reasonably likely to have a Material Adverse Effect on the other
Party.
8.7 PRESS RELEASES. Prior to the Effective Time, Republic and FFO
shall mutually agree upon and jointly issue any press release or other public
disclosure materially related to this Agreement or any other transaction
contemplated hereby; provided that nothing in this Section 8.7 shall be deemed
to prohibit any Party from making any disclosure which its counsel deems
necessary or advisable in order to satisfy such Party's disclosure obligations
imposed by Law.
8.8 CERTAIN ACTIONS. Except with respect to this Agreement and
the transactions contemplated hereby, no FFO Company nor any Affiliate thereof
nor any Representatives thereof retained by any FFO Company shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the
extent necessary to comply with the fiduciary duties of FFO's Board of
Directors as advised by counsel, no FFO Company or any Affiliate or
Representative thereof shall furnish any non-public information that it is not
legally obligated to furnish, negotiate with respect to, or enter into any
Contract with respect to, any Acquisition Proposal, but FFO may communicate
information about such an Acquisition Proposal to its stockholders if and to
the extent that it is required to do so in order to comply with its legal
obligations as advised by counsel. FFO shall promptly notify Republic orally
and in writing in the event that it receives any inquiry or proposal relating
to any such transaction. FFO shall (i) immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
Persons conducted heretofore with respect to any of the foregoing; and (ii)
direct and use its reasonable efforts to cause all of its Representatives not
to engage in any of the foregoing.
8.9 TAX TREATMENT. Each of the Parties undertakes and agrees to
use its reasonable efforts to cause the Merger to, and to take no action which
would cause the Merger not to, qualify for treatment as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code for federal
income tax purposes.
8.10 STATE TAKEOVER LAWS. Each FFO Company shall take all
necessary steps to exempt the transactions contemplated by this Agreement from
any applicable state or federal "moratorium", "control share", "fair price",
"business combination" or other anti-takeover statute or regulation.
8.11 CHARTER PROVISIONS. Each FFO Company shall take all necessary
action to ensure that the entering into of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby do not and will
not result in the grant of any Rights to any Person under the Articles of
Incorporation, Bylaws, or other governing instruments of any FFO Company or
restrict or impair the ability of Republic or any of its Subsidiaries to vote,
or otherwise to exercise the rights of a
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stockholder with respect to, shares of any FFO Company that may be directly or
indirectly acquired or controlled by it.
8.12 AGREEMENT OF AFFILIATES. FFO has disclosed in Section 8.12 of
the FFO Disclosure Memorandum each Person whom it reasonably believes is an
"affiliate" of FFO for purposes of Rule 145 under the 1933 Act. FFO shall use
its reasonable efforts to cause each such Person to deliver to Republic not
later than 30 days prior to the Effective Time, a written agreement, in
substantially the form of Exhibit A, providing that such Person will not sell,
pledge, transfer, or otherwise dispose of the shares of FFO Common Stock held
by such Person except as contemplated by such agreement or by this Agreement
and will not sell, pledge, transfer, or otherwise dispose of the shares of
Republic Common Stock to be received by such Person upon consummation of the
Merger except in compliance with applicable provisions of the 1933 Act and the
rules and regulations thereunder, and Republic shall be entitled to place
restrictive legends upon certificates for shares of Republic Common Stock
issued to affiliates of FFO pursuant to this Agreement to enforce the
provisions of this Section 8.12. Republic shall not be required to maintain
the effectiveness of the Registration Statement under the 1933 Act for the
purposes of resale of Republic Common Stock by such affiliates.
8.13 EMPLOYEE BENEFITS AND CONTRACTS.
(a) Following the Effective Time, Republic shall provide
generally to officers and employees of the FFO Companies, who at or after the
Effective Time become employees of a Republic Company, employee benefits under
employee benefit plans (other than stock option or other plans involving the
potential issuance of Republic Common Stock except as set forth in this Section
8.13), on terms and conditions which when taken as a whole are substantially
similar to those currently provided by the Republic Companies to their
similarly situated officers and employees. For purposes of participation and
vesting (but not accrual of benefits) under such employee benefit plans, (i)
service under any qualified defined benefit plans of FFO shall be treated as
service under Republic's qualified defined benefit plans, (ii) service under
any qualified defined contribution plans of FFO shall be treated as service
under Republic's qualified defined contribution plans, and (iii) service under
any other employee benefit plans maintained by FFO shall be treated as service
under the corresponding Republic employee benefit plan, if any.
(b) Immediately following the Effective Time, Republic shall
enter into an employment agreement with Mr. James B. Davis, President of FFO,
designating Mr. Davis "President, Central Florida Division" of the Bank. Such
agreement shall be in the form attached to this Agreement as Exhibit B. In
addition, FFO and First Federal shall be authorized to enter into stay
agreements, the form of which is attached to this Agreement as Exhibit C, with
up to 12 employees of FFO and First Federal. Such stay
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agreements shall be assumed by Republic in accordance with the terms thereof
immediately following the Effective Time.
(c) Republic shall honor on terms reasonably agreed upon by
the Parties all employment, severance, consulting, and other compensation
Contracts either authorized by Section 8.13(b) of this Agreement or disclosed
in Section 8.13 of the FFO Disclosure Memorandum between any FFO Company and
any current or former director, officer or employee thereof, and all provisions
for vested benefits or other vested amounts earned or accrued through the
Effective Time under the FFO Benefit Plans.
8.14 INDEMNIFICATION.
(a) Republic shall indemnify, defend and hold harmless
the present and former directors, officers, employees, and agents of the FFO
Companies (each, an "Indemnified Party") against all Liabilities arising out of
actions or omissions occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the full extent permitted under
Florida Law and by FFO's Articles of Incorporation and Bylaws as in effect on
the date hereof, including provisions relating to advances of expenses incurred
in the defense of any Litigation. Without limiting the foregoing, in any case
in which approval by Republic is required to effectuate any indemnification,
Republic shall direct, at the election of the Indemnified Party, that the
determination of any such approval shall be made by independent counsel
mutually agreed upon between Republic and the Indemnified Party.
(b) If Republic or any of its successors or assigns shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving Person of such consolidation or merger or shall transfer all or
substantially all of its Assets to any Person, then and in each case, proper
provision shall be made so that the successors and assigns of Republic shall
assume the obligations set forth in this Section 8.14.
(c) The provisions of this Section 8.14 are intended to
be for the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
8.15 CERTAIN MODIFICATIONS. Republic and FFO shall consult with
respect to their loan, litigation, and real estate valuation policies and
practices (including loan classifications and levels of reserves) and FFO shall
make such modifications or changes to its policies and practices, if any, prior
to the Effective Time, as may be mutually agreed upon. Republic and FFO also
shall consult with respect to the character, amount, and timing of
restructuring and Merger-related expense charges to be taken by each of the
Parties in connection with the transactions contemplated by this Agreement and
shall take such charges in accordance with GAAP, prior to the Effective Time,
as may be mutually agreed upon by the Parties. Neither Party's
representations,
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warranties, and covenants contained in this Agreement shall be deemed to be
inaccurate or breached in any respect as a consequence of any modifications or
charges undertaken solely on account of this Section 8.15.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and to consummate the
Merger and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 11.6 of this Agreement:
(a) STOCKHOLDER APPROVAL. The stockholders of FFO and
Republic, respectively, shall have approved this Agreement, and the
consummation of the transactions contemplated hereby, including the Merger, as
and to the extent required by Law, by the provisions of any governing
instruments or by the rules of the NASD.
(b) REGULATORY APPROVALS. All Consents of, filings and
registration with and notifications to all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired. No Consent obtained from any Regulatory Authority which is necessary
to consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner (including requirements relating to the raising of
additional capital or the disposition of Assets) which in the reasonable
judgment of the Board of Directors of Republic or FFO would so materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement that, had such condition or requirement been
known, Republic or FFO would not, in its reasonable judgement, have entered
into this Agreement.
(c) CONSENTS AND APPROVALS. Each Party shall have
obtained any and all Consents required for consummation of the Merger (other
than those referred to in Section 9.1(b) of this Agreement) or for the
preventing of any Default under any Contract or Permit of such Party which, if
not obtained or made, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on such Party. No Consent so obtained
which is necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of Republic or FFO would so materially adversely impact the
economic or business benefits of the transactions contemplated by this
Agreement so as to render inadvisable the consummation of the Merger.
(d) LEGAL PROCEEDINGS. No court or governmental or
Regulatory Authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced, or entered any Law or Order (whether temporary,
preliminary or permanent) or taken
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any other action which prohibits, restricts or makes illegal consummation of
the transactions contemplated by this Agreement.
(e) REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the 1933 Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no action,
suit, proceeding or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary
approvals under state Securities Laws or the 1933 Act relating to the issuance
or trading of the shares of Republic Common Stock issuable pursuant to the
Merger shall have been received.
(f) TAX MATTERS. Each Party shall have received a
written opinion or opinions from Holland & Knight LLP in a form reasonably
satisfactory to such Parties (the "Tax Opinion"), to the effect that (i) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code and (ii) the exchange in the Merger of FFO Common
Stock for Republic Common Stock will not give rise to gain or loss to the
stockholders of FFO with respect to such exchange (except to the extent of any
cash received). In rendering such Tax Opinion, such counsel shall be entitled
to rely upon representations of officers of FFO and Republic reasonably
satisfactory in form and substance to such counsel.
9.2 CONDITIONS TO OBLIGATIONS OF REPUBLIC. The obligations of
Republic to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Republic pursuant to Section 11.6(a) of
this Agreement:
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.2(a), the accuracy of the representations and warranties of FFO set
forth in this Agreement shall be assessed as of the date of this Agreement and
as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Closing Date
(provided that representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and warranties of
FFO set forth in Section 5.3 of this Agreement shall be true and correct
(except for inaccuracies which are de minimis in amount). The representations
and warranties of FFO set forth in Sections 5.18, 5.19, and 5.20 of this
Agreement shall be true and correct in all Material respects. There shall not
exist in this Agreement (including the representations and warranties set forth
in Sections 5.3, 5.18, 5.19, and 5.20) any inaccuracies such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a Material
Adverse Effect on FFO; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by reference to "Material"
or "Material Adverse Effect" or to the "Knowledge" of FFO or to a matter being
"known" by FFO shall be deemed not to include such qualifications.
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(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and
all of the agreements and covenants of FFO to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby prior
to the Effective Time shall have been duly performed and complied with in all
material respects.
(c) CERTIFICATES. FFO shall have delivered to Republic
(i) a certificate, dated as of the Closing Date and signed on its behalf by its
duly authorized officers, to the effect that the conditions of its obligations
set forth in Sections 9.2(a) and 9.2(b) of this Agreement have been satisfied,
and (ii) certified copies of resolutions duly adopted by FFO's Board of
Directors and stockholders evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as Republic and its counsel shall request.
