<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended Commission File
December 31, 1996 No. 0-27652
REPUBLIC BANCSHARES, INC.
(Exact Name of Registrant As Specified In Its Charter)
FLORIDA 59-3347653
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
111 2nd Avenue N.E., St. Petersburg, FL 33701
(Address of Principal Office) (Zip Code)
(813) 823-7300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Title of each Class
Common Stock, par value $2.00
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[x]
As of February 28, 1997, there were 4,183,507 shares of the Registrant's Common
Stock, par value $2.00 per share, issued and outstanding. Accordingly, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was $61,968,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference into Parts I, II, III, and IV of
this report.
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TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
ITEM 1. BUSINESS
Background and Prior Operating History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business of Republic Bancshares, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Branch Banking Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sources of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Lending and Loan Portfolio Purchase Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Asset Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Market Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Effects of Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Changes in Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Years Ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Years Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Asset/Liability Management and Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
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PART I
ITEM 1. BUSINESS
Republic Bancshares, Inc. (the "Company") is the parent company of Republic
Bank (the "Bank"), a Florida-chartered commercial bank organized on December
13, 1973. The Company provides a broad range of financial services through its
subsidiary bank which is the largest independent bank headquartered on the west
coast of Florida. At December 31, 1996, there were 32 banking offices in
Pasco, Pinellas, Manatee and Sarasota counties. On January 7, 1997, a branch
office was opened in Spring Hill, Florida (Hernando County), increasing the
number to 33. At year-end, total assets were $907,868,000, total loans were
$742,994,000, total deposits were $827,980,000 and total stockholders' equity
was $54,319,000. The Company is regulated by the Federal Reserve Board ("FRB")
and the Bank is regulated by the Florida Department of Banking and Finance
("Department") and the Federal Deposit Insurance Corporation ("FDIC").
Deposits are insured by the FDIC. The Bank is a member of the Federal Home Loan
Bank of Atlanta ("FHLB") (see Item 1 - "Supervision and Regulation").
BACKGROUND AND PRIOR OPERATING HISTORY OF THE BANK
On May 28, 1993, William R. Hough and John W. Sapanski (the "Controlling
Stockholders") acquired from the prior controlling stockholder over 99% of the
outstanding common stock for $4,450,000 (the "Change in Control") and made an
additional capital infusion of $3,500,000 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 $1,432,000 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 $5,862,000, 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.
On December 17, 1993, twelve branch offices in Pinellas, Manatee and Sarasota
counties were purchased from CrossLand Savings, FSB ("CrossLand"), a federal
stock savings bank and deposit liabilities of $327,706,000 were assumed.
CrossLand was paid $11,474,000 for the branch offices and related furniture,
fixtures, equipment, and other assets, plus a $1,966,000 premium (sixty
one-hundredths of one percent - 0.60%) on the dollar amount of the deposits
assumed. Concurrently, performing and non-performing loans secured by real
estate and ORE amounting to $201,621,000 were also purchased from CrossLand.
These transactions increased total assets to $531,312,000 and total deposits to
$494,316,000 at December 31, 1993.
In December 1993, 1,398,200 shares of common stock were sold in an initial
public offering at a price of $8.00 per share. Net proceeds, after deducting
commissions to the sales agent and other offering expenses, totaled
$10,310,325. In addition, 75,000 shares of Series A non-cumulative convertible
perpetual preferred stock were sold for a purchase price of $6,600,000 (or
$88.00 per share). In June 1995, an offering of 800,000 shares of the common
stock was completed through a combined subscription rights and public offering
at $12.50 per share with net proceeds totaling $9,137,000.
On February 27, 1996, the shareholders approved a reorganization under which
the Bank became a wholly-owned subsidiary of the Company. All holders of
shares of the Bank's common and preferred Stock received one share of the
Company's $2.00 par value common stock ("Company Common Stock") for each share
of the Bank's common stock held of record and one share of the Company's $20.00
par value noncumulative convertible perpetual preferred stock ("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.
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RECENT DEVELOPMENTS
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 has been approved
by the FRB; approvals by the Department and FDIC are pending. At December 31,
1996, Firstate had total assets of $103,624,000 and total deposits of
$84,842,000. 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 boards 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 at December 31, 1996 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 the company and F.F.O. Financial Groups, Inc.
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; 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, and receipt of opinion
that the transaction qualifies as a tax-free reorganization.
BUSINESS OF REPUBLIC BANCSHARES, INC.
The Company's objective is the continued development of its commercial and
retail-oriented banking business and a diversified loan and investment
portfolio that is responsive to changes in interest rates and meets the needs
of the communities it serves. During 1996, the Company expanded its
residential lending activities to include a mortgage banking division which has
eight loan production offices in Florida, a wholesale lending unit, and an
office in Boston, Massachusetts. As of December 31, 1996, 54.6% of its loan
portfolio was invested in one-to-four family residential first mortgage loans;
9.2% in other residential first mortgage loans (primarily secured by
multi-family properties); 32.9% in commercial real estate, construction/land
development, and other business loans; and 3.3% in consumer loans, consisting
of home equity loans as well as extensions of credit for other household
purposes such as automobile loans and secured personal loans. Since the Change
in Control, a large portion of the growth in the loan portfolio has occurred as
a result of loan portfolio purchases. However, the Company's portfolio lending
activities remain concentrated in Florida. As of December 31, 1996,
approximately 71.6% ($531,831,000) of the loan portfolio was either made to
borrowers within Florida or was secured by real estate located within Florida.
(See "-- Lending and Loan Portfolio Purchase Activities").
BRANCH BANKING ACTIVITIES
During the year ended December 31, 1994, the Company opened two branches in
Pinellas County, bringing the total number of branches from 19 at year-end 1993
to 21 branch offices at year-end 1994. During 1995, the Company opened eleven
branch facilities, eight of which are located in Pinellas County and three in
Pasco County. Also, in 1995, the Company purchased a branch office, and
assumed $12,633,000 in deposits held at the branch, from a financial
institution in Clearwater, Florida, and paid a premium of $647,000, or 5.12%,
on the deposit balances. The facility was closed on May 26, 1995 and its
operations were consolidated with a nearby branch office. At December 31, 1996
there were a total of 32 branch offices, including 20 in Pinellas, three in
Pasco, seven in
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Manatee, and two in Sarasota Counties. On January 7, 1997, a branch was opened
in Spring Hill, Florida (Hernando County) increasing the number to 33.
SOURCES OF FUNDS
Deposit accounts are the primary source of funds for lending, investment, and
other general business purposes. In addition to deposits, funds are derived
from loan repayments and loan sales. Scheduled loan payments on the
residential loan portfolio are a relatively stable source of funds, while
residential loan prepayments, deposit in-flows and out-flows are significantly
influenced by general interest rate and money market conditions. Funding needs
may be supplemented through borrowings from the FHLB, which are secured by a
blanket lien on the portfolio of residential loans. Management believes that
current funding requirements can be met through retail deposits, without
reliance on brokered deposits. To the extent there are requirements for
short-term financing beyond liquid assets, the Company intends to rely on
repurchase agreements, FHLB advances, and other traditional money market
sources of funding. For additional discussion of asset/liability management
policies and strategies, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset/Liability Management".
A full range of deposit services is offered, including checking and other
transaction accounts, savings accounts, and time deposits. At December 31,
1996, the Company had no brokered deposits, and time deposits in amounts of
$100,000 or more constituted 5.96% of total deposits.
The following table sets forth the principal types of deposit accounts offered
and the aggregate amounts of such accounts at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Weighted
Average Percent of
Interest Rate Amount Total Deposits
------------- ------ --------------
<S> <C> <C> <C>
Noninterest bearing 0.00% $ 50,060 6.1%
Interest checking 1.09 87,639 10.6
Passbook savings 4.87 219,611 26.5
Statement savings 1.98 26,340 3.2
Money market 2.08 32,665 3.9
--------
Time deposits with original maturities of:
One year or less 5.00 112,362 13.6
Over 1 year through 5 years 5.49 201,496 24.3
Over 5 years 6.24 97,807 11.8
-------- ----
Total time deposits (1) 5.42 411,665 49.7
-------- -----
Total deposits 4.23% $827,980 100.0%
======== =====
</TABLE>
(1) Includes time deposits in amounts of $100,000 or more of $49,323,000.
At December 31, 1996, scheduled maturities of total time deposits were as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended Percent of
December 31, Amount Total Time Deposits
------------ ------ -------------------
<S> <C> <C>
1997 $ 267,124 64.9%
1998 47,398 11.5
1999 33,043 8.0
2000 35,463 8.6
2001 28,637 7.0
--------- -----
Thereafter $ 411,665 100.0%
========= =====
</TABLE>
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LENDING AND LOAN PORTFOLIO PURCHASE ACTIVITIES
The Company originates a full range of lending products for its portfolio and
real estate-secured loans for sale in the secondary market. Portfolio lending
efforts are focused on customers located along the west coast and in central
Florida. During 1995, the Company opened commercial loan production offices in
central and southwest Florida. The portfolio objective is to maintain a
one-to-four family, primarily adjustable rate, residential loan portfolio of at
least 50% of its total loans and to achieve, over time, a level of
approximately 10% of its total loan portfolio in consumer loans, consisting of
home equity loans as well as extensions of credit for other household purposes
such as automobile loans and secured personal loans. The approximate 40%
remainder of the loan portfolio will consist of commercial real estate loans,
multifamily residential loans, and other business loans.
In April 1996, the Company started a mortgage banking division which has eight
offices in Florida, a wholesale lending operation, and an office in Boston,
Massachusetts. Substantially all of the loans generated by the mortgage
banking division are intended for sale into the secondary market on both a
whole loan basis or by delivery into marketable securities, depending upon
individual loan characteristics. The Company's mortgage banking division has
also begun to originate home improvement and debt consolidation loans secured
by junior liens on real estate. The Company plans to begin selling these loans
to investors in 1997.
For 1996, originations of residential mortgage loans totaled $203,306,000,
including $141,016,000 in fixed rate loans and $62,290,000 of adjustable rate
loans. Sales of residential loans totaled $106,132,000 for 1996. Residential
loans originated amounted to $76,600,000 for 1995.
Originations of commercial real estate and commercial (business) loans totaled
$207,399,000 for 1996 compared to $141,765,000 for 1995. To-date, such loan
originations have been for portfolio purposes but the Company intends to
originate and sell into the secondary market a portion of its commercial real
estate loans originated during 1997, collecting fee income on the sale and
retaining the servicing of these loans.
The Company purchased loans totaling approximately $193,495,000 in connection
with the Purchase and Assumption. Loan purchases totaled $157,449,000,
$102,263,000, and $8,183,000 in years 1994, 1995 and 1996, respectively, for an
approximate aggregate total of $461,390,000 in loan purchases. Further real
estate loan purchases may be considered if loan pools with acceptable yield,
satisfactory creditworthiness, and other characteristics become available for
bid. However, during 1995 and 1996, loan originations were the predominate
source of growth in the loan portfolio and this is expected to continue for the
foreseeable future.
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 December 31,
- - ----------------------- -------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family residential $ 419,605 $ 388,221 $ 293,146 $ 153,587 $ 7,797
Multifamily residential 68,337 75,127 60,795 36,735 4,461
Commercial real estate 182,298 153,193 112,050 86,457 65,072
Construction/land development 27,050 13,974 16,095 9,561 5,256
-------- ---------- ---------- ---------- ----------
Total real estate mortgage loans 697,290 630,515 482,086 286,340 82,586
Commercial (business) loans 34,427 29,687 24,579 18,581 17,546
Consumer loans 9,983 6,847 6,426 7,509 8,374
Other loans 1,294 2,367 3,244 4,053 2,209
--------- ---------- ---------- ---------- ----------
Total loans 742,994 669,416 516,335 316,483 110,715
Less:
Allowance for loan losses 13,134 14,910 7,065 6,539 1,958
--------- ---------- ---------- ---------- ----------
Loans, net of allowance $ 729,860 $ 654,506 $ 509,270 $ 309,944 $ 188,757
========= ========= ========= ========= =========
</TABLE>
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At December 31, 1996 and 1995, the balance of loans purchased included in
portfolio totals amounted to $286,517,000 and $354,724,000, respectively. The
balance of loans held for sale included in the portfolio at December 31, 1996
and 1995 were $36,590,000 and $4,711,000, respectively.
<TABLE>
<CAPTION>
Based on percent of portfolio: At December 31,
- - ------------------------------ -------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family residential 56.5% 58.0% 56.8% 48.5% 7.0%
Multifamily residential 9.2 11.2 11.8 11.6 4.0
Commercial real estate 24.6 22.9 21.7 27.3 58.8
Construction/land development 3.6 2.1 3.1 3.0 4.7
----- ----- ----- ----- -----
Total real estate mortgage loans 93.9 94.2 93.4 90.4 74.5
Commercial (business) loans 4.6 4.4 4.8 5.9 15.8
Consumer loans 1.3 1.0 1.2 2.4 7.6
Other loans .2 .4 .6 1.3 2.1
----- ----- ----- ----- -----
Total loans 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 December 31, 1996 and 1995 (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>
December 31, 1996 December 31, 1995
-------------------------- ----------------------------
Type of loan: Real Estate Commercial Real Estate Commercial
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Amounts due:
One year or less $ 60,246 $15,740 $ 50,189 $12,751
After one through five years 151,492 16,580 136,011 14,756
More than five years
485,552 2,107 444,315 2,180
--------- ------- -------- -------
Total $ 697,290 $34,427 $630,515 $29,687
========= ======= ======== =======
Interest rate terms on
amounts due after one year:
Adjustable $ 446,710 $12,053 $416,854 $ 8,488
Fixed 190,334 6,634 163,472 8,448
--------- ------- -------- -------
Total $ 637,044 $18,687 $580,326 $16,936
========= ======= ======== =======
</TABLE>
Credit Decisions; 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 $1,500,000 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. Purchases of pools of residential loans
have contained delinquent loans which have been generally purchased at a
discount to their face value.
To assure consistency in underwriting policies and procedures, the supervision
of all credit decision functions has been centralized. Commercial real estate
loans are underwritten with minimum thresholds established for loan-to-value
ratios, debt service coverage and capitalization rate. The Company, in making
real estate development loans, endeavors to emphasize loans secured by
properties that have measurable and reliable cash flow. The
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Company's business lending is based on a strategy of extending credit to the
local business community, and policy has been to make loans for corporate and
commercial purposes that must satisfy certain cash flow requirements.
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").
Real Estate Lending Standards
Real estate lending is defined as extensions of credit secured by liens on
interests in real estate or made for the purpose of financing the construction
of a building or other improvements to real estate, regardless of whether a
lien has been taken on the property. Applicable regulations require that
comprehensive written real estate lending policies be adopted and maintained
that are consistent with safe and sound banking practices. These lending
policies must reflect consideration of the Interagency Guidelines for Real
Estate Lending Policies adopted by the federal banking agencies in December
1992 (the "Guidelines"). Pursuant to the mandates of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), the Guidelines set
forth regulations prescribing standards for real estate lending, which the
Company has incorporated into its lending policy.
The policy addresses certain lending considerations set forth in the
Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards and
documentation, approval, and reporting requirements. The LTV ratio framework,
with an LTV ratio being the total amount of credit to be extended divided by
the appraised value or purchase price of the property at the time the credit is
originated, has been established for each category of real estate loans. The
Company's policy, among other things, establishes 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.
ASSET QUALITY
Allowance/Provision for Loan Losses
The allowance for loan losses represents management's estimate of an amount
adequate to provide for potential losses inherent in the loan portfolio.
However, it is likely that there are additional risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because those risks include general economic trends as well as
conditions affecting individual borrowers, management's judgment of the reserve
is necessarily approximate and imprecise. The allowance is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance and the
size of the allowance in comparison to peers identified by the regulatory
agencies.
The Company maintains a loan loss policy that is both consistent with policies
established by the FDIC and commensurate with historical loss experience.
Provisions for loan losses charged to expense during each period will be the
result of management's assessment of the adequacy of the allowance when
compared to the inherent risk of the portfolio. As part of the risk assessment
for loans purchased in the 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 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 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.
6
<PAGE> 11
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 $157,449,000 during 1994,
$102,263,000 during 1995 and $8,183,000 in 1996 and a portion of the discount
on those purchased loans was allocated to the allowance in amounts consistent
with the Company's loan loss policy guidelines. In 1995 such allocation
included $7,189,000 related solely to one particular portfolio purchase, in the
aggregate principal amount of $48,061,000 (the "March 1995 Purchase"). At
December 31, 1996 the principal balance of the March 1995 Purchase had declined
to $39,863,000 and the allowance allocated to this purchase was reduced to
$5,855,000. This was principally the result of charges to the reserve for
loans which were nonperforming when acquired and subsequently taken into
foreclosure and recorded at their fair value. The Company's history of
administering this loan purchase indicates that the expected loss rate on the
remaining loans in this portfolio will be less than the amount remaining in the
allowance. Consequently, the Company reallocated $1,500,000 from the allowance
to discount in the fourth quarter of 1996, reducing the December 31, 1996
allowance allocated to the March 1995 Purchase to $4,355,000. The overall
allowance also included $1,043,000 allocated to loans purchased from CrossLand,
$1,752,000 allocated to other loan purchases, and $5,984,000 allocated to
originated loans. At December 31, 1996, the amount of unaccreted discount on
purchased loans which had not been allocated to the allowance totaled
$4,731,000.
Activity to the allowance during 1996 included a $1,800,000 provision for loan
losses, loan charge-offs (net of recoveries) of $1,844,000, and $1,732,000
allocated from the allowance to loan discount. The net charge-off amount for
1996 included $1,014,000 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.