(d) LEGAL OPINION. Republic shall have received the
opinions of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A., counsel to FFO,
dated as of the Closing Date or such earlier date as may be agreed to by the
Parties, with respect to such matters related to FFO and the Merger as Republic
may reasonably request. As to certain matters of fact, such counsel may rely
on certificates of public officials and senior officers of FFO knowledgeable
and having responsibility with respect to the matters covered by such
certificate.
9.3 CONDITIONS TO OBLIGATIONS OF FFO. The obligations of FFO to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by FFO pursuant to Section 11.6(b) of this Agreement.
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of Republic
set forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Closing Date
(provided that representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and warranties of
Republic set forth in Section 6.3 of this Agreement shall be true and correct
(except for inaccuracies which are de minimus in amount). The representations
and warranties of Republic set forth in Sections 6.14 and 6.15 of this
Agreement shall be true and correct in all Material respects. There shall not
exist in this Agreement any inaccuracies such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a Material Adverse Effect on
Republic; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references or "Material"
to "Material Adverse Effect" or to the "Knowledge" of Republic or to a matter
being "known" by Republic shall be deemed not to include such qualifications.
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(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and
all of the agreements and covenants of Republic to be performed and complied
with pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time, including but not limited to Republic's covenant
set forth in Section 7.3 hereof to take such steps as may be necessary to
ensure that its financial press releases are released to and available on the
Dow Jones News Wire, shall have been duly performed and complied with in all
material respects.
(c) CERTIFICATES. Republic shall have delivered to FFO
(i) a certificate, dated as of the Closing Date and signed on its behalf by its
duly authorized officers, to the effect that the conditions of its obligations
set forth in Sections 9.3(a) and 9.3(b) of this Agreement have been satisfied,
and (ii) certified copies of resolutions duly adopted by Republic's Board of
Directors and stockholders evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as FFO and its counsel shall request.
(d) MARKET VALUE. The Market Value of the Republic
Common Stock as of the Closing Date shall be not less than $13.50.
(e) LEGAL OPINION. FFO shall have received the opinions
of Holland & Knight LLP, special counsel to Republic, dated as of the Closing
Date or such earlier date as may be agreed to by the Parties, with respect to
such matters related to Republic and the Merger as FFO may reasonably request.
As to certain matters of fact, such counsel may rely on certificates of public
officials and senior officers of Republic knowledgeable and having
responsibility with respect to the matters covered by such certificate.
(f) NASDAQ NMS LISTING. Republic shall have received
notification that the shares of Republic Common Stock to be issued to the
holders of FFO Common Stock pursuant to the Merger shall be listed on the
Nasdaq NMS upon their issuance.
ARTICLE 10
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
stockholders of FFO, this Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of
Republic and the Board of Directors of FFO; or
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(b) By the Board of Directors of either Party (provided
that (i) the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of FFO and Section 9.3(a) of this
Agreement in the case of Republic or in material breach of any covenant or
other agreement contained in this Agreement, and (ii) in the case of a
termination by the Board of Directors of Republic, the Market Value
(substituting, for purposes of this Section 10.1, the phrase "on the date of
termination" for the phrase "Closing Date" in the calculation of "Market Value"
as defined in Section 11.1 of this Agreement) of the Republic Common Stock is
not less than $13.50) in the event of an inaccuracy of any representation or
warranty of the other Party contained in this Agreement which cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching Party of such inaccuracy and which inaccuracy would provide the
terminating Party the ability to refuse to consummate the Merger under the
applicable standard set forth in Section 9.2(a) of this Agreement in the case
of FFO and Section 9.3(a) of this Agreement in the case of Republic; or
(c) By the Board of Directors of either Party in the
event of a material breach by the other Party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within 30
days after the giving of written notice to the breaching Party of such breach
(provided that, in the case a termination by the Board of Directors of
Republic, the Market Value of the Republic Common Stock is not less than
$13.50); or
(d) By the Board of Directors of either Party in the
event (i) any Consent of any Regulatory Authority required for consummation of
the Merger and the other transactions contemplated hereby shall have been
denied by final nonappealable action of such authority or if any action taken
by such authority is not appealed within the time limit for appeal, or (ii) the
stockholders of FFO or Republic fail to vote their approval of the matters
submitted for the approval by such stockholders at the Stockholders' Meetings
where the transactions were presented to such stockholders for approval and
voted upon (provided that such denial or failure, as the case may be, is not
caused by any willful breach of this Agreement by the Party electing to
terminate pursuant to this Section 10.1(d)); or
(e) By the Board of Directors of either Party in the
event that the Merger shall not have been consummated by November 1, 1997
(provided that the failure to consummate the transactions contemplated hereby
on or before such date is not caused by any willful breach of this Agreement by
the Party electing to terminate pursuant to this Section 10.1(e)); or
(f) By the Board of Directors of either Party (provided
that (i) the terminating Party is not then in breach of any representation or
warranty contained
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in this Agreement under the applicable standard set forth in Section 9.2(a) of
this Agreement in the case of FFO and Section 9.3(a) of this Agreement in the
case of Republic or in material breach of any covenant or other agreement
contained in this Agreement, and (ii) in the case of a termination by the Board
of Directors of Republic, the Market Value of the Republic Common Stock is not
less than $13.50) in the event that any of the conditions precedent to the
obligations of such Party to consummate the Merger cannot be satisfied or
fulfilled by the date specified in Section 10.1(e) of this Agreement.
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 10.2 and Article 11 and Section 8.6(b) of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant
to Section 10.1(b), 10.1(c), 10.1(d), 10.1(e) or 10.1(f) of this Agreement
shall not relieve the breaching Party from Liability for an uncured willful
breach of a representation, warranty, covenant, or agreement giving rise to
such termination.
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 2, 3, 4, and 11 and Sections 8.12, 8.13 and 8.14 of this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 DEFINITIONS.
(a) Except as otherwise provided herein, the capitalized
terms set forth below shall have the following meanings:
"Acquisition Proposal" with respect to a Party shall
mean any tender offer or exchange offer or any
proposal for a merger, acquisition of all of the
stock or assets of, or other business combination
involving such Party or any of its Subsidiaries or
the acquisition of a substantial equity interest in,
or a substantial portion of the assets of, such Party
or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other
Person directly, or indirectly through one or more
intermediaries, controlling, controlled by or under
common control with such Person; (ii) any officer,
director, partner, employee or direct or indirect
beneficial owner of any 10% or greater equity or
voting interest of such
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Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such a capacity.
"Agreement" shall mean this Agreement and Plan of
Merger, including the Exhibits delivered pursuant
hereto and incorporated herein by reference.
"Assets" of a Person shall mean all of the assets,
properties, businesses and rights of such Person of
every kind, nature, character and description,
whether real, personal or mixed, tangible or
intangible, accrued or contingent or otherwise
relating to or utilized in such Person's business,
directly or indirectly, in whole or in part, whether
or not carried on the books and records of such
Person, and whether or not owned in the name of such
Person or any Affiliate of such Person and wherever
located.
"BHC Act" shall mean the Bank Holding Company Act of
1956, as amended.
"Closing Date" shall mean the date on which the
Closing occurs.
"Consent" shall mean any consent, approval,
authorization, clearance, exemption, waiver or
similar affirmation by any Person pursuant to any
Contract, Law, Order or Permit.
"Contract" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract,
indenture, instrument, lease, obligation, plan,
practice, restriction, understanding or undertaking
of any kind or character, or other document to which
any Person is a Party or that is binding on any
Person or its capital stock, assets or business.
"Default" shall mean (i) any breach or violation of
or default under any Contract, Order or Permit, (ii)
any occurrence of any event that with the passage of
time or the giving of notice or both would constitute
a breach or violation of or default under any
Contract, Order or Permit, or (iii) any occurrence of
any event that with or without the passage of time or
the giving of notice would give rise to a right to
terminate or revoke, change the current terms of or
renegotiate, or to accelerate, increase or impose any
Liability under, any Contract, Order or Permit,
where, in any such event, such Default is reasonably
likely to have, individually or in the aggregate, a
Material Adverse Effect on a Party.
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"Environmental Laws" shall mean all Laws relating to
pollution or protection of human health or the
environment (including ambient air, surface water,
ground water, land surface or subsurface strata) and
which are administered, interpreted or enforced by
the United States Environmental Protection Agency and
state and local agencies with jurisdiction over, and
including common law in respect of, pollution or
protection of the environment, including the
Comprehensive Environmental Response Compensation and
Liability Act, as amended, 42 U.S.C. 9601 et seq.
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating
to emissions, discharges, releases or threatened
releases of any Hazardous Material, or otherwise
relating to the manufacture, processing,
distribution, use, treatment, storage, disposal,
transport or handling of any Hazardous Material.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Exhibits A, B and C", inclusive, shall mean the
Exhibits so marked, copies of which are attached to
this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part
hereof, and may be referred to in this Agreement and
any other related instrument or document without
being attached hereto.
"FBCA" shall mean the Florida Business Corporation
Act.
"FDIC" shall mean the Federal Deposit Insurance
Corporation.
"FFO Common Stock" shall mean the $.10 par value
common stock of FFO.
"FFO Companies" shall mean, collectively, FFO and
all FFO Subsidiaries.
"FFO Disclosure Memorandum" shall mean the written
information entitled "F.F.O. Financial Group, Inc.
Disclosure Memorandum" delivered prior to the date of
this Agreement, to Republic describing in reasonable
detail the matters contained therein and, with
respect to each disclosure made therein, specifically
referencing each Section or subsection of this
Agreement under which such disclosure is being made.
Information disclosed with respect to one Section or
subsection shall not be deemed to be
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disclosed for purposes of any other Section or
subsection not specifically referenced with respect
thereto.
"FFO Financial Statements" shall mean (i) the
consolidated balance sheets (including related notes
and schedules, if any) of FFO as of December 31,
1996, 1995, 1994 and the related statements of
income, changes in stockholders' equity, and cash
flows (including related notes and schedules, if any)
for each year in the three year period ended December
31, 1996, as filed by FFO in SEC Documents, and (ii)
the consolidated balance sheets of FFO (including
related notes and schedules, if any) and related
statements of income, changes in stockholders' equity
and cash flows (including related notes and
schedules, if any) included in SEC Documents filed
with respect to periods ended subsequent to December
31, 1996.
"FFO Subsidiaries" shall mean the Subsidiaries of
FFO, which shall include the FFO Subsidiaries
described in Section 5.4 of this Agreement and any
corporation, bank, savings association or other
organization acquired as a Subsidiary of FFO in the
future and owned by FFO at the Effective Time.
"Florida Articles of Merger" shall mean the Articles
of Merger to be executed by Republic and FFO and
filed with the Secretary of State of the State of
Florida relating to the Merger as contemplated by
Section 1.1 of this Agreement.
"GAAP" shall mean generally accepted accounting
principles, consistently applied during the periods
involved.
"Hazardous Material" shall mean (i) any hazardous
substance, hazardous material, hazardous waste,
regulated substance or toxic substance (as those
terms are defined by any applicable Environmental
Laws) and (ii) any chemicals, pollutants,
contaminants, petroleum, petroleum products or oil
(and specifically shall include asbestos requiring
abatement, removal or encapsulation pursuant to the
requirements of governmental authorities and any
polychlorinated biphenyls).