[Balance of page intentionally left blank]
7
<PAGE> 12
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
Ended Ended Year Ended
Years Ended December 31, December 31, May 31, December 31
1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Allowance at beginning
of period $ 14,910 $ 7,065 $ 6,539 $ 1,866 $ 1,958 $ 2,180
Loan discount (net) allocated
to/(from) the allowance for
loans acquired in the:
Purchase and Assumption - (757) 4,046 N/A N/A
Loans purchased in 1994 (202) - 1,400 - - -
Loans purchased in 1995 (1,541) 7,658 - - - -
Loans purchased in 1996 11 - - - - -
------- ------ ------ ------ ------ ---------
Total loan discount allocated
to/(from) the allowance (1,732) 7,658 643 4,046 - -
Charge-offs:
- - ------------
Residential loans (1-4 family) 1,700 275 94 - - 96
Commercial real estate/
multi-family 51 907 1,472 115 43 356
Commercial (business) 249 558 304 28 439 375
Consumer and other loans 119 207 - 65 50 64
------- ------ ------ ------ ------ -------
Total charge-offs 2,110 1,947 1,870 208 532 891
Recoveries:
- - -----------
Residential loans (1-4 family) 1 7 - 1 1 2
Commercial real estate/
multi-family 35 379 113 19 1 1
Commercial loans (business) 168 53 64 91 44 95
Consumer and other loans 62 10 1 15 15 51
------- ------ ------ ------ ------ ------
Total recoveries 266 449 178 126 61 149
Net charge-offs 1,844 1,498 1,692 82 471 742
Provisions for loan losses 1,800 1,685 1,575 709 379 520
------- ------ ------ ------ ------ ------
Allowance at end of period $ 13,134 $ 14,910 $ 7,065 $ 6,539 $ 1,866 $ 1,958
======= ======= ====== ====== ====== ======
Charges to allocated loan discount .21% .13% .32% .00% .00% .00%
Other net charge-offs .06 .12 .11 .12 .43 .69
--- --- --- --- --- ---
Total net charge-offs to average loans .27% .25% .43% .12% .43% .69%
=== ==== === === === ===
</TABLE>
The table on the following page (in thousands) sets forth the allocation of the
allowance based on management's subjective estimates. 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-off trends.
The allocation of the allowance may change from year to year should management
determine that the risk characteristics of the loan portfolio and off-balance
sheet commitments have changed.
8
<PAGE> 13
<TABLE>
<CAPTION>
1996 1995
--------------------------- --------------------------
Allowance Allocation Amount Percent Amount Percent
- - -------------------- ------- --------- ------- ----------
<S> <C> <C> <C> <C>
Performing/not classified:
Residential loans:
March 1995 Purchase $ 4,171 5.3 % $ 5,960 6.4 %
All other residential 1,788 48.3 669 49.1
Commercial (business) 340 4.6 351 4.7
Commercial real estate 2,622 35.5 2,718 32.5
Consumer & other 488 3.2 343 2.1
-------- -------- -------- -----
Subtotal 9,409 96.9 $ 10,041 94.8
Non-performing/classified:
Special mention 124 .8 306 2.3
Substandard & nonperforming 2,476 2.2 3,476 2.8
Doubtful 601 .1 123 0.1
Loss - - - -
--------- -------- -------- -----
Subtotal 3,201 3.1 3,905 5.2
Off balance sheet risk 434 - 250 -
Unallocated 90 - 714 -
--------- -------- --------- ------
Total $ 13,134 100.0 % $ 14,910 100.00 %
========= ====== ========= ======
</TABLE>
Nonperforming Assets
Nonperforming assets include (i) non-accrual loans (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 $15,351,000 at December 31, 1996
compared to $13,554,000 at December 31, 1995, an increase of $1,797,000.
At December 31, 1996, the Company had nonperforming assets (including loans
classified as non-accrual) of $22,827,000 or 2.51% of total assets. 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
$113,000 at December 31, 1996 and primarily consisted of loans in process of
renewal. For additional information see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Comparison of Balance
Sheets at December 31, 1996 and 1995".
9
<PAGE> 14
The following table sets forth information regarding the components of
nonperforming assets at the dates indicated (in thousands):
<TABLE>
<CAPTION>
Non-Performing Assets: At December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential loans (1-4 family) $ 7,366 $ 9,540(1) $ 9,062 $ 3,707 $ 35
Multi-family residential 55 129 1,160 10,200 0
Commercial real estate 6,162 3,082 1,515 1,464 2,965
Commercial (business) 1,604 308 591 620 529
Home equity and consumer 164 495 620 0 10
-------- -------- ------- ------- --------
Total non-accrual loans 15,351 13,554 12,948 15,991 3,539
ORE acquired through foreclosure 7,363 8,064 9,278 9,569 9,190
Accruing loans 90 days
past due 113 1,876 293 725 22
-------- ------- ------- ------- --------
Nonperforming assets $ 22,827 $23,494 $22,519 $26,285 $ 12,751
======== ======= ======= ======= ========
Nonperforming loans
to loans 2.19% 2.32% 2.56% 5.28% 3.22%
Nonperforming assets
to total assets 2.51% 2.93% 3.59% 4.95% 7.55%
</TABLE>
(1) Net of $184,000 and $950,000 of loan loss allowances at December 31, 1996
and 1995, respectively, allocated to nonaccrual loans acquired in the March
1995 Purchase.
For additional information concerning policy on allowance for loan losses see
"Business -- Asset Quality -- Allowance/Provision for Loan Losses".
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
annually, where appropriate. As of December 31, 1996, in no case did the book
value of any ORE property exceed 90% of the most current available appraisal
value. The following table sets forth information regarding the Company's ORE
balances, net of allowances, as of the dates indicated (in thousands):
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Vacant undeveloped residential land $ 1,277 $ 1,717 $ 2,358 $ 2,450 $ 2,454
Vacant developed residential lots 254 265 434 600 1,644
Residential houses 2,541 860 1,313 795 800
Vacant commercial undeveloped land 79 79 248 155 155
Commercial land developed for sale 3,200 4,308 4,516 1,746 2,991
Income-producing commercial buildings 12 150 0 3,534 324
Vacant commercial buildings - 685 409 289 822
------- ------- ------- ------- -------
Total ORE $ 7,363 $ 8,064 $ 9,278 $ 9,569 $ 9,190
======= ======= ======= ======= =======
ORE to total assets .81% 1.01% 1.48% 1.80% 5.44%
==== ==== ==== ==== ====
</TABLE>
10
<PAGE> 15
At December 31, 1996, ORE properties with book values in excess of $1.0 million
were as follows:
- - - A tract of land in Holiday, Florida, carried at $3,200,000, that has been
developed as a shopping center site. This tract was obtained in 1988 through
foreclosure in connection with a $1,800,000 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 $2,000,000
was spent in engineering, environmental, and legal costs and approximately
$500,000 for the purchase of several additional parcels of land required for
mitigation purposes pursuant to the permit requirements. The Company is
offering for sale the completed shopping center sites and other commercial pad
sites. One shopping center site was sold to a developer who constructed the
retail space for the anchor tenants, Publix and Walgreens. The Company
presently operates a branch banking facility on the tract. Federal regulations
had required the Bank to dispose of the tract no later than December 31, 1996
but the FDIC has approved an extension of the holding period to December 19,
1997. While the current appraisal indicates that the fair market value of the
tract exceeds book value, a sale to a party other than an end-user could result
in proceeds below the current book value.
- - - A 41.66% undivided interest in a 973-acre parcel of undeveloped
residential land in Pasco County, Florida. This interest was acquired through
foreclosure in 1990 and is carried on the Company's books at $1,277,000. The
entire parcel (which includes both the Company's undivided interest and that of
the other owners) was appraised at $4,700,000 in January 1997. The Company is
negotiating 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 December 31, 1996 and 1995, the loan portfolio included TDRs amounting to
$2,516,000 and $1,673,000, 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. For additional information related to the
Company's investment portfolio, see Note 2, Investment Securities and Note 3,
Mortgage Backed Securities, of the Notes to the Consolidated Financial
Statements.
EMPLOYEES
At December 31, 1996, there were 637 full-time equivalent employees compared to
418 at December 31, 1995, none of whom were represented by a union or other
collective bargaining agreement. The year-to-year increase is primarily the
result of the mortgage banking expansion. The Company makes use of part-time
and flex-time employees in connection with its branch operations. One of the
Company's primary operating principles is to nurture its staff through, among
other things, fair compensation, a good working environment, and career
development and enhancement opportunities. Management considers its relations
with its employees to be good.
MARKET AREA
All of the Company's branch offices are located in the two Tampa Bay
Metropolitan Statistical Areas which include Hernando, Hillsborough, Manatee,
Pasco, Pinellas and Sarasota Counties. At December 31, 1996, there were 32
branch offices, including 3 offices in Pasco County, 20 offices in Pinellas
County, 7 offices in Manatee County, and 2 offices in Sarasota County. On
January 7, 1997 the Company opened a branch office in Spring Hill, Hernando
county, bringing the total number of offices to 33. As a multi-office
institution, the Company's market area encompasses all of the counties in which
it operates. The Company also operates 10 loan production offices in Pinellas,
Lee, Orange, Palm Beach and Polk counties in Florida and an office in Boston,
Massachusetts.
11
<PAGE> 16
A Metropolitan Statistical Area ("MSA"), as defined by the U.S. Census Bureau,
is a geographic area with a significant population nucleus, along with any
adjacent communities that have a high degree of economic and social integration
with that nucleus. Two MSAs 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 among the top 100
Metro areas at 95th. Together the two MSAs had a combined population of two
and three-fourths million residents which would rank about 12th in the United
States. The economic base of Florida is supported by a large and growing
segment of retirees, tourism, which contributes to the economic base throughout
the year, and light industry.
The market area served by the Company is highly competitive with 279 branch
offices 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.
With total deposits of $783,188,000 as of September 30, 1996, the Company
ranked 13th among banks and 24th among all depository institutions in the state
of Florida in terms of deposits held. Ranked by deposits, the Company was the
15th largest in Pasco County, the 7th largest in Pinellas County, the 5th
largest in Manatee County and the 14th largest in Sarasota County. As the
table below indicates, market share ranges from six percent in Manatee County
to one percent in Pasco.
Branch Deposits by County
September 30, 1996
($ in millions)
<TABLE>
<CAPTION>
The Company Total The Company
----------- ------- -----------
<S> <C> <C> <C>
Pasco $ 42 $ 3,899 1.1%
Pinellas 502 12,787 3.9
Manatee 167 2,770 6.0
Sarasota 72 5,860 1.2
----- -------- ---
Total $ 783 $ 25,316 3.1%
===== ======== ===
</TABLE>
12
<PAGE> 17
SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under both federal and state
law. The following is a brief summary of certain statutes, rules, and
regulations affecting the Company and the Bank. This summary is qualified in
its entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Company's business. Supervision,
regulation, and examination of the Company and the Bank by the bank regulatory
agencies are intended primarily for the protection of depositors rather than
stockholders.
The Company is a bank holding company, registered with the Board of Governors
of the Federal Reserve System ("Federal Reserve") under the Bank Holding
Company Act of 1956, as amended ("BHC Act"). As such, Republic and its
subsidiaries are subject to the supervision, examination, and reporting
requirements of the BHC Act and the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior approval of
the Federal Reserve before: (i) it may acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control more than five
percent (5%) of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Considerations 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 Republic 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.
The Bank is organized as a Florida-chartered commercial bank and is regulated
and supervised by the Department. In addition, the Bank is regulated and
supervised by the FDIC, which serves as its primary federal regulator.
Accordingly, the Department and the FDIC conduct regular examinations of the
Bank, reviewing the adequacy of the loan loss reserves, quality of loans and
investments, propriety of management practices,
13
<PAGE> 18
compliance with laws and regulations, and other aspects of the Bank's
operations. In addition to these regular examinations, the Bank must furnish
to the FDIC quarterly reports containing detailed financial statements and
schedules.
Federal and Florida banking laws and regulations govern all areas of the
operations of the Bank, including reserves, loans, mortgages, capital,
issuances of securities, payment of dividends, and establishment of branches.
As its primary federal regulator, the FDIC has authority to impose penalties,
initiate civil and administrative actions, and take other steps intended to
prevent the Bank from engaging in unsafe or unsound practices. The Bank is a
member of the Bank Insurance Fund and, as such, deposits in the Bank are
insured by the FDIC to the maximum extent permissible by law.
The Bank also is subject to the provisions of the CRA. Under the CRA, the Bank
has a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire communities, including
low- and moderate-income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions nor does it limit
the Bank's discretion to develop the types of products and services that it
believes are best suited to its particular communities, consistent with the
CRA. The CRA requires the appropriate federal bank regulatory agency (in the
case of the Bank, the FDIC), in connection with its regular examination of a
bank, to assess the Bank's record in meeting the credit needs of the community
serviced by the bank, including low- and moderate-income neighborhoods. The
FDIC's assessment of the Bank's record is made available to the public.
Further, such assessment is required whenever the Bank applies to, among other
things, establish a new branch office that will accept deposits, relocate an
existing office or merge or consolidate with, or acquire the assets of or
assume the liabilities of, a federally-regulated financial institution. In the
case where Republic applies for approval to acquire a bank or other bank
holding company, the Federal Reserve will also assess the CRA records of the
Bank. The Bank received a "Satisfactory" CRA rating in its most recent
examination.
In April 1995, the federal banking agencies adopted amendments revising their
CRA regulations, with a phase-in schedule applicable to various provisions.
Among other things, the amended CRA regulations, 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, Aims 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 Bank's operations or that they will have any impact on
the Bank's CRA rating.
Capital Requirements
The Company and the Bank is required to comply with the capital adequacy
standards established by the Federal Reserve (for the Company), and the FDIC
(for the Bank). There are three basic measures of capital adequacy for banks
that have been promulgated by the Federal Reserve; two risk-based measures and
a leverage measure. All applicable capital standards must be satisfied for a
bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items
are assigned to broad risk categories each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
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
14
<PAGE> 19
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, the Bank is subject to the laws of
Florida as to the payment of dividends. Under the Florida Financial
Institutions Code, the prior approval of the Department is required if the
total of all dividends declared by a bank in any calendar year will exceed the
sum of the bank's net profits for that year and its retained net profits for
the preceding two years.
Under Federal law, if, in the opinion of the federal banking regulator, a bank
or thrift under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such
regulation may require, after notice and hearing, that such institution cease
and desist from such practice. The federal banking agencies have indicated
that paying dividends that deplete a depository institution's capital base to
an inadequate level would be an unsafe and unsound banking practice. Under the
Prompt Corrective Action regulations adopted by the federal banking agencies in
December 1992, a depository institution may not pay any dividend to its holding
company if payment would cause it to become undercapitalized or if it already
is undercapitalized.
Due to the Bank's anticipated continued growth and management's intent to
maintain certain regulatory capital levels, dividend payments on the Company's
common stock are not expected in the foreseeable future.
Deposit Insurance
The Bank is subject to FDIC deposit insurance assessments. In 1994, the Bank
became subject to a new risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The new system
assigns an institution to one of three capital categories: (i) well
capitalized; (ii) adequately capitalized; and (iii) undercapitalized. An
institution is also assigned, by the FDIC, to one of three supervisory
subgroups within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates on deposits for an institution
in the highest category (i.e., "well capitalized" and "healthy") are less than
assessment rates on deposits for an institution in the lowest category (i.e.,
"undercapitalized" and "substantial supervisory concern").
The Bank, as a state-chartered commercial bank, is a member of the Bank
Insurance Fund (the "BIF"). However, as part of a deposit assumption
transaction with CrossLand Savings, FSB in December 1993, the Bank acquired
$327,706,000 in deposits insured by the Savings Association Insurance Fund (the
"SAIF") and thereby became a so-called Oakar bank. Based on that deposit
assumption, the Bank is required to pay insurance premiums to the FDIC on a
substantial portion of its deposits at the SAIF assessment rate notwithstanding
its status as a BIF member. As of December 31, 1996, the most recent
measurement date for assessment purposes, approximately 59% of the Bank's
deposits were treated as SAIF-insured deposits, with the remaining 41% of
deposits being assessed at the BIF rate. The Bank's ratio of SAIF- and
BIF-assessed deposits will increase somewhat following Republic's planned
acquisitions in 1997 of Firstate Financial, F.A. and FFO Financial Group, Inc.
and its wholly-owned subsidiary First Federal Savings and Loan Association of
Osceola County.
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. In
December 1996, following
15
<PAGE> 20
enactment of federal legislation to recapitalize the SAIF (described below),
the FDIC adopted the same assessment schedule, effective October 1, 1996 for
the Bank, for SAIF-assessed deposits. During 1996, the Bank paid $8,800 in
insurance assessments to the BIF and $796,800 to the SAIF. The Bank realized
savings of approximately $194,000 in insurance premiums costs during the fourth
quarter of 1996 resulting from the new SAIF assessment schedule, and additional
savings of approximately $400,000 are anticipated in 1997.
As part of the omnibus budget legislation passed last fall, Congress enacted
the Deposit Insurance Funds Act of 1996 (the "Funds Act"). With certain
exceptions, the Funds Act imposed a one-time special assessment on
SAIF-assessable deposits held by all depository institutions in an aggregate
amount that would cause the SAIF to meet its designated reserves-to-deposits
ratio of 1.25 percent. Pursuant to the Funds Act, the Bank on November 27,
1996 paid a special assessment to the SAIF of $2,539,000. This assessment was
determined by taking the Bank's SAIF-assessable deposits as of March 31, 1995
and multiplying that amount by a 0.657 percent (or 65.7 basis point) assessment
rate that the FDIC had calculated would be necessary to capitalize fully the
SAIF. (A lower assessment rate was imposed on certain Oakar banks, but the
Bank did not qualify for the reduction.)
Prior to enactment of the Funds Act, the SAIF assessments were used to pay
interest on bonds issued by the Financing Corporation (the "FICO") in the late
1980s to fund the resolution of troubled thrifts, and only insurance payments
by SAIF-member institutions were available to satisfy FICO's interest payment
obligations. A second provision of the Funds Act severs the linkage that had
existed between the SAIF and the FICO funding requirements, authorizing the
FICO to impose its own assessments separate and apart from any insurance fund
assessment. The Funds Act also shifts a portion of the FICO funding
obligations to BIF-member institutions beginning in 1997. Through the end of
1999, the FICO assessment rate on BIF-assessable deposits is required by the
statute to be one-fifth of the SAIF rate. Thereafter, FICO assessment rates
for members of both insurance funds will presumably be equalized.
Currently, the BIF assessment rate is 0.013 percent (or 1.3 basis points) and
the SAIF assessment rate if 0.0648 percent or (6.48 basis points). For the
first half of 1997, the Bank has been assessed a semiannual FICO payment
payment obligation of $192,480, $176,449 of which was attributable to the
Bank's SAIF-assessable deposits and the balance of which was attributable to
its BIF-assessable deposits.
Federal Reserve System
The Federal Reserve Board regulations require banks to maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The new Federal Reserve Board regulations that
will go into effect on April 1, 1997 will 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
Board) 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 Board 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 Board) are exempted from the reserve requirements. The Bank
anticipates that it will be in compliance with the foregoing requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board 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 Board, the effect of
this reserve requirement is to reduce the Bank's interest-earning assets. FHLB
System members also are authorized to borrow from the Federal Reserve "discount
window", but Federal Reserve Board regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
16
<PAGE> 21
Monetary Policy and Economic Controls
The banking business is affected not only by general economic conditions, but
also by the monetary policies of the Board of Governors of the Federal Reserve
System ("Federal Reserve"). Changes in the discount rate on member bank
borrowing, availability of borrowing at the "discount window," open market
operations, the imposition of changes in reserve requirements against bank
deposits and the imposition of and changes in reserve requirements against
certain borrowings by banks and their affiliates are some of the instruments of
monetary policy available to the Federal Reserve. The monetary policies have
had a significant effect on the operating results of commercial banks and are
expected to continue to do so in the future. The monetary policies of the
Federal Reserve are influenced by various factors, including inflation,
unemployment and short- and long-term changes in the international trade
balance and in the fiscal policies of the United States Government. Future
monetary policies and the effect of such policies on the future business and
earnings of the Bank cannot be predicted.
EFFECTS OF INFLATION
As a financial institution, the majority of the Company's assets are monetary
in nature and, therefore, differ greatly from those of most industrial or
commercial companies that have significant investments in fixed assets. The
effects of inflation on the financial condition and results of operations,
therefore, are less significant than the effects of changes in interest rates.
The most significant effect of inflation is on noninterest expense, which tends
to rise during periods of general inflation.
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.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights", which requires that a mortgage banking enterprise recognize as a
separate asset the right to service mortgage loans for others, regardless of
the manner in which such servicing rights are acquired. Moreover, this
statement requires that the total cost of acquiring mortgage loans be allocated
to the servicing rights and the loans based on their relative fair values, if
practicable. This standard is effective for fiscal years beginning after
December 15, 1995 but earlier implementation is encouraged. Management
implemented SFAS No. 122 beginning July 1, 1995. The impact upon the results
of operations of the Bank was not material.
During 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities", which is
effective for the Company's fiscal year beginning January 1, 1997. SFAS 125
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The impact of the adoption
of SFAS 125 upon the results of operations of the Company is not expected to be
material.
17
<PAGE> 22
ITEM 2. PROPERTIES
At December 31, 1996, the Company had 32 branch offices, of which thirteen are
leased and nineteen are owned. In addition, there were 10 loan production
offices and 1 loan operations center which were leased. There is one leased
facility used for warehouse purposes. Substantially all furniture, fixtures
and equipment items are owned. The following table shows the name, location
and lease expiration date (if applicable) for each facility as of December 31,
1996:
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- - -------- --------------------------------
<S> <C>
Pinellas County:
- - ----------------
Corporate Headquarters and Branch
111 Second Avenue N.E. December 13, 2004 with 3 options
St. Petersburg, Florida 33701 remaining of five years each
Main Office Drive-Up October 31, 2004
201 Second Avenue South
St. Petersburg, Florida 33701
Countryside Office March 8, 2005 with 2 options of five years each
28050 U.S. 19 North
Clearwater, Florida 34621
Northwood Office February 28, 2006
3024 Enterprise Road
Clearwater, Florida 34619
Missouri Office December 31, 2000
1235 Missouri Avenue
Clearwater, Florida 34616
Highland Avenue Office Facility Owned
1831 Highland Avenue North
Clearwater, Florida 34615
ICOT Office December 31, 1998 with 1 option remaining of five years
5801 Ulmerton Road
Clearwater, Florida 34620
Seminole Office October 1, 1997, renews for 10 years (Ground lease)
8000 113rd Street North
Seminole, Florida 33772-4801
Palm Harbor Office October 31, 1997 with 2 options of five years each
33920 US 19 North
Palm Harbor, Florida 34684
Largo Office February 28, 1999 with 1 option of five years
10500 Ulmerton Road E, #816
Largo, Florida 34641
Pinellas Park Office Facility owned
7600 66th Street North
Pinellas Park, Florida 33781
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- - -------- --------------------------------
<S> <C>
Pinellas County (continued):
- - ----------------------------
St. Petersburg Office Facility owned
100 34th St. North
St. Petersburg, Florida 33713
Oldsmar Office April 1, 2001
3711 Tampa Road
Oldsmar, Florida 34677
Dunedin Office Facility owned
1478 Main Street
Dunedin, Florida 34698
Belleair Bluffs Office Facility owned
401 N. Indian Rocks Road
Belleair Bluffs, Florida 33770
Caladesi Office Facility owned
2678 Bayshore Blvd.
Dunedin, Florida 33774
Walsingham Office Facility owned
14141 Walsingham Road
Largo, Florida 34644
Pinellas Point Office Facility owned
3000 54th Avenue South
St. Petersburg, Florida 33712
Tyrone Office December 31, 2004 with 2 options of five years each
6900 22nd Avenue North
St. Petersburg, Florida 33710
Northeast Office December 31, 1999
250 37th Avenue North
St. Petersburg, Florida 33704
East Lake Woodlands March 31, 1997 with 1 option of five years
3412 East Lake Road
Palm Harbor, Florida 34685
Clearwater Loan Production Office October 31, 2006
28051 US 19 North, Suite G
Clearwater, Florida 34621
Clearwater Loan Operations Center August 31, 1998
28059 US Highway 19 North, Suite 203
Clearwater, Florida 34621
Pasco County:
- - -------------
Holiday Office December 31, 1999 with 1 option of five years
4649 Sunray Drive
Holiday, Florida 34691
</TABLE>
19
<PAGE> 24
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- - -------- --------------------------------
<S> <C>
Pasco County (continued)
- - ------------------------
Holiday Drive-up Facility owned
4649-A Sunray Drive
Holiday, Florida 34691
New Port Richey Office Facility owned
6500 Massachusetts Avenue
New Port Richey, Florida 34653
Gulfview Square Mall Office April 30, 2005 with 3 options of five years each
9501 U.S. 19 North
Port Richey, Florida 34668
Manatee County:
- - ---------------
Pavilion Office Facility owned
1301 Sixth Avenue West
Bradenton, Florida 34205
Bayshore Office Facility owned
6204 14th Street West
Bradenton, Florida 34207
Westside Office Facility owned
5905 Manatee Avenue West
Bradenton, Florida 34209
Ironwood Office Facility owned
4302 Cortez Road West
Bradenton, Florida 34210
Mt. Vernon Office Facility owned
9819 Cortez Road West
Bradenton, Florida 34210
53rd Avenue Office Facility owned
415 53rd Avenue
Bradenton, Florida 34207
Ellenton Office Facility owned
3510 U.S. Highway 301
Ellenton, Florida 34222
Sarasota County:
- - ----------------
Sarasota Office and Loan Production Office Facility owned
1100 S. Tamiami Trail
Sarasota, Florida 34236
Venice Office Facility owned
400 Venice By-pass North
Venice, Florida 34292
</TABLE>
20
<PAGE> 25
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- - -------- --------------------------------
<S> <C>
Lee County
- - ----------
Bonita Springs June 30, 1998 with 1 option of two years
Loan Production Office
24830 Burnt Pine Drive, Suite 2
Bonita Springs, Florida 34134
Ft. Myers Loan Production Office October 31, 1998
12681 New Brittany Blvd.
Ft. Myers, Florida 33907
Cape Coral Loan Production Office April 30, 1998
3501 Del Prado Blvd., Suite 302
Cape Coral, Florida
Orange County
- - -------------
Orlando Loan Production Office May 31, 1997
1000 Legion Place
Suite 1625, Gateway Center
Orlando, Florida 32801
Hillsborough County
- - -------------------
Tampa Loan Production Office Commencing August 15, 1996 on a month-to-month basis
3802 Ehrlich Road, Suite 108 (90-day notice required)
Tampa, Florida 33624
Polk County
- - -----------
Lakeland Loan Production Office October 31, 1999
1506 South Florida Avenue
Lakeland, Florida 33803
Palm Beach County
- - -----------------
West Palm Beach Loan Production Office August 31, 1999
1645 Palm Beach Lakes Blvd., Suite 480
West Palm Beach, Florida 33401
Boston, Massachusetts
- - ---------------------
Boston Loan Production Office Yearly - No expiration date
137 Newbury Street
Boston, Massachusetts 02116
Atlanta, Georgia
- - ----------------
Satellite Loan Production Office Month-to-month basis
1900 Emery NW, Suite 115
Atlanta, Georgia 30318
</TABLE>
21
<PAGE> 26
<TABLE>
<CAPTION>
Location Ownership/Lease Expiration Date
- - -------- --------------------------------
<S> <C>
Non-banking Facilities:
- - -----------------------
Warehouse February 15, 2000
2718 24th Street North
St. Petersburg, Florida 33713
Location opened in January, 1997:
- - ---------------------------------
Hernando County
- - ---------------
Spring Hill Office February 1, 2007 with 3 options of 5 years each
5331 Spring Hill Drive
Spring Hill, Florida 34606
</TABLE>
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22
<PAGE> 27
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings in the ordinary course of
its business. Based on information presently available, management believes
that the ultimate outcome in such other proceedings, in the aggregate, will not
have any material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information required by this item is incorporated by reference from the
Company's Proxy Statement for its 1997 Annual Meeting.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Trading Market
Since December 29, 1993, (date first listed) through April 23, 1995, the
Company's Common Stock was listed on the Nasdaq Small-Cap Market ("Small-Cap
Market") under the symbol "REPB". Since April 24, 1995, the Common Stock has
been listed on the Nasdaq National Market ("National Market") under the same
symbol. Subsequent to completion of the offering on December 17, 1993, but
prior to the listing of the Common Stock on the Small-Cap Market, the Company's
stock was not actively traded. The high, low and closing bids for the Common
Stock on the Nasdaq Small-Cap Market for the period December 29, 1993 through
April 23, 1995, and for the Nasdaq National Market for the period April 24,
1995 through December 31, 1996 were as follows:
<TABLE>
<CAPTION>
High Low Closing
---- --- -------
<S> <C> <C> <C>
December 29, 1993 to December 31, 1993 9 1/2 8 1/2 9 1/4
Year ended December 31, 1994 13 9 1/4 11
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
</TABLE>
These over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
Stockholders
As of December 31, 1996, the Company had approximately 1,070 beneficial owners
of the Common Stock.
Dividends
The Company has not paid dividends on its common stock during the years 1993 -
1996. The timing and the extent to which dividends are paid by the Company in
the future will be determined by the Board of Directors in light of
then-existing circumstances, including the Company's rate of growth,
profitability, financial condition and existing and anticipated capital
requirements, the amount of funds legally available for the payment of cash
dividends, regulatory constraints and such other factors as the Board
determines relevant. Dividends on the
23
<PAGE> 28
Company Common Stock may be paid in any quarter only to the extent that funds
for such payments are available after all required dividend payments for such
quarter on the Company Preferred Stock have been made. Further, the Company
cannot declare or pay dividends on Company Common Stock unless, from the date
of such declaration or payment, the Company retains cash, cash equivalents or
marketable securities in an amount sufficient to cover the next two consecutive
semi- annual interest payments that will be due and payable on its convertible
subordinated debentures.
Under the prompt corrective action provisions of FDICIA, the Bank is prohibited
from paying any dividend that would cause it to become an undercapitalized
institution. Under Florida law, the Bank is limited in the amount of dividends
that it may declare and pay without the prior approval of the Department to the
aggregate of its net profits during the period in which the dividend is
declared combined with its retained net profits from the preceding two years
(less any required transfers to surplus) and is generally precluded from paying
any dividend if, (i) its net income from the current year combined with the
retained net income from the preceding two years is a loss or (ii) such payment
would cause the capital accounts of the Bank to fall below the minimum amount
required by law, regulation, order or any written agreement with the Department
or another state or federal regulatory agency. See Item 1. "Business --
Supervision and Regulation -- Payment of Dividends."
[Balance of page intentionally left blank]
24
<PAGE> 29
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated operating data, per share data, balance
sheet data and selected financial ratios 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 as of and for the seven-month period ended December 31, 1994 and
the five month period ended May 31, 1994, are 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 its financial
statements that were made following the change in control on May 28, 1993,
management believes that the usefulness of comparisons between (i) the
financial statements and the financial data derived therefrom as of the dates
and for the 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, subsequent to consummation of
the initial public offering and the Purchase and Assumption in December 1993,
the Company has operated in a significantly different manner from that which it
had previously operated. Accordingly, the financial results for periods prior
to the Purchase and Assumption differ significantly from periods since then.
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.
[Balance of page intentionally left blank]
25
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- TABLE 1
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Seven Months
Years Ended December 31, Ended Dec. 31,
--------------------------------- ------------------------
1996 1995 1994 1994 1993
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 66,947 $ 57,863 $ 37,115 $ 23,684 $ 7,331
Interest expense 32,926 30,001 16,871 10,711 3,110
---------- ---------- ---------- ---------- ----------
Net interest income 34,021 27,862 20,244 12,973 4,221
Loan loss provision 1,800 1,685 1,575 1,263 709
---------- ---------- ---------- ---------- ----------
Net interest income after loan loss provision 32,221 26,177 18,669 11,710 3,512
Other noninterest income 4,409 2,751 2,612 1,758 1,411
Gain on sale of ORE held for investment 1,207 - - -
General and administrative ("G&A") expenses 27,352 22,119 14,916 9,308 3,700
SAIF special assessment 2,539 - - - -
Provision for losses on ORE 1,611 - 10 10 20
Other noninterest expense 319 739 1,691 1,417 600
---------- ---------- ---------- ----------- -----------
Net income before income taxes & goodwill accretion 6,016 6,070 4,664 2,733 603
Accretion of negative goodwill - 1,578 2,705 1,578 1,579
---------- ---------- ---------- ----------- -----------
Net income before income taxes 6,016 7,648 7,369 4,311 2,182
Income tax provision 2,232 1,875 468 268 0
---------- ---------- ---------- ----------- -----------
Net income $ 3,784 $ 5,773 $ 6,901 $ 4,043 $ 2,182
========== ========== ========== =========== ===========
PER SHARE DATA:
"Core" earnings per share $ 1.13 $ .92 $ 1.02 $ 0.60 $ 0.32
Gain on sale of ORE held for investment .15 - - -
SAIF special assessment (.32) - - -
Provision for losses on ORE (.20) - - - (.01)
Negative goodwill accretion - .34 0.65 0.38 0.81
---------- ---------- ----------- ----------- -----------
Total earnings per share $ .76 $ 1.26 $ 1.67 $ 0.98 $ 1.12
========== ========== =========== =========== ===========
Weighted average shares outstanding 4,952,937 4,564,534 4,136,790 4,141,322 1,951,231
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $ 907,868 $ 801,995 $ 626,445 $ 626,445 $ 531,312
Investment & mortgage backed securities 94,401 64,801 40,271 40,271 37,382
Loans, net of unearned income 742,994 669,416 516,335 516,335 316,483
Allowance for loan losses 13,134 14,910 7,065 7,065 6,539
Deposits 827,980 743,105 583,885 583,885 494,316
Negative goodwill - - 1,578 1,578 4,283
Stockholders' equity 54,319 50,903 36,165 36,165 29,454
SELECTED FINANCIAL RATIOS:
Return on average assets .45% .77% 1.25% 1.20% 1.99%
Return on average assets - "Core" .64 .56 .76 .73 0.55
Return on average equity 7.31 13.47 21.34 20.68 39.17
Return on average equity - "Core" 10.37 9.79 12.97 12.61 10.39
Net interest spread 3.96 3.67 3.78 4.06 3.45
Net interest margin 4.28 3.95 3.96 4.25 4.22
G&A expense to average assets 3.28 2.96 2.74 2.79 3.94
G&A efficiency ratio 68.98 72.25 63.92 62.02 65.70
Non-accrual loans to loans 2.15 2.04 2.51 2.51 5.05
Nonperforming assets to total assets 2.50 2.93 3.59 3.59 4.95
Loan loss allowance to loans(2) 1.86 2.24 1.37 1.37 2.07
Loan loss allowance to non-performing loans(2) 85.94 90.47 53.36 53.36 39.12
OTHER DATA (AT PERIOD-END):
Number of full service offices 32 32 21 21 19
Number of full-time equivalent employees 637 421 300 300 179
- - ---------------------------------------------
</TABLE>
(1) "Core" earnings per share and ratios exclude the effect of the SAIF
special assessment, provisions for losses on ORE, the gain on sale of the
headquarters building, and negative goodwill accretion.
(2) See "Business -- Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the Bank.