"HOLA" shall mean the Home Owners' Loan Act of 1933,
as amended.
"HSR Act" shall mean Section 7A of the Clayton Act,
as added by Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of
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1976, as amended, and the rules and regulations
promulgated thereunder.
"Internal Revenue Code" shall mean the Internal
Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
"Knowledge" as used with respect to a Person
(including references to such Person being aware of a
particular matter) shall mean the personal knowledge
of the chairman, president, chief financial officer,
chief accounting officer, chief credit officer,
general counsel, and any assistant or deputy general
counsel, or any senior or executive vice president of
such Person and the knowledge of any such persons
obtained or which would have been obtained from a
reasonable investigation.
"Law" shall mean any code, law, ordinance,
regulation, reporting or licensing requirement, rule
or statute applicable to a Person or its Assets,
Liabilities or business, including those promulgated,
interpreted or enforced by any Regulatory Authority.
"Liability" shall mean any direct or indirect,
primary or secondary, liability, indebtedness,
obligation, penalty, cost or expense (including costs
of investigation, collection, and defense), claim,
deficiency, guaranty or endorsement of or by any
Person (other than endorsements of notes, bills,
checks and drafts presented for collection or deposit
in the ordinary course of business) of any type,
whether accrued, absolute or contingent, liquidated
or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement,
default of title, easement, encroachment,
encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security
interest, title retention or other security
arrangement, or any adverse right or interest, charge
or claim of any nature whatsoever of, on, or with
respect to any property or property interest, other
than (i) Liens for current property Taxes not yet due
and payable, and (ii) for depository institution
Subsidiaries of a Party, pledges to secure deposits,
and other Liens incurred in the ordinary course of
the banking business.
"Litigation" shall mean any action, arbitration,
cause of action, claim, complaint, criminal
prosecution, demand letter, governmental or other
examination or investigation, hearing,
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inquiry, administrative or other proceeding or notice
(written or oral) by any person alleging potential
Liability or requesting information relating to or
affecting a Party, its business, its Assets
(including Contracts related to it) or the
transactions contemplated by this Agreement, but
shall not include regular, periodic examinations of
depository institutions and their Affiliates by
Regulatory Authorities.
"Loan Property" shall mean any property owned, leased
or operated by the Party in question or by any of its
Subsidiaries or in which such Party or Subsidiary
holds a security or other interest (including an
interest in fiduciary capacity), and, where required
by the context, includes the owner or operator of
such property, but only with respect to such
property.
"Market Value" shall mean the per share market value
of either FFO Common Stock or Republic Common Stock,
as appropriate, at the Closing Date, which shall be
determined by calculating the average of the closing
prices of such common stock as reported by the Nasdaq
NMS in the case of Republic or the Nasdaq Small Cap
Market in the case of FFO on each of the twenty (20)
consecutive trading days ending on the third business
day immediately preceding the Closing Date.
"Material" for purposes of this Agreement shall be
determined in light of the facts and circumstances of
the matter in question; provided that any specific
monetary amount stated in this Agreement shall
determine materiality in that instance.
"Material Adverse Effect" on a Party shall mean an
event, change or occurrence which, individually or
together with any other event, change or occurrence,
has a material adverse impact on (i) the financial
position, business, or results of operations of such
Party and its Subsidiaries, taken as a whole, or (ii)
the ability of such Party to perform its obligations
under this Agreement or to consummate the Merger or
the other transactions contemplated by this
Agreement, provided that "Material Adverse Effect"
shall not be deemed to include the impact of (a)
changes in banking and similar Laws of general
applicability or interpretations thereof by courts or
governmental authorities, (b) changes in GAAP or
regulatory accounting principles generally applicable
to banks, savings and loan associations, and their
holding companies, (c) actions and omissions of a
Party (or any of its Subsidiaries) taken with the
prior informed consent of the other Party in
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<PAGE> 240
contemplation of the transactions contemplated
hereby, and (d) the Merger and compliance with the
provisions of this Agreement on the operating
performance of the Parties.
"NASD" shall mean the National Association of
Securities Dealers, Inc.
"Nasdaq NMS" shall mean the Nasdaq National
Market System.
"1933 Act" shall mean the Securities Act of
1933, as amended.
"1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
"Order" shall mean any administrative decision or
award, decree, injunction, judgment, order,
quasi-judicial decision or award, ruling or writ of
any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency
or Regulatory Authority.
"Participation Facility" shall mean any facility or
property in which the Party in question or any of its
Subsidiaries participates in the management and,
where required by the context, said term means the
owner or operator of such facility or property, but
only with respect to such facility or property.
"Party" shall mean either Republic or FFO, and
"Parties" shall mean both Republic and FFO.
"Permit" shall mean any federal, state, local and
foreign governmental approval, authorization,
certificate, easement, filing, franchise, license,
notice, permit or right to which any Person is a
Party or that is or may be binding upon or inure to
the benefit of any Person or its securities, Assets
or business.
"Person" shall mean a natural person or any legal,
commercial or governmental entity, such as, but not
limited to, a corporation, general partnership, joint
venture, limited partnership, limited liability
company, trust, business association, group acting in
concert or any person acting in a representative
capacity.
"Proxy Statement(s)" shall mean the proxy
statement(s) used by Republic and FFO to solicit the
approval of their respective stockholders of the
transactions contemplated by this Agreement,
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<PAGE> 241
which shall include the prospectus of Republic
relating to the issuance of the Republic Common Stock
to holders of FFO Common Stock.
"Republic Common Stock" shall mean the $2.00
par value common stock of Republic.
"Republic Companies" shall mean, collectively,
Republic and all Republic Subsidiaries.
"Republic Disclosure Memorandum" shall mean the
written information entitled "Republic Bancshares,
Inc. Disclosure Memorandum" delivered prior to the
date of this Agreement to FFO describing in
reasonable detail the matters contained therein and,
with respect to each disclosure made therein,
specifically referencing each Section or subsection
of this Agreement under which such disclosure is
being made. Information disclosed with respect to
one Section or subsection shall not be deemed to be
disclosed for purposes of any other Section or
subsection not specifically referenced with respect
thereto.
"Republic Financial Statements" shall mean (i) the
consolidated statements of condition (including
related notes and schedules, if any) of Republic as
of December 31, 1996, and the consolidated statements
of condition (including related notes and schedules,
if any) of the Bank as of December 31, 1995 and 1994,
and the related restated statements of income,
changes in stockholders' equity and cash flows
(including related notes and schedules, if any) for
each of the three years ended December 31, 1996, 1995
and 1994, as filed by Republic or the Bank in SEC
Documents and (ii) the consolidated statements of
condition of Republic (including related notes and
schedules, if any) and related statements of income,
changes in stockholders' equity and cash flows
(including related notes and schedules, if any)
included in SEC Documents filed with respect to
periods ended subsequent to December 31, 1996.
"Republic Preferred Stock" shall mean the $20.00 par
value noncumulative convertible perpetual preferred
stock of Republic.
"Republic Subsidiaries" shall mean the Subsidiaries
of Republic and any corporation, bank, savings
association or other organization acquired as a
Subsidiary of Republic in the future and owned by
Republic at the Effective Time.
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<PAGE> 242
"Registration Statement" shall mean the Registration
Statement on Form S-4, or other appropriate form,
including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC
by Republic under the 1933 Act with respect to the
shares of Republic Common Stock to be issued to the
stockholders of FFO in connection with the
transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively,
the Federal Trade Commission, the United States
Department of Justice, the Board of the Governors of
the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of Thrift
Supervision, all state regulatory agencies having
jurisdiction over the Parties and their respective
Subsidiaries, the NASD and the SEC.
"Representative" shall mean any investment banker,
financial advisor, attorney, accountant, consultant
or other representative of a Person.
"Rights" shall mean all arrangements, calls,
commitments, Contracts, options, rights to subscribe
to, scrip, understandings, warrants or other binding
obligations of any character whatsoever relating to,
or securities or rights convertible into or
exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to
issue additional shares of its capital stock or other
Rights.
"SEC" shall mean the United States Securities
and Exchange Commission.
"SEC Documents" shall mean all forms, proxy
statements, registration statements, reports,
schedules and other documents filed or required to be
filed by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934
Act, the Investment Company Act of 1940, as amended,
the Investment Advisors Act of 1940, as amended, the
Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority
promulgated thereunder.
"Stockholders' Meetings" shall mean the meetings of
the stockholders of Republic and FFO to be held
pursuant to Section 8.1 of this Agreement, including
any adjournment or adjournments thereof.
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<PAGE> 243
"Subsidiaries" shall mean all those corporations,
banks, associations or other entities of which the
entity in question owns or controls 50% or more of
the outstanding equity securities either directly or
through an unbroken chain of entities as to each of
which 5% or more of the outstanding equity securities
is owned directly or indirectly by its parent;
provided, there shall not be included any such entity
acquired through foreclosure or any such entity the
equity securities of which are owned or controlled in
a fiduciary capacity.
"Surviving Corporation" shall mean Republic as the
surviving corporation resulting from the Merger.
"Tax" or "Taxes" shall mean all federal, state, local
and foreign taxes, charges, fees, levies, imposts,
duties or other assessments, including income, gross
receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp,
occupation, windfall profits, environmental, federal
highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social
Security, single business and unemployment,
disability, real property, personal property,
registration, ad valorem, value added, alternative or
add-on minimum, estimated or other tax or
governmental fee of any kind whatsoever, imposed or
required to be withheld by the United States or any
state, local or foreign government or subdivision or
agency thereof, including any interest, penalties or
additions thereto.
"Taxable Period" shall mean any period prescribed by
any governmental authority, including the United
States or any state, local or foreign government or
subdivision or agency thereof for which a Tax Return
is required to be filed or Tax is required to be
paid.
"Tax Return" shall mean any report, return,
information return or other information required to
be supplied to a taxing authority in connection with
Taxes, including any return of an affiliated or
combined or unitary group that includes a Party or
its Subsidiaries.
(b) The terms set forth below shall have the meanings
ascribed thereto in the referenced sections:
Closing Section 1.2
Effective Time Section 1.3
ERISA Affiliate Section 5.13(c)
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<PAGE> 244
Exchange Agent Section 4.1
Exchange Ratio Section 3.1(b)
FFO Benefit Plans Section 5.13(a)
FFO Contracts Section 5.14
FFO ERISA Plan Section 5.13(a)
FFO options Section 3.1(c)
FFO Pension Plan Section 5.13(a)
FFO SEC Reports Section 5.5(a)
Indemnified Party Section 8.14
Merger Section 1.1
Policies Section 5.9(b)
Republic SEC Reports Section 6.5(a)
Tax Opinion Section 9.1(f)
(c) Any singular term in this Agreement shall be deemed
to include the plural, and any plural term the singular. Whenever the words
"include," "includes," or "including" are used in this Agreement, they shall be
deemed followed by the words "without limitation."