26
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- TABLE 2
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Five Months Ended Year Ended
May 31, December 31,
------------------------- ---------------
1994 1993 1992
---- ----- ----
OPERATING DATA: (unaudited)
<S> <C> <C> <C>
Interest income $ 13,431 $ 4,848 $ 11,845
Interest expense 6,160 1,970 6,054
-------- --------- ---------
Net interest income 7,271 2,878 5,791
Loan loss provision 312 379 520
-------- --------- ---------
Net interest income after loan loss provision 6,959 2,499 5,271
Other noninterest income 854 743 1,679
G&A expenses 5,608 2,699 5,748
Provision for losses on ORE - 1,214 230
Other noninterest expense 274 443 715
-------- --------- ---------
Net income (loss) before income taxes and
goodwill accretion 1,931 (1,114) 257
Accretion of negative goodwill 1,127 - -
-------- --------- ----------
Net income (loss) before income taxes 3,058 (1,114) 257
Income tax provision (benefit) 200 0 0
-------- --------- ----------
Net income (loss) $ 2,858 $ (1,114) $ 257
======== ========= ==========
PER SHARE DATA:
"Core" earnings (loss) per share $ 1.01 $ (.32) $ 0.36
Provision for losses on ORE - (.68) (.13)
Negative goodwill accretion .66 - -
-------- --------- ----------
Total earnings (loss) per share $ 1.67 $ (1.00) $ 0.23
======== ========= ==========
Weighted average shares outstanding 4,134,420 1,117,192 1,106,459
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $508,642 $168,741 $168,810
Investment securities 52,571 27,433 24,276
Loans net of unearned income 396,144 111,292 110,715
Allowance for loan losses 6,828 1,866 1,958
Negative goodwill 3,156 5,861 -
Deposits 469,461 153,660 154,984
Stockholder's Equity 32,234 8,058 12,215
SELECTED FINANCIAL RATIOS:
Return on average assets 1.33% (1.61)% 0.15%
Return on average assets "Core" .81 - -
Return on average equity 22.34 (21.75) 2.12
Return on average equity "Core" 13.53 - -
Net interest spread 3.48 4.21 3.51
Net interest margin 3.67 4.66 3.95
G&A expense to average assets 2.40 6.28 4.01
G&A efficiency ratio 67.32 74.54 76.95
Non-accrual loans to loans 4.36 2.27 3.20
Nonperforming assets to total assets 5.64 5.89 7.55
Loan loss allowance to loans (2) 1.72 1.68 1.77
Loan loss allowance to non-performing loans (2) 23.58 73.03 54.98
OTHER DATA (AT PERIOD-END):
Number of full service offices 19 7 7
Number of full-time equivalent employees 223 96 90
- - -----------------------------------------------------
</TABLE>
(1) "Core" earnings per share and ratios exclude the effect of the SAIF
special assessment, provisions for losses on ORE, the gain on sale of the
headquarters building, and negative goodwill accretion.
(2) See "Business -- Asset Quality" for a discussion of the allocation and
availability of loan loss reserves among portfolios of loans within the Bank.
27
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the balance sheets and statements of
operations should be read in conjunction with Item 6. "Selected Consolidated
Financial Data" and the Consolidated Financial Statements and the related notes
included therein.
YEARS ENDED DECEMBER 31, 1996 AND 1995
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1996 AND 1995
OVERVIEW
Total assets of the Company were $907,868,000 at December 31, 1996 and
$801,995,000 at December 31, 1995, an increase of $105,873,000. This growth
was primarily the result of the expansion of the Company's residential loan
production capability. Total loans increased by $73,578,000 from $669,416,000
at the end of the prior year to $742,994,000 at the end of 1996. Total
deposits increased by $84,875,000 from $743,105,000 at year-end 1995 to
$827,980,000.
INVESTMENT SECURITIES
The Company's investment securities consisted of U.S. Treasury Bills and Notes
and a $1.5 million revenue bond with the Northern Palm Beach County Improvement
District (the "Revenue Bond"). The Revenue Bond is not an obligation of Palm
Beach County, the State of Florida, or any political subdivision, municipality
or agency, thereof. The principal and interest are payable solely from and are
secured equally and notably by a lien upon and pledge of the proceeds of
special assessments levied by the district. This investment is taxable for
federal income tax purposes.
LOANS
Total loans at December 31, 1996 included $706,404,000 of loans held for
portfolio and $36,590,000 held for sale, a total of $742,994,000. The
$73,578,000 increase in total loans was primarily comprised of a $25,475,000
increase in residential loans to $405,901,000 (54.6% of total loans), and a
$41,300,000 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
$4,740,000 while consumer loans increased $3,136,000. Residential loan sales
for 1996 amounted to $106,132,000.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $13,134,000 at December 31, 1996
(1.86% of loans), compared to $14,910,000 at December 31, 1995. The total
amount of loans for determining the adequacy of the allowance includes
$467,477,000 of loans originated by the Company, purchased loans amounting to
$275,517,000, and there are $123,773,000 in unfunded loan commitments
outstanding.
The Company made various loan purchases totaling $157,449,000 during 1994,
$102,263,000 during 1995 and $8,183,000 in 1996 and has allocated a portion of
the discount on its purchased loans to the allowance in amounts consistent with
loan loss policy guidelines. In 1995 such allocation included $7,189,000
related solely to one particular portfolio purchase, in the aggregate principal
amount of $48,061,000 (the "March 1995 Purchase"). At December 31, 1996 the
principal balance of the March 1995 Purchase had declined to $39,863,000 and
losses on certain nonperforming loans in this pool had reduced the allowance
allocated to this purchase to $5,855,000. The Company's history of
administering this loan purchase indicates that the expected loss rate on the
remaining loans in this portfolio will be less than the amount remaining in the
allowance. Consequently, the Company
28
<PAGE> 33
reallocated $1,500,000 from the allowance to discount in the fourth quarter of
1996, reducing the December 31, 1996 allowance allocated to the March Purchase
to $4,355,000. The overall allowance at year-end 1996 also included $1,043,000
allocated to loans purchased from CrossLand, $1,752,000 allocated to other loan
purchases, and $5,984,000 allocated to originated loans.
Activity to the allowance during 1996 included a $1,800,000 provision for loan
losses, loan charge-offs (net of recoveries) of $1,844,000, and $1,732,000
allocated from the allowance to loan discount. The net charge-off amount for
1996 included $1,014,000 assessed against the allowance for loans acquired in
the March 1995 Purchase as properties securing certain nonperforming loans
which were purchased at a substantial discount were acquired through
foreclosure and recorded at their fair value. At December 31, 1996 the amount
of unaccreted discount on purchased loans not allocated to allowance totaled
$4,731,000.
NONPERFORMING ASSETS
Nonperforming assets amounted to $22,645,000 or 2.50% of total assets at
December 31, 1996, as compared to $23,494,000 or 2.93% of total assets at
December 31, 1995. Nonperforming loans totaled $15,464,000 at the end of 1996,
an increase of $34,000 from the prior year-end total of $15,430,000. 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 $8,064,000 at the end of the prior year to $7,363,000 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 $827,980,000 at December 31, 1996, compared to $743,105,000
at the prior year-end, an increase of $84,875,000. Passbook savings accounts
offered to higher-balance customers at a premium rate of 5.00% increased by
$156,537,000 and retail checking and noninterest-bearing account balances
increased $20,466,000 or 19.18%. The Company reduced its reliance on time
deposits through a less aggressive pricing strategy which resulted in an
$83,737,000 decline in certificates of deposits and a decline in other
interest-bearing balances of $9,898,000. At December 31, 1996, jumbo ($100,000
and over) deposits totaled $49,323,000 or 5.96% of total deposits. There were
no brokered deposits.
CONVERTIBLE SUBORDINATED DEBT
In December 1996 the Company completed a private offering of $6,000,000 in 6%
convertible subordinated debentures due December 1, 2011 (the "Debentures").
The proceeds were used to increase the capital of the Bank and for general
corporate purposes of the Company. The Debentures are convertible by the
holder at any time prior to maturity into shares of Company 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 the Company incurred $213,000 in expenses associated with the offering.
The Company has the right to redeem the Debentures beginning in 2001 at 106% of
face value, with the premium declining 1% per year thereafter and without any
premium if the price of the Company's common stock equals or exceed 130% of the
conversion price for not less than 20 consecutive trading days.
STOCKHOLDERS' EQUITY
Stockholders' equity of the Company was $54,319,000 at December 31, 1996, or
6.0% of total assets compared to $50,903,000 or 6.3% of total assets at
December 31, 1995. At December 31, 1996, the Company and the Bank's capital
ratios were all in excess of minimum regulatory guidelines for an institution
to be considered "well-capitalized".
29
<PAGE> 34
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND
1995
OVERVIEW
Consolidated net income for 1996 was $3,784,000 or $.76 per share compared to
$5,773,000 or $1.26 per share for 1995. Core net income, which excludes the
SAIF Special Assessment, provisions for losses on ORE, the gain on sale of the
former headquarters building in 1996 and negative goodwill accretion in 1995
would have been $5,622,000 or $1.13 per share for 1996 compared to $4,195,000
or $.92 per share for 1995.
NET INTEREST INCOME
Net interest income for 1996 was $34,021,000 compared to $27,862,000 for 1995.
This $6,159,000 or 22.1% increase was primarily the result of $3,943,000 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 $2,216,000. Interest income was $66,947,000 for 1996, an increase of
$9,084,000 over 1995. During the same period interest expense increased by
$2,925,000 from $30,001,000 for 1995 to $32,926,000 for 1996. Asset yield
increased 25 basis points from 8.21% for 1995 to 8.46% for 1996 and average
earning assets increased $83,647,000. The average cost of interest-bearing
liabilities decreased 5 basis points from 4.55% to 4.50%. Net interest spread
increased 31 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 $5,616,000 compared to $2,751,000 for the same
period of 1995, an increase of $2,865,000. The gain on sale of the former
headquarters building accounted for $1,207,000 of the increase. Income from
the Company's expanded mortgage banking activities increased $878,000, service
fees on deposit accounts increased $211,000, loan service and other ancillary
fees increased $327,000, and net gains on sale of investments increased
$343,000. Other sources of income increased $148,000 and merchant charge card
processing fees, a program which has been discontinued, declined $249,000.
The following table reflects the components of noninterest income for the years
ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------
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
Other income 826 678 148
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)
-------- ------- --------
Total noninterest income $ 5,616 $ 2,751 $ 2,865
======= ======= =======
</TABLE>
30
<PAGE> 35
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the years
ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1996 1995
--------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Summary of Average Rates
- - ------------------------
Interest earning assets:
Loans, net $704,919 $ 62,244 8.78% $604,535 $ 52,389 8.65%
Investment securities 25,905 1,413 5.46 31,042 1,431 4.60
Mortgage backed securities 20,494 1,325 6.46 13,515 827 6.12
Interest bearing deposits in banks 79 2 2.91 290 17 5.82
FHLB stock 4,548 330 7.26 3,126 231 7.40
Federal funds sold 30,188 1,633 5.32 49,978 2,968 5.86
-------- -------- -------- --------
Total interest-earning assets 786,133 66,947 8.46 702,486 57,863 8.21
Non interest-earning assets 46,343 45,556
-------- --------
Total assets $832,476 $748,042
======== ========
Interest-bearing liabilities:
Interest checking $ 80,442 944 1.17 $ 67,005 1,081 1.61
Savings 170,100 7,281 4.28 90,904 3,281 5.57
Money market 37,778 809 2.14 58,862 1,735 2.94
Time deposits 433,860 23,392 5.39 439,824 23,777 5.41
FHLB advances 956 52 5.21 - - -
Other borrowings 8,884 448 4.95 3,304 127 3.85
--------- -------- -------- --------
Total interest-bearing liabilities 732,020 32,926 4.50 659,899 30,001 4.55
--------
Non interest-bearing liabilities 48,821 45,285
Stockholders' equity 51,635 42,858
-------- --------
Total liabilities and equity $832,476 $748,042
======== ========
Net interest income/net interest spread $ 34,021 3.96% $ 27,862 3.66%
======== ==== ======== ====
Net interest margin 4.28% 3.94%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Due to (1)
------------------------------
Changes in Net Interest Income Volume Rate Total
- - ------------------------------ ------ ---- -----
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 1,747 $ 8,108 $ 9,855
Investment securities 73 (91) (18)
Mortgage backed securities 49 449 498
Interest bearing deposits in banks (6) (9) (15)
FHLB stock (4) 103 99
Federal funds sold (244) (1,091) (1,335)
------- ------- -------
Total change in interest income 1,615 7,469 9,084
Interest-bearing liabilities:
Interest checking (328) 191 (137)
Savings 262 3,738 4,000
Money market (396) (530) (926)
Time deposits (212) (173) (385)
FHLB advances - 52 52
Other borrowings 73 248 321
------- ------- -------
Total change in interest expense (601) 3,526 2,925
------- ------- -------
Increase (decrease) in net interest income $ 2,216 $ 3,943 $ 6,159
======= ======= =======
________________________
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are
based on absolute values.
31
<PAGE> 36
NONINTEREST EXPENSE
Total noninterest expenses for 1996 were $31,821,000 compared to $22,858,000
for the same period last year, an increase of $8,963,000. Noninterest expenses
for 1996 include a $2,539,000 charge for the SAIF Special Assessment and a
$1,611,000 provision for losses on ORE. G&A expenses for 1996, included in the
noninterest expense total, were $27,352,000 compared to $22,119,000, an
increase of $5,233,000. The increase was primarily the result of expanding the
Company's mortgage banking activities and related administrative support units.
The following table reflects the components of noninterest expense for the
years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
Increase
1996 1995 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Salaries and benefits $ 14,309 $ 11,251
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>
YEARS ENDED DECEMBER 31, 1995 AND 1994
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994
Overview
Total assets were $801,995,000 at December 31, 1995 compared to $626,445,000 at
year-end 1994, an increase of $175,550,000 or 28.0%. The source of funds for
this growth included $126,591,000 in deposits from the thirteen branches opened
in the latter part of 1994 and throughout 1995. These additional funds were
primarily invested in residential and commercial real estate-secured loans.
Total stockholders' equity increased by $14,738,000 to $50,903,000 at year- end
1995 as a result of the 1995 stock offerings and earnings retention.
Investment and Mortgage-Backed Securities
Investment securities, consisting of U.S. Treasury and federal agency
securities, were $64,801,000 at December 31, 1995 compared to $40,271,000 at
December 31, 1994, an increase of $24,530,000. This increase included
$19,652,000 from securitizing a portion of the Company's residential loan
originations into mortgage backed securities to improve liquidity and risk
based capital ratios.
Loans
Total loans were $669,416,000 at December 31, 1995, an increase of $153,081,000
or 29.6% over the $516,335,000 total at year-end 1994. One-to-four family
residential mortgages amounted to $388,221,000 at year-end 1995 compared to
$293,146,000 at the prior year-end, an increase of $95,075,000. Fundings of
residential loans through direct lending activities and a correspondent/broker
network amounted to $119,703,000 and there were $100,305,000 in residential
loan purchases. The next largest loan category, commercial real
32
<PAGE> 37
estate, amounted to $153,193,000 at December 31, 1995 compared to $112,050,000
at year-end 1994, an increase of $41,143,000. Multi-family residential loans
amounted to $75,127,000 at year-end 1995 compared to $60,795,000 at December
31, 1994. Substantially all fundings of commercial real estate and
multi-family residential loans were through direct lending activities.
Commercial (business) loans amounted to $29,687,000 at December 31, 1995
compared to $24,579,000 at year-end 1994, an increase of $5,108,000. Consumer
loans, consisting primarily of loans secured by second liens on residential
real estate, amounted to $6,847,000 at year-end 1995 compared to $6,426,000 at
end of the prior year, an increase of $421,000.
Allowance for Loan Losses
The allowance for loan losses amounted to $14,910,000 at December 31, 1995
(2.23% of total loans), an increase of $7,845,000 from the $7,065,000 allowance
at December 31, 1994. This increase primarily resulted from the transfer of
$7,658,000 of discounts from purchases of various loan pools into an allowance
established for those loans. During March 1995 the largest of those loan
purchases was made, amounting to $48,061,000 in aggregate principal amount of
seasoned, adjustable rate, residential loans (the "March 1995 Purchase") for a
cash payment of $39,889,000 with a resulting discount of $8,172,000. The March
1995 Purchase included 941 loans amounting to $46,293,000, which were current
as to their scheduled principal and interest payments, and 34 loans amounting
to $1,768,000 which were delinquent 90 days or more. Of this discount,
$7,189,000 was allocated to the allowance for those loans, based primarily on
management's evaluation of collateral values, with the $982,000 remainder to be
taken as a yield adjustment over the remaining life of the loans. At December
31, 1995, the amount included in the allowance allocated to the March 1995
Purchase was $6,910,000 and such portion allocated to the allowance is
available only to absorb losses in such portfolio. For a discussion of the use
of allocated loan loss reserves, see "Business -- Asset Quality". Management
continually monitors the status of its purchased loans and may, at a later
date, adjust the amounts allocated between loan discount and the loan loss
reserve. Other activity to the allowance included provisions for loan losses
of $1,685,000 (based generally on the growth in the loan portfolio), loan
charge-offs (net of recoveries) of $1,498,000, and $503,000 in discounts
allocated to allowance from other loan purchases.
Nonperforming Assets
Nonperforming assets amounted to $23,494,000 or 2.93% of total assets at
December 31, 1995, as compared to $22,519,000 or 3.59% of total assets at
December 31, 1994. Nonperforming assets consisted of $15,430,000 of
nonperforming loans and $8,064,000 of ORE. The $975,000 increase during the
year consisted primarily of the addition of nonperforming commercial (business)
and commercial real estate loans totaling $4,020,000, partially offset by the
removal from nonperforming status, through repayment and/or return to
performing status, of commercial (business) loans and commercial real estate
loans totaling $2,310,000. Other reductions to nonperforming assets were in
commercial (business) loans ($115,000), consumer loans ($300,000) and ORE
($1,214,000).
Deposits
Total deposits were $743,105,000 at December 31, 1995, compared to $583,885,000
at the prior year-end, an increase of $159,220,000 or 27.3%. Time deposits
increased $186,008,000 which was partially offset by reductions of $21,177,000
in savings accounts and $8,119,000 in money market accounts. Of the total
increase in deposits, $126,591,000 is attributable to deposit growth at 13 new
branch locations opened in 1994 and 1995.
Stockholders' Equity
Stockholders' equity was $50,903,000 at December 31, 1995, or 6.4% of total
assets compared to $36,165,000 or 5.8% of total assets at December 31, 1994.
At December 31, 1995, the Tier 1 Capital ("Leverage") ratio was
33
<PAGE> 38
6.00%, the Tier 1 Risk-Based Capital ratio was 9.17%, and the Total Risk-Based
Capital ratio was 10.30%, all in excess of minimum regulatory guidelines for an
institution to be considered "well-capitalized". On June 27, 1995, an offering
was completed to the public and the stockholders of 800,000 shares of common
stock. The common stock was offered through a combined subscription rights
offering and an underwritten public offering. The number of shares subscribed
for in the subscription rights offering totaled 287,049 with 512,951 shares
sold in the public offering. The price per share was $12.50 for both
offerings. Net proceeds were $9,137,000, after deducting advisory service
fees, soliciting dealer fees and underwriting discounts or commissions of
$612,000 and offering expenses of $251,000.
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995 AND 1994
Overview
Net income for the year ended December 31, 1995 was $5,773,000 compared to
$6,901,000 for the same period of the previous year which included the
non-recurring benefit from certain income tax items and a full year's accretion
of negative goodwill. Income tax expense was $1,875,000 for 1995 compared to
$468,000 in 1994, an increase of $1,407,000. This was primarily due to a
$1,300,000 decrease in the deferred income tax valuation allowance in 1994
which reduced income tax expense by that amount. Excluding the accretion of
negative goodwill, core net income was generally unchanged at $4,195,000 for
1995 compared to $4,196,000 for 1994. Earnings per share were $1.26 for 1995
($.92 excluding negative goodwill accretion) compared to $1.67 for 1994 ($1.02
excluding negative goodwill accretion in 1994). Return on average assets for
1995 was .77% (.56% excluding negative goodwill accretion) compared to 1.25%
and .76% in the prior year, while return on average equity was 13.47% (9.79%
excluding the negative goodwill), compared to 21.34% and 12.97% in 1994.
Analysis of Net Interest Income
Net interest income for 1995 was $27,862,000 compared to $20,244,000 for 1994.
This $7,618,000 or 37.6% increase, was primarily the result of additional
income from balance sheet growth throughout 1994 and 1995 and a more favorable
asset mix as liquid assets were redeployed into higher-yielding loans.
Interest income was $57,863,000 for 1995, an increase of $20,748,000 over 1994.
Interest expense increased by $13,130,000 from $16,871,000 for 1994 to
$30,001,000 for 1995. Average asset yield increased 95 basis points and
average earning assets increased $192,733,000, while the average cost of
interest-bearing liabilities increased 106 basis points as a result of a more
competitive market for customer deposits during 1995. Net interest spread
decreased 11 basis points from 3.77% for 1994 to 3.66% for 1995 while net
interest margin, which includes the benefit of noninterest bearing funds, was
generally unchanged at 3.94% for 1995 compared to 3.96% for 1994.
Provision for Loan Losses
The provision for loan losses for 1995 was $1,685,000, an increase of $110,000
over $1,575,000 for 1994. The larger provisions in 1995 and 1994 were
primarily in response to the continued growth in the loan portfolio and
management's decision to maintain a higher loan loss allowance.
34
<PAGE> 39
The following table summarizes the average yields earned on interest-earning
assets and the average rates paid on interest-bearing liabilities for the years
ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1995 1994
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Summary of Average Rates
- - ------------------------
Interest earning assets:
Loans, net $604,535 $ 52,389 8.65% $396,238 $32,699 8.24%
Investment securities 31,042 1,431 4.60 47,631 1,939 4.06
Mortgage backed securities 13,515 827 6.12 - - -
Interest bearing deposits in banks 290 17 5.82 549 16 2.98
FHLB stock 3,126 231 7.40 255 13 5.00
Federal funds sold 49,978 2,968 5.86 65,080 2,448 3.71
-------- -------- -------- -------
Total interest-earning assets 702,486 57,863 8.21 509,753 37,115 7.26
Non interest-earning assets 45,556 40,499
-------- --------
Total assets $748,042 $550,252
======== ========
Interest-bearing liabilities:
Interest checking $ 67,005 1,081 1.61 $ 63,390 1,086 1.71
Savings 90,904 3,281 5.57 66,049 2,136 3.24
Money market 58,862 1,735 2.94 72,211 1,587 2.20
Time deposits 439,824 23,777 5.41 279,058 11,958 3.49
FHLB advances - - - 658 36 5.52
Other borrowings 3,304 127 3.85 2,259 68 2.97
-------- -------- -------- --------
Total interest-bearing liabilities 659,899 30,001 4.55 483,625 16,871 3.49
-------- --------
Non interest-bearing liabilities 45,285 34,411
Stockholders' equity 42,858 32,216
-------- --------
Total liabilities and equity $748,042 $550,252
======== ========
Net interest income/net interest spread $ 27,862 3.66% $ 20,244 3.77%
======== ==== ======== ====
Net interest margin 3.94% 3.96%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Due to (1)
------------------------------
Changes in Net Interest Income Volume Rate Total
- - ------------------------------ ------ ---- -----
<S> <C> <C> <C>
Interest earning assets:
Loans, net $ 18,651 $ 1,038 $ 19,689
Investment securities (741) 233 (508)
Mortgage backed securities 827 - 827
Interest bearing deposits in banks (10) 11 1
FHLB stock 210 9 219
Federal funds sold (662) 1,182 520
-------- -------- --------
Total change in interest income 18,275 2,473 20,748
Interest-bearing liabilities:
Interest checking 60 (65) (5)
Savings 1,451 (306) 1,145
Money market (329) 477 148
Time deposits 9,533 2,291 11,819
FHLB advances (18) (18) (36)
Other borrowings 64 (5) 59
-------- -------- --------
Total change in interest expense 10,761 2,369 13,130
-------- -------- --------
Increase (decrease) in net interest income $ 7,514 $ 104 $ 7,618
======== ======== ========
- - ------------------------
</TABLE>
(1) Changes in net interest income due to changes in volume and rate are
based on absolute values.
35
<PAGE> 40
Noninterest Income
Noninterest income for 1995 was $2,751,000 compared to $2,612,000 for 1994, an
increase of $139,000. The prior year had included $315,000 from settlement of
a claim against a borrower released from bankruptcy. Included in 1995 was a
$57,000 lease termination settlement from a lessee who had sublet space in a
building leased by the Company. Other improvements were due to a $148,000
increase in service charge and fee income from higher deposit levels and gains
on sale of loans of $124,000. Income from processing charge card deposits for
merchants was $250,000 in 1995 compared to $204,000 in 1994. This program was
discontinued in August 1995.
The following table reflects the components of noninterest income for the years
ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
-------------------------------------------------
Increase
1995 1994 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Service charges on deposit accounts $ 1,395 $ 1,247 $ 148
Loan fee income 277 368 (91)
Merchant charge card processing fees 250 204 46
Gains on sales of loans 124 - 124
Other income 705 793 (88)
------ ----- -----
Total noninterest income $ 2,751 $ 2,612 $ 139
====== ====== =====
</TABLE>
Noninterest Expense
Total noninterest expenses for 1995 were $22,858,000 compared to $16,617,000
for the same period last year, an increase of $6,241,000. G & A expenses for
1995 were $22,119,000 compared to $14,916,000, an increase of $7,203,000. The
primary reasons for these increases were the additional personnel and other
operating costs related to the thirteen new branches which accounted for
$2,912,000 of the increase in G & A expense, an overall expansion of the
lending and administrative functions, and a $252,000 expense to record a loss
on reimbursing credit cardholders for chargebacks.
The following table reflects the components of noninterest expense for the
years ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
For the Years
Ended December 31,
-------------------------------------------------
Increase
1995 1994 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Salaries and benefits $ 11,251 $ 7,339 $ 3,912
Net occupancy expense 3,211 1,308 1,903
Advertising 439 349 90
Data processing fees 1,152 1,472 (320)
FDIC and state assessments 1,566 1,188 378
Loan collection and repossession expense 128 206 (78)
Other operating expense 4,372 3,054 1,318
-------- -------- -------
G & A expenses 22,119 14,916 7,203
Other real estate expense (net) 289 432 (143)
Amortization of premium on deposits 450 1,269 (819)
-------- -------- -------
Total noninterest expense $ 22,858 $ 16,617 $ 6,241
======== ======== =======
</TABLE>
36
<PAGE> 41
Income Taxes
Income tax expense for 1995 was $1,875,000, which was net of a $177,000
reduction in the estimated amount of the valuation allowance for the deferred
tax asset and a $122,000 tax credit related to the prior year's income tax
return. The income tax provision for the same period in 1994 was $468,000
which was net of a $1,300,000 decrease in the valuation allowance.
SELECTED QUARTERLY FINANCIAL DATA
Summarized selected quarterly financial information for the years ended
December 31, 1996 and 1995 follows (in thousands except share data):
<TABLE>
<CAPTION>
1996
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 15,862 $ 15,937 $ 16,725 $ 18,423
Interest expense 7,927 7,822 8,455 8,722
-------- -------- -------- --------
Net interest income $ 7,935 $ 8,115 $ 8,270 $ 9,701
======== ======== ======== ========
Net income $ 1,204 $ 1,269 $ (202) $ 1,513
======== ======== ======== ========
"Core" earnings per share $ 0.26 $ 0.29 $ 0.26 $ 0.28
Gain on sale of ORE held
for investment - - - -
SAIF special assessment - - (.32) -
Provision for losses on ORE (.02) (.03) (.13) (.02)
-------- -------- -------- --------
Total earnings per share $ 0.24 $ 0.26 $ (.04) $ 0.30
======== ======== ======== ========
1996
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income $ 12,490 $ 14,630 $ 14,842 $ 11,005
Interest expense 6,374 7,782 7,794 5,136
--------- --------- --------- ---------
Net interest income 6,116 6,848 7,048 5,869
========= ========= ========= =========
Net income $ 1,523 $ 1,736 $ 1,831 $ 1,246
========= ========= ========= =========
"Core" earnings per share $ 0.18 $ 0.25 $ 0.21 $ 0.25
Accretion of negative goodwill 0.16 0.16 0.05 -
--------- --------- --------- ---------
Net income per share $ 0.34 $ 0.41 $ 0.26 $ 0.25
========= ========= ========= =========
</TABLE>
37
<PAGE> 42
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
Liquidity
The Asset/Liability Management Committee ("ALCO") reviews the Company's
liquidity, which is its ability to generate sufficient cash to meet the funding
needs of current loan demand, deposit withdrawals, and other cash demands. The
primary sources of funds consist of deposits, amortization and prepayments of
loans, and sales of investments. The Bank is a member of the FHLB and has the
ability to borrow to supplement its liquidity needs.
At December 31, 1996, the liquidity ratio, consisting of net cash and
investments of $111,331,000 divided by net deposits and short-term liabilities
of $829,437,000, was 13.42% as compared to 12.27% at December 31, 1995. Net
liquid assets were $35,235,000 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, the Bank has joined the FHLB to
enhance its liquidity position and to provide it with the ability to utilize
long-term fixed-rate advances to improve the match between interest-earning
assets and interest-bearing liabilities in certain periods. Currently,
off-balance-sheet hedging instruments are not used to manage overall interest
rate risk but such instruments are used to limit the exposure to changes in the
value of residential loans held for resale. 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.
38
<PAGE> 43
The cumulative one year gap at December 31, 1996 was a positive $17,096,000 or
1.88% (expressed as a percentage of total assets). Management will attempt to
moderate any lengthening of the repricing structure of earning assets by
emphasizing variable-rate assets and, where appropriate, match-funding
longer-term fixed rate loans with FHLB advances. See "Business -- Sources of
Funds".
The following table presents the anticipated maturities or repricing of
interest-earning assets and interest-bearing liabilities at December 31, 1996.
The balances shown have been derived based on the financial characteristics of
the various assets and liabilities. Adjustable and floating-rate assets are
included in the period in which interest rates are next scheduled to adjust
rather than their scheduled maturity dates. Fixed rate loans are shown in the
periods in which they are scheduled to be repaid according to contractual
amortization. Where appropriate, prepayment assumptions are used to determine
the repayment amounts based on the coupon rates in the portfolio. Repricing of
time deposits is based on their scheduled maturities. Statement savings
deposits are assumed to reprice at 8.3% of the total balance in the first three
months, 8.3% in the four-to-six month category, 16.7% in the six-to-12 month
category, and the remaining 66.7% from one to five years. Passbook savings
deposits are assumed to reprice equally over a 24 month period. Repricing of
interest checking and money market accounts is assumed to occur at 10% of the
total balance for every three month interval.
[Balance of page intentionally left blank]
39
<PAGE> 44
INTEREST SENSITIVITY ANALYSIS
DECEMBER 31, 1996
($ 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 $ 52,471 4.77% $ 8,887 5.24% $ 11,494 5.68 $ - -%
Revenue bonds - - - - 1,545 8.60 - -
Mortgage backed securities - - 20,004 5.50 - - - -
Federal funds sold 8,000 5.31 - - - - - -
Interest bearing deposits
in banks 118 5.26 - - - - - -
FHLB stock - - - - - - 4,830 7.25
Loans 156,218 9.00 218,604 8.20 235,880 8.75 133,760 8.11
--------- --------- --------- ---------
Total interest-earning
assets $ 216,807 7.84 $ 247,495 7.88 $ 248,919 8.61 $ 138,590 8.08
Interest-bearing liabilities:
Deposits
Interest checking $ 8,763 1.09 $ 26,289 1.09 $ 52,587 1.09 $ - -
Money market 2,721 2.08 8,163 2.08 21,781 2.08 - -
Savings 2,196 1.98 6,588 1.98 17,555 1.98 - -
Passbook Gold 27,453 4.87 82,357 4.87 109,801 4.87 - -
Time deposits 69,845 5.14 197,279 5.22 144,501 5.88 41 6.40
Subordinated debt - - - - - - 6,000 6.00
Obligations under capital
leases 45 7.49 135 7.49 308 7.49 - -
Repurchase agreements 15,372 4.36 - - - - - -
--------- --------- --------- ---------
Total interest-bearing
liabilities $ 126,395 4.59 $ 320,811 4.65 $ 346,533 4.40 $ 6,000 6.00
--------- --------- --------- ---------
Excess (deficiency) of interest-
earning assets over interest-
bearing liabilities $ 90,412 3.25% $ (73,316) 3.23% $ (97,614) 4.21% $ 132,549 2.07%
========= ==== ========= ===== ========= ==== ========= ====
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities $ 90,358 3.25% $ 17,096 3.23% $ (80,518) 3.59% $ 52,031 3.57%
========= ==== ========= ==== ========= ==== ========= ====
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities as a percent
of total assets 9.96% 1.88% (8.87)% 5.73%
==== ==== ===== ====
</TABLE>
40
<PAGE> 45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is provided at pages 45 through 69 within the
Consolidated Financial Statements and notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no such items to report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Company and Bank
The information relating to the Directors of the Company and Bank appears on
pages 5 through 8 of the Company's Proxy Statement for its 1997 Annual Meeting
of Stockholders under the caption "Nominees for Director" and is incorporated
by reference.
Senior Executive Officers of the Company and Bank
The following list sets forth the name and age of each executive officer of the
Company or the Bank and all positions held by each such officer (and the period
each such position has been held), a brief account of each such officer's
business experience during the past five years and certain other information:
John W. Sapanski (66)--Chairman of the Board, President and Chief Executive
Officer of both the Company and the Bank. Mr. Sapanski has been Chairman of
the Board and Chief Executive Officer since June 1993. 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 acted as President and Chief Operating
Officer from 1981 to 1987 and service 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 OTS
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 (42)--Director of the Bank, Senior Executive Vice President of
the Bank in charge of Corporate Banking and Special Assets. Mr. Hemmer has
served as Executive Vice President since joining the Company 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 served with Arthur Andersen &
Co. from 1976 to 1980. Mr. Hemmer is also a licensed real estate broker and
certified general contractor.
William R. Falzone (49)--Treasurer of the Company, Executive Vice President
and Chief Financial Officer of the Bank. Mr. Falzone joined the Company in
February 1994. He was employed at Florida Federal Savings Bank 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.
41
<PAGE> 46
John W. Fischer, Jr. (48)--Executive Vice President of the Bank in charge
of Consumer Banking. Mr. Fischer, who joined the Company in December 1993, has
over 20 years of banking experience in retail branch management, consumer and
residential lending. Mr. Fischer formerly served as Regional Marketing
Director for Western Reserve Life in Clearwater, Regional Vice President of
Great Western Bank in Miami and Executive Vice President/Consumer Financial
Services for Florida Federal Savings Bank in St. Petersburg. Mr. Fischer holds
a life, health, annuity and Series 7 securities license.
Richard C. Gleitsman (43)--Executive Vice President and Chief
Administrative Officer of the Bank. Mr. Gleitsman joined the Company in
December 1993, having previously served as Executive Vice President and
Regional Manager of CrossLand Savings Bank since 1986. He has over 25 years of
banking experience in retail branch management, loan servicing, human
resources, data processing, and executive administration.
Kathleen A. Reinagel (45)--Executive Vice President of the Bank in charge
of Credit and Loan Administration. Ms. Reinagel, who has served in her
present position with the Company since August 1993, 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, St. Petersburg, Florida and Vice
President, Department Manager of Commercial Real Estate of Florida Federal.
Steve McWhorter (35)--Division Director in charge of the Mortgage Banking
Division. Mr. McWhorter joined the Bank in 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.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item which appears on pages 9 through 15 of the
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders is
incorporated by reference under the caption "Executive Compensation and
Benefits" and "Certain Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by items 12 and 13 are incorporated by reference from the
Company's Proxy Statement for its 1997 Annual Meeting.
42
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report at pages 45
through 69.
1. Financial Statements
Financial Statements of Republic Bancshares, Inc.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements Of Operations, Stockholders' Equity and Cash
Flows for:
Years Ended December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All required schedules are included in the financial statements or
related notes.
(b) A report on Form 8-K was filed on December 31, 1996 reporting the pending
acquisition of Firstate Financial, F.A., discussions regarding a possible
merger with F.F.O. Group, Inc., and completion of the sale of subordinated
debentures.