11.2 EXPENSES.
(a) Except as otherwise provided in this Section 11.2,
each of the Parties shall bear and pay all direct costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including filing, registration and application fees, printing fees
and fees and expenses of its own financial or other consultants, investment
brokers, accountants and counsel, except that each of the Parties shall bear
and pay one-half of the printing costs incurred in connection with the printing
of the Registration Statement and common sections of the Proxy Statement.
(b) Nothing contained in this Section 11.2 shall
constitute or shall be deemed to constitute liquidated damages for the willful
breach by a Party of the terms of this Agreement or otherwise limit the rights
of the nonbreaching Party.
11.3 BROKERS AND FINDERS. Except for Allen C. Ewing & Co. as to
FFO and The Carson Medlin Company as to Republic, each of the Parties
represents and warrants that neither it nor any of its officers, directors,
employees or Affiliates has employed any broker or finder or incurred any
Liability for any financial advisory fees, investment bankers' fees, brokerage
fees, commissions or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his, her or its representing or being retained by or
allegedly representing or being retained by FFO or Republic, each of FFO and
Republic,
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<PAGE> 245
as the case may be, agrees to indemnify and hold the other Party harmless of
and from any Liability in respect of any such claim.
11.4 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral (except for the
Confidentiality Agreements). Nothing in this Agreement, expressed or implied,
is intended to confer upon any Person, other than the Parties or their
respective successors, any rights, remedies, obligations or Liabilities under
or by reason of this Agreement, other than as provided in Sections 8.12, 8.13
and 8.14 of this Agreement.
11.5 AMENDMENTS. To the extent permitted by Law, this Agreement
may be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties, whether before or
after stockholder approval of this Agreement has been obtained; provided, that
the provisions of this Agreement relating to the manner or basis in which
shares of FFO Common Stock will be exchanged for Republic Common Stock shall
not be amended after the Stockholder's Meetings without the requisite approval
of the holders of the issued and outstanding shares of FFO Common Stock and
Republic Common Stock entitled to vote thereon.
11.6 WAIVERS.
(a) Prior to or at the Effective Time, Republic, acting
through its Board of Directors, chief executive officer, chief financial
officer or other authorized officer, shall have the right to waive any Default
in the performance of any term of this Agreement by FFO, to waive or extend the
time for the compliance or fulfillment by FFO of any and all of its obligations
under this Agreement, and to waive any or all of the conditions precedent to
the obligations of Republic under this Agreement, except any condition which,
if not satisfied, would result in the violation of any Law. No such waiver
shall be effective unless in writing signed by a duly authorized officer of
Republic.
(b) Prior to or at the Effective Time, FFO, acting
through its Board of Directors, chief executive officer, chief financial
officer or other authorized officer, shall have the right to waive any Default
in the performance of any term of this Agreement by Republic, to waive or
extend the tine for the compliance or fulfillment by Republic of any and all of
its obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of FFO under this Agreement, except any condition
which, if not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly authorized officer
of FFO.
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<PAGE> 246
(c) The failure of any Party at any time to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained
in this Agreement in one or more instances shall be deemed to be or construed
as a further or continuing waiver of such condition or breach or a waiver of
any other condition or of the breach of any other term of this Agreement.
11.7 ASSIGNMENT. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
11.8 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
prepaid or by courier or overnight carrier, to the persons at the addresses set
forth below (or at such other address as may be provided hereunder), and shall
be deemed to have been delivered as of the date so delivered:
FFO: F.F.O. Financial Group, Inc.
2013 Live Oak Boulevard
St. Cloud, Florida 34771-8462
Telecopy No.: (407) 957-5300
Attention: James B. Davis
President and Chief
Executive Officer
Copy to Counsel:
Smith, Mackinnon, Greeley,
Bowdoin & Edwards, P.A.
Citrus Center, Suite 800
255 South Orange Avenue
Orlando, Florida 32801
Telecopy No.: (407) 843-2448
Attention: John P. Greeley, Esq.
Republic: Republic Bancshares, Inc.
111 Second Avenue, N.E., Suite 300
St. Petersburg, Florida 33701
Telecopy No.: (813) 825-0269
Attention: John W. Sapanski Chairman
of the Board, Chief
Executive Officer and
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<PAGE> 247
President
Copy to Counsel:
Republic Bancshares, Inc.
111 Second Avenue, N.E., Suite 300
St. Petersburg, Florida 33701
Telecopy No.: (813) 895-5791
Attention: Christopher M. Hunter, Esq.
General Counsel
11.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Florida, without regard
to any applicable conflicts of Laws.
11.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are part of this Agreement.
11.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against any Party, whether
under any rule of construction or otherwise. No Party to this Agreement shall
be considered the draftsman. The Parties acknowledge and agree that this
Agreement has been reviewed, negotiated and accepted by all Parties and their
attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and
intentions of the Parties.
11.13 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
11.14 SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any jurisdiction.
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<PAGE> 248
If any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: F.F.O. FINANCIAL GROUP, INC.
By: By:
------------------------------ -------------------------------
Phyllis A. Elam James B. Davis
Corporate Secretary President and Chief Executive
Officer
[CORPORATE SEAL]
ATTEST REPUBLIC BANCSHARES, INC.
By: By:
------------------------------ -------------------------------
Christopher M. Hunter John W. Sapanski
Corporate Secretary Chairman of the Board,
Chief Executive Officer
and President
[CORPORATE SEAL]
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<PAGE> 249
Exhibit A
AFFILIATE AGREEMENT
Gentlemen:
I have been advised that as of the date hereof I may be deemed to be
an "affiliate" of F.F.O. Financial Group, Inc., a Florida corporation ("FFO"),
as the term "affiliate" is defined in paragraphs (c) and (d) of Rule 145 of the
Rules and Regulations of the Securities and Exchange Commission ("Commission")
under the Securities Act of 1933, as amended (the "Act"). Pursuant to Section
8.12 of the Agreement and Plan of Merger ("Agreement"), dated April 14, 1997,
by and between FFO and Republic Bancshares, Inc., a Florida corporation
("Republic"), FFO will be merged (the "Merger") with and into Republic and the
name of the surviving corporation will be "Republic Bancshares, Inc.", a
Florida corporation (the "Surviving Corporation").
As used herein, "FFO Common Stock" means the $.10 par value common
stock of FFO and "Surviving Corporation Common Stock" means the $2.00 par value
common stock of the Surviving Corporation.
I represent, warrant and covenant to FFO and the Surviving Corporation
that I will not, within the 30 days prior to the "Effective Time" (as defined
in the Agreement), sell, transfer, or otherwise dispose of any shares of FFO
Common Stock except as contemplated by this Affiliate Agreement or the
Agreement, and that I will not sell, transfer, or otherwise dispose of any
shares of the Surviving Corporation Common Stock acquired by me in the Merger
except in compliance with the applicable provisions of the Act and the
Commission's Rules and Regulations thereunder.
I understand that the Surviving Corporation is under no obligation to
maintain the effectiveness of the "Registration Statement" (as defined in the
Agreement) under the Act for the purpose of my resale of the Surviving
Corporation Common Stock, and that the Surviving Corporation is under no
obligation to register under the Act the sale, transfer, or other disposition
by me or on my behalf of any Surviving Corporation Common Stock acquired by me
in the Merger or to take any other action necessary in order to make an
exemption from such registration available.
I further understand that the Surviving Corporation shall be entitled
to place restrictive legends upon certificates for shares of Surviving
Corporation Common Stock acquired by me in the Merger in order to enforce the
provisions of this Affiliate Agreement and Section 8.12 of the Agreement,
stating in substance:
<PAGE> 250
"The shares represented by this certificate were
issued in a transaction to which Rule 145 promulgated under
the Securities Act of 1933 applies. The shares represented by
this certificate may only be transferred in accordance with
the terms of an agreement dated ____________, 1997 between the
registered holder hereof and the issuer of the certificate, a
copy of which agreement will be mailed to the holder hereof
without charge within five days after receipt of a written
request therefor."
I also understand that unless the transfer by me of my Surviving
Corporation Common Stock has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, the Surviving Corporation reserves
the right to put the following legend on the certificate(s) issued to my
transferee:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933 and were
acquired from a person who received such shares in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies. The shares may not be sold or otherwise
transferred except in accordance with an exemption from the
registration requirements of the Securities Act of 1933."
I further understand and agree that either legend set forth above
shall be removed by delivery of substitute certificates without such legend if
I or my transferee shall have delivered to the Surviving Corporation a copy of
a letter from the staff of the Commission or an opinion of counsel in form and
substance reasonably satisfactory to the Surviving Corporation to the effect
that such legend is not required for purposes of the Act.
Very truly yours,
_________________________
Name:
Accepted this _____ day of
__________, 1997
By: _________________________
Name:
Title:
<PAGE> 251
EXHIBIT B
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of the _____ day
of _________, 1997, by and between Republic Bank ("Republic"), and James B.
Davis (the "Executive").
WITNESSETH:
WHEREAS, Republic desires to retain the services of and employ the
Executive, and the Executive desires to provide services to Republic, pursuant
to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the promises and of the covenants
and agreements herein contained, Republic and the Executive covenant and agree
as follows:
1. Employment. Pursuant to the terms and conditions of this Agreement,
Republic agrees to employ the Executive and the Executive agrees to render
services to Republic as set forth herein.
2. Position and Duties. During the term of this Agreement, the
Executive shall serve as President, Central Florida Division of Republic, and
shall undertake such duties consistent with such title as may be assigned to
Executive from time to time by the Chairman, President and Chief Executive
Officer of Republic (referred to as the "Chairman").
3. Term. The term of this Agreement shall commence on the date first
above written and shall terminate on December 31, 1998, which date shall be
referred to as the "Expiration Date."
4. Compensation. During the term of this Agreement, Republic shall pay
or provide to the Executive as compensation for the services of the Executive
set forth in Section 2 hereof:
(a) A base annual salary of $150,020 payable in such periodic
installments as salary is paid to other employees of Republic (such base salary
to be subject to increase by Republic in its discretion); and
(b) Such individual bonuses and other compensation to the
Executive as may be authorized by Republic from time to time.
<PAGE> 252
5. Benefits. Republic shall provide to the Executive such medical
insurance, health insurance, life insurance, stock options and all other
employee benefits provided by Republic and Republic Bank to their executive
officers, in the same scope, amount and terms as such benefits are provided to
such executive officers. At its expense, Republic shall provide to the Executive
an automobile, to be replaced on the earlier of two years or 50,000 miles, with
the model, type and specifications comparable to that provided to the Executive
by F.F.O. Financial Group, Inc. or First Federal. Republic shall pay for all
insurance, maintenance, repair and other expenses incurred by the Executive in
connection with such automobile.
6. Reimbursement of Expenses. Republic shall reimburse the Executive
for reasonable expenses incurred in connection with his employment hereunder
subject to guidelines issued from time to time by the Board and upon submission
of documentation in conformity with applicable requirements of federal income
tax laws and regulations supporting reimbursement of such expenses. Republic
also understands that during the term of this Agreement, the Executive shall
continue his service as a director of the Federal Home Loan Bank of Atlanta, as
well as a representative to the Florida Bankers Association and the Community
Bankers of Florida. Republic shall reimburse the Executive for expenses incurred
in connection with such endeavors, except to the extent that the Executive is
separately reimbursed by such organization for expenses incurred.
7. Vacation. The Executive shall take up to four weeks vacation time at
such periods during each year as the Chairman and the Executive shall determine
from time to time. The Executive shall be entitled to full compensation during
such vacation periods.
8. Termination. The employment of the Executive may be terminated:
(a) By Republic at any time and immediately upon written
notice to the Executive if said discharge is for cause. In the notice of
termination furnished to the Executive under this Section 8(a), the reason or
reasons for said termination shall be given and, if no reason or reasons are
given for said termination, said termination shall be deemed to be without cause
and not permitted under this Section 8(a). For purposes of this Agreement,
"cause" shall mean termination because the Executive willfully failed to
substantially perform the duties of his employment or is convicted of a felony
(other than traffic violations or similar offenses).
In the event of termination for cause, Republic shall
pay the Executive only accrued salary and vacation, and bonus amounts approved
by the Board and unpaid as of the effective date of such termination.
(b) By Republic without cause. If the Executive's employment
is terminated without cause or if the Executive is relocated or reassigned to
any office or location other than at 2013 Live Oak Boulevard, St. Cloud,
Florida, or 200 East Broadway, Kissimmee, Florida, Republic shall for a period
ending on the Expiration Date:
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(i) continue to pay to the Executive the base
annual salary in effect under Section 4(a) on the date of said termination;
(ii) continue to provide to the Executive all
benefits set forth in Section 5, and all other benefits provided to the
Executive prior to termination; and
(iii) reimburse the Executive for continued
coverage in accordance with the Consolidated Omnibus Budget Reconciliation Act
under Republic's medical insurance plan.
(c) By the Executive upon the Executive's resignation. If the
Executive's employment is terminated because of the Executive's resignation,
Republic shall be obligated to pay to the Executive any salary, vacation, and
bonus amounts accrued and unpaid as of the effective date of such termination.
(d) As a result of the death of the Executive. If the
Executive's employment is terminated by the death of the Executive, this
Agreement shall automatically terminate, and Republic shall be obligated to pay
to the Executive's estate any accrued salary and vacation, and bonus amounts
approved by the Board and unpaid at the date of death.
9. Notice. All notices permitted or required to be given to either
party under this Agreement shall be in writing and shall be deemed to have been
given (a) in the case of delivery, when addressed to the other party as set
forth at the end of this Agreement and delivered to said address, (b) in the
case of mailing, three days after the same has been mailed by certified mail,
return receipt requested, and deposited postage prepaid in the U.S. Mails,
addressed to the other party at the address as set forth at the end of this
Agreement, and (c) in any other case, when actually received by the other party.
Either party may change the address at which said notice is to be given by
delivering notice of such to the other party to this Agreement in the manner set
forth herein.
10. Governing Law. This Agreement shall be construed in accordance with
and shall be governed by the laws of the State of Florida.
11. Attorneys' Fees and Costs. In the event a dispute arises between
the parties under this Agreement and suit is instituted, the prevailing party
shall be entitled to recover costs and attorneys' fees. As used herein, costs
and attorneys' fees include any costs and attorneys' fees in any appellate
proceeding.
12. No Third Party Beneficiary. This Agreement is solely between the
parties hereto, and no person not a party to this Agreement shall have any
rights hereunder, either as a third party beneficiary or otherwise. The rights
and obligations of the parties under this Agreement shall inure to the benefit
of and shall be binding upon their respective successors and legal
representatives.
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<PAGE> 254
13. Effect on Other Agreements. This Agreement and the termination
thereof shall not affect any other agreement between the Executive and Republic,
and the receipt by the Executive of benefits thereunder.
14. Miscellaneous. The rights and duties of the parties hereunder are
personal and may not be assigned or delegated without the prior written consent
of the other party to this Agreement. The captions used herein are solely for
the convenience of the parties and are not used in construing this Agreement.
Time is of the essence of this Agreement and the performance by each party of
its or his duties and obligations hereunder.
15. Complete Agreement. This Agreement constitutes the complete
agreement between the parties hereto and incorporates all prior discussions,
agreements and representations made in regard to the matters set forth herein.
This Agreement may not be amended, modified or changed except by a writing
signed by the party to be charged by said amendment, change or modification.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"EXECUTIVE" REPUBLIC BANK
By:
- ---------------------------------- -------------------------------------
James B. Davis John W. Sapanski
Address: Chairman of the Board, President and
Post Office Box 701299 Chief Executive Officer
St. Cloud, FL 34770-1299
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<PAGE> 255
EXHIBIT C
AGREEMENT
This Agreement (the "Agreement") is made as of this _____ day of
_______________, 1997, by and between F.F.O. Financial Group, Inc. ("FFO") and
First Federal Savings and Loan Association of Osceola County ("First Federal"),
and _________________________ (the "Employee").
WITNESSETH:
WHEREAS, FFO has entered into an Agreement and Plan of Merger with
Republic Bancshares, Inc. ("Republic"), providing for the acquisition (the
"Acquisition") by Republic of FFO and First Federal in accordance with the terms
of the Agreement; and
WHEREAS, FFO desires to provide to the Employee the benefits set forth
in this Agreement, subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the promises and of the covenants
and agreements herein contained, FFO and the Employee covenant and agree as
follows:
1. Payment Amount. If the closing of the Acquisition (the date thereof
is referred to as the "Closing Date") occurs and the Employee remains an
employee of FFO or First Federal through the Closing Date and does not
voluntarily resign the Employee's employment within thirty days after the
Closing Date, the Employee shall be entitled to receive the Payment Amount (as
hereinafter defined) if the Employee (a) is relocated or reassigned without the
Employee's consent to any office or location greater than thirty miles from that
at which the Employee is based as of the date of this Agreement, or (b) the
employment of the Employee is terminated without cause, in either case within
twelve months after the Closing Date. For purposes of this Agreement, the term
"Payment Amount" shall mean (i) an amount equal to the base annual salary at the
rate in effect as of the date of this Agreement (payable in a lump sum) for a
period equal to the greater of (a) six months, or (b) two weeks for each
12-month period during which the Employee was employed by FFO and Republic; (ii)
the provision to the Employee of the life insurance benefits provided to the
Employee prior to such termination for a period equal to six months following
the date of such termination; (iii) an amount equal to the employer's portion of
the cost for continued coverage under the employer's medical insurance plan for
the six month period following the date of such termination in accordance with
the Consolidated Omnibus Budget Reconciliation Act; and (iv) an amount equal to
vacation and bonus amounts accrued and unpaid as of the date of such
termination.
2. Termination. The employment of the Employee may be terminated:
<PAGE> 256
(a) By FFO at any time and immediately upon written notice to
the Employee if said discharge is for cause. In the notice of termination
furnished to the Employee under this Section 2(a), the reason or reasons for
said termination shall be given and, if no reason or reasons are given for said
termination, said termination shall be deemed to be without cause and not
permitted under this Section 2(a). Any one or more of the following conditions
shall be deemed to be grounds for termination of the employment of the Employee
for cause under this Section 2(a):
(i) If the Employee shall expressly fail or
refuse to perform the obligations of employment required of the Employee or
comply with the policies of employer established by the employer from time to
time; provided, however, that for the first two such failures or refusals, the
Employee shall be given written warnings (each providing at least a 10 day
period for an opportunity to cure), and the third failure or refusal shall be
grounds for termination for cause; or
(ii) If the Employee shall have engaged in
conduct involving fraud, deceit, personal dishonesty, or breach of fiduciary
duty involving personal profit.
In the event of termination for cause, the Employee
shall be entitled to receive only salary, vacation, and bonus amounts accrued
and unpaid as of the effective date of termination.
(b) By FFO without cause. If the Employee's employment is
terminated without cause, the Employee shall be entitled to receive the Payment
Amount.
(c) By the Employee upon the Employee's resignation. If the
Employee's employment is terminated because of the Employee's resignation, the
Employee shall be entitled to receive any salary, vacation, and bonus amounts
accrued and unpaid as of the effective date of such resignation.
(d) As a result of the death of the Employee. If the
Employee's employment is terminated by the death of the Employee, this Agreement
shall automatically terminate, and the Employee's estate shall be entitled to
receive any salary, vacation, and bonus amounts accrued and unpaid at the date
of death.
3. Notice. All notices permitted or required to be given to either
party under this Agreement shall be in writing and shall be deemed to have been
given (a) in the case of delivery, when addressed to the other party as set
forth at the end of this Agreement and delivered to said address, (b) in the
case of mailing, three days after the same has been mailed by certified mail,
return receipt requested, and deposited postage prepaid in the U.S. Mails,
addressed to the other party at the address as set forth at the end of this
Agreement, and (c) in any other case, when actually received by the other party.
Either party may change the address at which said notice is
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to be given by delivering notice of such to the other party to this Agreement in
the manner set forth herein.
4. Governing Law. This Agreement shall be construed in accordance with
and shall be governed by the laws of the State of Florida.
5. Attorneys' Fees and Costs. In the event a dispute arises between the
parties under this Agreement and suit is instituted, the prevailing party shall
be entitled to recover his or its costs and attorneys' fees from the
nonprevailing party. As used herein, costs and attorneys' fees include any costs
and attorneys' fees in any appellate proceeding.
6. No Third Party Beneficiary. This Agreement is solely between the
parties hereto, and no person not a party to this Agreement shall have any
rights hereunder, either as a third party beneficiary or otherwise. The rights
and obligations of the parties under this Agreement shall inure to the benefit
of and shall be binding upon their respective successors and legal
representatives.
7. Miscellaneous. The rights and duties of the parties hereunder are
personal and may not be assigned or delegated without the prior written consent
of the other party to this Agreement. The captions used herein are solely for
the convenience of the parties and are not used in construing this Agreement.
Time is of the essence of this Agreement and the performance by each party of
its or his duties and obligations hereunder.
8. Complete Agreement. This Agreement constitutes the complete
agreement between the parties hereto and incorporates all prior discussions,
agreements and representations made in regard to the matters set forth herein.
This Agreement may not be amended, modified or changed except by a writing
signed by the party to be charged by said amendment, change or modification.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"EMPLOYEE" F.F.O. FINANCIAL GROUP, INC.
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF OSCEOLA COUNTY
By:
- ---------------------------------- -------------------------------------
James B. Davis
Address: President and Chief Executive Officer
- ----------------------------------
- ----------------------------------
<PAGE> 258
APPENDIX B
April 14, 1997
Board of Directors
Republic Bancshares, Inc.
111 2nd Avenue, NE
St. Petersburg, Florida 33701
Members of the Board:
We understand that Republic Bancshares, Inc. (the "Company") and F.F.O.