(c) Exhibits:
10.1 The Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders, to the extent specifically incorporated by reference.*
* To be filed with the SEC not later than 120 days after the end of
the fiscal year covered by the Form 10-K.
43
<PAGE> 48
[This page intentionally left blank]
44
<PAGE> 49
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)
45
<PAGE> 50
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 $801,995
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
46
<PAGE> 51
REPUBLIC BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
($ 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.
47
<PAGE> 52
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
48
<PAGE> 53
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
49
<PAGE> 54
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
50
<PAGE> 55
estimates, appraisals and evaluations of loans, other real estate owned and
other assets and liabilities, and disclosure of contingent assets and
liabilities. Changes in such estimates, appraisals and evaluations might be
required because of rapidly changing economic conditions, changing economic
prospects of borrowers and other factors. Actual results may differ from those
estimates.
Investment Securities
Securities that the Company has both the positive intent and ability to hold to
maturity are classified as Held to Maturity and are carried at historical cost,
adjusted for amortization of premiums and accretion of discounts. Securities
Available for Sale, which are those securities that may be sold prior to
maturity as part of asset/liability management or in response to other factors,
are carried at fair value with any valuation adjustment reported in a separate
component of stockholders' equity, net of tax effect.
Interest and dividends on investment securities and amortization of premiums
and accretion of discounts are reported in interest on investment securities.
Gains (losses) realized on sales of investment securities are generally
determined on the specific identification method and are reported under
non-interest income.
Loans
Interest on commercial and real estate loans and substantially all installment
loans is recognized monthly on the loan balance outstanding. The Company's
policy is to discontinue accruing interest on loans 90 days or more delinquent
and restructured loans that have not yet demonstrated a sufficient payment
history, which, in the opinion of management, may be doubtful as to the
collection of interest or principal. These loans are designated as
"non-accrual" and any accrued but unpaid interest previously recorded is
reversed against current period interest revenue.
Loan origination and commitment fees net of certain costs are deferred, and the
amount is amortized as an adjustment to the related loan's yield, generally
over the contractual life of the loan. Unearned discounts and premiums on
loans purchased are deferred and amortized as an adjustment to interest income
on a basis that approximates level rates of return over the terms of the loan.
Hedging Contracts and Loans Held for Sale
The Company manages its interest rate market risk on the loans held for sale
and its estimated future commitments to originate and close mortgage loans for
borrowers at fixed prices ("Locked Loans") through hedging techniques which
include derivative contracts and fixed price forward delivery commitments
("Forward Commitments") to sell mortgage- backed securities or specific whole
loans to investors on a mandatory or best efforts basis. The Company records
the inventory of loans held for sale at the lower of cost or market on an
aggregate basis after considering any market value changes in the loans held
for sale, Locked Loans, and Forward Commitments.
Mortgage Servicing Rights
On July 1, 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65", was adopted. SFAS No. 122 permits an
allocation of a portion of the cost of loan origination to the rights to
service mortgage loans. Approximately $1,188,000 and $117,000 was capitalized
relating to originated mortgage servicing rights ("OMSRs") during 1996 and
1995, respectively. As of December 31, 1996 and 1995, the unamortized portion
of these OMSRs were $1,271,000 and $113,000, respectively. For purposes of
measuring impairment, OMSRs are stratified based on the loan type, interest
rate and maturity of the underlying loans.
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
51
<PAGE> 56
Extinguishment of Liabilities", which is effective for the Company's fiscal
year beginning January 1, 1997. SFAS 125 provides standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The impact of the adoption of SFAS 125 upon the results of
operations of the Company is not expected to be material.
Allowance for Loan Losses
The allowance for loan losses provides for risks of losses inherent in the
credit extension process. Losses and recoveries are either charged or credited
to the allowance. The Company's allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrower's ability to pay. The evaluations are
periodically reviewed and adjustments are recorded in the period in which
changes become known.
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
52
<PAGE> 57
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled. Net deferred tax assets, whose
realization is dependent on taxable earnings of future years, are recognized
when a more-likely-than-not criterion is met, that is, unless a greater than
50% probability exists that the tax benefits will not actually be realized
sometime in the future.
Effective April 1, 1995, federal regulations restricted the amount of deferred
tax assets that can be used to meet regulatory capital requirements to an
amount that the institution expects to realize within one year, or 10% of Tier
1 capital, whichever is less.
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.
53
<PAGE> 58
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
======== ========= ======== =========
BOOK VALUE AT DECEMBER 31: 1996 1995
---- ----
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.
54
<PAGE> 59
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
========= ======== ========== ========
BOOK VALUE AT DECEMBER 31: 1996 1995
---- ----
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.
55
<PAGE> 60
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>
56
<PAGE> 61
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.
57
<PAGE> 62
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
---- ---- ----
<S> <C> <C> <C>
Current provision $ 3,744 $ 2,899 $ 2,612
Deferred benefit (1,512) (1,024) (2,144)
------- ------- -------
$ 2,232 $ 1,875 $ 468
======= ======= =======
</TABLE>
At December 31, 1996, the Company had approximately $670,000 of remaining
federal and $2,393,000 of state net operating loss carryforwards. These
carryforwards expire in the years 2006 through 2008.
Following the change of ownership in 1993, recognition of net operating loss
carryforwards were limited to approximately $259,000 each year. If the full
amount of the limitation is not used in any years, the amount not used
increases the allowable limit in the subsequent year.
Deferred tax assets and liabilities were comprised of the following at December
31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Gross deferred tax assets:
Tax bases over financial bases for loans
(loan loss reserve & discounts) $ 2,329 $ 1,230
Financial amortization of premium over tax amortization 646 533
Interest on non-accrual loans 315 250
Tax bases over financial bases for ORE 1,286 634
Net operating losses and tax credit carryforward 314 411
Mark-to-market-loans held for sale 232 -
Other 145 160
-------- -------
Gross deferred tax asset 5,267 3,218
Gross deferred tax liabilities 567 93
-------- -------
Net deferred tax asset $ 4,700 $ 3,125
======== =======
</TABLE>
The valuation allowance for the deferred tax asset 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.
58
<PAGE> 63
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.
59
<PAGE> 64
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>
60
<PAGE> 65
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
61
<PAGE> 66
quotes for similar financial instruments, where available. Otherwise,
discounted cash flows, after adjusting for credit deterioration, were used
based upon current rates the Company would use in extending credit with similar
characteristics. These rates may not necessarily be the same as those which
might be used by other financial institutions for similar loans. Cash and due
from banks and federal funds sold were valued at cost. The fair values
disclosed for checking accounts, savings accounts, securities sold under
agreements to repurchase, and certain money market accounts are, by definition,
equal to the amount payable on demand at the reporting date, i.e., their
carrying amounts. Fair values for time deposits are estimated using a
discounted cash flow calculation that applies current interest rates to
aggregated expected maturities. Standby letters of credit and commitments to
extend credit were valued at book value as the majority of these instruments
are based on variable rates.
These evaluations may incorporate specific value to the Company in accordance
with its asset/liability strategies, interest rate projections and business
plans at a specific point in time and therefore, should not necessarily be
viewed as liquidation value. They should also not be used in determining
overall value of the Company due to undisclosed and intangible aspects such as
business and franchise value, and due to changes to assumptions of interest
rates and expected cash flows which might need to be made to reflect
expectations of returns to be earned on instruments with higher credit risks.
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.
62
<PAGE> 67
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
63
<PAGE> 68
as compensation expense over the vesting period of the options. Options vest
equally over five years. Had compensation cost been determined consistent with
SFAS 123, utilizing the assumptions detailed above, the Company's net income
and earnings per share as reported would have been the following pro forma
amounts (in thousands except share data):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Income
As reported $3,784 $5,773
Pro forma 3,588 5,730
Earnings per share
As reported 0.76 1.26
Pro forma 0.72 1.26
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that expected in future years. A summary of the
status of the Company's stock option plans at December 31, 1996, 1995 and 1994
and for the years then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------------------------------------------------
Wtd 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>
64
<PAGE> 69
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.
65
<PAGE> 70
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>
66
<PAGE> 71
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.
67
<PAGE> 72
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
----
ASSETS
<S> <C>
Cash $ 0
Investment in wholly-owned subsidiary 60,111
Prepaid issuance costs-subordinated debt 212
--------
Total $ 60,323
========
LIABILITIES
Subordinated debt $ 6,000
Accrued interest on subordinated debt 4
--------
Total liabilities 6,004
--------
STOCKHOLDERS' EQUITY
Perpetual preferred convertible stock 1,500
Common stock 8,367
Capital surplus 26,699
Retained earnings 17,849
Unrealized losses on available-for-sale securities (96)
--------
Total stockholders' equity 54,319
--------
Total $ 60,323
========
</TABLE>
<TABLE>
<CAPTION>
PARENT-ONLY CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
INCOME 1996
----
<S> <C>
Dividends from bank $ 264
Interest expense on subordinated debt (5)
Equity in undistributed net income
of subsidiary 3,525
--------
Net Income $ 3,784
========
</TABLE>
68
<PAGE> 73
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.
69
<PAGE> 74
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REPUBLIC BANCSHARES, INC.
By:/s/ John W. Sapanski
-------------------------
John W. Sapanski
Chairman and Chief Executive Officer
Date: March 28, 1997
-------------------
70
<PAGE> 75
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 March 28, 1997 Chairman, Chief Executive
- - -------------------------------------- --------------- Officer and Director (principal
John W. Sapanski executive officer)
/s/William R. Falzone March 28, 1997 Treasurer (principal financial
- - -------------------------------------- --------------- and accounting officer)
William R. Falzone
/s/Fred Hemmer March 28, 1997 Director
- - -------------------------------------- ---------------
Fred Hemmer
/s/Marla Hough March 28, 1997 Director
- - -------------------------------------- ---------------
Marla Hough
/s/William R. Hough March 28, 1997 Director
- - -------------------------------------- ---------------
William R. Hough
/s/Alfred T. May March 28, 1997 Director
- - -------------------------------------- ---------------
Alfred T. May
/s/William J. Morrison March 28, 1997 Director
- - -------------------------------------- ---------------
William J. Morrison
</TABLE>
71
<PAGE> 76
INDEX TO EXHIBITS
10.1 The Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders, to the extent specifically incorporated by reference
27.0 Financial Data Schedule (for SEC use only)
72
<PAGE> 1
EXHIBIT 10.1
_______________________________________________
TO THE STOCKHOLDERS
OF REPUBLIC BANCSHARES, INC.:
You are cordially invited to attend the Annual Meeting of Stockholders
of Republic Bancshares, Inc. (the "Company"). The Annual Meeting will be held
at The Heritage Hotel, 234 Third Avenue North, St. Petersburg, Florida 33701,
on April 22, 1997. A continental breakfast will be served at 8:30 a.m., local
time, and official business will be conducted starting at 9:00 a.m.
At the 1997 Annual Meeting, you will be asked to consider and vote
upon (i) the election of six directors to serve until the 1998 Annual Meeting
of Stockholders, (ii) the ratification of Arthur Andersen, LLP, as the
independent public accountants for the Company and its wholly owned subsidiary,
Republic Bank, for the fiscal year ending December 31, 1997, (iii) such other
business as may properly come before the 1997 Annual Meeting or any adjournment
thereof.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE, AND
RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN
TO ATTEND THE 1997 ANNUAL MEETING. Your vote is important, regardless of the
number of shares you own. This will not prevent you from voting in person but
will ensure that your vote is counted if you are unable to attend the 1997
Annual Meeting.
If you have any questions about the enclosed Proxy Statement or the
Company's Annual Report on Form 10-K for its fiscal year ended December 31,
1996, please let us hear from you.
Sincerely,
John W. Sapanski
President
1
<PAGE> 2
REPUBLIC BANCSHARES, INC.
111 SECOND AVENUE, N.E.
ST. PETERSBURG, FL 33701
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 22, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Republic Bancshares, Inc. (the "Company") will be held at The Heritage Hotel,
234 Third Avenue North, St. Petersburg, Florida 33701, on April 22, 1997, at
9:00 a.m., local time, (the "1997 Annual Meeting"), for the following purposes:
1. ELECT DIRECTORS. To consider and vote upon the election of
six directors to serve until the 1998 Annual Meeting of Stockholders and until
their successors are duly elected and qualified;
2. RATIFY APPOINTMENT OF ACCOUNTANTS. To consider and vote upon
a proposal to ratify the appointment of Arthur Andersen, LLP, as independent
public accountants for the Company and its wholly-owned subsidiary Republic
Bank (the "Bank") for the fiscal year ending December 31, 1997;
3. OTHER BUSINESS. To transact such other business as may
properly come before the 1997 Annual Meeting or any adjournment thereof.
Only stockholders of record of the Company at the close of business on
March 18, 1997, are entitled to receive notice of and vote at the meeting or
any adjournment thereof. All stockholders, whether or not they expect to
attend the 1997 Annual Meeting in person, are requested to complete, date,
sign, and return the enclosed form of Proxy in the accompanying envelope. The
Proxy may be revoked by the person who executed it by filing with the Secretary
of the Company an instrument of revocation or a duly executed Proxy bearing a
later date, or by voting in person at the 1997 Annual Meeting.
By Order of the Board of Directors
Christopher M. Hunter
Secretary
March 27, 1997
PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY TO THE COMPANY IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO
ATTEND THE 1997 ANNUAL MEETING. IF YOU ATTEND THE 1997 ANNUAL MEETING, YOU MAY
VOTE YOUR SHARES IN PERSON IF YOU WISH, EVEN IF YOU PREVIOUSLY HAVE RETURNED
YOUR PROXY.
2
<PAGE> 3
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
REPUBLIC BANCSHARES, INC.
TO BE HELD ON APRIL 22, 1997
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to the stockholders of
Republic Bancshares, Inc., a corporation chartered under the laws of the State
of Florida (the "Company"), in connection with the solicitation of Proxies by
the Board of Directors of the Company from holders of the outstanding shares of
the $2.00 par value common stock of the Company and $20.00 par value
noncumulative convertible perpetual preferred stock for use at the Annual
Meeting of Stockholders of the Company to be held on April 22, 1997 or any
adjournment thereof (the "1997 Annual Meeting"). The 1997 Annual Meeting is
being held to consider and vote upon (i) the election of six directors to serve
until the 1998 Annual Meeting of Stockholders and until their successors are
duly elected and qualified, (ii) the ratification of the appointment of Arthur
Andersen, LLP, as independent public accountants for the Company and its
wholly-owned subsidiary Republic Bank (the "Bank") for the fiscal year ending
December 31, 1997, and (iii) such other business as may come properly before
the 1997 Annual Meeting. The Board of Directors of the Company knows of no
business that will be presented for consideration at the 1997 Annual Meeting
other than the matters described in this Proxy Statement.
The principal executive offices of the Company are located at 111
Second Avenue, N.E., St. Petersburg, FL 33701. The telephone number of the
Company at such offices is (813) 823-7300.
This Proxy Statement is dated March 27, 1997, and is first being
mailed to the stockholders of the Company on or about March 31, 1997.
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES
The Board of Directors of the Company has fixed the close of business
on March 18, 1997, as the record date for the determination of the Company
stockholders entitled to receive notice of and vote at the 1997 Annual Meeting.
At the close of business on such date, there were 4,183,507 shares of $2.00
par value common stock ("Common Stock") issued and outstanding and held by
approximately 1,070 stockholders of record. Also at the close of business on
such date there were 75,000 shares of $20.00 par value noncumulative
convertible perpetual preferred stock ("Preferred Stock") issued and
outstanding and held by seven stockholders of record. For information with
respect to stockholders who owned more than 5% of the outstanding Common Stock,
as well as the ownership of Common and Preferred Stock by the directors and
executive officers of the Company on December 31, 1996, see "Principal
Stockholders" and "Security Ownership of Management". Holders of Common Stock
are entitled to one vote on each matter
3
<PAGE> 4
considered and voted upon at the 1997 Annual Meeting for each share of
the Common Stock held of record at the close of business March 18, 1997.
Holders of Preferred Stock are entitled to ten votes on each matter considered
and voted upon at the 1997 Annual Meeting for each share of Preferred Stock
held of record at the close of business March 18, 1997, and will vote with the
holders of Common Stock on all matters to be voted on at the 1997 Annual
Meeting. Shares of the Common and Preferred Stock represented by a properly
executed Proxy, if such Proxy is received in time and not revoked, will be
voted at the 1997 Annual Meeting in accordance with the instructions indicated
in such Proxy.
In determining whether a quorum exists at the 1997 Annual Meeting for
purposes of all matters to be voted on, all votes "for" or "against", as well
as all abstentions (including those to withhold authority to vote in certain
cases), with respect to the proposal receiving the most such votes will be
counted. The number of votes required for all matters to be considered and
voted upon by the stockholders at the Annual Meeting is a majority of the
shares of stock, represented and entitled to vote at the 1997 Annual Meeting,
at which a quorum is present. Consequently, with respect to such proposals,
abstentions will be counted as part of the base number of votes to be used in
determining if a quorum is present at the meeting and the proposal has received
the requisite number of base votes for approval. Thus, an abstention will have
the same effect as a vote "against" such proposal. Conversely, broker
non-votes will not be counted for purposes of determining whether a quorum is
present and will have no effect on the vote with respect to such proposals.
A stockholder who has given a Proxy may revoke it at any time prior to
its exercise at the 1997 Annual Meeting by either (i) giving written notice of
revocation to the Secretary of the Company, (ii) properly submitting to the
Company a duly executed Proxy bearing a later date, or (iii) voting in person
at the 1997 Annual Meeting. All written notices of revocation or other
communications with respect to revocation of Proxies should be addressed as
follows: Republic Bancshares, Inc., 111 Second Avenue, N.E., St. Petersburg,
Florida 33701, Attention: Christopher M. Hunter, Secretary.
THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR
ENDED DECEMBER 31, 1996, INCLUDING CONSOLIDATED FINANCIAL STATEMENTS, HAS BEEN
MAILED TO STOCKHOLDERS. COPIES WILL BE PROVIDED WITHOUT CHARGE ON THE WRITTEN
REQUEST OF ANY PERSON SOLICITED. SUCH REQUEST SHOULD BE ADDRESSED AS FOLLOWS:
REPUBLIC BANCSHARES, INC., 111 SECOND AVENUE, N.E., ST. PETERSBURG, FLORIDA
33701, ATTENTION: CHRISTOPHER M. HUNTER, SECRETARY.
4
<PAGE> 5
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
The 1997 Annual Meeting is being held, in part, to elect six directors
of the Company to serve one-year terms of office. As stated above, the By-laws
of the Company currently provide that the Board of Directors will consist of
not less than five and not more than twenty-five directors, without any
division of the Board into classes. The Board of Directors currently has
established the number of directors at six.
All shares represented by valid Proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. In the event that any nominee is unable to serve
(which is not anticipated), the persons designated as Proxies will cast votes
for the remaining nominees and for such other persons as they may select.
The affirmative vote of the holders of a majority of the shares of
stock represented and entitled to vote at the 1997 Annual Meeting, at which a
quorum is present, is required for the election of the nominees listed below to
serve as directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF
THE SIX NOMINEES LISTED BELOW TO SERVE AS DIRECTORS.
The following table sets forth the name and age of each nominee; a
description of his or her positions and offices with the Bank and the Company
(other than as director), if any; a brief description of his or her principal
occupation and business experience during at least the last five years; certain
other directorships; and the number of shares of the Common Stock beneficially
owned at December 31, 1996, including shares which that person has a right to
acquire beneficial ownership for within 60 days of that date. All of the
nominees became directors of the Company when it was organized in November,
1996. The directors of the Company also serve as directors for the Bank. No
director of the Company will be continuing in office after the 1997 Annual
Meeting, but for reelection. For information concerning membership on
committees of the Board of Directors, see "Proposal One -- Election of
Directors -- Information about the Board of Directors and its Committees".
<TABLE>
<CAPTION>
NAME, AGE, AND YEAR PRINCIPAL OCCUPATION SHARES OF THE BANK COMMON
FIRST ELECTED A DIRECTOR DURING PAST FIVE YEARS STOCK BENEFICIALLY OWNED
------------------------ ---------------------- --------------------------
<S> <C> <C>
Fred Hemmer, 42 Chief Lending Officer and 16,305 (less than 1%)
Elected to Board: 1986 Senior Executive Vice
President in charge of
Corporate Banking and Special
Assets of the Bank since 1991;
Executive Vice President of
Rutenberg Corporation,
Clearwater, Florida, from 1980
to 1991.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
NAME, AGE, AND YEAR PRINCIPAL OCCUPATION SHARES OF THE BANK COMMON
FIRST ELECTED A DIRECTOR DURING PAST FIVE YEARS STOCK BENEFICIALLY OWNED
------------------------ ---------------------- --------------------------
<S> <C> <C>
William R. Hough, 69 President of William R. Hough 2,318,106 (43.2%)
Elected to Board: 1993 & Co., St. Petersburg,
Florida, an investment banking
firm specializing in state,
county, and municipal bonds,
since 1962; President of WRH
Mortgage, Inc. ("WRH
Mortgage"), St. Petersburg,
Florida, since May 1993;
Director of F.F.O. Financial
Group, Inc., ("FFO")
Kissimmee, Florida, since
September 1993; President
of Royal Palm Center, II,
Inc., Port Charlotte, Florida
since September 1991.
Marla Hough, 39 President of Hough Engineering, 3,000 (less than 1%)
Elected to Board: 1997 Inc., an engineering consulting
firm, Bradenton, Florida, from
March 1997; Vice President of
Bishop & Associates, Bradenton,
Florida, an engineering,
planning and surveying firm,
from 1992 - February, 1997,
Project Manager at Zoller,
Najjar and Shroyer, Inc., an
engineering, planning,
surveying and landscape
architecture firm, Bradenton,
Florida from 1984-1992.
Alfred T. May, 58 Director and Chairman of the 37,600 (less than 1%)
Elected to Board: 1993 Board of FFO and its
subsidiary, First Federal
Savings & Loan of Osceola
County, Kissimmee, Florida,
since September 1993;
President of Mid-State Federal
Savings Bank, Ocala, Florida,
from 1989 to 1992.
William J. Morrison, 64 Senior Partner of Morrison & 105,950 (2.0%)
Elected to Board: 1980 Company, P.A., Tampa, Florida,
a certified public accounting
firm, since 1995; General
Partner of Best-Morrison
Properties, Tampa, Florida, a
real estate investment firm
since 1975; Managing Partner
of Morrison Investments, Ltd.
Tampa, Florida, a real estate
and securities investment
firm, since 1991.
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
NAME, AGE, AND YEAR PRINCIPAL OCCUPATION SHARES OF THE BANK COMMON
FIRST ELECTED A DIRECTOR DURING PAST FIVE YEARS STOCK BENEFICIALLY OWNED
------------------------ ---------------------- --------------------------
<S> <C> <C>
John W. Sapanski, 66
Elected to Board: 1993 President of the Company since 498,292 (9.3%)
November, 1995; Chairman,
President and Chief Executive
Officer of the Bank since May,
1993; President of WRH
Mortgage from 1992 to May,
1993; President and Chief
Executive Officer of Florida
Federal Savings Bank, St.
Petersburg, Florida from 1988
to 1990.
</TABLE>
DIRECTOR COMPENSATION
All of the directors of the Company are currently directors of the
Bank. The Bank pays each director, other than directors who are also executive
officers or employees, a directors' fee of $500 per month for attendance at
Board meetings ($250 when attendance is by telephone) and $300 for each
committee meeting attended ($200 when held on same day of a Board meeting).
Directors who are also executive officers or employees of the Bank receive no
Board or committee fees. The directors of the Company receive no compensation
other than their Bank directors' fees.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company was chartered under the laws of the State of Florida on
November 3, 1995 in order to facilitate the holding company reorganization of
the Bank, which was consummated on March 21, 1996. The Board of Directors of
the Company held fourteen meetings during 1996.
The Board of Directors of the Bank, all of the members of which
constitute the Board of Directors of the Company, held fourteen meetings in
1996. All of the directors attended at least 75% of the aggregate total
number of meetings of the Board of Directors of the Bank and the Company and
the committees of the Board on which they served.
The Bank's Board of Directors presently has three standing committees:
the Audit, Loan and Compensation Committees. Information regarding the
functions of those committees, their membership, and the number of meetings
held during 1996 follows:
(i) The Audit Committee annually recommends to the Board of
Directors the firm to be engaged as independent public accountants of the
Company and the Bank for the next year, reviews the plan for the audit
engagement, examines the audit of the Company and the Bank as prepared by the
independent public accountants, generally reviews financial reporting
procedures, determines whether the Company and the Bank are in sound and
solvent condition, and
7
<PAGE> 8
periodically reports to the Board on the financial condition of the Company and
the Bank. During 1996, the Audit Committee held four meetings. The members of
the Audit Committee are Mr. May (Chairman), Mr. Morrison and Ms. Hough.
(ii) The Loan Committee meets periodically to review and approve
loans and other extensions of credit, the amounts of which exceed specified
limits as set forth in the Bank's Credit Administration Policy. During 1996,
the Loan Committee held thirty-two meetings. The members of the Loan Committee
are Messrs. Morrison (Chairman), May, Hemmer, and Sapanski and Ms. Hough.
(iii) The Compensation Committee reviews and approves proposed
direct compensation of officers, approves major incentive plans and benefit
plans for the Bank, grants stock options and other awards under plans, reviews
certain promotions, and reviews the Bank's compensation and benefits policy
generally. During 1996, the Compensation Committee held four meetings. The
members of the Compensation Committee are Messrs. Hough (Chairman), May, and
Morrison.
SENIOR EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK
The following list sets forth the name and age of each senior
executive officer of the Bank and all positions held by each such officer in
the Bank (and the period each such position has been held), a brief account of
each such officer's business experience, and certain other information. The
two executive officers of the Company are John W. Sapanski, who serves as
President of the Company and the Bank, and William R. Falzone, who is the
Company's Treasurer and Vice President. Information regarding both of these
individuals is provided in the list of executive officers of the Bank below.
John W. Sapanski (66)--Chairman of the Board, President and Chief Executive
Officer of both the Company and the Bank. Mr. Sapanski has been Chairman of
the Board and Chief Executive Officer of the Bank since June 1993 and of the
Company since November 1995. 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 acted as President and Chief Operating Officer from 1981 to 1987 and
service with Florida Federal Savings Bank in St. Petersburg, Florida ("Florida
Federal"), from 1988 to 1991, where he acted as President and Chief Executive
Officer of Florida Federal from 1988 to 1991. Mr. Sapanski was President and
Chief Executive Officer of Florida Federal at the time the OTS 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 (42)--Director of the Bank, Senior Executive Vice President of
the Bank in charge of Corporate Banking and Special Assets. Mr. Hemmer has
served as Executive Vice President since joining the Bank in 1991. He
previously served as Executive Vice President of Rutenberg Corporation, a real
estate development company based in Clearwater, Florida, from 1980
8
<PAGE> 9
to 1991. Mr. Hemmer is a certified public accountant and served with Arthur
Andersen & Co. from 1976 to 1980. Mr. Hemmer is also a licensed real estate
broker and certified general contractor.
William R. Falzone (49)--Treasurer of the Company, Executive Vice President
and Chief Financial Officer of the Bank. Mr. Falzone joined the Bank in
February 1994. He was employed at Florida Federal Savings Bank 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, St. Petersburg, Florida, a nationwide consulting firm.
He has over 20 years of banking experience and is also a certified public
accountant.
John W. Fischer, Jr. (48)--Executive Vice President of the Bank in charge
of Consumer Banking. Mr. Fischer, who joined the Bank in December, 1993, has
over 20 years of banking experience in retail branch management and consumer
and residential lending. Mr. Fischer formerly served as Regional Marketing
Director for Western Reserve Life in Clearwater, Florida, Regional Vice
President of Great Western Bank in Miami, Florida, and Executive Vice
President/Consumer Financial Services for Florida Federal Savings Bank in St.
Petersburg. Mr. Fischer holds a life, health, annuity and Series 7 securities
license.
Richard Gleitsman (43)--Executive Vice President and Chief Administrative
Officer of the Bank. Mr. Gleitsman joined the Bank in December, 1993, having
previously served as Executive Vice President and Regional Manager of CrossLand
Savings Bank since 1986. He has over 25 years of banking experience in retail
branch management, loan servicing, human resources, data processing, and
executive administration.
Kathleen A. Reinagel (45)--Executive Vice President of the Bank in charge
of Credit and Loan Administration. Ms. Reinagel, who has served in her
present position with the Company since August 1993, 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, St. Petersburg, Florida and Vice
President, Department Manager of Commercial Real Estate of Florida Federal.
Steven McWhorter (35)--Division Director in charge of the Mortgage Banking
Division. Mr. McWhorter joined the Bank in 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.
EXECUTIVE COMPENSATION
Under rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and benefits
provided to the chief executive officers and other executive officers of the
Company and its subsidiary, the Bank, including the four other most highly
compensated executive officers whose annual salaries and bonuses exceeded
$100,000 during 1996 and up to two additional officers whose annual salaries
and bonuses exceeded $100,000.00 during 1996 but who were not executive
officers (collectively, these officers and the chief executive officer are
referred to as the "named executive officers"). The named executive officers
of the
9
<PAGE> 10
Company do not receive compensation other than that paid by the Bank;
accordingly, the only executive compensation information provided concerns the
named executive officers of the Bank. The disclosure requirements for the
named executive officers include the use of tables and other textual
descriptions that together show the total cash and other compensation received
by the named executive officers for the periods indicated. During 1996 there
were ten executive officers whose annual salary and bonuses exceeded
$100,000.00.
[Balance of page intentionally left blank]
10
<PAGE> 11
SUMMARY COMPENSATION TABLE
The table below sets forth certain elements of compensation for the named
executive officers for 1994 through 1996.
<TABLE>
<CAPTION> Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Securities
and Restricted Underlying All Other
Principal Positions Stock Options/ LTIP Compen-
(with the Bank, unless Year Salary Bonus Other Awards(s) SARs (#) Payouts sation
otherwise indicated) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Sapanski 1996 $210,205 $ 66,000(1) $0 $0 6,000 $0 $ 2,391(2)
Chairman, President 1995 $200,500 $ 30,000(1) $0 $0 6,000 $0 $ 2,310(2)
and Chief 1994 $152,400 $ 49,348 $0 $0 6,000 $0 $ 1,882(2)
Executive Officer
Fred Hemmer 1996 $130,300 $ 32,500(1) $0 $0 4,900 $0 $ 2,399(2)
Chief Lending 1995 $125,025 $ 24,810(1) $0 $0 4,900 $0 $ 1,719(2)
Officer and Senior 1994 $115,777 $ 28,184 $0 $0 4,900 $0 $ 1,880(2)
Executive
Vice President in
Charge of Corporate
Banking and Special
Assets
Steve McWhorter (3) 1996 $ 69,231 $ 83,666(1) $0 $0 62,000 $0 $ 1,570(2)
Division Director in 1995 $ - $ - - - - - -
Charge of Mortgage 1994 $ - $ - - - - - -
Banking Division
Richard Gleitsman 1996 $ 91,221 $ 18,795(1) $0 $0 1,800 $0 $ 1,637(2)
Chief Administrative 1995 $ 86,000 $ 14,579(1) - - 1,800 $0 $ 1,249(2)
Officer and 1994 $ 86,718 $ 7,800 - - 1,800 $0 $ 1,418(2)
Executive
Vice President
John Fischer 1996 $ 89,505 $ 18,795(1) $0 $0 1,800 $0 $ 1,611(2)
Executive Vice 1995 $ 86,000 $ 14,579(1) $0 $0 1,800 $0 $ 1,240(2)
President in Charge 1994 $ 83,172 $ 7,800 $0 $0 1,800 $0 $0
of Consumer Banking
Division
Charles Farrell (3) 1996 $ 53,846 $149,719(1) $0 $0 55,000 $0 $0
Region Manager of 1995 $ - $ - - - - - -
Boston Mortgage 1994 $ - $ - - - - - -
Banking Operations
</TABLE>
(1) Bonuses for 1996 and 1995 were paid in January 1997 and 1996, respectively.
(2) Represents 25% matching contributions by the Company pursuant to the
Republic Bank Employee Savings Plan and Trust.
(3) This officer has a written contract with the Bank which provides for the
payment of salaries, bonuses and stock
options upon meeting certain prescribed profit levels in addition to
provisions for the operation of loan production. The contract is
terminable at will.
11
<PAGE> 12
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information about option awards made to the
named executive officers during 1996 under the Company's 1995 Stock Option
Plan.
<TABLE>
<CAPTION>
Potential realizable value at
Individual Grants assumed annual rates of stock
price appreciation for option
term
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/
Underlying SARs Granted
Options/SARs to Employees Exercise or
Granted (#) in Fiscal Year Base Price Expiration
Name (1) ($/Share) Date 5% ($)(3) 10% ($)(3)
<S> <C> <C> <C> <C> <C> <C>
John W. 6,000 2.2% $13.63 04/23/06 $ 51,412 $ 130,288
Sapanski
Fred Hemmer 4,900 1.8% $13.63 04/23/06 $ 41,987 $ 106,402
Steve 62,000(2) 22.9% $13.63 04/23/06 $ 531,259 $ 1,346,314
McWhorter
Richard 1,800 0.7% $13.63 04/23/06 $ 15,424 $ 39,087
Gleitsman
John 1,800 0.7% $13.63 04/23/06 $ 15,424 $ 39,087
Fischer
Charles 55,000(2) 20.3% $13.63 04/23/06 $ 471,278 $ 1,194,311
Farrell
</TABLE>
___________________________________________________________
(1) Twenty percent of the shares of Common Stock covered by options granted in
1996 were exercisable immediately, with an additional twenty percent
becoming exercisable each year for the next four years on the anniversary
date of the grant and full vesting occurring on the fourth anniversary date.
(2) Vest at the rate of 20% at the end of each 12 month period over five years,
contingent upon the mortgage banking division meeting specified net income
performance goals as set by the Board of Directors.
(3) The potential realizable value of grant of options, assuming that the
market price of Common Stock appreciates in value from the date of grant
to the end of the option term at either a 5% (column (f)) or 10% (column
(g)) annualized rate. The ultimate values of the options will depend on
the future market price of the Common Stock, which cannot be forecast with
reasonable accuracy. The actual value, if any, an optionee will realize
upon exercise of an option will depend on the excess of the market value
of the Common Stock over the exercise price on the date the option is
exercised.
12
<PAGE> 13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table shows stock option exercises by the named executive
officers during 1996 of options granted under the Company's 1995 Stock Option
Plan, including the aggregate value of gains on the date of exercise. No
grants to the named executive officers were made in 1996 under the Bank
Non-Qualified Stock Option Plan. In addition, this table includes the number
of shares covered by both exercisable and non-exercisable options as of
December 31, 1996. Also reported are the values for "in-the-money" options,
which represent the positive spread between the exercise price of any such
existing options and the year-end price of the Common Stock.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (1) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
John W. Sapanski 0 $0 26,000 $210,100
10,800 $ 22,350
Fred Hemmer 0 $0 10,880 $ 52,898
8,820 $ 18,253
Steve McWhorter 0 $0 0 $ 0
62,000 $ 93,000
Richard Gleitsman 0 $0 1,440 $ 3,015
3,240 $ 6,705
John Fischer 0 $0 2,160 $ 6,345
3,240 $ 6,705
Charles Farrell 0 $0 0 $ 0
55,000 $ 82,500
</TABLE>
____________________________________________________________________
(1) Market value of underlying Common Stock at exercise date, minus the
exercise price.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of the Bank is
composed entirely of outside directors who are not, and have never been,
officers or employees of the Bank. The Board of Directors designates the
members and Chairman of such committee.