Financial Group, Inc. ("FFO") have entered into an Agreement and Plan of Merger
dated April 14, 1997 (the "Agreement"), pursuant to which FFO shall be merged
with and into the Company, which will be the surviving entity (the "Merger").
Under the terms of the Agreement, each of the outstanding shares of FFO common
stock shall be converted into the right to receive 0.29 shares of common stock
of the company, subject to certain adjustments (the "Consideration"). The
foregoing summary of the Merger is qualified in its entirety by reference to
the Agreement.
You have requested our opinion as to whether the terms of the Merger are fair,
from a financial point of view, to the stockholders of the Company.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
(NASD) member investment banking firm which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community
financial institutions regarding their financial and stock price performance.
We are familiar with the banking industry in Florida and the financial
institutions operating in that market. We have been retained by the Company in
a financial advisory capacity to assist in negotiations and to render our
opinion hereunder, for which we will receive compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of the Company and FFO. We have reviewed: (i)
the Agreement; (ii) the annual reports to shareholders of the Company,
including audited financial statements for the five years ended December 31,
1996; (iii) audited financial statements of FFO for the five years ended
December 31, 1996; and, (iv) certain financial and operating information with
respect to the business, operations and prospects of the Company and FFO. We
also: (i) held discussions with members of the senior management of the
Company and FFO regarding historical and current business operations, financial
condition and future prospects of their respective companies; (ii) reviewed the
historical market prices and trading activity for the common stocks of the
Company and FFO and compared them with those of certain publicly traded
financial institutions which we deemed to be relevant; (iii) compared the
results of operations of the Company and FFO with those of certain financial
institutions which we deemed to be relevant; (iv) compared
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the financial terms of the Merger with the financial terms, to the extent
publicly available, of certain other recent business combinations of financial
institutions; (v) analyzed the pro forma financial impact of the Merger on the
Company; and (vi) conducted such other studies, analyses, inquiries and
examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of the Company
or FFO. The opinion we express herein is necessarily based upon market,
economic and other relevant considerations as they exist and can be evaluated
as of the date of this letter.
Based upon the foregoing, it is our opinion that the terms of the Merger are
fair, from a financial point of view, to the Stockholders of Republic
Bancshares, Inc.
Very truly yours,
/s/ The Carson Medlin Company
THE CARSON MEDLIN COMPANY
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APPENDIX C
April 14, 1997
The Board of Directors
F.F.O. Financial Group, Inc.
2013 Live Oak Boulevard
St. Cloud, Florida 34771-8462
Members of the Board:
F.F.O. Financial Group, Inc. ("FFO") and Republic Bancshares, Inc.
("Republic") have entered into a definitive Agreement and Plan of Merger dated
as of April 14, 1997 (the "Agreement") providing for FFO to be acquired by
Republic pursuant to the merger of FFO with and into Republic (the "Merger")
and the merger of First Federal Savings and Loan Association of Osceola County
with and into Republic Bank. The Agreement provides, among other things, that
each share of outstanding common stock, par value $0.10 per share, of FFO ("FFO
Common Stock") will be converted in the Merger into the right to receive 0.29
(the "Exchange Ratio") share of common stock, par value $2.00 per share, of
Republic ("Republic Common Stock"). If, as of the Closing Date, the product of
the Exchange Ratio and the Market Value of Republic Common Stock (as defined in
the Agreement) is less than $4.10, the Exchange Ratio will be increased to
maintain a product of $4.10. The Exchange Ratio will not, however, exceed
0.30. The Agreement also provides that, if the Market Value of the Republic
Common Stock is less than $13.50 per share as of the applicable calculation
date, FFO may terminate the Agreement and abandon the Merger. Reference should
be made to the Agreement for a more complete description of the teems and
conditions of the Merger.
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, of the terms of the Merger to the
shareholders of FFO.
Allen C. Ewing & Co. is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. As part of its investment banking business, Allen C.
Ewing & Co. is regularly engaged in the valuation of securities of banking and
thrift companies in connection with mergers and acquisitions, underwritings,
private placements, trading and market making activities, and valuations for
various other purposes.
Allen C. Ewing & Co. was engaged on July 31, 1996 as financial advisor
to FFO in connection with the Merger and will receive compensation from FFO
upon consummation of the Merger. In our role as financial advisor to FFO, we
participated in the negotiation of the financial terms contained in the
Agreement. The scope of our engagement did not provide for us to solicit, and
we did not solicit or receive, acquisition proposals from potential acquirors
other than Republic.
<PAGE> 261
In the ordinary course of its business as a broker-dealer, Allen C.
Ewing & Co. may, from time to time, purchase securities from, and sell
securities to, banking and thrift companies and as a market maker in securities
may from time to time have a long or short position in, and buy or sell, debt
or equity securities of banking and thrift companies for its own account and
for the accounts of its customers. As of the date of this letter, Allen C.
Ewing & Co made net trading markets in the common stocks of FFO and Republic
and, as of the close of business on such date, held a net long position in the
common stock of FFO.
In arriving at the opinion expressed in this letter, we have reviewed,
analyzed, and relied upon information and material bearing upon the Merger and
the financial and operating condition of FFO and Republic, including, among
other things, the following: (i) the Agreement; (ii) Annual Reports to
Shareholders and Annual Reports on Form 10-K (or equivalent) for FFO and
Republic for the three years ended December 31, 1996; (iii) certain unaudited
interim financial information for FFO and Republic for various periods during
the years 1996 and 1997; (iv) other financial information concerning the
business and operations of FFO furnished to us by FFO for purposes of our
analysis, including certain internal forecasts for FFO prepared by its senior
management; (v) other financial information concerning the business and
operations of Republic furnished to us by Republic for purposes of our
analysis, including certain internal forecasts for Republic prepared by its
senior management; and (vi) certain publicly available information concerning
the trading of, and the trading market for, FFO Common Stock and Republic
Common Stock. We have also held discussions with the management of FFO and
Republic concerning their respective operations, financial condition, and
prospects, as well as the results of regulatory examinations.
We have also considered such further financial, economic, regulatory,
and other factors as we have deemed relevant and appropriate under the
circumstances, including among others the following: (i) certain publicly
available information concerning the financial terms of certain mergers and
acquisitions of other financial institutions in Florida and the financial
position and operating performance of the institutions acquired in those
transactions; (ii) certain publicly available information concerning the
trading of, and the trading market for, the publicly-traded common stocks of
certain other financial institutions; and (iii) the controlling beneficial
ownership interests in FFO and Republic held by Mr. William R. Hough and the
position expressed to us by Mr. Hough that, at present, he would not be likely
to vote his shares of FFO Common Stock in favor of an acquisition of FFO by an
acquiror other than Republic. We have also taken into account our assessment
of general economic, market, and financial conditions and our experience in
other transactions, as well as our experience in securities valuation and our
knowledge of the banking and thrift industry generally.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of all of the financial and
other information provided to us or publicly available, including that referred
to above, and we have not attempted independently to verify such information.
We have relied upon the management of FFO and Republic, respectively, as to the
reasonableness and achievability of the financial and operational forecasts and
projections (and the assumptions and bases therefor) provided to us by the
respective
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companies, and we have assumed that such forecasts and projections reflect the
best currently available estimates and judgments of management and that such
forecasts and projections will be realized in the amounts and in the time
periods currently estimated by management. We have also assumed, without
independent verification, that the allowances for loan and other losses of FFO
and Republic are adequate to cover any such losses. We have not made or
obtained any inspections, evaluations, or appraisals of any of the assets or
liabilities of FFO or Republic, nor have we examined any individual loan,
property, or securities files.
Based upon and subject to the foregoing, we are of the opinion that
the terms of the Merger are fair, from a financial point of view, to the
shareholders of FFO. This opinion is necessarily based upon conditions as they
exist and can be evaluated on the date of this letter and the information made
available to us through such date.
This letter is directed to the Board of Directors of FFO and does not
constitute a recommendation as to how any shareholder of FFO should vote in
connection with the Merger.
Very truly yours,
ALLEN C. EWING & CO.
By: /s/ Charles E. Harris
-----------------------------
Charles E. Harris
President & Chief
Executive Officer
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APPENDIX D
EXCERPT FROM THE FLORIDA BUSINESS CORPORATION ACT
RELATING TO RIGHTS OF DISSENTING SHAREHOLDERS
607.1301 Dissenter's Rights; Definitions. The following definitions
apply to ss. 607.1302 and 607.132:
(1) "Corporation" means the issuer of the shares held by
a dissenting shareholder before the corporate action or the surviving
or acquiring corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares,
means the value of the shares as of the close of business on the day
prior to the shareholders' authorization date, excluding any
appreciation or depreciation in anticipation of the corporate action
unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on
which the shareholders' vote authorizing the proposed action was
taken, the date on which the corporation received written consents
without a meeting from the requisite number of shareholders in order
to authorize the action, or, in the case of a merger pursuant to s.
607.1104, the day prior to the date on which a copy of the plan of
merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 Right of Shareholders to Dissent. (1) Any shareholder has
the right to dissent from, and obtain payment of the fair value of his shares
in the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the
corporation is a party:
1. If the shareholder is entitled to vote on
the merger, or
2. If the corporation is a subsidiary that is
merged with its parent under s. 607.1104, and the shareholders
would have been entitled to vote on action taken, except for
the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation, other than in
the usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange pursuant to s. 607.1202,
including a sale in dissolution but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed
to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a
control-share acquisition;
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(d) Consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be
acquired, if the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment
would adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights
attached to any of his shares;
2. Altering or abolishing the voting rights
pertaining to any of his shares, except as such rights may be
affected by the voting rights of new shares then being
authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or
reclassification of any of his shares, when such exchange,
cancellation, or reclassification would alter or abolish his
voting rights or alter his percentage of equity in the
corporation, or effecting a reduction or cancellation of
accrued dividends or other arrearages in respect to such
shares;
4. Reducing the stated redemption price of any
of his redeemable shares, altering or abolishing any provision
relating to any sinking fund for the redemption or purchase of
any of his shares, or making any of his shares subject to
redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part,
dividends of any of his preferred shares which had theretofore
been cumulative;
6. Reducing the stated dividend preference of
any of his preferred shares; or
7. Reducing any stated preferential amount
payable on any of his preferred shares upon voluntary or
involuntary liquidation; or
(f) Any corporate action taken, to the extent the
articles of incorporation provide that a voting or nonvoting
shareholder is entitled to dissent and obtain payment for his shares;
(2) A shareholder dissenting from any amendment specified in
paragraph (l)(e) has the right to dissent only as to those of his shares which
are adversely affected by the amendment.
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(3) A shareholder may dissent as to less than all the shares
registered in his name. In that event, his rights shall be determined as if
the shares as to which he has dissented and his other shares were registered in
the names of different shareholders;
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class or
series which, on the record date fixed to determine the shareholders entitled
to vote at the meeting of shareholders at which such action is to be acted upon
or to consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his
shares under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 Procedure for Exercise of Dissenters' Rights. (1)(a) If a
proposed corporate action creating dissenters' rights under s. 607.1320 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A shareholder
who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the
proposed action is effectuated, and
2. Not vote his shares in favor of the proposed action.
A proxy or vote against the proposed action does not constitute such a
notice of intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under
s. 607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to
each shareholder simultaneously with any request for his written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any
shareholder who elects to dissent shall file with the corporation a notice of
such election, stating his name and address, the
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number, classes, and series of shares as to which he dissents, and a demand for
payment of the fair value of his shares. Any shareholder failing to file such
election to dissent within the period set forth shall be bound by the terms of
the proposed corporate action. Any shareholder filing an election to dissent
shall deposit his certificates for certificated shares with the corporation
simultaneously with the filing of the election to dissent. The corporation may
restrict the transfer of uncertificated shares from the date the shareholder's
election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder
shall thereafter be entitled only to payment as provided in this section and
shall not be entitled to vote or to exercise any other rights of a shareholder.
A notice of election may be withdrawn in writing by the shareholder at any time
before an offer is made by the corporation, as provided in subsection (5), to
pay for his shares. After such offer, no such notice of election may be
withdrawn unless the corporation consents thereto. However, the right of such
shareholder to be paid the fair value of his shares shall cease, and he shall
be reinstated to have all his rights as a shareholder as of the filing of his
notice of election, including any intervening preemptive rights and the right
to payment of any intervening dividend or other distribution or, if any such
rights have expired or any such dividend or distribution other than in cash has
been completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or
rescinded or the shareholders revoke the authority to effect
such action;
(c) No demand or petition for the determination of fair
value by a court has been made or filed within the time provided in
this section; or
(d) A court of competent jurisdiction determines that
such shareholder is not entitled to the relief provided by this
section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the corporation
shall make a written offer to each dissenting shareholder who has made demand
as provided in this section to pay an amount the corporation estimates to be
the fair value for such shares. If the corporate action has not been
consummated before the expiration of the 90-day period after the shareholders'
authorization date, the offer may be made conditional upon the consummation of
such action. Such notice and offer shall be accompanied by:
4
<PAGE> 267
(a) A balance sheet of the corporation, the shares of
which the dissenting shareholder holds, as of the latest available
date and not more than 12 months prior to the making of such offer;
and
(b) A profit and loss statement of such corporation for
the 12-month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such 12-month period, for
the portion thereof during which it was in existence.
(6) If within 30 days after the making of such offer any
shareholder accepts the same, payment for his shares shall be made within 90
days after the making of such offer or the consummation of the proposed action,
whichever is later. Upon payment of the agreed value, the dissenting
shareholder shall cease to have any interest in such shares.
(7) If the corporation falls to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any
dissenting shareholder or shareholders fail to accept the same within the
period of 30 days thereafter, then the corporation, within 30 days after
receipt of written demand from any dissenting shareholder given within 60 days
after the date on which such corporate action was effected, shall, or at its
election at any time within such period of 60 days may, file an action in any
court of competent jurisdiction in the county in this state where the
registered office of the corporation is located requesting that the fair value
of such shares be determined. The court shall also determine whether each
dissenting shareholder, as to whom the corporation requests the court to make
such determination, is entitled to receive payment for his shares. If the
corporation fails to institute the proceeding as herein provided, any
dissenting shareholder may do so in the name of the corporation. All
dissenting shareholders (whether or not residents of this state), other than
shareholders who have agreed with the corporation as to the value of their
shares, shall be made parties to the proceeding as an action against their
shares. The corporation shall serve a copy of the initial pleading in such
proceeding upon each dissenting shareholder who is a resident of this state in
the manner provided by law for the service of a summons and complaint and upon
each nonresident dissenting shareholder either by registered or certified mail
and publication or in such other manner as is permitted by law. The
jurisdiction of the court is plenary and exclusive. All shareholders who are
proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. The court may,
if it so elects, appoint one or more persons as appraisers to receive evidence
and recommend a decision on the question of fair value. The appraisers shall
have such power and authority as is specified in the order of their appointment
or an amendment thereof. The corporation shall pay each dissenting shareholder
the amount found to be due him within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a
fair rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be
determined by the court and shall be assessed against the corporation, but all
or any part of such costs and expenses may
5
<PAGE> 268
be apportioned and assessed as the court deems equitable against any or all of
the dissenting shareholders who are parties to the proceeding, to whom the
corporation has made an offer to pay for the shares, if the court finds that
the action of such shareholders in failing to accept such offer was arbitrary,
vexatious, or not in good faith. Such expenses shall include reasonable
compensation for, and reasonable expenses of, the appraisers, but shall exclude
the fees and expenses of counsel for, and experts employed by, any party. If
the fair value of the shares, as determined, materially exceeds the amount
which the corporation offered to pay therefor or if no offer was made, the
court in its discretion may award to any shareholder who is a party to the
proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the
agreed value thereof or pursuant to payment of the judgment entered therefor,
as provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of
a merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of
such dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
6
<PAGE> 269
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The provisions of the Florida Business Corporation Act (the "FBCA") and
Bancshares' By-Laws (the "By-Laws") set forth the extent to which the
Registrant's directors and officers may be indemnified against liabilities they
may incur while serving in such capacities. The FBCA provisions for
indemnification are summarized below.
Section 607.0850(1) of the FBCA empowers a corporation to indemnify any
person who was or is a party to any proceeding (other than an action by, or in
right of, the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
liability incurred in connection with such proceeding, including any appeal
thereof, if he 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, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. This Subsection further provides that the termination of
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contender or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in, or not opposed to, the best interests of the corporation or, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 607.0850(2) empowers a corporation to indemnify any person who
was or is a party to any proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if 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 may be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable unless, and only to the extent that, the court in which such proceeding
was brought, or any other court of competent jurisdiction shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
Section 607.0850(3) provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any proceeding referred to in the preceding
subparagraphs, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses actually and reasonably incurred by him in
connection therewith.
Section 607.0850(4) provides that any indemnification under subsections
(1) or (2), unless pursuant to a determination by a court, shall be made by the
corporation only as authorized in a specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct as
set forth in subsections (1) or (2). Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of directors who
are not parties to such proceeding; (b) if such a quorum is not obtaining or,
even if obtainable, by majority vote of a committee duly designated by the board
of directors (in which directors who are parties may participate) consisting
solely of two or more directors who are not at the time parties to the
proceeding; (c) by independent legal counsel selected by the board of directors
described in paragraph (a) or the committee described in paragraph (b), or if a
quorum of the directors cannot be obtained for paragraph (a) and the committee
cannot be designated under paragraph (b), selected by a majority vote of the
full board of directors (in which directors who are parties may participate); or
(d) by the shareholders by a majority vote of a quorum consisting of
shareholders who are not parties to such proceeding or, if no such quorum is
obtainable, by a majority vote of shareholders who were not parties to such
proceeding.
Section 607.0850(5) provides that evaluation of the reasonableness of
expenses and authorization of indemnification shall be made in the same manner
as the determination that indemnification is permissible. However, if the
determination of
<PAGE> 270
permissibility is made by independent legal counsel, persons specified by
paragraph 4(c) shall evaluate the reasonableness of expenses and may authorize
indemnification.
Section 607.0850(6) provides that expenses incurred by an officer or
director in defending a civil or criminal proceeding may be paid by the
corporation in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if he is ultimately found not to be entitled to indemnification by the
corporation. Expenses incurred by other employees and agents may be paid in
advance upon terms or conditions that the board of directors deems appropriate.
Section 607.0850(7) provides that the indemnification and advancement
of expenses provided pursuant to this section are not exclusive, and the
corporation is empowered to make any other or further indemnification or
advancement of expenses of any of its directors, officers, employees or agents,
under any bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, unless a judgment or other final
adjudication establishes that such person's actions or omissions to act were
material to the cause of action so adjudicated and constitute (a) a violation of
the criminal law, unless such person had reasonable cause to believe that his
conduct was lawful or had no reasonable cause to believe that his conduct was
unlawful; (b) a transaction from which such person derived an improper personal
benefit; (c) in the case of a director, a circumstance under which the liability
provisions of Section 607.0834 of the FBCA are applicable; or (d) 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 shareholder.
Section 607.0850(8) provides that indemnification and advancement of
expenses shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators unless otherwise provided when authorized or ratified.
Section 607.0850(9) provides that unless the corporation's articles of
incorporation provide otherwise, notwithstanding the failure of a corporation to
provide indemnification and despite any contrary determination of the board or
of the shareholders of the specific case, a director, officer, employee or agent
who is or was a party to a proceeding may apply for indemnification or
advancement of expenses, or both, to the court conducting the proceeding, to the
circuit court or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice that it considers necessary, may
order indemnification and advancement of expenses, including expenses incurred
in seeking court-ordered indemnification or advancement of expenses, if it
determines that (a) the director, officer, employee or agent is entitled to
mandatory indemnification under subsection (3), in which case the court shall
also order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement or expenses; (b) the
director, officer, employee or agent is entitled to indemnification or
advancement of expenses, or both, by virtue of the exercise by the corporation
of its power pursuant to subsection (7); or (c) the director, officer, employee
or agent is reasonably entitled to indemnification or advancement of expenses,
or both, in view of all the relevant circumstances, regardless of whether such
person meet the standard of conduct set forth in subsection (1), subsection (2)
or subsection (7).
Section 607.0850(12) provides that the corporation is empowered to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this section.
The Registrant maintains an insurance policy insuring the Registrant
and directors and officers of the Registrant against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
II-2
<PAGE> 271
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
EXHIBIT DESCRIPTION OF EXHIBITS
2 Agreement and Plan of Merger, dated as of April 14, 1997, by
and between Bancshares and FFO (included as APPENDIX A to the
Joint Proxy Statement/Prospectus and incorporated by reference
herein)
3.1 Amended and Restated Articles of Incorporation of Bancshares
(incorporated by reference from Exhibit 3.1 of Bancshares'
Registration Statement on Form S-4, File No. 33-80895, dated
December 28, 1995).
3.2 By-Laws of Bancshares (incorporated by reference from Exhibit
3.2 of Bancshares Registration Statement on Form S-4, File No.
33-808895, dated December 28, 1995)
4.1 Specimen Common Stock Certificate (Incorporated herein by
reference from Exhibit 4.1 of Registrant's Registration
Statement on Form S-4, File No. 33-808895, dated December 28,
1995)
5 Form of Opinion of Holland & Knight LLP, including consent
8 Opinion of Holland & Knight LLP regarding federal income tax
matters, including consent(1)
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Hacker, Johnson, Cohen, and Grieb
23.3 Consent of Holland & Knight LLP (included in Exhibit 5)
24 Powers of Attorney (Included in the signature page on pages
II-5 and II-6)
99.1 Form of Proxy of Bancshares
99.2 Form of Proxy of FFO
- -------------------
(1) To be filed by amendment.
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not
applicable, or the required information is shown in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act;
II-3
<PAGE> 272
(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
and 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 represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table.