13
<PAGE> 14
COMPENSATION POLICY. The policies that govern the committee's executive
compensation decisions are designed to align changes in total compensation with
changes in the value created for our stockholders. The committee believes that
compensation of executive officers and others should be directly linked to the
Bank's operating performance and that achievement of performance objectives
over time is the primary determinant of share price. Annually, the Board of
Directors approves an operating plan for the coming year which sets forth
specific financial objectives for the Bank. Throughout the year, management
reports to the Board on its progress toward meeting those objectives and the
Committee evaluates management's success in achieving the Bank's overall goals
when making its compensation decisions. In 1994, the Board of Directors
approved the establishment of a Corporate Incentive Program, under which an
executive officer's salaries and incentive compensation are determined based on
the extent to which both corporate goals and individually measurable objectives
for each employee are met. This program reflects a pay-for-performance
relationship where a portion of total compensation is at risk.
The underlying objectives of the Committee's compensation strategy are to
establish incentives for certain executives and others to achieve and maintain
the optimum short-term and long-term operating performance for the Bank, to
link executive and stockholder interests through equity-based (i.e., stock
option) plans, and to provide a compensation package that recognizes individual
contributions as well as overall business results.
SALARIES. The Compensation Committee reviews the Bank's operating results
for the fiscal year, the operating plan for the coming year, and unusual
individual accomplishments during the year and also considers economic
conditions and other external events that affect the operations of the Bank.
Based on this examination, salary guidelines are promulgated for the coming
year within the salary structure of the Bank. Specifically excluded from
consideration in formulating the guidelines were costs associated with
additional branches or new business units formed during 1996. In 1996, the
salary guideline provided for an overall 4% increase over the prior year for
all employees.
The base salary of senior officers is initially determined by evaluating
the responsibilities of the position against the competitive market place. The
salary structure for executive officers is included in the general salary
structure for the Bank. Salary ranges for executive officers are determined
with reference to a third-party survey of Florida financial institutions with
similar asset size. Salary ranges for other employees are determined by
evaluating the employee's level of supervisory authority and technical
expertise, among other things, and comparing the employee's function to a
survey of similar functions at other financial institutions. The Committee
believes that the Bank's salary range for its employees is below that of most
comparable sized financial institutions listed on the survey.
DEDUCTION LIMIT. At this time, because of its compensation levels, the
Company does not appear to be at risk of losing deductions under the recently
enacted Section 162(m) of the Internal Revenue Code, which generally
establishes, with certain exceptions, a $1 million deduction limit on executive
compensation for all publicly held companies. As a result, the Company has not
established a formal policy regarding such limit, but will evaluate the
necessity for developing such a policy in the future.
STOCK OPTIONS. Executive officers and other persons designated by the
Compensation Committee also are eligible to participate in the Bank's Stock
Option Plan. The Stock Option Plan is intended to assist
14
<PAGE> 15
the Bank in securing and retaining such employees by allowing them to
participate in the ownership and growth of the Bank through the granting of
stock options and SARs. The granting of options and SARs gives such employees
an additional inducement to work for the Bank's success. The Compensation
Committee determines the number of option grants made to various employees by
evaluating their relative degree of influence over the operations of the Bank
and the Bank's results of operations. There is no specific formula that the
Committee uses in determining the officers who will be granted options or the
timing and amounts of the options that are granted.
SUMMARY OF CEO COMPENSATION. The Compensation Committee reviews and
evaluates the performance of the Chief Executive Officer and submits
adjustments for approval by the whole committee and for approval by the Board
of Directors with any Bank officers serving as directors absent from such
deliberations. In determining the compensation paid to the CEO for 1996, the
Compensation Committee appraised the overall business strategy and management
initiatives to maximize returns to stockholders. In addition, the committee
considered a peer group analysis of comparable-sized financial institutions
located in comparable markets from across the nation as well as a survey of
local financial institutions. The committee noted that the Chief Executive
Officer's compensation continues to be within the lower percentile of
institutions surveyed. The committee considered the Bank's overall financial
performance, particularly in the context of the competitive and economic
conditions within which the Bank operated, in determining the salary increase.
Based upon the Bank's performance and the results of the peer group comparison,
the committee recommended that the base salary of the Chief Executive Officer
be increased, bringing Mr. Sapanski's total salary for 1996 to $210,205 from
$200,500.00 in 1995. This salary increase over Mr. Sapanski's salary for 1995
was generally consistent with salary increases for CEOs of similarly sized
financial institutions. Also, based on a comparison of 1996's operating
results to the operating plan, the Board approved an incentive award of $66,000
for the CEO.
SUMMARY
In summary, the Bank's overall executive compensation program is designed
to reward managers for good individual, Bank and share value performance. The
Compensation Committee intends to monitor the various guidelines that make up
the program and reserves the right to adjust them as necessary to continue to
meet Bank and stockholder objectives.
/s/ WILLIAM R. HOUGH /s/WILLIAM J. MORRISON /s/ALFRED T. MAY
[Balance of page intentionally left blank]
15
<PAGE> 16
PERFORMANCE GRAPH
The following graph compares the monthly, cumulative total return on the
Common Stock from 1993 through 1996, with that of the Nasdaq stock index, an
average of all over-the-counter stocks, and the Carson Medlin Company's
Independent Bank Index, an average of 18 community banks in the southeastern
states of the United States based upon stock price and the amount of dividends
received over the indicated period, assuming the reinvestment of dividends.
The data was provided by the Carson Medlin Company.
<TABLE>
<CAPTION>
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REPUBLIC BANKSHARES, INC. 100 119 154 164
INDEPENDENT BANK INDEX 100 121 164 192
NASDAQ INDEX 100 98 138 170
</TABLE>
16
<PAGE> 17
CERTAIN TRANSACTIONS
Certain directors and executive officers of the Company and the 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 with the Bank 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.
For additional information about the Company and the Bank's transactions
with companies that are affiliates of William R. Hough, a director of the
Company who is a member of the Bank's Compensation Committee, see "Compensation
Committee Interlocks and Insider Participation" below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William R. Hough, a director and one of two controlling stockholders, 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 & Co. 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
Bank. The Bank 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 Bank will be paid 50% of
the net profits earned from sales of investment products on the Bank's
premises.
17
<PAGE> 18
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors, has appointed Arthur Andersen, LLP, independent
certified public accountants, as independent accountants for the Company and
the Bank for the fiscal year ending December 31, 1997, subject to ratification
by the stockholders. Arthur Andersen, LLP, has served as independent
accountants for the Bank since 1980 and for the Company since 1996. Arthur
Andersen, LLP, has advised the Company that neither the firm nor any of its
partners has any direct or material interest in the Company except as auditors
and independent certified public accountants of the Company.
A representative of Arthur Andersen, LLP, is expected to attend the 1997
Annual Meeting and will be given the opportunity to make a statement on behalf
of the firm if he desires to do so. A representative of Arthur Andersen, LLP,
also is expected to be available to respond to appropriate questions from
stockholders.
The affirmative vote of the holders of a majority of the shares of stock
represented at the 1997 Annual Meeting, at which a quorum is present, is
required to ratify the appointment of Arthur Andersen, LLP, as independent
public accountants.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF ARTHUR ANDERSEN, LLP, AS INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE COMPANY AND THE BANK FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
[Balance of page intentionally left blank]
18
<PAGE> 19
PRINCIPAL STOCKHOLDERS
The following table lists, as of December 31, 1996 each holder of record of
the Common or Preferred Stock who had filed a copy of a report indicating that
he/she is or may be deemed to be a beneficial owner of more than 5% of the
outstanding shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
------------------- ------------- --------
<S> <C> <C>
William R. Hough 2,318,106(2)(3)(4) 43.2%
William R. Hough & Co.
100 Second Avenue South
Suite 800
St. Petersburg, Florida 33701
John W. Sapanski 498,292(4) 9.3%
Republic Bank
111 Second Avenue N.E.
St. Petersburg, Florida 33701
Donald Burton 253,370(5) 4.7%
The Burton Partnership, Limited
P.O. Box 4643
Jackson, Wyoming 83001
</TABLE>
_________________________________________________________
(1) Information relating to beneficial ownership of the Common Stock by the
individuals listed above is based upon information furnished by each
person using "beneficial ownership" concepts set forth in rules of the
Securities and Exchange Commission under Section 13 of the Securities
Exchange Act. Under such rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power", which
includes the power to vote or to direct the voting of such security, or
"investment power", which includes the power to dispose or to direct the
disposition of such security. The person is also deemed to be a
beneficial owner of any security of which that person has a right to
acquire beneficial ownership within 60 days. Under such rules, more than
one person may be deemed to be a beneficial owner of the same securities,
and a person may be deemed to be a beneficial owner of securities as to
which he or she may disclaim any beneficial interest. Also considered was
an aggregate of 336,000 shares that could have been acquired upon
conversion of the Company's Subordinated Debt issue. Unless otherwise
indicated, each person possessed sole voting and investment power with
respect to the shares of the Common Stock listed.
(2) Includes 600,000 shares that could have been acquired upon conversion of
the Preferred Stock, 11,200 shares that could have been acquired upon the
conversion of the Company's Subordinated Debt issue and 1,250 shares that
may be acquired by exercise of options exercisable within 60 days.
19
<PAGE> 20
(3) This beneficial ownership does not include shares of the Common Stock,
150,000 shares of which could have been acquired within 60 days upon
conversion of the Preferred Stock, owned by the adult children of Mr.
Hough, whose holdings are not deemed to be beneficially owned by Mr. Hough
under the applicable SEC regulatory definition.
(4) Includes an aggregate of 26,000 shares that may be acquired upon
exercising of options exercisable within 60 days and 28,000 shares that
could have been acquired upon the conversion of the Company's Subordinated
Debt issue.
(5) At the time Mr. Burton increased his ownership of Common Stock, such
ownership exceeded 5% of the class. However, upon issuance of the
Company's Subordinated Debt and after taking into consideration the Common
Stock that would be issued if converted, the percentage falls below the 5%
reporting threshold.
{Balance of page intentionally left blank}
20
<PAGE> 21
SECURITY OWNERSHIP OF MANAGEMENT
The following table lists, as of December 31, 1997, the amount and
percentage of Common Stock held by each individual director of the Company
(including shares of Common Stock that could be acquired upon conversion of
Preferred Stock and Subordinated Debt) as well as the amount and percentage
held by the named executive officers of the Bank, and the directors and
executive officers of the Bank as a group.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
---------------- ----------------------- --------
<S> <C> <C>
Fred Hemmer 16,305 (2) (3)
Charles Farrell 0 n/a
John Fischer 6,320 (3)
Richard Gleitsman 2,440 (3)
William R. Hough 2,318,106 (4) 43.2%
Marla Hough 3,000 (6) (3)
Alfred T. May 37,600 (5) (3)
Steve McWhorter 0 n/a
William J. Morrison 105,950 (7) 2.0%
John W. Sapanski 498,292 (8) 9.3%
for director, and principal 2,992,973 (9) 55.8%
officers as a group (11 persons)
</TABLE>
________________________________________
(1) Information relating to beneficial ownership of Common Stock by
management is based upon information furnished by each person using
"beneficial ownership" concepts set forth in rules of the Securities and
Exchange Commission under Section 13 of the Securities Exchange Act.
Under such rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power", which includes the
power to vote or to direct the voting of such security, or "investment
power", which includes the power to dispose or to direct the disposition
of such security. The person is also deemed to be a beneficial owner of
any security of which that person has a right to acquire beneficial
ownership within 60 days. Under such rules, more than one person may be
deemed to be a beneficial owner of the same securities, and a person may
be deemed to be a beneficial owner of securities as to which he or she
may disclaim any beneficial interest. Unless otherwise indicated, each
person possessed sole voting and investment power with respect to the
shares of Common Stock listed.
(2) Includes 10,800 shares that may be acquired by exercise of options
exercisable within 60 days and 1,600 shares held in Mr. Hemmer's
individual retirement account.
(3) The Common Stock beneficially owned constitutes less than 1.0% of the
shares outstanding as of December 31, 1997.
(4) Includes 600,000 shares that could have been acquired upon conversion of
the Company Preferred Stock and 11,200 shares that could have been
acquired upon the conversion of the Company's Subordinated Debt issue.
(5) Includes 5,000 shares that may be acquired by exercise of options
exercisable within 60 days and 5,600 shares that could have been
acquired upon the conversion of the Company's Subordinated Debt issue.
(6) Includes 2,500 shares that may be acquired by exercise of options
exercisable within 60 days.
21
<PAGE> 22
(7) Includes 67,500 shares held in a trust for which trust Mr. Morrison
serves as trustee, 11,000 shares held by a partnership for which Mr.
Morrison serves as a general partner, 3,750 shares that may be acquired
by exercise of options exercisable within 60 days and 22,400 shares that
could have been acquired upon the conversion of the Company's
Subordinated Debt issue.
(8) Includes 26,000 shares that may be acquired by exercise of options
exercisable within 60 days and 28,000 shares that may be acquired upon
the conversion of the Company's Subordinated Debt issue.
(9) Includes an aggregate of 56,940 shares that may be acquired by exercise
of options exercisable within 60 days.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act generally requires the
Company's officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
beneficial ownership and changes in beneficial ownership with the SEC. Based
solely upon its review of the copies of such Form 3s, 4s and 5s and other
reports received by it, or upon written representations obtained from certain
reporting persons, the Company believes that during 1997 all Section 16(a)
filing requirements applicable to its officers, directors, and
greater-than-ten-percent stockholders were complied with.
STOCKHOLDERS' PROPOSALS FOR 1998 ANNUAL MEETING
Proposals from Company stockholders intended to be presented at the 1998
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices on or before December 31, 1997, in order to be included in
the Company's Proxy Statement and form of Proxy relating to the 1998 Annual
Meeting of Stockholders.
OTHER INFORMATION
PROXY SOLICITATION
The cost of soliciting Proxies for the 1997 Annual Meeting will be paid
by the Company. In addition to the solicitation of stockholders of record by
mail, telephone, or personal contact, the Company will be contacting brokers,
dealers, banks, or voting trustees or their nominees, who can be identified as
record holders of the Company stock. Such holders, after inquiry by the
Company, will provide information concerning quantities of proxy materials and
Annual Reports needed to supply such materials to the beneficial owners, and
the Company will reimburse them for the expense of mailing proxy materials and
1996 Annual Reports to such persons.
MISCELLANEOUS
The management of the Company knows of no other matters that are to be
brought before the 1997 Annual Meeting. If any other matters come properly
before the 1997 Annual Meeting, the persons designated as Proxies will vote on
such matters in accordance with their best judgment.
22
<PAGE> 23
REVOCABLE PROXY
REPUBLIC BANCSHARES, INC.
___________________________________________
PROXY SOLICITED BY AND ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON APRIL 23, 1997
The Undersigned hereby appoints William R. Hough and William J. Morrison, or
either of them, with individual power of substitution, proxies to vote all
shares of the Common or Series A Preferred Stock of Republic Bancshares, Inc. (
the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders to be held at The Heritage Hotel, 234 Third Avenue North, St.
Petersburg, Florida, on April 22, 1997, at 9:00 a.m., local time, or any
adjournment thereof.
SAID PROXIES WILL VOTE ON THE PROPOSALS SET FORTH IN THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT AS SPECIFIED ON THIS CARD AND ARE AUTHORIZED TO
VOTE IN THEIR DISCRETION AS TO ANY OTHER BUSINESS WHICH MAY COME PROPERLY
BEFORE THE MEETING. IF A VOTE IS NOT SPECIFIED, SAID PROXIES WILL VOTE FOR
PROPOSALS I and II.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
23
<PAGE> 24
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' PROPOSALS I AND II
I. Election of Directors: Authority for the election of six directors to
serve until the 1998 Annual Meeting of Stockholders: Fred Hemmer; Marla
Hough; William R. Hough; Alfred T. May; William J. Morrison; and John W.
Sapanski.
FOR AGAINST ABSTAIN
INSTRUCTION: To withhold authority to vote for any individual
nominee(s), list name(s) below:
______________________________________________________________________________
WITHHELD
II. Ratifying the appointment of Arthur Andersen, LLP, as independent
accountants for the Company and Bank for the fiscal year ending December
31, 1997.
FOR AGAINST ABSTAIN
Please sign exactly as name appears hereon. When shares are held by joint
tenants, 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: ____________________
_______________________________________
Signature
_______________________________________
Signature if held jointly
(PLEASE MARK, SIGN ABOVE, DATE, AND RETURN THIS PROXY PROMPTLY IN THE
ENVELOPE FURNISHED)
24
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 27,810
<INT-BEARING-DEPOSITS> 118
<FED-FUNDS-SOLD> 8,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,401
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 742,994
<ALLOWANCE> 13,134
<TOTAL-ASSETS> 907,868
<DEPOSITS> 827,980
<SHORT-TERM> 15,372
<LIABILITIES-OTHER> 4,197
<LONG-TERM> 6,000
0
1,500
<COMMON> 8,367
<OTHER-SE> 44,452
<TOTAL-LIABILITIES-AND-EQUITY> 907,868
<INTEREST-LOAN> 62,244
<INTEREST-INVEST> 4,703
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 66,947
<INTEREST-DEPOSIT> 32,426
<INTEREST-EXPENSE> 32,926
<INTEREST-INCOME-NET> 34,021
<LOAN-LOSSES> 1,800
<SECURITIES-GAINS> 370
<EXPENSE-OTHER> 22,858
<INCOME-PRETAX> 6,016
<INCOME-PRE-EXTRAORDINARY> 6,016
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,784
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<YIELD-ACTUAL> 8.46
<LOANS-NON> 15,169
<LOANS-PAST> 113
<LOANS-TROUBLED> 2,516
<LOANS-PROBLEM> 2,629
<ALLOWANCE-OPEN> 14,910
<CHARGE-OFFS> 2,110
<RECOVERIES> 266
<ALLOWANCE-CLOSE> 13,134
<ALLOWANCE-DOMESTIC> 13,134
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,134
</TABLE>