(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) provided, however,
that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed the registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are incorporated by reference in the
registration statement.
(2) That, 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 fide 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 Registrant's Articles of Incorporation or
By-Laws, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission (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 to respond to requests
for information that are incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
Bancshares being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 273
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Petersburg, State of
Florida, on June 27, 1997.
REPUBLIC BANCSHARES, INC.
By: /s/ John W. Sapanski
---------------------------------
John W. Sapanski
Chairman and
Chief Executive Officer
Date: June 27, 1997
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John W. Sapanski and William R. Falzone,
and each of them, as true and lawful attorneys-in-fact and agents, 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 the Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
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 in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all which 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.
II-5
<PAGE> 274
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE TITLE
- --------- ---- -----
<S> <C> <C>
/s/John W. Sapanski June 26, 1997 Chairman, Chief Executive
- ------------------------------ ------------- Officer and Director (principal
John W. Sapanski executive officer)
/s/William R. Falzone June 26, 1997 Treasurer (principal financial
- ------------------------------ ------------- and accounting officer)
William R. Falzone
/s/Fred Hemmer June 26, 1997 Director
- ------------------------------ -------------
Fred Hemmer
/s/Marla Hough June 26, 1997 Director
- ------------------------------ -------------
Marla Hough
/s/William R. Hough June 26, 1997 Director
- ------------------------------ -------------
William R. Hough
/s/Alfred T. May June 26, 1997 Director
- ------------------------------ -------------
Alfred T. May
/s/William J. Morrison June 26, 1997 Director
- ------------------------------ -------------
William J. Morrison
</TABLE>
II-6
<PAGE> 275
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
2 -- Agreement and Plan of Merger, dated as of April 14, 1997, by
and between Bancshares and FFO (included as APPENDIX A to the
Joint Proxy Statement/Prospectus and incorporated by
reference herein).
3.1 -- Amended and Restated Articles of Incorporation of Bancshares
(incorporated by reference from Exhibit 3.1 of Bancshares'
Registration Statement on Form S-4, File No. 33-80895, dated
December 28, 1995).
3.2 -- Bylaws of Bancshares (incorporated by reference from Exhibit
3.2 of Bancshares' Registration Statement on Form S-4, File
No. 33-808895, dated December 28, 1995).
4.1 -- Specimen Common Stock Certificate (incorporated herein by
reference from Exhibit 4.1 of Registrant's Registration
Statement on Form S-4, File No. 33-808895, dated December 28,
1995).
5 -- Form of Opinion of Holland & Knight LLP, including consent.
8 -- Opinion of Holland & Knight LLP regarding federal income tax
matters, including consent.(1)
23.1 -- Consent of Arthur Andersen, LLP.
23.2 -- Consent of Hacker, Johnson, Cohen, and Grieb.
23.3 -- Consent of Holland & Knight LLP (included in Exhibit 5).
24 -- Powers of Attorney (included in the signature page on pages
II-5 and II-6).
99.1 -- Form of Proxy of Bancshares.
99.2 -- Form of Proxy of FFO.
- ------------
(1) To be filed by amendment.
<PAGE> 1
EXHIBIT 5.1
HOLLAND & KNIGHT LLP LETTERHEAD
________, 1997
Board of Directors
Republic Bancshares, Inc.
111 Second Avenue N.E.
St. Petersburg, Florida 33701
Gentlemen:
This opinion is given in connection with the filing by Republic
Bancshares, Inc., a corporation organized and existing under the laws of the
State of Florida ("Bancshares"), with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), of a Registration Statement on Form S-4 ("Registration Statement") with
respect to the shares of the $2.00 par value common stock of Bancshares
("Bancshares Common Stock") to be issued in connection with the proposed merger
of F.F.O. Financial Group, Inc. ("FFO") with and into Bancshares (the "Merger").
The Merger is intended to be effected pursuant to an Agreement and Plan
of Merger, dated as of April 14, 1997 (the "Merger Agreement"), by and between
FFO and Bancshares, pursuant to which each outstanding share of the common stock
of FFO ("FFO Common Stock") (excluding shares held by FFO or any of its
subsidiaries or by Bancshares or any of its subsidiaries, in each case other
than in a fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by shareholders who perfect their dissenters' rights) and
each outstanding FFO stock option will be converted into and exchanged for
solely the right to receive that number of shares of Bancshares Common Stock as
determined in accordance with the terms of the Merger Agreement.
In rendering this opinion, we have examined the corporate records and
documents, including the Merger Agreement, as we have deemed relevant and
necessary as the basis for the opinion set forth herein. Except to the extent
expressly set forth herein, we have made no independent investigations with
regard thereto, and, accordingly, we do not express any opinion as to matters
that have been disclosed by independent verification.
Based upon the foregoing and subject to the limitations set forth
herein, it is our opinion that the shares of Bancshares Common Stock included in
the Registration Statement have been duly authorized by all requisite actions on
the part of Bancshares and, upon consummation of the Merger, such shares, when
issued to the holders of FFO Common Stock and FFO stock options in connection
with the Merger as provided in the Merger Agreement, will be validly issued,
fully paid, and non-assessable.
<PAGE> 2
Members of this firm are licensed to practice law in the State of
Florida and before the federal courts having jurisdiction in the State of
Florida, and we express no opinion with regard to any law other than the laws of
the State of Florida.
We hereby consent to the use of the opinions as Exhibits 5 and 8 of
this Registration Statement and to the reference made to the firm under the
caption "Opinions" in the Joint Proxy Statement/Prospectus constituting part of
the Registration Statement. In giving consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the Commission thereunder.
Sincerely yours,
HOLLAND & KNIGHT LLP
By:
------------------------
2
<PAGE> 1
EXHIBIT 23.1
ARTHUR ANDERSEN LLP
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED 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.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Tampa, Florida,
June 26, 1997
<PAGE> 1
EXHIBIT 23.2
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
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-4
Registration Statement of Republic Bancshares, Inc.
/s/ Hacker, Johnson, Cohen & Grieb
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
June 27, 1997
<PAGE> 1
EXHIBIT 99.1
FORM OF PROXY
REPUBLIC BANCSHARES, INC.
SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints ____________________
and ___________________, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of the $2.00 par value common stock
(the "Bancshares Common Stock") of Republic Bancshares, Inc., a Florida
corporation ("Bancshares"), that the undersigned would be entitled to vote if
personally present at the Special Meeting of Bancshares Stockholders to be held
at _____________________________, on __________________, 1997, at ________,
Local Time, and at any adjournment or postponement thereof (the "Special
Meeting") upon the proposals described in the Joint Proxy Statement/Prospectus
and the Notice of Special Meeting of Stockholders, both dated ____________,
1997, the receipt of which is acknowledged in the manner specified below.
1. MERGER. To approve, ratify, confirm and adopt the Agreement and Plan
of Merger, dated as of April 14, 1997 (the "Merger Agreement"), by and between
F.F.O. Financial Group, Inc., a Florida corporation ("FFO"), and Bancshares
pursuant to which (i) Bancshares will acquire all of the issued and outstanding
common stock of FFO and FFO will merge (the "Merger") with and into Bancshares;
(ii) each share of the $.10 par value common stock of FFO ("FFO Common Stock")
issued and outstanding at the effective time of the Merger (excluding shares
held by FFO or any of its subsidiaries or by Bancshares or any of its
subsidiaries, in each case other than in a fiduciary capacity or as a result of
debts previously contracted, and excluding shares held by stockholders who
perfect their dissenters' rights) will be exchanged for 0.29 of a share (the
"Exchange Ratio") of Bancshares Common Stock, unless the product of the Exchange
Ratio and the Market Value (as defined in the Merger Agreement) of Bancshares
Common Stock is below $4.10, in which case the Exchange Ratio will be increased
to maintain such product at $4.10, but in no event will the Exchange Ratio be
greater than 0.30.; and (iii) each outstanding option to purchase FFO Common
Stock issued and outstanding at the Effective Time shall cease to be outstanding
and shall be converted into the right to acquire Bancshares Common Stock on
substantially the same terms applicable to the FFO options.
FOR AGAINST ABSTAIN
2. In the discretion of the proxies on such other matters as may
properly come before the meeting or any adjournments thereof.
AUTHORIZED NOT AUTHORIZED
<PAGE> 2
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1 ABOVE.
Please sign this proxy exactly as your name appears below. When shares
are held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated: , 1997
---------------------------
Signature:
-----------------------------
Signature:
-----------------------------
(if held jointly)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF REPUBLIC BANCSHARES,
INC. AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
2
<PAGE> 1
EXHIBIT 99.2
FORM OF PROXY
F.F.O. FINANCIAL GROUP, INC.
SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints ____________________
and ___________________, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of the $.10 par value common stock
(the "FFO Common Stock") of F.F.O. Financial Group, Inc., a Florida corporation
("FFO"), that the undersigned would be entitled to vote if personally present at
the Special Meeting of FFO Stockholders to be held at ___________________, on
__________________, 1997, at ________, Local Time, and at any adjournment or
postponement thereof (the "Special Meeting") upon the proposals described in
the Proxy Statement/Prospectus and the Notice of Special Meeting of
Stockholders, both dated ____________, 1997, the receipt of which is
acknowledged in the manner specified below.
1. MERGER. To approve, ratify, confirm and adopt the Agreement and Plan
of Merger, dated as of April 14, 1997 (the "Merger Agreement"), by and between
Republic Bancshares, Inc., a Florida corporation ("Bancshares"), and FFO
pursuant to which (i) FFO will merge (the "Merger") with and into Bancshares and
Bancshares will acquire all of the issued and outstanding common stock of FFO;
(ii) each share of FFO Common Stock issued and outstanding at the effective time
of the Merger (excluding shares held by FFO or any of its subsidiaries or by
Bancshares or any of its subsidiaries, in each case other than in a fiduciary
capacity or as a result of debts previously contracted, and excluding shares
held by stockholders who perfect their dissenters' rights) will be exchanged for
0.29 of a share (the "Exchange Ratio") of the $2.00 par value common stock of
Bancshares ("Bancshares Common Stock"), unless the product of the Exchange Ratio
and the Market Value (as defined in the Merger Agreement) of Bancshares Common
Stock is below $4.10, in which case the Exchange Ratio will be increased to
maintain such product at $4.10, but in no event will the Exchange Ratio be
greater than 0.30.; and (iii) each outstanding option to purchase FFO Common
Stock issued and outstanding at the Effective Time shall cease to be outstanding
and shall be converted into the right to acquire Bancshares Common Stock on
substantially the same terms applicable to the FFO options.
FOR AGAINST ABSTAIN
2. In the discretion of the proxies on such other matters as may
properly come before the meeting or any adjournments thereof.
AUTHORIZED NOT AUTHORIZED
<PAGE> 2
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1 ABOVE.
Please sign this proxy exactly as your name appears below. When shares
are held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated: , 1997
--------------------------
Signature:
----------------------------
Signature:
----------------------------
(if held jointly)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF F.F.O. FINANCIAL
GROUP, INC., AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
2
